The STT applicable to futures and options (F&O) trading is set to increase from October 1, 2024. Specifically, the tax rates for Futures & Options (F&O) of securities will rise to 0.02% and 0.1%, respectively. Union Budget 2024: Union Finance Minister Nirmala Sitharaman introduced some changes in terms of income tax in the Union Budget 2024. Some of these changes are already effective, while some will be applicable from October 1, 2024. These changes include the Aadhaar card, STT, TDS rate, Direct Tax Vivad Se Vishwas Scheme 2024, which were introduced in the Finance Bill 2024. Here are the details one needs to know in terms of these changes effective from October 1.
- Direct Tax Vivad Se Vishwas Scheme 2024
The Vivad se Vishwas Scheme will be implemented starting October 1, offering taxpayers an opportunity to settle specific pending tax disputes. Initially introduced in 2020 to handle tax appeals pending. Its effectiveness prompted Finance Minister, Nirmala Sitharaman to include 2024 modified version in the Union Budget for resolving disputes arising after that date. The Vivad se Vishwas scheme pertains to resolving disputes that are pending as of July 22, 2024. Taxpayers who have ongoing disputes regarding tax, interest, penalties, or fees before appellate bodies, high courts, or the Supreme Court are eligible to participate in this scheme. The settlement amount offered under this scheme is dependent on the timing of the payment. Taxpayers who opt to settle between October 1, 2024, and December 31, 2024, are required to pay either the disputed tax amount in full or 25% of the disputed interest, penalty, or fee. However, individuals who choose to settle after December 31, 2024, will need to pay either 110% of the disputed tax amount or 30% of the interest, penalty or fee in question. In cases where the Department has filed an appeal, the settlement amount will be reduced by half.
Four distinct forms have been issued:
Form-1: Declaration and Undertaking form for the declarant
Form-2: Certificate form to be issued by the Designated Authority
Form-3: Payment Intimation form for the declarant
Form-4: Order for Full and Final Settlement of tax arrears by the Designated Authority.
CBDT has notified 1 October 2024 as the date on which the Direct Tax Vivad se Vishwas Scheme, 2024 (VSV 2024) comes into force. The Scheme was announced in the 2024 budget presented by the FM on July 23 wherein, for any appeals pending as on 22 July 2024, the taxpayer has an option to settle their disputes with the Tax Authorities by opting for Vivad se Vishwas scheme. The VSV Rules, 2024 (including the applicable Forms) have also been notified. An interesting new provision under the VSV 2024 is the differentiation between a ‘new appellant case’ or an ‘old appellant case’. An old appellant case is someone who had an appeal pending on 31 January 2020 (the earlier cutoff for the old VSV 2020 Scheme) and that appeal is still pending at the same appellate forum and is being sought to be settled under VSV 2.0. The old appellant’s case will get penalized, in the sense, the settlement amount compared to a new appellant’s case would be higher by an extra 10% in the former’s case,” said Sandeep Bhalla, Partner, Dhruva Advisors.
- Aadhaar card
The Union Budget 2024 has proposed the discontinuation of the provision that allows quoting of Aadhaar Enrolment ID instead of the Aadhaar number. This decision aims to address PAN misuse and duplication issues. Starting from October 1, 2024, individuals will no longer be able to quote their Aadhaar Enrolment ID in the application form for PAN allotment and in their income tax returns. According to the Budget memorandum, Section 139AA of the Act requires individuals eligible for an Aadhaar number to quote it in the PAN application form and income tax returns effective from July 1, 2017. “The said provisions allowing the quoting of Aadhaar Enrolment ID in application form for allotment of PAN or in the return of income, was introduced in 2017. Since then, as per data available in public domain, coverage of Aadhaar number has been increasing, and has encompassed majority of the population in India. Hence, it is imperative to discontinue the option of quoting of the Enrolment ID of Aadhaar application form, as any allotment of PAN against the Enrolment ID may lead to duplication and misuse of PAN,” the Budget memorandum stated.
- STT
The Securities Transaction Tax (STT) applicable to futures and options (F&O) trading is set to increase from October 1, 2024. Specifically, the tax rates for Futures & Options (F&O) of securities will rise to 0.02% and 0.1%, respectively. Additionally, income received from share buybacks will now be taxed based on the beneficiaries’ taxable income. Furthermore, the STT on options sales will increase from 0.0625% to 0.1% of the premium. It is important to note that STT is imposed on both the buying and selling of various securities, including equity shares, futures, and options. The derivative markets have seen significant growth in recent years, playing a significant role in the overall trading volume on Indian stock exchanges. This adjustment in STT rates by the government aims to align with the increasing market activity and ensure that the tax levels reflect the transaction values appropriately.
- Floating TDS rate
In the Budget of 2024, a significant update was made regarding tax deductions at source (TDS), specifically related to central and state government bonds, including floating rate bonds. Effective October 1, 2024, a TDS of 10% will be applicable to these specified bonds. Moreover, the new TDS regulation encompasses the Floating Rate Savings Bond. If the revenue earned within the year is less than Rs 10,000, no Tax Deducted at Source (TDS) will be deducted. TDS will only be deducted once the income surpasses Rs 10,000 threshold limit. As outlined in Budget 2024, there is a proposal to modify Section 193 of the Income Tax Act, 1961 to impose TDS on the Floating Rate Savings Bond, 2020 (Taxable) and any other security issued by the Central or State Government, subject to notification by the Central Government.
- TDS rates
The Tax Deducted at Source (TDS) rates for payments under sections 19DA, 194H, 194-IB, and 194M have been reduced. The reduced rates are now 2% instead of the previous 5% for these sections. Additionally, there has been a decrease in the TDS rate for e-commerce operators from 1% to 0.1%.
> Section 194DA – Payment for life insurance policy
> Section 194G – Commission on lottery tickets’ sale
> Section 194H – Commission or brokerage
> Implementation of Section 194-IB regarding the payment of rent by specific individuals or Hindu Undivided Families (HUFs),
> Implementation of Section 194M concerning the payment of certain sums by designated individuals or HUFs
> The elimination of Section 194F focusing on payments related to mutual fund unit repurchases or UTI, are anticipated to take effect starting October 1, 2024.
- Buyback of shares
Effective October 1st, a new regulation will be in place regarding the taxation of share buybacks. Moving forward, shareholders will be responsible for paying taxes on buyback proceeds, mirroring the taxation of dividends. This change will transfer the tax burden from companies to shareholders, significantly impacting buyback strategies.
Key points:
Tax Redistribution: The current 20% tax imposed on buybacks by companies will be eliminated. Instead, shareholders will incur taxes on buyback proceeds as dividend income based on their individual tax brackets.
TDS Requirement: Companies will now be mandated to withhold tax at source (TDS) on buyback proceeds at a rate of 10% for resident individuals and 20% for non-resident individuals.
Treatment of Capital Losses: Shareholders can claim the cost of repurchased shares as a capital loss, which can be used to offset gains from selling other shares.
Potential Consequences: The higher tax liability for shareholders might discourage companies from relying on buybacks as their main way of returning capital to shareholders.
Objective of Changes: These adjustments are intended to make the tax treatment of buybacks more consistent with dividends, promoting a more equitable distribution of the tax burden. Nevertheless, the effects on corporate behavior and shareholder profits are yet to be observed.
