The Budget 2024 which was notified on August 16, 2024, on the tax front sought to simplify and rationalize the tax regimes for reducing litigation whilst deepening and widening the tax base for enhancing tax revenues for the exchequer. Removal of angel taxation, reduction in the corporate tax rate for foreign companies and withdrawal of equalization levy are strides in the right direction to showcase commitment to ease of doing business. The major tax amendments in the Finance Act 2024 are outlined hereunder:
Overhauled capital gains tax regime
- The holding period for qualifying as long-term capital asset, vis-à-vis, the long-term capital asset has been simplified for asset classes:
- Listed securities(including units of business trust): 12 months
- All other assets: 24 months
- gains from unlisted bonds/debentures would be deemed to be short-term gains irrespective of the holding period
- changed capital gains tax rates and simplified computation methodology:
- long term capital gains rate for transfers which take place on or after July 23, 2024 has been pegged at 12.5% across asset classes
- with respect to on-market trade of certain listed securities(equity shares and units of equity oriented mutual funds and business trust),long term capital gains upto INR 125,000 would be exempted. The tax rate for the balance gain would be taxable at 12.5%
- short term Capital gains with respect to on-market transfer of equity shares and units of equity oriented mutual funds and business trust has been enhanced to 20%
- indexation benefit would not be available for the transfer of assets barring the transfer of land or building acquired before July 23, 2024 by a resident individual/Hindu Undivided Family.
Roll Back of Buy Back tax Exemption for Shareholders:
The entire taxation regime with respect to the buyback of shares has been rejigged to align it with dividend taxation for shifting the tax incidence into the hands of the shareholders.
Under the extant regime, in the event of buyback of shares by a Company, the Company pays additional tax on the distributed income under Section 115QA of the ITA and based on specific exemption such income was not taxable in the hands of the shareholders. Now, w.e.f. October 1, 2024 the dividend definition under Section 2(22) of the ITA has been enlarged to include the payment by company on buyback of its own shares from the shareholder in accordance with provisions of Section 68 of the Companies Act, 2013. Thus, the entire taxation regime with respect to buy-back of shares has been changed:
- Buy-back prior to 1st October 2024: The Company would pay additional tax on the distributed income at 20% and income from such buy-back was exempted for shareholders
- Buy-back of shares that takes place on or after 1st October 2024: The entire consideration received will be taxable in the hands of shareholders as deemed dividend. The cost of shares would be allowed as a capital loss in the hands of investors which can be offset against other gains
Further, no deductions would be allowable against such dividend income and the cost of acquisition of such shares will be allowed as capital loss in the hands of the shareholders.
Angel tax abolished
Anti-abuse provisions of Section 56(2)(viib) of ITA which sought to tax excessive premium on the issuance of shares in the hands of the investee company. Such provisions have been made inapplicable w.e.f. April 1, 2025 for Assessment Year (AY) 2025-26 onwards.
Curtailed timelines for tax proceedings
Rationalized timelines for initiating the reassessment/income escaping proceedings to with effect from September 1, 2024:
- Income escaped less than INR 50,00,000: 3 years and 3 months from end of relevant AY.
- Income escaped: INR 50,00,000 or more: 5 years and 3 months from end of relevant AY.
Reduced tax rate for foreign companies
Tax rate on income of foreign company (other than that chargeable at special rates) to be reduced from 40% to 35% (excluding applicable surcharge and cess).