Indian Budget 2024: Comprehensive tax reforms for residents and NRIs

Overall, the Union Budget 2024 introduces significant tax reforms aimed at creating a fairer and more efficient taxation system, impacting a broad spectrum of taxpayers, including NRIs and residents alike

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In the Union Budget 2024, Finance Minister Nirmala Sitharaman introduced a series of tax reforms aimed at benefiting both residents and Non-Resident Indians (NRIs). These changes include adjustments to the capital gains tax for stocks and mutual funds, which will take effect for transactions conducted on or after July 23, 2024. The primary goal of these reforms is to create a more equitable taxation system for both residents and non-residents.

Capital Gains Tax Revisions:

One of the significant changes in the budget is the modification of the Long-Term Capital Gains (LTCG) exemption limit, which has been increased from Rs 1 lakh to Rs 1.25 lakh. Additionally, the tax rate on gains exceeding this revised exemption limit has been raised from 10% to 12.5%. These adjustments aim to streamline the tax structure within the financial sector. Short-term capital gains tax (STCG) on certain assets has also been increased to 20%.

• The budget also proposes reducing the TDS rates to improve the ease of doing business and enhance taxpayer compliance

• However, certain sections, such as TDS on salary, virtual digital assets, lottery winnings, and payments to non-residents, will remain unchanged

For NRIs, the budget proposes several specific changes:

• The tax rate for long-term capital gains under section 115E has been increased to 12.5% for certain assets.
• Long-term capital gains exceeding Rs 1.25 lakh under section 112A will now be taxed at 12.5%, up from the previous 10%.
• The tax rate for short-term capital gains under section 111A has been raised from 15% to 20%.

To ensure parity between resident and non-resident taxpayers, corresponding amendments have been made to sections 115AD, 115AB, 115AC, 115ACA, and 115E.

Simplified Holding Periods:

The budget has also simplified the holding periods for various assets:

• Listed securities: One year
• All other assets: Two years

Revised Income Tax Rates:

The new tax rates are as follows:

• Listed Equity Shares, Equity-Oriented Mutual Funds, Units of Business Trusts:

o          Short-Term Capital Gains (STCG): Increased from 15% to 20%

o          Long-Term Capital Gains (LTCG): Increased from 10% to 12.5%

These changes are part of a broader effort to simplify capital gains taxation. Short-term gains on certain financial assets will now attract a tax rate of 20%, while long-term gains on all financial and non-financial assets will be taxed at 12.5%.

Tax Deduction at Source (TDS) Revisions:

The budget also proposes reducing the TDS rates to improve the ease of doing business and enhance taxpayer compliance. However, certain sections, such as TDS on salary, virtual digital assets, lottery winnings, and payments to non-residents, will remain unchanged.

Business Today cited Tapan Doshi, a Chartered Accountant and SEBI Registered Research Analyst, as saying on the new tax laws, noting the unexpected increase in the tax on long-term capital gains for equity-oriented investments. He highlighted concerns that higher taxes might deter retail investors and affect the culture of equity investment in India. The elimination of the indexation benefit for real estate was also noted as a significant change, potentially leading to higher taxes on older properties.

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