The Indian tax system has undergone some important changes as suggested in the Union Budget 2024-25. These changes impact both individual and corporate taxpayers. Understanding how these changes affect your tax planning is crucial as the financial year progresses, allowing you to optimize your liabilities while staying compliant with the law.
In this blog, we will delve deeper into the primary changes introduced in the Budget 2024-25 and analyze how they could impact your taxes. This blog will also explain how you can leverage these changes to create the most advantageous tax situation, helping you achieve all your financial objectives.
How Will the Change in Budget 2024-25 Impact Your Upcoming Tax Planning?
Key Changes in The Budget 2024-25 That Can Impact Your Tax Planning
Standard Deduction Increased to ₹75,000
The new tax regime vide Budget 2024-25 proposes to increase the standard deduction for salaried employees and pensioners from ₹50,000 to ₹75,000. This change will reduce the taxable income and increase disposable income for approximately four crore taxpayers.
Family Pension Deduction Enhanced to ₹25,000
Any pensioner who has switched to the new tax regime via Budget 2024-25 can claim an extra deduction of up to ₹25,000 for family pension until the previous financial year, providing additional tax exemption for senior citizens.
Employer's Contribution Deduction Increased to 14%
As advanced by Budget 2024-25, the deduction under Section 80CCD(2) for contributions made by the employer has been increased from 10% to 14% of the salary and dearness allowance. This means employers are now required to invest more in their employees’ retirement funds.
TDS Rates Reduced
In the Budget 2024-25, the government has reduced TDS on specific payments, making it more manageable and helping taxpayers avoid errors and other commercial methods.
Customs Duty on Gold and Silver Reduced to 6%
As per the Budget 2024-25, the customs duty applied to gold and silver has been reduced from 10% to 6%. This change will make the metals cheaper for buyers. It is recommended that gold should represent only 5-10% of one’s total investment portfolio, and one should consider exploring sovereign gold bonds.
Increased Benefits up to ₹17,500 for Salaried Individuals
The changes in the new tax regime vide Budget 2024-25 involve adjustments to the tax slabs, which can result in benefits of up to ₹17,500 for salaried employees. Despite the overall decrease in tax levels, it is important to calculate the effective tax rates to determine the most suitable taxation system.
Extended Assessment Period up to 5 Years
The income tax department can now conduct assessments for a case up to five years after the relevant assessment year if the amount of undisclosed income is more than ₹50 lakh. This is an important change, but it means taxpayers need to ensure their records are in great condition.
Extended ITC Claiming Period
The government has extended the time limit for claiming Input Tax Credit (ITC) on invoices or debit notes for the financial years 2017-18 to 2020-21 up to November 30, 2021, as part of the Budget 2024-25. This extension provides relief to taxpayers who may have missed the deadline for claiming ITC.
Impact on Tax Planning & How You Can Leverage It
For Individuals:
Opt for Suitable Tax Regime
The new tax slabs in the old regime and the adjustments for the new regime are beneficial for taxpayers. When comparing the rates, it is important to consider that the choice of regime depends on the level of income. Factors such as deductions, exemptions, and long-term effects should be taken into consideration.
Maximize Deductions
Remember to take advantage of the increased standard deduction of ₹75,000 (vide Budget 2024-25). Additionally, ensure to explore other deductions such as investments in tax-saving tools like PPF, ELSS, NNS, home loans, tuition fees, etc. Maximize all available deductions under the specific tax regime you are following.
Retirement Planning
Remember to take full advantage of the extra employer contribution to retirement savings, which can be up to 14% (vide Budget 2024-25) of your income. Consider investing more for tax savings and to build a substantial fund for post-retirement income. Compare different pension plans available in the market and choose the one that aligns with your objectives.
Meticulous Record Keeping
Ensure that you maintain all financial records to support any deductions or other claims you have made. Due to a lengthier assessment period, it is crucial to accurately document the project. Keep receipts, investment documents, and any other documentation that proves the revenue generated for the purpose of an audit.
Consulting Tax Professional
Make sure to consult with professionals to navigate the complex regulations of taxation and to discover methods for saving more money. It is always a good idea to seek guidance from a tax professional who can tailor their recommendations to your individual financial situation. Stay informed about recent tax law amendments and upcoming changes, and their impact, with the help of professional advice. The tax experts of Actax India can help you with this.
For Corporate Bodies:
TDS Compliance
Please ensure that the following practices are followed for TDS (Tax Deducted at Source) to comply with the new rates (vide Budget 2024-25) and avoid issues with the revenue authorities:
- Update TDS deduction software and processes as necessary.
- Balance the TDS deducted and the TDS deposited according to schedules.
Customs Duty Optimization
Customs Duty Optimization
Take advantage of the newly lowered customs duty on gold and silver by revising the import strategy. Use this opportunity to review the potential for improvement in the supply chain and aspects of inventory management. Stay updated on the current import/export policies and duty structures.
GST Compliance
Please ensure that the new GST guidelines (vide Budget 2024-25) are followed to calculate GST and file returns accurately. It is recommended to take advantage of the extra time to claim input tax credits (ITC) and to establish effective GST compliance structures and mechanisms within your company.
Input Tax Credit (ITC) Claiming
Remember to claim Input Tax Credit (ITC) as soon as possible to improve cash flow and reduce the amount of taxation. It is important to carefully check input tax invoices and ensure they match the GST returns filed. Maintain good record keeping for ITC.
TDS Compliance
Please make a note of the following text: Evaluate the projected tax trends in the budget and their impact on the business. The ultimate goal is to analyze potential areas for tax optimization and cost reduction. If taxes are high, it may be advisable to reorganize business activities to minimize tax liability.
Concluding Thoughts on the Impact of Budget 2024-25 on Tax Planning
When providing our perspective on Budget 2024-25, it is important to note that it has both strengths and weaknesses for taxpayers. Therefore, by closely monitoring the changes and seeking various taxation advice, individuals and businesses can manage their tax burdens and achieve their goals.
You can rely on Actax India for such tax advice. It is important to remember that tax matters are often quite complex. Due to legal intricacies, it’s always wise to consult professionals to make the right decisions. Being aware of this will allow you to take proactive steps when the provisions for Budget 2024-25 become operational in order to benefit from it.
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