6 Key Income Tax Changes to Know Before the 2024 Union Budget

As we approach the Union Budget 2024, several important tax changes will take effect starting October 1, 2024. These changes, announced by Finance Minister Nirmala Sitharaman in the 2024 Union Budget, aim to streamline tax procedures, reduce misuse of tax provisions, and enhance compliance.

Here’s a breakdown of the six major income tax rules that will come into effect before the Union Budget meetings begin.

1. Aadhaar No Longer Applicable for PAN and ITR

From October 1, 2024, taxpayers will no longer be allowed to use their Aadhaar Enrolment ID when applying for a PAN card or filing income tax returns (ITR). This change was introduced to prevent duplication and misuse.

Since 2017, taxpayers could quote their Aadhaar Enrolment ID instead of the Aadhaar number when applying for PAN or filing ITRs. However, as Aadhaar has now covered most of the Indian population, this provision is being discontinued. Going forward, only the Aadhaar number will be accepted, ensuring better control over the issuance of PAN cards and preventing potential misuse.

2. Increase in Securities Transaction Tax (STT)

The Securities Transaction Tax (STT) on futures and options trading will see a slight increase. Starting October 1, 2024, the STT on futures will increase by 0.02%, and on options by 0.1%. This tax applies to both the buying and selling of securities, including equity shares, futures, and options.

Additionally, income earned from share buybacks will now be taxed at the hands of beneficiaries, meaning shareholders will bear the tax liability. This change aligns the tax system with the rising volume of market transactions and ensures the correct tax is levied.

3. TDS on Floating Rate Bonds

Another significant change involves the Tax Deducted at Source (TDS) on specified central and state government bonds, including floating rate bonds. TDS will now be deducted at a rate of 10% if the interest earned on these bonds exceeds ₹10,000 annually. This change ensures better compliance with tax laws on income earned from bonds.

4. Reduction in TDS Rates for Various Transactions

Several TDS rates have been reduced under the Finance Bill, effective from October 1, 2024. Here are some of the key changes:

• Section 194DA (Life Insurance Payments): TDS rate reduced from 5% to 2%.

• Section 194G (Lottery Ticket Sales Commission): TDS reduced from 5% to 2%.

• Section 194H (Commission or Brokerage): TDS reduced from 5% to 2%.

• Section 194-IB (Rent Payments by Individuals/HUFs): TDS reduced from 5% to 2%.

• Section 194M (Certain Payments by Individuals/HUFs): TDS reduced from 5% to 2%.

• Section 194-O (E-commerce Payments): TDS reduced from 1% to 0.1%.

These changes are aimed at reducing the tax burden on individuals and businesses, making it easier to comply with tax regulations.

5. Direct Tax Vivad Se Vishwas Scheme 2024

The Direct Tax Vivad Se Vishwas Scheme 2024 (DTVSV 2024) is designed to settle pending tax disputes. The scheme offers taxpayers a chance to resolve their disputes with a reduced settlement amount. New appellants will receive a more favorable settlement than old appellants.

Taxpayers who opt for this scheme before December 31, 2024, will benefit from lower settlement amounts, making it an attractive option for resolving disputes without further litigation.

6. Tax on Share Buybacks

Starting October 1, 2024, shareholders who benefit from share buybacks will be taxed at the individual level, similar to how dividends are taxed. This means shareholders will face a higher tax burden when receiving buyback payments. Additionally, the cost of acquiring the shares will be considered when calculating capital gains or losses, ensuring a fairer assessment of tax liability.

These tax changes aim to simplify tax processes, encourage digital transactions, and reduce the misuse of tax provisions. As the Union Budget 2025-26 approaches, which is expected to focus on economic growth and job creation, these reforms are an essential step in modernizing the tax system and ensuring fair tax practices for all.

With pre-budget meetings beginning on October 10, 2024, and running until November 11, 2024, it's important for taxpayers to be aware of these new rules to stay compliant and avoid penalties.