Normally in our country Budget of Central Government is declare on 1st February every year, but due to election of Lok Sabha, on 1st February, 2024 Interim Budget was declare and final budget was declared on 23rd July, 2024. That means 114 days already passed. But it happens every year of election, there is no option.
Budget for the financial year 2024-25 was declare on 23rd July, 2024, after completion of 113 days of the year. Generally when budget was declared in the month of February the effect of the budget will be from 1st April that is for the full year.
In the budget 2024-25, total changes under the direct tax were 99 and under the indirect tax it were 58. Under direct tax under five heads of income following changes were made.
Income from Salary:
A new proviso (ia) in section 16 provided that in case where income tax is computed u/s 115BAC, the standard deduction from the salary u/s 16 will be Rs.75,000 instead of Rs.50,000. This was a welcome suggestion.
Income from Business or Profession:
- Let out property – Secton28
- Limit of pension scheme Section 36(1)(iva)
- Disallowance of certain expenses – Section 37
- Partners’ remuneration limit Section 40(b)
The above amendments are applicable from assessment year 2025-26.
CAPITAL GAINS:
Capital Gain on Buy-back of Shares – Section 46A (w. e. f. 1st October, 2024.)
At present any amount received by a shareholder of a domestic company on buy back of share, is exempt in the hand of shareholder under section 10(34A) of the Act. On the other hand Company in such case is liable to pay tax under section 115QA of the Act.
In the budget, it is now proposed that total amount received upon buy back, shall be taxable in the hands of the shareholder, as Dividend under the head “ Income from Other Sources” Over and above this, no deduction for any type of expenses shall be allowed against such dividend income while determining the “Income from Other Sources”.
The cost incurred by the shareholder to acquire the shares, will be allowed as a capital loss. The value of consideration of shares under buy-back for purposes of computing capital loss will be taken as nil.
Illustration:
Mr. Hiren has purchased in the year 2020, 100 shares of Company @ Rs.40 per share. In the year 2024, 20 shares brought back @ Rs.60 per share. %0 shares are sold in 2025 @ Rs.70 per share. Calculate the amount of capital gain.
| Transaction Details | Amount (Rs.) | Remarks |
| Acquisition (2020) | ||
| 100 shares @ Rs. 40 each | Rs. 4,000 | Cost of acquiring shares in 2020 |
| Buyback (2024) | ||
| 20 shares bought back @ Rs. 60 each | Rs. 1,200 | Taxable as dividend income |
| Capital loss on buyback | Rs. 800 | Loss due to buyback of shares |
| Sale (2025) | ||
| 50 shares sold @ Rs. 70 each | Rs. 3,500 | Selling price of shares |
| Acquisition cost for 50 shares | Rs. 2,000 | Pro-rated acquisition cost for 50 shares (Rs. 40/share) |
| Capital gain | Rs. 1,500 | Rs. 3,500 (sale) – Rs. 2,000 (acquisition) |
| Capital gain after set off | Rs. 700 | Rs. 1,500 (gain) – Rs. 800 (loss on buyback) |
Transfer of capital asset by way of Gift (section 47(iii) (w. e. f. A.Y. 2025-26)
Section 47(iii) of the Act provides that any transfer of a capital asset under gift or will or an irrevocable trust shall not be regarded as transfer and are there for not subject to any tax.
In the budget, that exemption on transfer of a capital asset under a gift or will or an irrevocable trust will be available only in case of transfer by individuals and Hindu Undivided Family.
Removable of Benefit of Indexation Section 48 (w. e. f. 23rd July, 2024)
We know that at present, benefit of indexation is available in case of transfer of any long term capital asset being gold and other unlisted assets.
In the budget they have remove the Indexation benefit available under second proviso to section 48 from 23rd July, 2024.
So far as immovable property acquired before 23rd July, 2024 resident individual assesse will have option to pay tax @ 20% with indexation benefit or pay tax @ 12.5% without indexation benefit. Excess loss due to indexation will not be set off against other income.
Gain on transfer of Unlisted Debentures and Unlisted Bonds deemed to be short term capital gain: Section 50AA (w. e. f. 23rd July 2024)
All unlisted debentures and unlisted bonds would be covered with in the ambit of section 50AA. Therefore, the gain on transfer of Unlisted Debentures and Unlisted Bonds will be deemed to be Short Term Capital Gain from 23rd July, 2024.
Grandfathering provisions in respect of equity shares transferred under offer for sale (OFS), pursuant to Initial Public Offering (IPO) Section 55(2)(ac) w. e. f. A.Y. 2018-19
Section 55(2)(ac) of the Act provides for grandfathering mechanism for computation of cost of acquisition in respect of equity shares or unit of an equity oriented fund or a unit of a business trust covered under section 112A of the Act and acquired prior to 1st February, 2018.
In case of equity shares transferred through OFS, STT is paid at the time of transfer of shares even before shares get listed on stock exchange and the condition of STT payment at the time of acquisitions relaxed through the notification issued pursuant to section 112A OF THE Act. Therefore, the benefit of grandfathering is available in such cases.
However there was ambiguity regarding calculating FMV of such shares as on 31st January, 2018. In order to remove ambiguity, in budget they amend Explanation to section 55(2)(ac) of the Act to specify the manner of computation of FMV of equity shares (acquired prior to the 1st February, 2018) transferred under OFS as part of IPO as follows:
FMV= (Cost of Acquisition × Cost Inflation Index (CII) for FY 2017-18) ÷ CII for the first year in which the asset was held by the assessee or FY 2001-02, whichever is later.
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