TDS On Mutual Funds To Aadhaar Enrolment Updates: Key Income Tax Changes Effective Oct 1

Income Tax update: Announced during the Union Budget 2024, these changes aim to streamline tax processes, provide relief in certain areas, and tighten measures in others

Some key income tax reforms, announced during the Union Budget 2024 by Finance Minister Nirmala Sitharaman, are set to come into effect starting October 1, 2024. These changes aim to streamline tax processes, provide relief in certain areas, and tighten measures in others. Here are the key updates taxpayers need to be aware of:

TDS on Government Bonds Introduced

Beginning October 1, 2024, a 10 per cent Tax Deducted at Source (TDS) will be applied to interest earned from certain central and state government bonds, including floating rate bonds. This move, introduced in the Budget 2024, aligns government bonds with other financial instruments already subject to TDS. Bonds like the Floating Rate Savings Bond will now see TDS deducted from interest payouts, affecting post-tax returns for investors.

Increase in STT on Futures and Options (F&O) Trading

A notable change is the hike in the Securities Transaction Tax (STT) on futures and options trading, aimed at curbing speculative activities in the derivatives market.

For Options: STT on the sale of options will rise from 0.0625 per cent to 0.1 per cent of the premium. For instance, selling an option with a premium of Rs 100 will now incur an STT of Rs 0.10, up from the previous Rs 0.0625.

For Futures: STT on the sale of futures will increase from 0.0125 per cent to 0.02 per cent of the trade value. Selling a future contract worth Rs 1 lakh will now attract an STT of Rs 20, up from Rs 12.50.

Reduction in TDS on Life Insurance Payouts

Policyholders will benefit from a lower TDS on life insurance payouts. Starting October 1, 2024, the TDS rate will drop from 5 per cent to 2 per cent, ensuring that individuals receive a larger share of their insurance maturity or claim amounts.

Lower TDS on House Rent Payments

For those paying rent above Rs 50,000 per month, TDS will be reduced from 5 per cent to 2 per cent, effective October 1, 2024. This change under Section 194-IB, which governs TDS on rent payments by individuals or Hindu Undivided Families (HUFs), will provide financial relief to high-rent payers by allowing them to retain more of their income.

Withdrawal of 20% TDS on Mutual Fund Repurchases

In a significant relief for investors, the 20 per cent TDS on mutual fund repurchases will be withdrawn from October 1, 2024. Section 194F, which mandated this TDS on the redemption of mutual fund units, will be removed from the Income Tax Act, allowing investors to redeem their units without facing hefty tax deductions.

Share Buybacks Now Taxable at Shareholder Level

From October 1, 2024, share buybacks will be taxed at the shareholder level, similar to the taxation of dividends. Investors participating in buybacks will now be liable for capital gains taxes, with acquisition costs factored into the calculations, imposing a heavier tax burden on shareholders.

Aadhaar Enrolment ID No Longer Valid for PAN Applications and ITR Filing

Effective October 1, 2024, Aadhaar enrolment IDs will no longer be accepted for applying for a Permanent Account Number (PAN) or for filing income tax returns.