Income Tax Day is an occasion to reflect on the evolution of income tax policies and their impact on individuals & businesses. This year, the Union Budget 2024-25 has introduced significant changes aimed at enhancing tax relief and simplifying the tax system. Let’s delve into what income tax is, the new provisions announced, and how they will benefit taxpayers.

What is Income Tax?

Income tax is a critical revenue source for governments, levied on the income earned by individuals and businesses during a financial year. According to Section 2(24) of the Income Tax Act, “income” encompasses a broad range of sources. Here’s a simplified breakdown of the different types of income and their tax implications:

1. Income from Salary
   • This includes all payments from an employer to an employee, such as basic pay, allowances (like house rent and travel), commissions, and retirement benefits (such as gratuity and pension).
   • Taxable income from salary is subject to standard deductions and exemptions under various sections of the Income Tax Act.
2. Income from House Property
   • Rental income earned from residential or commercial properties falls under this category.
   • Property owners can claim deductions on home loan interest and property taxes, which reduce taxable income.
3. Income from Business or Profession
   • Profits earned from business or professional activities are taxable after accounting for business expenses and deductions.
   • This category also includes self-employment income and freelance earnings.
4. Income from Capital Gains
   • Profits realized from the sale of capital assets like property, stocks, or jewelry are considered capital gains.
   • Capital gains can be classified as long-term (for assets held beyond a specified period) or short-term (for assets held for a shorter duration), with varying tax rates applicable to each.
5. Income from Other Sources
   • This category covers income not classified under the previous categories, such as interest from savings accounts, family pensions, gifts, lottery winnings, and returns from investments.
   • Certain items under this category may be exempt from tax or eligible for specific deductions.

Budget 2024-25: Key Changes and Benefits

The Union Budget 2024-25 introduces several important updates aimed at providing greater tax relief and improving the overall tax experience for individuals. Here are the highlights:

1. Enhanced Deductions
   • Standard Deduction: The standard deduction for taxpayers has been increased from ₹50,000 to ₹75,000 in the new tax regime. This change aims to reduce the taxable income for salaried individuals and pensioners.
   • Family Pension Deduction: The deduction on family pensions has been raised from ₹15,000 to ₹25,000, benefiting those who receive family pensions.
2. Revised Tax Slabs
   • New Tax Regime: The new tax regime continues to be popular, with over 58% of corporate tax receipts collected under this regime. Two-thirds of individual income taxpayers have switched to the new tax regime, which offers lower tax rates and simplified compliance.
3. Angel Tax Abolition
   • Start-Ups and Investments: The abolition of angel tax for all classes of investors is a significant move to encourage investments in start-ups and boost entrepreneurial activities.
4. Corporate Tax Reforms
   • Foreign Companies: Corporate tax on foreign companies has been reduced from 40% to 35%, making India a more attractive destination for international investors.
5. TDS Reductions
   • Lower TDS Rates: The tax deduction at source (TDS) rates on various payments has been reduced from 5% to 2%, streamlining the process for taxpayers and reducing their compliance burden.
6. Capital Gains Exemption
   • Increased Limit: The exemption limit for capital gains has been increased to ₹1.25 lakh per year, providing additional relief to lower and middle-income classes.
7. Customs Duty Adjustments
   • Reduction in Duties: Customs duties on essential items, such as x-ray panels, mobile phones, and precious metals, have been reduced. This aims to make these items more affordable for consumers.

In Conclusion, Income Tax Day 2024 marks a transformative moment in India’s tax landscape, reflecting the government’s commitment to enhancing tax relief and simplifying compliance. The recent budget changes are set to benefit taxpayers by increasing deductions, reducing tax rates, and providing targeted support for investments and entrepreneurship.

As we celebrate Income Tax Day, it is essential to recognize the significance of these reforms in fostering economic growth and supporting individuals and businesses. Stay informed about the latest tax provisions and how they can impact your financial planning and tax liabilities.