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Indian Union Budget Highlights: Direct Taxes

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Highlights:

₹ 25K and ₹ 10K increase in standard deduction and family pension deductions in the new regime, respectively.

Indian Union Budget's direct tax reforms, including simplified tax regimes, enhanced deductions, revised capital gains taxation, and new tax structures aimed at reducing disputes and providing relief to taxpayers.

The Indian Union Budget has proposed significant reforms in the direct tax regime, aiming to simplify tax compliance, reduce disputes, and provide relief to taxpayers. These measures are designed to enhance the efficiency of the tax system and offer substantial benefits to both individuals and corporations.

A Shift Towards the New Regime

The budget reveals that 58% of corporate tax revenue is now derived from the new tax regime, indicating a strong shift towards the simplified structure. Two-thirds of personal income tax revenue now comes from the new personal tax regime. This shift reflects the regime's popularity among taxpayers due to its straightforward structure and lower tax rates. As such, more enhancements have been proposed to the new tax regime (which is also the default tax regime):

  • Standard Deduction and Family Pension: The standard deduction under the new tax regime is proposed to increase from ₹ 50,000 to ₹ 75,000, providing more relief to salaried individuals. Additionally, the deduction on family pensions will be enhanced from ₹ 15,000 to ₹ 25,000, offering greater support to pensioners.These changes are expected to benefit 4 crore salaried individuals and pensioners.

  • New Tax Structure: The budget proposes a revised tax structure for individual taxpayers:

  • Income up to ₹ 3 lakh: Nil

  • Income from ₹ 3 lakh to ₹ 7 lakh: 5%

  • Income from ₹ 7 lakh to ₹ 10 lakh: 10%

  • Income from ₹ 10 lakh to ₹ 12 lakh: 15%

  • Income from ₹ 12 lakh to ₹ 15 lakh: 20%

  • Income above ₹ 15 lakh: 30%

Salaried employees can potentially save up to ₹17,500 under the new structure.

Comprehensive Review of the IT Act 1961

As further relief to the middle-class and salaried class, a comprehensive review of the Income Tax Act of 1961 is proposed to reduce disputes and simplify the tax code. This review aims to modernise the tax system, making it more transparent and easier to navigate for taxpayers. 

Capital Gains

New short-term capital gains (STCG) tax proposed at 20% and long-term capital gains (LTCG) at 12.5%. The annual limit for tax-exempt LTCG will be increased to ₹1.25 lakh. The holding period for long-term capital assets will be defined as one year and two years for different asset classes, including unlisted shares, debt funds, and bonds, which will be taxed at applicable rates.

Disclaimer: Investments in the securities market are subject to market risk, read all related documents carefully before investing.

This content is for educational purposes only. Securities quoted are exemplary and not recommendatory.

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