Your Union Budget 2024 cheatsheet: Direct, indirect taxes and what you must look for

What are direct taxes?

Direct taxes are taxes that are levied by the government on the income of entities like a person or a company.

What are some examples of direct taxes?

Income tax: Income tax is the most well-known example among direct taxes. It is a tax levied on the income of a person in a financial year. It is a progressive tax, meaning that as the income increases, the amount of tax to be paid also increases. India has two separate regimes for paying income tax, known as the new regime and the old regime.

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The new regime is an optional alternative to the older tax system, aiming to provide taxpayers with more flexibility and choice in managing their tax obligations. It has different slabs as well as different types of deductions.

What are the various tax slabs currently in place?

The slabs for the new tax regime are as follows:

Up to ₹3 lakh: NIL

₹3-6 lakh: 5% on income which exceeds ₹3 lakh

₹6-9 lakh: ₹15,000 + 10% on income more than ₹6 lakh

₹9-12 lakh: ₹45,000 + 15% on income more than ₹9 lakh

₹12-15 lakh: ₹90,000 + 20% on income more than ₹12 lakh

Above ₹15 lakh: ₹1.5 lakh + 30% on income more than ₹15 lakh

The slabs for the old tax regime are as follows:

Up to ₹2.5 lakh: Nil

₹2.4-5 lakh: 5% above ₹2.5 lakh

₹5-10 lakh: ₹12,500 + 20% above ₹5 lakh

Above ₹10 lakh: ₹1,12,500 + 30% above ₹10 lakh

Corporate tax: Corporate tax is the tax levied on the profits made by a company. Currently, companies with an annual turnover which is below ₹250 Crore have to pay a 25% tax on their profits, while those with a higher turnover have to pay 30% as tax.

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Other types of direct taxes include capital gains tax, which is a tax on profits earned from selling assets like real estate, securities transaction tax for sale of shares on the stock exchanges, gift tax, wealth tax, etc.

The government may consider lowering some of the rates in the upcoming Union Budget 2024 to boost consumption in the economy since even though the economy grew at 8.2%, consumption only grew by half of that and he Reserve Bank of India (RBI)’s household inflation expectations survey revealed that households expect inflation to increase by 20 basis points (bps) for the next three months and 10 bps for the next one year.

What are indirect taxes?

Indirect taxes are taxes that are levied by the government on the consumption of goods and services by the public. It is called indirect because it comes indirectly from the consumer.

What are some examples of indirect taxes?

Goods and services tax (GST): GST is imposed by the government on the consumption of goods and services. The various slabs of GST include 0%, 5%, 12%, 18%, and 28%. GST slabs are arranged in terms of how essential a product is to everyday life. Essential goods get a lower tax slab and luxury gets get a higher tax slab.

GST is divided into 4 types: Central GST (CGST), State GST (SGST), Union Territory GST (UTGST), and Integrated GST (IGST).

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All tax collected from intra-state trade, which is trade within a state or a union territory is divided into two halves. One half is collected as CGST for the central government and the other half goes as SGST to the state government or as UTGST for the union territory.

IGST is for all inter-state trade or trade between two states or union territories. This tax amount goes entirely to the central government.

Other examples of indirect taxes include value added tax (VAT), service tax, excise duty, and so on.