Tax Analysis on Budget: Powerful Guidelines & Tips for FY 2024-25

Tax Analysis on Budget for T25-26 (and Beyond!)

Intro to Income Tax Analysis for FY 2024-25

Hey there! The fiscal year 2024-25 has arrived, bringing some fresh updates to the Income Tax Act of 1961. These changes stem from the Union Budget of 2024. This document shines a light on those updates. We’ll dig into the new regime, exemptions, & deductions in detail—let’s go!

New Tax Regime – Your Best Option

Now, let’s look at the new tax slabs & rates for individuals, HUFs, AOPs, & BOIs. The new tax regime under Section 115BAC is now the default choice unless you stick with the old system. Here are the updated tax rates:

* Up to Rs. 3,00,000: 0%

* Rs. 3,00,001 to Rs. 7,00,000: 5%

* Rs. 7,00,001 to Rs. 10,00,000: 10%

* Rs. 10,00,001 to Rs. 12,00,000: 15%

* Rs. 12,00,001 to Rs. 15,00,000: 20%

* Over Rs. 15,00,000: 30%

Is Filing a Nil ITR Mandatory? Why should you file a Nil Return?

Exempted Income Includes:

1. PPF Interest & Payments (Section 10(11))

2. Sukanya Samriddhi Yojana Interest & Payments (Section 10(11A))

3. Life Insurance Policy Proceeds (Section 10(10D)): Up to Rs. 5,00,000 annual premium for policies issued after April 1st, 2023

4. NPS Withdrawals (Section 10(12A)/(12B))

5. Gratuity and other compensation types like Commutation of Pension or Voluntary Retirement Payments.

6. Non-Monetary Perquisites from Employer (Section 10(10CC))

And there are more recognized provident fund withdrawals and superannuation payments!

Deductions You Can Claim in the New Tax Regime:

• Standard Deduction (Section 16(ia)): Up to Rs. 75,000

• Family Pension (Section 57(iia)): Lower of Rs. 25,000 or one-third of the pension

• Employer Contribution to NPS (Section 80CCD(2)): Government employees can get up to 14% of the salary

• Agniveer Corpus Fund (Section 80CCH): Get back all amount deposited

• Biodegradable Waste Processing (Section 80JJA): Full amount for first five years

• International Financial Services Center (Section 80LA(1A)): Full amount for any ten consecutive years out of fifteen

Here’s a neat rebate too!

• Rebate (Section 87A): Up to Rs. 25,000 if income is up to Rs. 7,00,000

Which Deductions Are Not Allowed in This New Tax Regime?

Sad news here! No more rent allowance or special allowances! You can’t deduct these items anymore:

• Leave Travel Concession (Section 10(5))

• House Rent Allowance (Section 10(13A))

• Special Allowances (Section 10(14))

• Minor Child’s Income Exemption (Section10(32))• Entertainment Allowance & some others

That’s not all; also know there are rules about switching back from this regime.

ITR Filing 2024 Deadline: Will There Be an Extension Past July 31?

From FY 2023-24, this new tax regime u/s 115BAC is default now! If you want to switch back:

1. For non-business income folks: There’s an option each year with your return.

2. For business income people: You can opt out before filing your return—but you can only do it once.

Old Tax Regime – A Choice You Can Make

Tax Rates for Different Categories include:

Tax Rates for Different Categories

• General Category and Women
  • Up to Rs. 2,50,000: 0%
  • Rs. 2,50,001 to Rs. 5,00,000: 5%
  • Rs. 5,00,001 to Rs. 10,00,000: 20%
  • Above Rs. 10,00,000: 30%

• Senior Citizens (60 years and above)
  • Up to Rs. 3,00,000: 0%
  • Rs. 3,00,001 to Rs. 5,00,000: 5%
  • Rs. 5,00,001 to Rs. 10,00,000: 20%
  • Above Rs. 10,00,000: 30%

• Very Senior Citizens (80 years and above)
  • Up to Rs. 5,00,000: 0%
  • Rs. 5,00,001 to Rs. 10,00,000: 20%
  • Above Rs. 10,00,000: 30%

Selected Deductions and Benefits

• Standard Deduction for Salaried Employees (Section 16(ia)): Up to Rs. 50,000
• Interest on Housing Loan for Self-Occupied Property (Section 24(b)): Up to Rs. 2,00,000
• Investments under Section 80C: Up to Rs. 1,50,000 for life insurance, PF, PPF, NSC, ULIP, tuition fees, home loan principal repayment, notified bonds, etc.
• Mediclaim Insurance (Section 80D): Up to Rs. 50,000 for senior citizens, Rs. 25,000 for others
• Interest on Education Loan (Section 80E): Entire interest paid during the year for up to 8 years
• Additional Interest on Home Loan (Section 80EEA): Up to Rs. 1,50,000 for first residential house property
• Interest on Loan for Purchase of Electric Vehicle (Section 80EEB): Up to Rs. 1,50,000
• Rent Paid (Section 80GG): Lower of Rs. 5,000 per month, 25% of total income, or rent paid minus 10% of total income
• Interest from Savings Account (Section 80TTA): Up to Rs. 10,000
• Interest from Deposits for Senior Citizens (Section 80TTB): Up to Rs. 50,000 without TDS liability
• Rebate (Section 87A): Up to Rs. 12,500 for income up to Rs. 5,00,000

Surcharge and Cess

New Tax Regime Surcharge

• Income up to Rs. 50 Lakhs: Nil
• Income Rs. 50 Lakhs to Rs. 1 Crore: 10%
• Income Rs. 1 Crore to Rs. 2 Crores: 15%
• Income above Rs. 2 Crores: 15% (or 25%/37% based on specific incomes)

Old Tax Regime Surcharge

• Income up to Rs. 50 Lakhs: Nil
• Income Rs. 50 Lakhs to Rs. 1 Crore: 10%
• Income Rs. 1 Crore to Rs. 2 Crores: 15%
• Income Rs. 2 Crores to Rs. 5 Crores: 25%
• Income above Rs. 5 Crores: 37%

Health & Education Cess

• Cess: 4% of Income Tax and Surcharge

Calculating Total Tax Payable

To calculate the total tax payable, sum the tax as per the chosen regime, the applicable surcharge, and the health and education cess.

Formula: TOTAL TAX PAYABLE = TAX + SURCHARGE + HEALTH & EDUCATION CESS

Business and Professional Income

Presumptive Taxation for Small Businesses (Section 44AD)

• Turnover up to Rs. 200 Lakhs (or Rs. 300 Lakhs if cash receipts are up to 5%)
• Deemed Profit:
  • 6% of gross receipts for electronic transactions
  • 8% for other transactions

Presumptive Taxation for Professionals (Section 44ADA)

• Gross Receipt up to Rs. 50 Lakhs (or Rs. 75 Lakhs if cash receipts are up to 5%)
• Deemed Profit: 50% of gross receipts

Important Notes

1. Eligible assessee can declare higher profits.
2. Lower profit declaration requires an audit.
3. Partnership firms: Remuneration and interest are part of deemed profit.
4. Opting out: Withdrawal from presumptive taxation disallows reentry for five years.

Benefits of Presumptive Taxation

1. Exemption from maintaining books of accounts.
2. Exempt from advance tax; paying total tax liability before the year-end is sufficient.

Special Provisions and Updates for FY 2024-25

Tax Treatment of Cryptocurrency and Digital Assets

With the rising popularity of cryptocurrencies and digital assets, the tax treatment of these assets has gained significance. Here are the key provisions:

1. Definition and Taxability: Cryptocurrencies and other digital assets are classified as virtual digital assets (VDAs). Any income arising from the transfer of VDAs will be taxed at a flat rate of 30%.
2. No Deduction Allowed: No deduction in respect of any expenditure (other than the cost of acquisition) or allowance is allowed while computing the income from the transfer of VDAs.
3. No Deduction Allowed: No deduction in respect of any expenditure (other than the cost of acquisition) or allowance is allowed while computing the income from the transfer of VDAs.
4. Loss Adjustment: Loss from the transfer of VDAs cannot be set off against any other income, nor can it be carried forward to subsequent years.
5. Tax Deduction at Source (TDS): A TDS of 1% will be levied on payments made for the transfer of VDAs exceeding Rs. 50,000 in a financial year for specified persons and Rs. 10,000 for others.

Conclusion

Keeping up with these income tax changes for FY ***2024-25*** is vital! Your financial situation matters so consider what works best for you between the new & old regimes. Make sure you utilize all available deductions and rebates!