Tax Reforms in the recent Budget

Source-This post on Tax Reforms in the recent Budget has been created based on the article “For taxpayers, a welcome easing” published in “The Indian Express” on 8 August 2024.

UPSC Syllabus-GS Paper-3- Indian Economy and issues relating to Planning, Mobilization of Resources, Growth, Development and Employment.

Context– The finance minister has recently initiated a review of the Income Tax Act, 1961, with the aim of simplifying the Act to make it more user-friendly and reduce tax disputes and litigation.

What proposals did the budget include to simplify the Income Tax Act?

1) It proposed simplifying reassessment and capital gains taxation by introducing a uniform 12.5 percent tax rate on long-term capital gains across all asset classes.

2) It aimed to eliminate the indexation benefit used to calculate gains on property, gold, and unlisted assets. This removal faced criticism as it was seen to increase the tax burden on investors, despite the lower tax rate.

A detailed article on Budget 2024-25 can be read here.

3) In response to taxpayer concerns, the government now offers a choice: investors can pay a 20 percent tax with indexation benefits on properties bought before July 23, 2024, or a 12.5 percent tax without indexation benefits. This allows investors to choose the tax option that minimizes their liability.

NOTE- Indexation– Indexation adjusts the cost of an asset for inflation, helping to reduce the taxable amount of long-term capital gains.

4) Tax assessments can only be reopened after three years if the undeclared income exceeds Rs 50 lakh, to reduce tax uncertainty and disputes.

Way ahead- The IT Act review, due in six months, should focus on resolving disputes and addressing problematic sections.

Question for practice

What proposals did the budget include to make the Income Tax Act simpler?