How the Budget affects your salaries, investments and taxes

The long-term capital gains tax for equities was modified for the first time after it was reintroduced in the 2018 budget. The government, however, did not announce a much-anticipated relaxation in the tax treatment of debt mutual funds.

Here are answers to two common queries that people have:

I sold some equity mutual funds on 1 April and exhausted my ₹1 lakh capital gains exemption for the financial year. Since the budget has now increased the exemption limit to ₹1.25 lakh, can I redeem some more equity mutual funds/equity shares and get another ₹25,000 exemption for this financial year?

Yes, you can redeem more of your equity mutual funds/equity shares and avail a total exemption of ₹1.25 lakh for the financial year now. If you have exhausted the ₹1 lakh limit for the financial year, you will get another ₹25,000 from hereon. This applies to stocks as well.

Also, let’s say you have already made long-term capital gains worth ₹2 lakh, then you are eligible to claim an exemption of up to ₹1.25 lakh vis-a-vis the earlier limit of ₹1 lakh.

It is important to note that capital gains tax for equities will now occur at a higher rate. For stocks and equity mutual funds held for more than a year, the long-term capital gains tax is now 12.5%, up from 10%. If held for less than 12 months, the taxation is now 20% as compared to 15% earlier.

Inputs from Nitesh Buddhadev, chartered accountant and founder of Nimit Consultancy

Read: Budget 2024: What changes in capital gains taxes mean for investors | Mint (livemint.com)

I have a yearly salary of ₹9 lakh and have opted for the new tax regime. The budget has proposed lowering the tax rate from 15% to 10% for the slab rate. My employer is already deducting TDS at a higher rate. Will the employer start deducting TDS as per the proposed lower rate from next month, or will it be revised from next year?

Let’s take a hypothetical example. Assuming somebody’s salary who opted for the new tax regime (introduced in 2020) is ₹9 lakh annually and his total tax liability is ₹46,800  under the current slab rate. Now, after the lower proposed rate, let’s say the tax liability reduces to ₹33,800. 

Considering a uniform TDS is deducted for the entire financial year every month, ₹3,900 TDS would have been deducted for April, May, and June. This means ₹15,600 would have been deducted to date. Going forward, since the yearly liability has been reduced, the employer will have to revise the monthly TDS such that it meets the yearly tax liability. In this case, it will be ₹2,275 per month for the remaining nine months of the financial year.

This is a hypothetical example for illustrative purposes. The final revision will happen after the budget proposal gets the approval of the President of India.  Also, note that any bonus you received during the year will be included in your total salary and thus might increase your tax liability if you now belong to a higher slab rate.

For context, anyone opting for the new tax regime whose income is between ₹6 lakh and ₹7 lakh will enjoy a 5% taxation vis-a-vis 10% before, and those earning ₹9 to ₹10 lakh will be subject to a 10% taxation as compared to 15% before. Also, they will get a standard deduction of ₹75,000 (instead of ₹50,000).

Inputs from Prakash Hegde, a Bangalore-based chartered accountant