In a strategic move to streamline the tax system and reduce litigation, Finance Minister Nirmala Sitharaman unveiled a comprehensive review of the Income Tax Act, 1961 in the Union Budget for 2024-25. The review aims to simplify the Act, making it more accessible and understandable for taxpayers. Alongside this, several reforms targeting the tax regime for charities, TDS structures, and capital gains taxation were announced, reflecting the government’s commitment to enhancing tax certainty and minimizing disputes while boosting revenue.
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- Comprehensive Review: A detailed review of the Income Tax Act, 1961 has been announced to simplify and clarify the tax regime, expected to be completed in six months.
- Charity Tax Regime: The two existing tax exemption regimes for charities are proposed to be merged into one to simplify compliance.
- TDS Rate Changes: The 5% TDS rate on various payments will be merged into the 2% rate, and the 20% TDS rate on mutual fund repurchases will be withdrawn.
- E-commerce TDS Rate: The TDS rate on e-commerce operators is proposed to be reduced from 1% to 0.1%.
- Decriminalization of TDS Delays: Delays in TDS payments up to the due date for filing statements will be decriminalized to ease taxpayer burden.
- TDS Default SOP: A standard operating procedure will be introduced for TDS defaults, along with simplified compounding guidelines.
- Digitalization of Services: All services under GST, Customs, and Income Tax are set to be digitalized and paper-less within two years.
- Gross Borrowing: The government’s gross borrowing for the fiscal year is budgeted at Rs 14.13 lakh crore to fund the fiscal deficit.
- Tax Collection Efficiency: The cost of collecting direct taxes has decreased from 0.66% of gross collections in FY20 to 0.51% in FY23, reflecting improved efficiency.
- Insurance Affordability: Measures to make life and health insurance more affordable are introduced, aiming for “Insurance for All by 2047.”
