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Frequently Asked Questions

What are the 5 important changes in the Finance Bill 2024?

Here are the 5 most important changes in this budget:

  1. Increase in Exemption limit for LTCG

    The exemption limit for LTCG on equity shares, units of equity-oriented funds, and business trusts is proposed to be increased from Rs. 1 lakh to Rs. 1.25 lakh.

    Example: If an investor sells shares and makes a long-term capital gain of Rs. 1.5 lakh, previously Rs. 1 lakh was exempt and the remaining Rs. 50,000 was taxed. Now Rs. 1.25 lakh is exempt and only Rs. 25,000 will be taxed.

    Effect: This increase in exemption limit will reduce the tax burden on small investors and encourage long-term investments.

  2. Removal of Indexation Benefit on LTCG

    The indexation benefit for calculating long-term capital gains on property, gold, and other unlisted assets is to be removed for assets transferred on or after 23rd July 2024. The Finance Minister has clarified that for land and building purchased before 23rd July 2024, specified taxpayers can opt to calculate their LTCG tax either at a flat rate of 12.5% without indexation or at 20% with indexation, whichever results in a lower tax liability.

    Example: If an investor sells property after 23rd July 2024 which he bought for Rs. 50 lakh (indexed to Rs. 70 lakh) at Rs. 1 crore, the long-term capital gain without indexation is Rs. 50 lakh. With indexation, the gain would be Rs. 30 lakh, resulting in a lower tax liability. The taxpayer can choose the lower tax option.

    Effect: This will simplify the computation of capital gains for taxpayers and tax administration.

  3. Reduction of LTCG tax rate

    Long-term capital gains tax is proposed to be reduced from 20% to 12.5%. This change has been brought in to simplify the taxation system and to tax all asset classes at the same rate. However, if the taxpayer opts for computing tax considering indexation benefit, he would be liable to pay tax @ 20%.

    Example: For sale of land, the tax rate would be 20% if gains (with indexation) from sale of land is Rs. 20 lakhs, then tax of Rs. 4 lakhs would be required to be paid. Or he may choose to pay tax without indexation benefit; suppose gain (without indexation) is Rs. 30 lakhs, then as per the new tax rate of 12.5%, only Rs. 3.75 lakhs tax is payable.

    Effect: This change ensures uniformity in the taxation of immovable property, unlisted bonds, and debentures, simplifying the tax structure and bringing clarity.

  4. Uniformity in Holding Period for Capital Assets

    The holding period for capital assets to qualify as long-term has been standardized. Listed equity shares must be held for over one year, while unlisted financial and all other non-financial assets must be held for over two years.

    Example: If an investor holds listed equity shares for over a year, the gains are classified as long-term. For unlisted shares, they must be held for over two years to qualify as long-term. Earlier, there were different holding periods for different classes of assets, which have now been standardized.

    Effect: This uniformity simplifies the classification of capital assets and ensures consistent taxation treatment.

  5. Increase in Tax Rate for STCG on Listed Shares

    The tax rate for short-term capital gains on certain financial assets is proposed to be increased.

    Example: If an investor sells shares within a year and makes a short-term capital gain of Rs. 1 lakh, the tax rate has been increased from 15% to 20%, resulting in a higher tax payable from Rs. 15,000 to Rs. 20,000.

    Effect: This increase aims to discourage short-term trading and promote long-term investments, aligning with the government’s vision of financial stability and growth.

These changes are proposed to be applicable from 23rd July 2024. Taxpayers need to properly calculate their taxes for transactions taking place before and after this date.

In the Income Tax Act, there are two types of years, i.e., ‘Assessment Year’ and ‘Previous Year’. According to Section 2(9), ‘Assessment Year’ is from 1st April to 31st March. According to Section 3, ‘Previous Year’ means the year in which the income is earned. Income earned in the Previous Year is taxable according to the tax rates of the Assessment Year.

For example, income earned in PY 2022–23 (April 2022 to March 2023) is taxable in AY 2023–24 (1st April 2023 to 31st March 2024).

If a new business or profession is started, then the previous year begins from the date the business starts and ends on 31st March. This means the first previous year may be of less than 12 months.

According to income tax provisions, taxpayers should consider income and expenses in the year in which they are incurred. Further, ITR should be filed before the due date; otherwise, taxpayers cannot carry forward the loss to the subsequent year.

According to Section 2(41) of the Companies Act, 2013, Financial Year means the period up to 31st March. Following are three exceptions:

  1. Under the Companies Act, 1956, Financial Year was defined differently, allowing companies to choose their financial year. This is no longer allowed under the Companies Act, 2013. Companies were required to align their financial year to 31st March before 1st April 2016.
  2. The Financial Year of a newly incorporated company is considered from the date of incorporation to 31st March. For example, if a company is incorporated on 6th January 2023 and prepares its financial statements on 31st March 2023, this period will be treated as its Financial Year. With prior approval, a company can have its first financial year up to 15 months.
  3. In foreign countries, the Financial Year is generally the calendar year (1st January to 31st December). If a holding or subsidiary company is incorporated outside India, it may follow a different Financial Year, but prior approval from the National Company Law Tribunal is required.

According to the GST Act, a ‘Year’ means the period from 1st April to 31st March. According to Section 2(k) of the Maharashtra State Profession Tax Act, the financial year is also from 1st April to 31st March.

However, for GST, returns are filed monthly or quarterly. In the case of Profession Tax, the department may calculate tax liability considering the period from March to February.

PAN means Permanent Account Number. It is a 10-digit alphanumeric number issued by the Income Tax Department. The 4th and 5th letters of PAN indicate the type of holder.

The 4th letter represents the category: Company (C), Firm (F), HUF (H), and Individual (P). The 5th letter represents the first letter of the surname (for individuals) or the name of the entity (for others).

The PAN card contains the name of the holder, PAN, date of birth, signature, and date of issue. It may also include the mother’s name. The address is not mentioned. PAN can also be issued to minors.

The objective of PAN is to bring uniformity in financial transactions and reduce tax evasion. With the use of technology, PAN is tracked and transactions are cross-verified.

As per Section 139A of the Income Tax Act, obtaining PAN is mandatory if income exceeds the basic exemption limit or if business turnover exceeds Rs. 5 lakhs.

It is also mandatory for:

  1. Charitable trusts
  2. Persons entering into specified financial transactions
  3. Non-residents and associated persons where transactions exceed Rs. 2,50,000

Failure to obtain PAN may result in a penalty of Rs. 10,000 under Section 272B.

To apply for PAN, Form 49A must be submitted along with identity proof and address proof. For non-residents, Form 49AA is required.

Changes in PAN details (such as name change) require submission of Form 49A again.

Agriculturists without taxable income may use Form 60 for certain transactions.

A person is not allowed to hold more than one PAN.

As per Section 139A, PAN must be quoted in the following cases:

  1. Immovable property transactions of Rs. 10 lakhs and above
  2. Opening a bank account (other than basic savings account)
  3. Purchase or sale of motor vehicles
  4. Fixed deposits exceeding Rs. 50,000
  5. Cash deposits exceeding Rs. 50,000
  6. Transactions where TDS is applicable (otherwise TDS @ 20%)
  7. While obtaining registrations such as GST
  8. Sale or purchase of goods or services exceeding Rs. 2 lakhs per transaction

PAN card is issued by the Income Tax Department for registration purposes, and its usage is restricted to specified cases.

Nowadays, PAN is often used as identity proof for hotels, travel, etc., but this may lead to misuse. In some cases, such details are wrongly used in financial transactions.

If PAN is misused, the PAN holder may receive notices from the Income Tax Department and may be held responsible.

For example, if someone uses another person’s PAN in a property transaction, that person may receive a notice from the department.

Therefore, PAN should be used carefully and only where necessary.

Generally in India, a family consists of mother, father, son, daughter-in-law, and grandsons living together, where the father is the head of the family. In legal terms, this is known as a Hindu Undivided Family (HUF).

In an HUF, members live together and share not only property but also food and worship. As per the Income Tax Act, Hindus, Jains, Sikhs, and Buddhists can form an HUF.

In an HUF, the senior-most member is generally the Karta, and other members are known as coparceners. The Karta manages the property of the family and is also responsible for the welfare of the family.

All members have equal rights over the property of the HUF. Adopted children can also become members. Both married and unmarried females are members, and in the absence of a senior male member, a female member can also act as Karta.

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