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The finance minister (FM) saved the most impactful announcement for last — salary income up to Rs 1 lakh per month is now tax-free. This move provides significant relief to taxpayers, mirroring the Rs 1 trillion corporate tax cut giveaway of 2019. The expectation is that individuals will spend more, boosting urban consumption, which has been sluggish. While other personal tax amendments were introduced, they were overshadowed by this game-changing tax revision. Notably, despite a new Income-Tax Bill expected next week, the existing Act saw 86 amendments.
The reduction in TDS (tax deducted at source) rates and rationalisation of TCS (tax collected at source) provisions are welcome steps. Increasing the Liberalised Remittance Scheme (LRS) limit from Rs 7 lakh to Rs 10 lakh and removing TCS on remittances for education loans provide much-needed relief. A further boost could come if the FM persuades the Reserve Bank of India to expand mutual fund investment limits in foreign securities. This limit has remained tightly controlled by them despite MFs being well-regulated. Given that such investments must be redeemed in Indian rupees, this would ensure capital eventually flows back into the country.
A lesser-noticed but crucial amendment empowers the Central Board of Direct Taxes (CBDT) to set salary limits for employees, allowing benefits like overseas medical aid to be exempt from perquisite calculations for such employees. Adjusting these limits for inflation is long overdue, as the current thresholds were set over 20 years ago. This principle of notifying inflation-adjusted limits should extend across all tax-related limits, provided there is transparency in their determination. Hopefully, the new tax Bill will incorporate such measures.
Another key announcement was extending the PM Jan Aarogya health insurance scheme to 10 million gig workers. While funding details remain unclear — possibly covered by employers — its successful implementation could significantly improve gig workers’ financial security and access to health care.
Another underappreciated announcement is the development of a structured pension payout product. Until now, pension reform has focused on accumulation — building a corpus — while annuities, which provide payouts, have been relegated to the insurance industry, where they receive minimal attention. The FM’s proposed regulatory coordination forum to address this gap is a much-needed move in a country where, despite a young population, the absolute number of senior citizens is rapidly rising.
Among the most transformative reforms is the long-awaited rollout of the revamped Central KYC Registry in 2025. Once a bank account is opened and KYC is completed, customers will be able to seamlessly access financial products without repetitive verifications. This initiative, befitting India’s digital prowess, has faced multiple delays despite its potential to revolutionise financial accessibility. If implemented, it will be a “UPI moment” for the financial sector, significantly enhancing ease of living.
The FM emphasised that the new Income-Tax Bill will uphold the spirit of “Nyaya” (fairness). An immediate test lies in how the tax department handles a recent rebate issue. In FY24, the tax utility wrongfully blocked taxpayers from claiming the legitimate Section 87A rebate on certain kinds of capital gains.
For example, a taxpayer earning Rs 5.5 lakh (tax payable Rs 12,500) plus Rs 50,000 (tax payable Rs 10,000) in long-term capital gains. The total taxable income was Rs 6 lakh (Rs 5.50 lakh plus Rs 50,000), and total tax payable was Rs 22,500 (Rs 12,500 plus Rs 10,000). But the taxpayer was entitled to a full rebate, resulting in zero tax liability. However, the department’s system incorrectly denied the rebate on long-term capital gains, forcing affected taxpayers to pay Rs 10,000. Following a Mumbai High Court ruling in December 2024, the utility was corrected, but only those aware of the change could claim refunds.
Ironically, the government is now proposing to amend the Act to explicitly deny this rebate starting FY26 — implying it was indeed valid for FY24. If the tax department truly embraces “Nyaya,” it should proactively refund the excess tax collected and ensure that the rebate remains available for FY25. The new tax Bill next week will be a true test of whether words translate into action.
The writer heads FeeOnly Investment Advisers LLP (The views are personal)
Disclaimer: These are personal views of the writer. They do not necessarily reflect the opinion of www.business-standard.com or the Business Standard newspaper
(A slightly different version of this column first appeared in the Business Standard on Feb 02, 2025)