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Discover the Finance Act and explore the intricacies of income-tax rates, TDS regulations, and advance tax guidelines. Stay well-informed, and navigate the world of taxation effortlessly.
The Finance Bill is a crucial part of India’s Union Budget, outlining all the legal changes needed for proposed adjustments in taxation set by the Finance Minister. To make these changes official, the lower house of Parliament, Lok Sabha, must approve the Finance Bill as a Money Bill. Once Lok Sabha gives the green light, the Finance Bill transforms into the Finance Act.
In this article, we’ll break down what is Finance Act and take a closer look at the different sections that make up this yearly financial legislation.
The Finance Act involves essential adjustments in both direct taxes (like income tax and wealth tax) and indirect taxes (including excise duties, customs duties, and service tax), representing the policy decisions of the Union Government.
Usually unveiled in the final week of February each year, the Finance Bill carries amendments for direct and indirect taxes. It was introduced in Parliament by the Finance Minister.
After being presented, the finance bill undergoes examination and necessary changes in both houses of Parliament. Once Parliament approves it, the bill heads to the President for their approval. Upon receiving the President’s nod, the finance bill transforms into the Finance Act.
The effective date for applying the provisions outlined in the Annual Finance Act is typically mentioned in the official gazette or within the Act itself. Generally, the changes introduced by the Finance Act become applicable from the start of the next financial year. In the context of indirect taxes, the ad valorem tax rates (tax rates based on value) become effective from midnight of the date of the Union Budget presentation.
The First Schedule within the Annual Finance Act is structured into four distinct parts, each serving a specific purpose in the realm of taxation and financial regulations:
This section will provide detailed information about the rates applicable for the ongoing Assessment Year. This essentially outlines the specific income-tax rates individuals and entities should adhere to during the current financial period. For instance, the Finance Act would offer income-tax rates relevant to the ongoing Assessment Year, providing a clear guideline for tax obligations.
Delving into this segment, you will discover the rates of Tax Deducted at Source (TDS) for the current financial year. TDS is a crucial aspect of taxation. Part II of the Finance Act acts as a reference point for individuals and businesses by specifying the rates applicable during the present financial period. This ensures compliance with the tax regulations in force. For example, the Finance Act could outline the TDS rates for the ongoing financial year, aligning with the subsequent Assessment Year.
This part of the First Schedule covers the TDS rates related to income classified under ‘Salaries’ and encompasses the advance tax rates applicable in the current financial year. Advance tax is a mechanism by which taxpayers make periodic payments of their taxes throughout the financial year instead of a lump sum at the end. Part III of the Finance Act, for instance, may lay out the rates of advance tax for the ongoing financial year, offering a comprehensive guide for taxpayers as they plan their financial obligations.
This section plays a crucial role by providing the framework and rules for the computation of net agricultural income. Comprehending and calculating agricultural income is a distinctive aspect of taxation and Part IV of the Finance Act ensures a structured approach to determining net agricultural income. This contributes to a more transparent and standardised assessment process, aligning with the broader goals of financial governance.
Here are the key changes introduced in the Union Budget 2023-2024, bringing substantial modifications to the tax structure:
The new tax structure streamlines the system by reducing the number of slabs to five, promoting simplicity and ease of compliance.
The tax rebate limit has been raised to ₹7 lakh, rendering income up to this threshold tax-free, offering substantial relief to a broader section of taxpayers.
Income above ₹5 lakh derived from insurance policies will no longer enjoy tax-free status, changing the taxation of such income.
Salaried individuals with an income of ₹15.5 lakh or above stand to benefit significantly, with tax liability reduced by ₹52,500.
The tax exemption on Leave Encashment sees a substantial increase, with the limit raised from ₹3 lakh to ₹25 lakh, providing enhanced benefits to eligible taxpayers.
The highest surcharge rate has been reduced from 37% to 25%, decreasing the maximum tax rate to 39%, and relieving individuals in the higher income brackets.
The new income tax regime will now serve as the default tax regime, impacting how individuals calculate their tax liability and encouraging the adoption of the revised rates.
Individuals with an income up to ₹3 lakh will enjoy a tax-free status, while those earning between ₹3 lakh and ₹6 lakh will be subject to a modest 5.00% tax rate. The rates increase gradually with income, reaching 10% for the bracket of ₹6 lakh to ₹9 lakh, 15% for ₹9 lakh to ₹12 lakh, and 20% for ₹12 lakh to ₹15 lakh.
IFSC (International Financial Services Centre) units of foreign banks will be permitted to engage in acquisition financing, facilitating financial activities within the IFSC framework.
The National Financial Information Registry (NFIR) will be designed in consultation with the Reserve Bank of India, enhancing financial data management and regulatory oversight.
To sum up, the Annual Finance Act serves as a vital guide for everyone, offering clear insights into income-tax rates, TDS regulations, and advance tax guidelines for each financial year. Its four parts, especially Part IV, cater to various aspects, ensuring a straightforward and transparent financial landscape.
The Finance Act is an annual fiscal legislation enacted by the Indian Parliament to implement the financial proposals of the Central Government, covering aspects like income taxes, customs, excise, GST, and exemptions.
The Finance Bill is the initial proposal presented after the Union Budget. At the same time, the Finance Act is the final legislation enacted by Parliament, giving effect to the financial proposals for the upcoming fiscal year.
The Finance Act 2023 brings notable tax changes, reducing the highest surcharge rate to 25% for income above INR 5,00,00,000. Additionally, the threshold for rebate eligibility under Section 87A has increased from INR 5,00,000 to INR 7,00,000 for those adopting the new tax regime.
The Finance Bill, designated as a Money Bill, requires approval from the Lok Sabha, the lower house of Parliament, to become the Finance Act. Approval from the Lok Sabha is a crucial step in the legislative process for the Finance Bill.
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