To boost consumption and savings, the newly elected government, led by the Prime Minister, is considering reducing income tax rates for specific categories of individuals, according to a Reuters report citing two government sources.
These new income tax rates could be announced in July when Finance Minister Nirmala Sitharaman presents the full Union budget for the fiscal year 2025.
The report suggests that a personal tax cut could enhance economic consumption and increase middle-class savings. Those earning over ₹1.5 million (₹15 lakh) annually may benefit from this potential tax relief, although the exact amount is yet to be determined.
Notably, the Income Tax Return ( ITR ) forms for the Financial Year 2023-24 has undergone significant revisions, affecting taxpayers across various categories. These changes require attention and understanding to avoid penalties and repercussions.
1. Adjustment of Unabsorbed Depreciation: Changes in ITR Forms 3, 5, and 6 regarding unabsorbed depreciation and additional depreciation adjustments. Individuals opting for Section 115BAA/115BAC cannot offset this unabsorbed depreciation.
2. Cash Receipts Reporting: Increase in turnover threshold for Section 44AD to INR 3 crores with a 5% cash receipts cap; Section 44ADA threshold raised to INR 75 lakhs with the same cash receipts condition. New column added in Schedule BP for reporting cash receipts.
3. Capital Gains Accounts Scheme (CGAS) Reporting: Revised Schedule-CG in ITR-2 to include more details on CGAS deposits, such as deposit date, account number, and IFS Code.
4. Details of Legal Entity Identifier (LEI): Mandatory LEI disclosure for entities conducting transactions of INR 50 crores or more via NEFT and RTGS. LEI required for refunds exceeding INR 50 crores in Forms ITR 5 and 6.
5. Dividend Income Reporting: Reduction in tax rate on dividends from units in IFSC to 10% from 20%, reflected in the updated “Schedule OS – Income from Other Sources.”
6. Filing Deadlines: New column in ITR Forms 3, 5, and 6 to capture the deadline for submitting income tax returns with options for July 31st, October 31st, or November 30th.
7. Online Gaming Winnings: Introduction of Section 115BBJ for taxing online gaming winnings at 30%, and Section 194BA for TDS on online gaming earnings. Updated Schedule OS to include online gaming income reporting.
8. Political Party Contributions – Section 80GGC: New Schedule 80GGC in ITR forms to disclose contributions to political parties, including details like date, amount, and transaction reference number.
9. Reasons of Tax Audit u/s 44AB and EVC: Requirement for audited companies to provide reasons for tax audits and the option to use EVC for verifying returns.
10. Reporting of sums received by a unitholder from the Business Trust: New clause in Section 56(2) and addition of a column in Schedule-OS to report income received by unitholders from business trusts.
11. Schedule 80DD: New ‘Schedule 80DD’ in ITR 2 and 3 for details on deductions related to the upkeep of a dependent with a disability.
12. Schedule 80IAC – Start-up Deduction Details: Introduction of Schedule 80IAC in ITR-5 to capture details on startup deductions, including incorporation date, business nature, and deduction claimed.
13. Offshore Banking unit or IFSC (Schedule 80LA): New Schedule 80LA in ITR-5 for companies to provide details on offshore banking units or IFSC, including type of entity, income generated, and amount of deduction claimed.
These updates aim to simplify and enhance the transparency of tax filing.
The government might also consider lowering tax rates for annual incomes of ₹10 lakh and discussing a new threshold for the 30 percent tax rate under the old tax system.
While India’s GDP grew at a robust 8.2 percent in the fiscal year 2023-24, consumption grew at only half that rate. A post-Lok Sabha elections 2024 survey indicated voter concerns about high inflation, unemployment, and decreasing incomes.
PM Modi, in his address while forming the NDA government, emphasised his focus on increasing middle-class savings and improving their quality of life.
The government may revise the tax scheme launched in 2020, where annual incomes up to ₹15 lakh are taxed at rates between 5 percent and 20 percent, and incomes above ₹15 lakh are taxed at 30 percent. The tax rate steeply increases six-fold when income rises from ₹3 lakh to ₹15 lakh, which the report describes as quite steep.
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