15 Income Tax Rule Changes in 2024 That Will Impact Your ITR Filing in 2025

The year 2024 has brought several noteworthy changes to income tax laws, which will significantly impact how taxpayers and businesses approach their Income Tax Return (ITR) filing in 2025. These reforms reflect the government’s commitment to widening the tax base, enhancing compliance, and aligning with global standards, while also addressing the needs of individuals and businesses alike. Below, I provide a detailed breakdown of the 15 most significant changes and their implications.

1. Enhanced Exemption Limit Under the New Tax Regime

The basic exemption limit under the new tax regime has been raised from ?2.5 lakh to ?3 lakh. This is part of the government’s ongoing effort to encourage taxpayers to adopt the new regime. However, individuals need to carefully evaluate the trade-off between the simplified structure of the new tax regime and the loss of deductions and exemptions available under the old regime.

Impact:

• Low-income earners under the new regime will see reduced tax liabilities.
• Taxpayers must perform a detailed comparison to choose the most beneficial regime.

2. Standard Deduction Extended to the New Tax Regime

Salaried individuals and pensioners can now claim the ?50,000 standard deduction even under the new tax regime. This ensures parity between both regimes and adds an additional layer of tax relief.

Impact:

• Makes the new tax regime more attractive, especially for middle-income earners.
• Encourages a shift from the older, deduction-heavy structure to the simplified framework.

3. Increased Rebate Under Section 87A

The rebate limit under Section 87A has been increased from ?12,500 to ?25,000 for taxpayers earning up to ?7 lakh annually. Under the new regime, individuals in this bracket will have no tax liability.

Impact:

• Offers complete tax relief for taxpayers earning up to ?7 lakh under the new regime.
• Promotes adoption of the new regime among middle-class taxpayers.

4. Taxation of Market-Linked Debentures (MLDs)

Market-linked debentures, previously taxed as long-term capital gains (LTCG), will now be treated as short-term capital gains and taxed at applicable slab rates. This eliminates a loophole that offered favorable tax treatment to MLD investors.

Impact:

• Investors will face higher tax outgo on gains from MLDs.
• Encourages diversification into other financial instruments.

5. Uniform TDS for Online Gaming

A uniform TDS rate of 30% has been introduced on winnings from online gaming platforms, irrespective of the winning amount. Earlier, TDS applied only if winnings exceeded ?10,000.

Impact:

• Brings greater tax compliance in the rapidly growing online gaming sector.
• Requires gaming platforms to strengthen their tax deduction systems.

6. LTCG Tax Benefits Removed for Certain Debt Mutual Funds

Debt mutual funds held for over three years will no longer qualify for indexation benefits. Gains from such investments will now be treated as short-term and taxed at applicable slab rates.

Impact:

• Reduces the attractiveness of debt mutual funds as a tax-efficient investment.
• Encourages investors to consider alternative avenues like equities or fixed deposits.

7. Increased TDS on Foreign Remittances

TDS on foreign remittances under the Liberalized Remittance Scheme (LRS) has been increased to 20%, from the earlier rate of 5% for amounts exceeding ?7 lakh.

Impact:

• Affects individuals planning overseas travel, education, or investments.
• Emphasizes the importance of cash flow planning for taxpayers dealing with foreign remittances.

8. Concessional Tax Regime for Co-operatives

Co-operative societies now have the option to pay tax at concessional rates under a new regime, akin to the corporate tax regime introduced in earlier years.

Impact:

• Boosts growth in the co-operative sector by offering tax parity with companies.
• Encourages modernization and competitiveness among co-operatives.

9. Increased Leave Encashment Exemption

The exemption limit for leave encashment for non-government employees has been raised from ?3 lakh to ?25 lakh. This adjustment is long overdue, considering inflation and rising salary levels.

Impact:

• Provides substantial relief to retiring employees.
• Improves retirement benefits for middle and senior-level professionals.

10. Tighter TDS Rules on Cryptocurrency

To ensure better compliance in the crypto sector, the government has revised TDS rules for transactions involving virtual digital assets (VDAs). Transactions are subject to higher TDS rates, ensuring better traceability.

Impact:

• Investors in cryptocurrencies must account for higher tax liabilities.
• Promotes transparency in an otherwise opaque sector.

11. Limitations on Carrying Forward Losses

Specific losses from investments or business activities can no longer be carried forward indefinitely. This aligns with global best practices and ensures timely recognition of tax liabilities.

Impact:

• Encourages businesses and individuals to manage their losses more efficiently.
• Reduces the scope for indefinite deferral of tax payments.

12. Green Investments Under Section 80C

Investments in green bonds and other eco-friendly initiatives are now eligible for deductions under Section 80C. This move underscores the government’s commitment to sustainability.

Impact:

• Encourages taxpayers to adopt sustainable investment practices.
• Aligns with India’s broader environmental and economic goals.

13. Capping of Capital Gains Surcharge

The maximum surcharge on long-term capital gains (LTCG) has been capped at 15%, down from 37% in some cases. This provides significant relief to high-net-worth individuals (HNIs).

Impact:

• Reduces the overall tax burden on capital gains.
• Promotes investment in long-term financial instruments.

14. Relaxed Audit Requirements

Businesses with turnover up to ?3 crore are now exempt from mandatory tax audits if 95% of their transactions are non-cash. This is aimed at reducing compliance burdens for MSMEs.

Impact:

• Encourages small businesses to adopt digital transactions.
• Reduces costs associated with tax compliance.

15. Stricter Filing Deadlines

While the deadlines for ITR filing remain unchanged, the penalties for non-compliance have become more stringent. Taxpayers must adhere to timelines to avoid steep fines.

Impact:

• Promotes timely compliance and reduces last-minute rushes.
• Encourages better tax planning throughout the year.

Insights and Recommendations

These changes reflect a balanced approach by the government to enhance compliance while offering targeted relief. Here’s my professional advice to taxpayers and businesses:

1. Evaluate the New Tax Regime: While the new regime is simpler, it’s not necessarily beneficial for everyone. Perform a detailed analysis or consult an expert to choose the right regime.
2. Plan Investments Wisely: Changes in LTCG taxation and TDS rates call for re-evaluating your investment portfolio. Consider sustainable options like green bonds.
3. Focus on Compliance: With tighter TDS rules and filing deadlines, staying compliant is no longer optional—it’s mandatory to avoid penalties.

The 2024 tax reforms are progressive and forward-looking, but navigating them requires careful planning. As a finance and tax expert, I encourage everyone to stay informed and consult professionals to ensure compliance and optimize benefits.