A significant piece of law in India, the Finance Act greatly shapes the nation’s financial and tax scene. The government presents it yearly to formally document its tax ideas and describe the financial strategies for the next fiscal year.
The Act has a broad spectrum of clauses covering changes to exemptions and deductions, introduction of new taxes, and reform of current tax rules. By doing this, one immediately affects the tax responsibilities of people, companies, and investors and guarantees the fulfilment of government financial and developmental targets.
This article seeks to give a thorough grasp of the Finance Act, its elements, passing its procedure, and its effect on the Indian economy and taxpayers.
What is the Finance Act?
A yearly statute, the Finance Act allows the government to carry out its fiscal year’s financial plans. It converts Union Budget clauses into legislative changes to tax laws, therefore affecting income tax, corporation tax, indirect taxes, and other fiscal concerns.
Unlike the union budget, which incorporates revenue and expenditure estimates, the Finance Act concentrates on tax and financial regulation changes.
The passing of the Finance Act starts with the presentation of the union budget by the finance minister, therefore delineating financial recommendations for the next fiscal year on the finance bill. Introduced in Parliament, this Bill is examined, discussed, and changed by the Lok Sabha and the Rajya Sabha. Both houses approve it; it then goes to the President for ratification. The Bill becomes the Finance Act after the President approves it, therefore formalising the suggested tax cuts and financial clauses.
You may also like: How the 2024 budget will transform economy and stock market – Key Insights!
Schedules of the Finance Act India
- Schedule I: Income tax
- Lists tax rates, exemptions, and tax slabs for individuals, businesses, and hindu undivided families (HUFs’).
- Covers specifics on adjustments in deductions under sections including 80C (savings), 80D (health insurance), and more.
- Specifies changes to income levels for exemption, TDS rules, and capital gains tax rates.
- Schedule II: Corporate tax
- Details changes to corporate tax rates for domestic and foreign companies.
- It features tax concessions for particular sectors including manufacturing, startups, and exports.
- Rules about the minimum alternate tax (MAT) and the dividend distribution tax are emphasised.
- Schedule III: Indirect Taxes
- It addresses revisions to the goods and services tax (GST) rules, including lower rates and new guidelines for input tax credits.
- Explains adjustments made to import and export taxes in order to support local manufacturing.
- Sets the rates of excise taxes for items including oil, alcohol, and tobacco.
- Schedule IV: Amendments to other acts
- Provides details on updates to other tax-related acts, such as:
- The Black Money (Undisclosed Foreign Income and Assets) Act, 2015
- The Benami Transactions (Prohibition) Act
- The Wealth Tax Act (if applicable).
- Includes provisions to strengthen anti-tax evasion measures and ensure compliance.
- Schedule V: Rates of stamp duties
- Specifies changes to stamp duties applicable to property transactions, shares, and other financial instruments.
- Schedule VI: Social welfare cess
- Outlines provisions for cess levied to fund health, education, and rural development initiatives.
- Schedule VII: Dispute resolution
- Includes things like the Vivad Se Vishwas Scheme to settle tax issues that are still open.
- Sets deadlines, criteria for qualifying, and accommodations for taxpayers who choose to settle their differences.
- Schedule VIII: Fiscal responsibility
- Details fiscal deficit targets, government borrowing limits, and measures for fiscal consolidation.
- Sets priorities for public spending and revenue generation.
These schedules help streamline the Finance Act by organising complex amendments and new provisions into distinct, easily accessible categories, ensuring clarity for legislators, administrators, and taxpayers. The specifics of each schedule may vary depending on the year’s fiscal and economic priorities.
You may also like: Exploring financial literacy education
Key changes in Finance Acts 2024
The Finance Act of 2024 will cause significant changes in India’s fiscal system and tax code. These developments aim to simplify compliance, increase economic development, and clarify things more generally. Some of the most crucial points are listed here:
- Direct tax reforms
- Shortened holding period for long-term capital gains: The Act reduces the holding period for classifying capital gains as long-term from 36 months to 24 months for specific asset classes. This change benefits investors by providing favourable tax rates on gains sooner.
- Inclusion of buyback transactions: Payments made by businesses for buybacks, compliant with Section 68 of the Companies Act, 2013, are now covered under definitions of taxable income. This guarantees a more thorough tax base broadening and higher compliance.
- Incentives for cruise tourism: A new provision (Section 10(15B)) exempts lease rental income from foreign companies operating cruise ships in India, provided the operations are conducted by a subsidiary. This is meant to help India stand out as a cruise ship destination worldwide.
- Amendments in income tax procedures
- Increased agricultural income tax thresholds: The revised taxation clauses for agricultural income raise thresholds for senior and super-senior citizens to 3 lakh and 5 lakh, respectively. This benefits individuals reliant on agriculture for income.
- Revised tax deduction at source (TDS) rates: Updates to TDS and advanced tax provisions streamline compliance and ensure equitable taxation across various income levels.
Also read: What is TDS? A complete overview of TDS in income tax
- Indirect tax adjustments
- Goods and services tax (GST): Further tightening GST compliance for companies, a new section (11A) presents additional input tax credit rules.
- Corporate tax reforms
- Reduced corporate tax rate for new manufacturing companies: To draw investments and promote development in this industry, the corporate tax rate for newly established manufacturing companies has dropped to 15%.
- Extended startup tax holiday: Startups today have extended tax exemptions, thus fostering innovation and entrepreneurship in newly developing industries.
- Fiscal policy measures
- Vivad Se Vishwas Scheme 2.0: The new dispute resolution mechanism aims to efficiently address unresolved tax claims, thus lowering litigation and freeing public funds.
- Increased capital expenditure allocation: Aiming at infrastructure development – including roads, trains, and urban projects, the Finance Act 2024 increases the capital expenditure allocation to ₹10 lakh crore. This is supposed to boost employment possibilities and spur economic development.
- Anti-avoidance and black money amendments
- Enhanced scrutiny under the Black Money Act: Tightening clauses in the Black Money (undisclosed foreign income and asset) Act help to reduce hidden offshore interests.
- Benami property compliance: Updates in the Prohibition of Benami Property Transactions Act seek to discourage additional abuse of Benami ownership.
Impact of the Finance Act and its role in financial legislation
Crucially important to India’s financial laws, the Finance Act provides the legal basis for carrying out government budgetary policies. It converts the ideas in the union budget into legally enforceable rules that guarantee tax and financial policies complement the national economic priorities. The Act maintains the legal framework dynamic and is responsive to economic changes by including new provisions and changes to current laws.
The influence of the Act reaches the financial ecology. For taxpayers, it determines their obligations through revised tax rates, exemptions, and compliance norms. For businesses, especially SMEs and corporates, it establishes the fiscal environment, influencing profitability and growth strategies. Investors also feel its effects, with changes in capital gains tax and other financial instruments shaping their investment decisions.
The Finance Act, most importantly, supports fair resource allocation and financial discipline. Funding infrastructure, welfare programs, and basic public services helps to underline national development and promote responsibility in financial management.
Bottomline
India’s fiscal system depends critically on the Finance Act, which transforms tax proposals and government financial policies into laws. Covering tax reforms, corporate taxation, and anti-evasion policies, its complete structure guarantees a strong and flexible financial system.
For taxpayers, companies, and investors, as it influences financial planning, compliance, and investment strategies, knowledge of the Finance Act is absolutely crucial. Furthermore, it is essential to fund infrastructure and public services to influence the growth of India.
FAQs
What are the highlights of the Finance Act 2024?
Significant tax changes brought about by the Finance Act 2024 include lowered corporate tax rates for newly established manufacturing firms, extended tax holidays for startups, and increased Black Money Act scrutiny under which they fall. It also changes the Benami Property Transactions Act, directs more capital spending, and streamlines compliance processes. Benefiting taxpayers, companies, and investors equally, these adjustments seek to increase economic growth, enhance tax compliance, and support infrastructure development.
What is the TDS Finance Act 2024?
Significant changes to tax deduction at source (TDS) are brought about by the Finance Act 2024 For TDS on salaries, for instance, it broadens Section 192’s scope to take income under several heads. It also changes tax rates for dividends (Section 194) and TDS rules for interest on securities (Section 193), which addresses floating rate savings bonds. Effective October 1, 2024, these changes seek to simplify TDS compliance and improve tax collecting systems.
What are the main points of the budget 2024?
Social welfare and economic development take front stage in the union budget 2024–25. Important points of emphasis are more middle-class tax relief, infrastructure capital spending, startup incentives, and more healthcare funding. The budget also stresses support of agriculture, digital transformation, and green energy projects. Along with steps to increase ease of doing business and fiscal consolidation, measures to boost manufacturing and exports are presented.
What is the new tax slab in 2024?
These are the new tax slabs for 2024-25 under the new tax regime u/s 115BAC:
| Income tax slab | Income tax rate |
| Up to ₹ 3,00,000 | Nil |
| ₹ 3,00,001 – ₹ 6,00,000 | 5% above ₹ 3,00,000 |
| ₹ 6,00,001 – ₹ 9,00,000 | ₹ 15,000 + 10% above ₹ 6,00,000 |
| ₹ 9,00,001 – ₹ 12,00,000 | ₹ 45,000 + 15% above ₹ 9,00,000 |
| ₹ 12,00,001 – ₹ 15,00,000 | ₹ 90,000 + 20% above ₹ 12,00,000 |
| Above ₹ 15,00,000 | ₹ 1,50,000 + 30% above ₹ 15,00,000 |
These are the tax rates for Individuals (resident or non-resident) less than 60 years of age.
How many heads of income are there?
There are five heads of income under the Income Tax Act, 1961:
- Income from salary: Earnings from employment.
- Income from house property: Rental income from property.
- Profits and gains of business or profession: Income from business or professional activities.
- Capital gains: Income from the sale of capital assets.
- Income from other sources: Residual income not covered under the other heads.
These categories help in the systematic assessment of income for taxation.
