The Union Budget 2024, presented by Finance Minister Nirmala Sitharaman, brought several important changes to the Indian tax system, aiming to streamline processes and address long-standing issues. While some of these changes are already in effect, many significant amendments will be implemented from October 1, 2024. These changes cover various aspects, such as TDS rates, share buyback taxation, and the Direct Tax Vivad Se Vishwas Scheme (VSV) 2.0, among others. The government’s focus is clearly on improving tax compliance, providing relief to taxpayers, and resolving disputes efficiently. This article outlines the key amendments that will take effect from October 1, 2024, and their impact on individuals and businesses.
1. Direct Tax Vivad Se Vishwas Scheme 2024 (VSV Scheme)
After the so-called success of the initial VSV Scheme in 2020 and in response to the backlog of tax disputes, the government has launched VSV 2.0, effective October 1, 2024. This scheme allows taxpayers to settle disputes related to tax, interest, penalties, or fees pending as of July 22, 2024, with appellate authorities, high courts, or the Supreme Court.
Under VSV 2.0, if the department has filed an appeal, the settlement amount will be reduced by half, offering a more favorable resolution for taxpayers.
2. Buyback of Shares
Previously, many companies preferred the buyback route to avoid double taxation. During a buyback, the company has to pay tax on the transaction, but the proceeds were exempt from the tax in the hands of the shareholders.
However, to align the tax treatment of buybacks with that of dividends, the government has amended the provisions for the taxation of share buybacks, effective from October 1st, 2024.
Under the new rules, shareholders will now be liable for paying taxes on buyback proceeds according to their respective tax brackets, similar to how dividends are taxed.
Additionally, companies will be required to withhold TDS on buyback proceeds at a rate of 10% for resident individuals and 20% for non-resident individuals.
This change will shift the tax burden from the companies to the shareholders, significantly impacting buyback strategies.
Moreover, the cost of purchasing the shares will no longer be allowed to be set off against the buyback proceeds. Instead, it will be treated as a capital loss and may be set off against other capital gains, if applicable.
3. TDS Rates
Several changes in TDS rates will take effect from October 1, 2024:
| Section | Description | Current Rate | New Rate |
| 194DA | Payment in respect of life insurance policy | 5% | 2% |
| 194G | Commission on sale of lottery tickets | 5% | 2% |
| 194H | Payment of commission or brokerage | 5% | 2% |
| 194-IB | Payment of rent by certain individuals or HUF | 5% | 2% |
| 194M | Payment of certain sums by certain individuals or HUF | 5% | 2% |
| 194-O | Payment by e-commerce operators to e-commerce participants | 1% | 0.1% |
| 194F | Payments on repurchase of units by Mutual Fund/UTI | Omitted | N/A |
4. Amendment in Penalty Provisions under BMA Act
Under the amended provisions of the Black Money Act (BMA), penalties under Sections 42 and 43 will not apply if the undisclosed asset does not exceed Rs. 20 lakh.
5. Securities Transaction Tax
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.
From October 1, 2024, the STT on Futures and Options (F&O) will increase:
- For futures, STT will rise from 0.0125% to 0.02%.
- For options, STT will increase from 0.0625% to 0.1% of the premium.
Additionally, STT on share buyback proceeds will be taxed according to the beneficiary’s taxable income.
6. Aadhaar Card
The provision allowing individuals to quote the Aadhaar Enrolment ID instead of the Aadhaar number in PAN applications and income tax returns will be discontinued from October 1, 2024.
7. Floating TDS Rate
Effective October 1, 2024, TDS at 10% will apply to interest on central and state government bonds, including Floating Rate Savings Bonds. No TDS will be deducted if the total interest income is less than Rs. 10,000 in a financial year.
8. Withdrawal of 20% TDS on mutual fund repurchase
One of the significant tax relief measures is the withdrawal of the 20% TDS on mutual fund repurchases, providing relief to investors.
9. TDS on sale of immovable property
Section 194-IA clarifies that 1% TDS on payments for the sale of immovable property exceeding Rs. 50 lakh applies collectively in transactions involving multiple buyers or sellers.
These changes reflect the government’s focus on streamlining tax policies, increasing transparency, and addressing systemic gaps in the tax system. Taxpayers are advised to stay updated and comply with these new rules to avoid penalties and ensure smooth financial planning.
As October 1, 2024, already arrives, it is essential for taxpayers to be aware of these upcoming changes to ensure compliance and take advantage of the relief measures introduced. The amendments reflect the government’s intent to align the tax system with current market practices while offering solutions to long-pending disputes. From reduced TDS rates and changes in securities transaction tax to the new VSV Scheme 2.0, these reforms are aimed at fostering transparency and efficiency within the tax framework. Staying informed and adapting to these new regulations will help taxpayers avoid penalties and benefit from the opportunities presented in the Union Budget 2024.
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