Modi 3.0 Budget 2024-25: Here’s How Ms Sitharaman’s Proposals Impact Your Personal Finance

As a part of employment and skilling, the government has introduced various schemes which entails direct benefit transfer of one-month salary in three instalments to first-time employees in formal sector, incentivising additional employment in the manufacturing sector, an employer-focused scheme which will reimburse to employers up to Rs 3,000 per month for 2 years towards their EPFO contribution for each additional employee, and facilitation of higher participation of women in workforce by setting up working women hostels.

The government also plans to skill 20 lakh youth over a 5-year period. It also proposes to provide financial assistance for education loans of up to Rs 10 lakh for higher education in domestic institutions.

Additionally, the budget announced schemes focusing on the upliftment of the rural and farm segment, which is crucial for the overall growth of the economy.

These measures can potentially improve the quality of employment and boost consumption growth, and in turn this can potentially spin the wheels of the economy.

Ms Sitharaman also announced several amendments related to personal finance and income tax. Here is the brief summary of the personal finance changes announced in the Union Budget 2024-25:

1. The government has introduced new tax rate structure for individuals opting for the new tax regime:

Evidently, the new tax rates will be beneficial to certain individuals, such as those having an income of Rs 7 lakh and Rs 9 lakh as they will now fall under lower tax bracket. No changes were announced in the old tax regime as the government wants to incentivise the new tax regime.

2. For individuals opting for the new tax regime, the standard deduction is proposed to be increased to Rs 75,000 from Rs 50,000 at present. Similarly, deduction on family pension for pensioners is proposed to be enhanced from Rs 15,000 to Rs 25,000.

3. The union budget has also introduced major changes in the taxation of capital gains:

a) Short-term capital gains (STCG) on certain financial assets (including equities, equity mutual funds, etc.) will be taxed at the rate of 20% from 15% earlier. This may deter those investing in equities with a short-term view. Other financial assets and non-financial assets will continue to attract STCG as per investor's tax slab.

b) Long-term capital gains on all financial and non-financial assets will be taxed at 12.5%. Gains on equity investment will be taxed only if they exceed Rs 1.25 lakh in a financial year. Earlier LTCG on equity investment was taxed at 10% if the gains exceeded Rs 1 lakh, while non-equity gains were taxed at 20%.

c) Listed financial assets held for more than a year will be classified as long term, while unlisted financial assets and all non-financial assets (such as land, building, motor vehicle, etc.) will have to be held for at least two years to be classified as long-term. The indexation available for calculation of any long-term capital gains which is presently available for property, gold and other unlisted assets is now proposed to be removed.

d) Unlisted bonds and debentures, debt mutual funds, and market linked debentures, irrespective of holding period, however, will attract tax on capital gains at applicable rates.

These provisions will be effective immediately (i.e. from July 23, 2024).

4. The government will introduce a National Pension Scheme (NPS) for minors viz. NPS - Vatsalya, in which the parents/guardians can open an account in the name of a minor. On attaining the age of majority, the plan can be converted into a normal NPS account.

5. The government has proposed increasing the contribution limit by employers towards NPS to 14% from 10% of the employee's salary so as to improve social security benefits. This will be applicable to employees in private sector, public sector banks and undertakings, opting for the new tax regime.  Government employees already enjoy a deduction of 14% of their basic salary plus dearness allowance, if any.

6. With a view to deepening the tax base and to protect the interest of retail investors investing in derivatives market lured by the misleading claims of quick profits, the government has proposed increasing the securities transaction tax (STT) on futures and options to 0.02% and 0.1%, respectively.

7. Income received on buyback of shares will now be taxed at the hands of the recipient. At present, the company undertaking the buyback are required to pay buyback tax. This proposal aims to ensure uniformity as the government had earlier shifted the burden of tax on dividend from the companies to the receiver based on their tax slab.

8. The budget has proposed depenalising non-reporting of foreign movable assets, such as ESOPs and social security schemes, up to Rs 20 lakh.

9. Ms Sitharaman's has proposed withdrawing 20% TDS on repurchase of units of mutual funds and Unit Trust of India (UTI). This will be effective from October 01, 2024.

10. The government has also proposed that ITR assessment can be reopened beyond three years from the end of the assessment year only if the escaped (undisclosed) income is Rs 50 lakh or more, up to a maximum period of five years from the end of the assessment year. Even in search cases, a time limit of six years before the year of search, as against the existing time limit of ten years, is proposed.

11. To bolster the start-up ecosystem, and to support innovation and entrepreneurial spirit, the government has proposed abolishing 'Angel tax'. Angel tax is levied on the capital raised via the issue of shares by unlisted companies from an Indian investor if the share price of issued shares is in excess of the fair market value of the company.

In view of the above changes, individuals must carefully assess their financial transactions, including investment and redemptions as it can impact their tax liability. Individuals should also compare the taxation under the new and old tax regime and choose the most suitable option.

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DIVYA GROVER is the co-editor for FundSelect, the flagship research service of PersonalFN. She is also the co-editor of DebtSelect. Divya is an avid reader which helps her in analysing industry trends and producing insightful articles for PersonalFN’s popular newsletter – Daily Wealth letter, read by over 1.5 lakh subscribers.
Divya joined PersonalFN in 2019 and has since then used stringent quantitative and qualitative parameters to analyse funds to provide honest and unbiased research to investors. She endeavours to enable investors to make an informed investment decision and thereby safeguard their wealth.

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This article is for information purposes only and is not meant to influence your investment decisions. It should not be treated as a mutual fund recommendation or advice to make an investment decision in the above-mentioned schemes.