Income Tax Changes In 2024: Key Reforms That Redefined Personal Finance In India

Last Updated:December 22, 2024, 10:42 IST

Income Tax Changes In 2024: The Budget 2024 also introduced several measures to benefit salaried employees and pensioners

Tax Changes In 2024: As the year comes to an end, India’s financial landscape has witnessed notable transformations, particularly in income tax reforms and personal finance strategies. The Union Budget 2024-25 also brought impactful changes to the personal income tax framework, aiming to simplify the tax system, improve compliance, and drive economic growth. Highlights include updated tax slabs, higher deductions for salaried individuals and pensioners, and major reforms in capital gains taxation.

Krishan Mishra, CEO of the Financial Planning Standards Board, India (FPSB India), highlighted certain changes in 2024 as pivotal in shaping a more responsible and informed approach to financial planning among Indians.

Unified Pension Scheme: Balancing Security and Flexibility

One of the standout discussions of the year has been the Unified Pension Scheme (UPS), an innovative model combining the security of the Old Pension Scheme (OPS) with the flexibility of the National Pension System (NPS). This hybrid solution aims to provide retirees with financial stability while alleviating the fiscal strain on the government. However, its success hinges on addressing the logistical and political challenges that accompany such an ambitious reform.

Tax Reforms: Simplification and Long-Term Focus

The 2024 tax reforms introduced notable changes, particularly in capital gains taxation. The long-term capital gains (LTCG) tax rate was increased from 10% to 12.5%, and short-term capital gains (STCG) taxation was adjusted to 20% for select financial assets. While these hikes have raised concerns, a significant reclassification—defining assets held for over a year as long-term—encourages sustained investment.

“These measures not only simplify compliance but also promote long-term financial planning, which is crucial for individual wealth growth and the economy at large,” said Mishra.

Evolving Role of Insurance and Strategic Investments

Another major reform has been the changing perception of insurance. No longer viewed merely as a tax-saving instrument, insurance is increasingly recognised as a core risk management tool. This shift discourages unethical tax-saving practices and fosters more responsible financial decisions.

Additionally, the government has emphasized the importance of strategic investments and portfolio diversification, guiding individuals toward a secure financial future. This approach aligns with the growing demand for sustainable financial planning that balances returns with societal and environmental considerations.

The Role of Technology in Financial Planning

Technology has continued to revolutionise personal finance in 2024, with tools for budgeting, investment tracking, and goal setting becoming more accessible. Yet, as Mishra notes, human understanding and emotional intelligence remain irreplaceable.

“Technology serves as an assistant, not a replacement, for financial advisory and decision-making. Learning to adapt to these tools is key to staying relevant in an evolving financial landscape,” Mishra emphasised.

A Year of Financial Responsibility and Innovation

The reforms and trends of 2024 have laid a strong foundation for personal finance, blending innovation with a renewed focus on responsibility. Indians are now better equipped to make informed financial choices, prioritising long-term security over short-term gains.

Union Budget 2024-25

Personal Income Tax: Key Highlights of Income Tax Changes In Union Budget 2024

Revised Tax Slabs

The new tax regime now offers substantial benefits for salaried employees, providing up to Rs 17,500 in income tax savings. These changes aim to make the tax system more favorable for middle-income earners, alleviating financial burdens and encouraging compliance.

Additionally, the revised structure enhances disposable income for salaried individuals and pensioners, contributing to overall economic well-being.

Simplification of Reassessments

To reduce tax disputes, the government has simplified the rules for reassessment:

• Assessments can now be reopened beyond three years (up to five years) only if the escaped income exceeds Rs 50 lakh.
• In search cases, the reassessment time limit has been reduced from 10 years to six years before the year of search.

Enhanced Deductions and Exemptions

The Budget introduced several measures to benefit salaried employees and pensioners:

• The standard deduction under the new tax regime increased from Rs 50,000 to Rs 75,000.
• Pensioners can now claim a higher deduction on family pensions, raised from Rs 15,000 to Rs 25,000.

Capital Gains Taxation Reforms

Short-Term Capital Gains

• Short-term capital gains on specified financial assets are now taxed at 20%, replacing the earlier 15% rate.
• Other financial and non-financial assets will continue to be taxed at their applicable rates, ensuring consistency.

Long-Term Capital Gains

• A uniform tax rate of 12.5% (without indexation) has been introduced for long-term capital gains on all financial and non-financial assets, replacing the earlier 20% rate with indexation (Section 112).
• The exemption limit for capital gains on certain financial assets has been raised from Rs 1 lakh to Rs 1.25 lakh annually, benefiting lower and middle-income taxpayers.

The Income Tax Act, 1961, the cornerstone of India’s direct taxation system, is also under review by the government as part of efforts to modernise tax laws and align them with the country’s evolving economic landscape. This review seeks to simplify compliance, address ambiguities, and ensure a fairer and more transparent taxation framework.

As the nation looks ahead to 2025, the spotlight will remain on sustainable financial planning, responsible investing, and insurance as a risk management tool. These developments mark a shift toward a financially secure future for individuals and the economy alike.