Budget 24-25 Changes to Payroll: What You Need to Know
August 21th 2024
The Union Budget for 2024-25, presented by Finance Minister Nirmala Sitharaman, introduces significant changes aimed at economic growth, sustainable development, and enhancing the welfare of various segments of society.
The Proposed budget has profound implications on Payroll (both on the employer as well as the employees’ end). If you are someone who has manual processes around executing Payroll, several things might change in your workflow. Here's a detailed guide on what the new budget entails for employees, employers, and investments in securities.
Impact on Employees
Changes in Income Tax Slabs
The budget revises the income tax slabs to provide relief to middle-income earners:
The income limit for availing of a rebate has been increased from ₹5 lakh to ₹7 lakh.
The number of tax slabs has been reduced from six to five, simplifying the tax structure.
The new rates are:
• Up to ₹3,00,000: Nil
• ₹3,00,001 to ₹6,00,000: 5%
• ₹6,00,001 to ₹9,00,000: 10%
• ₹9,00,001 to ₹12,00,000: 15%
• ₹12,00,001 to ₹15,00,000: 20%
• Above ₹15,00,000: 30%
Here's the summary of the old vs new regime:
Revised Standard Deductions
Employees will benefit from an increase in standard deductions, allowing for higher take-home pay and savings on taxable income.
Salaried individuals and pensioners under the new regime will benefit from a standard deduction of ₹50,000. Additionally, the highest surcharge rate is reduced from 37% to 25%, lowering the maximum personal income tax rate to 39%
National Pension Scheme (NPS) Contributions
Employer contributions to NPS have been increased to 14% for employees opting for the new tax regime, providing better retirement savings.
ESOPs and Other Benefits
The budget provides relief for employees in multinational companies by de-penalizing the non-reporting of foreign movable assets valued up to ₹20 lakhs. Additionally, credit of TDS and TCS will be allowed while computing the amount of tax to be deducted on salary income.
Benefits for Employers
Incentives for Hiring First-Time Employees
First-time formal sector employees with a salary up to ₹1 lakh will receive a direct benefit transfer equivalent to one-month salary in three installments.
Government Support for Employers
Employers will be reimbursed up to ₹3,000 per month for two years towards EPFO contributions for each additional employment within a salary of ₹1 lakh
Government Support for MSMEs
A revamped credit guarantee scheme will take effect from April 2023, providing collateral-free guaranteed credit and reducing the cost of credit by about 1%. Additionally, 95% of forfeited amounts relating to bid or performance security will be returned to MSMEs that failed to execute contracts during the COVID-19 period.
Corporate Tax Reductions
The corporate tax rate for foreign companies has been reduced from 40% to 35%, aimed at attracting foreign investments and boosting economic activities.
Rationalization of TDS Rates
The budget proposes reduced TDS rates for various payments, including rent, commissions, and e-commerce transactions, effective from October 2024.
Section 194-IB (rent payment by individual/HUF): 5% to 2%
Section 194H (commission/brokerage): 5% to 2%
Section 194-O (e-commerce payments): 1% to 0.1%
Effective From: 1-10-2024
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Implications for Retail Investors
Capital Gains Tax Adjustments
The budget rationalizes the capital gains tax rates:
Short-term capital gains (STCG) will now be taxed at 20% (previously 15%).
Long-term capital gains (LTCG) will be taxed at 12.5% (previously 10%).
Securities Transaction Tax (STT)
The STT on the sale of futures and options in securities has been increased to improve market stability and encourage investments
Futures:
STT on sale increased from 0.0125% to 0.02%Options:
STT on sale increased from 0.0625% to 0.1%
Taxation on Unlisted Financial Assets
The holding period for long-term gains on unlisted financial assets has been reduced from 36 months to 24 months, and the tax rate has been set at 12.5%. Indexation benefits have been removed for calculating LTCG.
Buyback of Securities
Income from the buyback of shares or securities by companies will now be chargeable in the hands of the recipient as dividends, effective from October 2024.
Payroll with Craze
Finally, there’s light at the end of this tunnel. While you can spend hours on revamping your system for processing Payroll according to the new budget guidelines (reconfiguring your tax calculators, generating payslips, etc), the easier and recommended way is just switching to Craze Payroll Software to continue working on your business without worrying about tax reforms, legal and compliance implications on people management.
FAQs: Addressing Common Questions
Is the Old Tax Regime Being Phased Out?
No, the old tax regime is still available. Employees can choose between the old and new regimes based on what benefits them the most.
Are Benefits Such as Meal/Food Allowances and Fuel Reimbursements Still Applicable Under the New Regime?
Yes, some benefits may still be applicable, but this depends on specific provisions and amendments in tax laws.
When Do the Changes Take Effect?
The changes are typically effective from the new financial year starting in April 2024, unless specified otherwise in the official government notifications. In our case, it would be effective immediately considering the FY has commenced
Are Interns Required to Register Under EPFO?
Generally, interns are not required to register under EPFO. The applicability for probationary employees depends on company policies and legal requirements.
How Are Mutual Funds Affected?
The taxation on mutual funds has been clarified, with changes in both STCG and LTCG rates. This aims to align mutual fund investments with long-term financial planning.
What Are Employer Responsibilities Regarding Employee Declarations for Capital Gains?
Employers are responsible for facilitating the collection of necessary declarations from employees but the onus of reporting capital gains transactions lies primarily with the employees.
