Impact of Budget 2024-2025 on Common Man

The recently presented Union Budget of India for 2024-2025 has introduced several changes that impact the common man. Here are the top five points highlighting these changes and their implications:

1. New Tax Regime

Change:

The new tax regime has revised the tax slabs and increased the standard deduction. The standard deduction has been raised from ₹50,000 to ₹75,000. Additionally, the basic exemption limit has been elevated from ₹2.5 lakhs to ₹3 lakhs.

Action:

Ensure that the increased standard deduction is factored into your tax planning.

Benefit:

This provides additional relief to salaried employees by reducing taxable income and increasing take-home pay. The realignment of tax slabs offers potential tax savings for many salaried employees, particularly those with lower to middle incomes.

Review and Opt for the Most Beneficial Tax Regime:

Compare the old and new tax regimes to determine which offers the most tax savings based on your income and deductions. This will ensure better financial planning, optimized tax savings, and enhanced retirement benefits. Additionally, taxpayers need not maintain a track record of travel tickets and rent receipts. The income tax rule changes from April 1, 2024, aim to simplify tax planning, making it less complex.

Change in the Rebate Limit:

The introduction of the new tax regime has increased the rebate limit. Under the old tax regime, the applicable rebate limit is `12,500 for incomes up to `5 lakhs. However, under the new tax regime, this rebate limit has increased to `25,000 if the taxable income is less than or equal to `7 lakhs. Section 87A rebate is applicable under both income tax regimes. The budget increased the taxable limit to `7 lakhs from `5 lakhs under the new tax regime.

Benefit:

Taxpayers earning up to `3 lakhs will pay NIL tax. These changes are set to provide individual taxpayers with an annual tax saving of up to `17,500.

2. National Pension System (NPS)

Change:

The employer's contribution to the NPS has increased from 10% to 14% of the employee's salary. Additionally, the deduction of expenditure by employers towards NPS has also increased from 10% to 14% of the employee's salary.

Implications:

This encourages more significant employer contributions to NPS, resulting in a higher accumulation of retirement funds for employees. The change enhances retirement savings for employees, making the NPS a more attractive retirement planning tool.

Benefits:

Enhanced retirement savings and additional tax benefits under Section 80CCD(1B). This move makes the new tax regime more lucrative.

“NPS Vatsalya”: A new pension scheme introduced for the first time in the Budget. Designed to help parents and guardians kickstart their child's retirement savings journey. On attaining the age of 18, the plan can be converted seamlessly into a normal NPS account. A good attempt for early retirement saving but for a child, how people react, is to be thought of!

3. Gold Impact

Change:

The short-term capital gains (STCG) and long-term capital gains (LTCG) on gold have seen significant changes. The holding period for STCG has been reduced from 36 months to 24 months. The LTCG tax rate has been reduced from 20% to 12.5%. Additionally, the duty on gold has been cut from 15% to 6%.

Benefit:

24 carat gold will become cheaper by ₹2,800, which will be passed on to customers by manufacturers. This price reduction is expected to boost gold demand in the country and reduce the smuggling of gold through illegal routes, contributing substantially to the exchequer and facilitating India's growth.

4. Capital Gains Changes

Listed Equity and Equity ETFs:

The long-term capital gains (LTCG) tax on listed equity and equity ETFs has been increased from 10% to 12.5%, while the short-term capital gains (STCG) tax has been increased from 15% to 20%.

Benefit:

For other ETFs with more than 35% but less than 65% investment in domestic equity, such as Gold ETFs and Nasdaq ETFs, the LTCG tax has been reduced from 20% to 12.5%. The holding period for these ETFs has also been reduced from 36 months to 24 months.

Implications:

Investors should reassess their investment strategy, focusing more on long-term holdings to minimize the impact of higher STCG rates. The exemption limit for LTCG has been increased from ₹1 lakh to ₹1.25 lakh, encouraging long-term investment and aligning with wealth-building strategies.

5. Indexation Benefit Removal

Change:

The indexation benefit has been withdrawn, impacting long-term investments in real estate and other assets.

Implications:

This change will increase the tax payable on real estate held for a long time, discouraging long-term buying and selling for investment purposes. The government has reverted to the global model by removing the indexation benefit, which is not seen in many other countries.

Action:

Buy residential property for self-use to mitigate the impact of this change. Without the indexation benefit, it's crucial to reassess your investment strategy and plan for increased tax liabilities on long-term real estate investments.

Taresh Bhatia is a CERTIFIED FINANCIAL PLANNER and the founder of Richness Academy. With years of experience in financial planning and coaching, Taresh specializes in guiding individuals and families towards achieving financial freedom and a rich, fulfilling life.

Disclaimer

The information provided in this article is for general informational purposes only and is not intended to constitute legal, tax, accounting, or financial advice. Readers are encouraged to consult with their own financial advisor or tax professional before making any decisions based on the information provided. While every effort has been made to ensure the accuracy and completeness of the information contained in this article, Taresh Bhatia CFP, and any associated parties, make no guarantees regarding the reliability, accuracy, or completeness of the information and disclaim any liability for any errors or omissions. The impact of the Union Budget 2024-2025 may vary based on individual circumstances, and professional advice should be sought to address specific financial situations.