Understanding the impact of Budget on personal finance

Here’s a closer look at the key proposals shaping personal finance.

For salaried individuals earning above ₹15,75,000, the expanded tax slabs and increased standard deduction from ₹50,000 to ₹75,000 could potentially save ₹17,500, excluding surcharge and cess. The Budget also proposes raising the employer’s contribution to the New Pension Scheme (NPS) from 10% to 14% of salary for those opting for the new tax regime. This change offers employees a chance to negotiate a higher NPS contribution from their employers. 

However, it’s important to note that contributions exceeding ₹750,000 to the NPS, Employee Provident Fund (EPF), and superannuation fund will remain taxable under current laws.

Read this | How the Budget affects your salaries, investments and taxes

The Budget has proposed substantial changes to capital gains taxation. Holding periods for determining short-term versus long-term assets are simplified: 12 months for listed securities, equity-oriented mutual funds, and REIT/InVIT units, and 24 months for assets like real estate, gold, and unlisted shares. The proposed long-term capital gains tax rate of 12.5% will apply uniformly across all asset classes, while short-term capital gains rates will increase from 15% to 20%. 

Additionally, the removal of angel tax, effective 1 April 2024, is a welcome development for the startup community.

Debt mutual funds purchased before 1 April 2023, will now be considered long-term if held for 24 months, and taxed at a flat 12.5% without indexation. For mutual funds acquired on or after 1 April 2023, gains will be classified as short-term and taxed at slab rates. Specified mutual funds now exclude gold ETFs and gold mutual funds, which will be taxed at 12.5% without indexation if held for over 12 months, starting FY26.

The Budget also proposes removing indexation benefits for assets like immovable property and gold, aligning with the new flat long-term capital gains rate. This change, effective from 23 July 2024, aims to simplify tax calculations and harmonize asset classes.

For properties sold before 23 July 2024, indexation allows for an adjusted cost of acquisition, reducing capital gains and tax liability. For example, a property sold for ₹7 crore, bought in 1990 for ₹50 lakh, would have indexed costs leading to capital gains of ₹3.37 crore and tax of ₹67.4 lakh. However, for transfers on or after 23 July 2024, the removal of indexation means the same property would show capital gains of ₹6 crore and tax of ₹75 lakh.

Also read | For property investors, one step forward and two steps back

The elimination of indexation may influence tax outflows depending on transaction specifics, affecting exemptions under Sections 54 and 54EC.

The Budget has also introduced taxing share buybacks as dividend income, aligning with existing dividend tax policies. Tax Collected at Source (TCS) on certain transactions can now be offset against Tax Deducted at Source (TDS) on salary income, effective 1 October 2024. Additionally, a proposed 1% TCS on “luxury" goods exceeding ₹10 lakh will come into effect from 1 January 2025, with further details to be issued by the government.

With these sweeping changes, Union Budget 2024-25 introduces a range of new rules and opportunities, presenting both challenges and strategies for taxpayers to optimize their financial and tax planning.

Sonu Iyer, tax partner and national leader, People Advisory Services, EY India. Siddharth Deb, tax director, EY India, also contributed to the article.