6 Income Tax Rule Changes introduced in Budget 2024 effective from October 1, 2024

Union Finance Minister Nirmala Sitharaman proposed a few changes to income tax in the Union Budget 2024. Some of these changes are currently effective, while others will be implemented on October 1, 2024. These changes include the Aadhaar card, STT, TDS rate, and Direct Tax Vivad Se Vishwas Scheme 2024, which were implemented in the Finance Bill of 2024.

Here are the details of the changes that will take effect on October 1.

1. Direct Tax Vivad Se Vishwas Scheme 2024

The Vivad se Vishwas Scheme will be implemented on October 1, giving taxpayers the opportunity to resolve specific pending tax disputes. Initially introduced in 2020 to manage pending tax appeals. Its effectiveness persuaded Finance Minister Nirmala Sitharaman to include the 2024 updated version in the Union Budget to settle disputes that occurred after the year in question.

The Vivad se Vishwas Scheme aims to resolve pending disputes as of July 22, 2024. Taxpayers who have ongoing tax, interest, penalty, or fee disputes with appellate authorities, high courts, or the Supreme Court are eligible to participate in this scheme.

The settlement amount granted under this scheme is determined by the timing of the payment. Taxpayers who settle between October 1, 2024 and December 31, 2024, must pay either the full amount of the disputed tax or 25% of the disputed interest, penalty, or fees.

Individuals who settle after December 31, 2024, must pay either 110% of the challenged tax amount or 30% of the applicable interest, penalty, or fee. In cases where the department files an appeal, the settlement sum will be cut in half.

Four distinct forms have been issued:

• Form-1: Declaration and Undertaking form for the declarant.
• Form-2: Certificate form to be issued by the Designated Authority.
• Form-3: Payment Intimation form for the declarant
• Form-4: Order for Full and Final Settlement of tax arrears by the Designated Authority.

2. Securities Transaction Tax

The Securities Transaction Tax (STT) on futures and options (F&O) trading is planned to increase on October 1, 2024. Specifically, the tax rates for futures and options (F&O) securities will increase to 0.02% and 0.1%, respectively. Furthermore, revenue from share buybacks will now be taxed according to the beneficiaries’ taxable income. Furthermore, the STT for option sales will rise from 0.0625% to 0.1% of the premium. It is vital to remember that STT is imposed on both the purchase and sale of various securities, such as equity shares, futures, and options.

Derivative markets have grown significantly in recent years, playing an important role in the whole trading volume on Indian stock exchanges. The government’s change to STT rates aims to align with increased market activity and guarantee that tax levels accurately reflect transaction values.

3. Aadhaar Card

The Union Budget 2024 proposes removing the provision that permits individuals to quote their Aadhaar Enrolment ID rather than their Aadhaar number. This decision is intended to address PAN misuse and duplication issues. Individuals will no longer be able to use their Aadhaar Enrolment ID in PAN registration forms or income tax returns from October 1, 2024.

According to the Budget memorandum, Section 139AA of the Act mandates persons eligible for an Aadhaar number to include it in their PAN application form and income tax returns beginning July 1, 2017.

“The provisions allowing the quoting of Aadhaar Enrolment ID in the application form for issuance of PAN or the return of income have been implemented in 2017. Since then, according to publicly available data, Aadhaar number coverage has increased and now includes the vast majority of India’s population. Hence, it is important to eliminate the option of stating the Enrolment ID of the Aadhaar application form, as any assignment of PAN against the Enrolment ID may lead to duplication and misuse of PAN,” the Budget memorandum stated.

4. Floating TDS Rate

The 2024 Budget included a significant modification to tax deductions at source (TDS), specifically for central and state government bonds, including floating rate bonds. These specified bonds will be subject to a 10% TDS beginning October 1, 2024.

Furthermore, the new TDS regulations include the Floating Rate Savings Bond. If the total revenue earned throughout the year is less than Rs.10,000, no Tax Deducted at Source (TDS) will be deducted. TDS will be deducted only when the income exceeds the Rs.10,000 threshold limit.

As mentioned in Budget 2024, there is a proposal to amend Section 193 of the Income Tax Act of 1961 to apply TDS on the Floating Rate Savings Bond, 2020 (Taxable) and any other security issued by the Central or State Government, subject to notice by the Central Government.

5. Buyback of Shares

A new regulation governing the taxation of share buybacks will go into effect on October 1st. Moving forward, shareholders will be liable for paying taxes on buyback proceeds, similar to how dividends are taxed. This reform will shift the tax cost from firms to shareholders, dramatically affecting buyback tactics.

Key points to note:

• Tax Redistribution: The present 20% tax on corporate buybacks will be repealed. Instead, shareholders will pay taxes on buyback proceeds as dividend income, based on their particular tax bracket.
• TDS Requirement: Companies will now be required to withhold tax at source (TDS) on buyback proceeds at a rate of 10% for residents and 20% for non-residents.
• Capital Loss Treatment: Shareholders can claim the cost of repurchased shares as a capital loss to offset gains from the sale of other shares.
• Potential Consequences: Increased tax liabilities for shareholders may prevent companies from using buybacks as their primary means of returning money to shareholders.
• Objective of Changes: These changes are designed to align the tax treatment of buybacks with dividends, resulting in a more equitable allocation of the tax burden. Nevertheless, the effects on company behaviour and shareholder profitability have yet to be shown.

6. TDS Rates

The tax deducted at source (TDS) rates for payments made under sections 19DA, 194H, 194-IB, and 194M have been decreased. The decreased rates for these sections are now 2%, down from 5% previously. In addition, the TDS rate for e-commerce operators has dropped from 1% to 0.1%.