Income tax slabs for FY 2024-25: What businesses need to know

As a business owner, understanding the Income Tax Slabs for FY 2024-25 is crucial for your financial planning and compliance. The new tax regime brings significant changes that will impact your income tax return filing and overall tax strategy. Staying informed about these updates ensures you can make informed decisions about your business finances and tax obligations.

In this article, you'll learn about the revised tax slabs for different business structures and how they affect your tax calculations. We'll explore the impact of these changes on your business finances, discuss compliance requirements under the new tax regime, and provide insights to help you navigate the updated income tax rules for 2024. By the end, you'll have a clear understanding of what these changes mean for your business and how to prepare for the upcoming financial year.

Understanding the new tax regime for businesses

The new tax regime for businesses in FY 2024-25 brings significant changes to the income tax landscape. This updated system aims to simplify tax calculations and provide more flexibility for businesses. To help you navigate these changes, let's explore the key features, eligibility criteria, and pros and cons of the new tax regime.

Key features of the new tax regime

One of the most notable aspects of the new tax regime is that it has been made the default option for businesses. This means that unless you specifically choose to opt out, you'll be taxed under the new system. The new regime offers lower tax rates but with fewer deductions and exemptions available.

Under the new system, businesses can benefit from streamlined tax slabs and a higher tax rebate limit. For instance, there's now a full tax rebate on income up to ₹7 lakhs. This change is particularly beneficial for small businesses and startups with lower income levels.

Another significant feature is the increase in the standard deduction limit for salaried employees to ₹75,000. This change is expected to provide tax relief to a substantial number of salaried employees and pensioners.

Eligibility criteria

The new tax regime is available to various business structures, including individuals, Hindu Undivided Families (HUFs), and certain types of associations. However, it's important to note that the eligibility criteria and the process of opting for the new regime can vary depending on your business type.

For businesses with income from profession or business, the option to switch between the old and new regime is available only once in a lifetime. This means you need to carefully consider your decision, as it will have long-term implications for your tax planning.

If you wish to opt out of the new tax regime and choose to be taxed under the old regime, you'll need to submit Form 10-IEA on or before the due date for filing your income tax return. This form serves as a declaration of your choice to opt out of the new tax regime.

Pros and cons for businesses

The new tax regime has both advantages and disadvantages that businesses should consider carefully.

To make an informed decision, it's crucial to carefully evaluate your business's financial situation and long-term goals. Consider seeking professional advice to ensure your tax strategy aligns with your overall business objectives.

Tax slabs and rates for different business structures

Understanding the tax slabs and rates for various business structures is crucial for effective financial planning. Let's explore the tax implications for sole proprietorships, Hindu Undivided Families (HUFs), partnerships, Limited Liability Partnerships (LLPs), and domestic companies under the new tax regime for FY 2024-25.

Sole proprietorships and HUFs

For sole proprietorships and HUFs, the new tax regime has become the default option, although you can still choose to be taxed under the old regime. Under the new regime, income up to ₹7 lakhs is eligible for a full tax rebate. This change is particularly beneficial for small businesses and startups with lower income levels.

The tax slabs for HUFs under the old regime for FY 2023-24 (AY 2024-25) are as follows:

• Up to ₹2,50,000: No tax
• ₹2,50,001 to ₹5,00,000: 5%
• ₹5,00,001 to ₹10,00,000: 20%
• Above ₹10,00,000: 30%

It's important to note that surcharge and health & education cess rates apply similarly to individuals.

Partnerships and LLPs

For partnerships and LLPs, the tax structure remains relatively straightforward. Both are taxable at a flat rate of 30% on their net profit. Additionally, a surcharge of 12% is levied if the income exceeds ₹1 crore.

To calculate the total tax liability, you need to add a 4% health and education cess to the tax amount . This simple structure makes it easier for partnerships and LLPs to plan their finances and calculate their tax obligations.

Domestic companies

Domestic companies have several tax rate options depending on their structure and preferences. Here are the key rates:

1. Companies opting for Section 115BAA: These companies can benefit from a reduced tax rate of 22%, provided they forgo certain deductions and exemptions.
2. New manufacturing companies registered after October 1, 2019: These companies can opt for a highly attractive tax rate of 15% under Section 115BAB, subject to specific conditions.
3. Companies with turnover less than ₹400 crore: These businesses enjoy a reduced tax rate of 25%
4. Other domestic companies: The standard tax rate for domestic companies not falling under the above categories is 30%.

It's crucial to note that surcharges apply to these base rates. For instance, a 7% surcharge is levied on income between ₹1 crore and ₹10 crore, while a 12% surcharge applies to income above ₹10 crore .

When deciding on the most suitable tax structure for your business, it's essential to consider factors beyond just the tax rates. These may include the nature of your business, your long-term growth plans, and the specific deductions and exemptions available under each regime. To make an informed decision, it's advisable to consult with a tax professional who can provide guidance tailored to your unique business situation.

Impact of tax slab changes on business finances

The changes in income tax slabs for FY 2024-25 have significant implications for business finances. These alterations affect various aspects of financial planning and decision-making for companies across different sectors.

Cash flow implications

The revised tax slabs under the new regime have a direct impact on businesses' cash flow. With the new tax regime becoming the default option, companies need to reassess their financial strategies. The increased standard deduction from Rs 50,000 to Rs 75,000 for salaried employees can lead to higher disposable income for staff, potentially affecting wage negotiations and employee benefits structures.

For businesses, this change might result in increased pressure to adjust salaries or provide additional perks to retain talent. However, the higher disposable income could also lead to increased consumer spending, potentially benefiting businesses in various sectors.

Profitability analysis

The changes in tax slabs necessitate a thorough profitability analysis for businesses. The new capital gains tax rates, which aim to simplify and align with global standards, can have a significant impact on investment decisions and overall profitability. For instance, the removal of indexation benefits relative to the reduced tax rates could be either beneficial or unfavourable, depending on the nature of the assets and the holding duration.

Companies need to carefully evaluate their investment strategies and asset holdings to optimise their tax liability under the new regime. This might involve reassessing long-term investment plans and considering alternative financial instruments that offer better tax efficiency.

Investment and expansion decisions

The tax slab changes also influence business investment and expansion decisions. The abolition of the buyback tax aligns the taxation of buybacks with dividends, shifting the tax incidence to shareholders. This change is likely to impact companies' cash optimisation strategies, leading to additional cash outflows for shareholders and increased compliance requirements.

Moreover, the introduction of block assessments for cases initiated on or after September 1, 2024, covering six preceding assessment years and the current year, adds a new dimension to financial planning. With a 60% tax rate applying to the total income including undisclosed amounts, businesses need to ensure meticulous record-keeping and compliance to avoid potential penalties.

The reduced reassessment timelines from 10 years to five years and three months for income escaping assessment of Rs 5,000,000 or more can provide some relief to businesses. This change allows companies to operate with greater ease, without the constant worry of being scrutinised for extended periods.

In conclusion, the tax slab changes for FY 2024-25 have far-reaching effects on business finances. Companies need to adapt their financial strategies, reassess profitability metrics, and carefully consider investment and expansion decisions in light of these changes. By understanding and effectively navigating these new tax regulations, businesses can optimise their financial performance and ensure long-term sustainability.

Compliance requirements under the new tax regime

The new tax regime for FY 2024-25 brings significant changes to compliance requirements for businesses. Understanding these changes is crucial for ensuring proper adherence to tax regulations and avoiding penalties.

Filing requirements

Under the new tax regime, the filing requirements have been streamlined to simplify the process for taxpayers. The new tax regime has become the default option for individuals, Hindu Undivided Families (HUFs), and certain other entities. However, eligible taxpayers still have the option to opt out and choose to be taxed under the old regime.

For those with income from business or profession who wish to opt out of the new tax regime, it's necessary to furnish Form 10-IEA on or before the due date specified under section 139(1) for filing the income tax return. This form serves as a declaration of your choice to be taxed under the old regime.

It's important to note that for taxpayers with business or professional income, the option to switch between the old and new tax regimes is available only once in a lifetime. This limitation underscores the need for careful consideration before making a decision.

Documentation and record-keeping

Proper documentation and record-keeping are essential for compliance with the new tax regime. Businesses need to maintain accurate and up-to-date records of their financial transactions, income, and expenses. This includes keeping detailed accounts of all business-related expenditures, invoices, and receipts.

Under the new regime, while certain deductions and exemptions are no longer available, it's still crucial to maintain documentation for the ones that remain applicable. For instance, the deduction under Section 80CCD(2) for employer's contribution to the National Pension System (NPS) is still allowed under the new tax regime.

Penalties for non-compliance

Non-compliance with tax regulations can result in severe penalties. The Income Tax Act prescribes various penalties for different types of non-compliance. For instance, failure to file income tax returns within the due date can lead to a penalty of up to ₹5,000.

In cases of under-reporting of income, a penalty of 50% of the tax payable on such under-reported income may be levied. This penalty can increase to 200% if the under-reporting is a result of misreporting of income.

For businesses, failure to keep, maintain, or retain books of accounts as required by the Act can result in a penalty of ₹25,000. If a business fails to get its accounts audited or furnish the required audit report, a penalty of ₹1,50,000 or 0.5% of the total turnover, whichever is lower, may be imposed.

To avoid these penalties and ensure smooth compliance, it's advisable for businesses to stay informed about the latest tax regulations, maintain proper documentation, and file returns accurately and on time. Consulting with tax professionals can also help in navigating the complexities of the new tax regime and ensuring full compliance.

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The new tax regime for FY 2024-25 has a significant impact on businesses of all sizes. It brings both opportunities and challenges, affecting cash flow, profitability, and investment decisions. Understanding these changes is crucial for businesses to adapt their financial strategies and ensure compliance with the updated regulations.

To navigate this new tax landscape effectively, businesses should carefully evaluate their options and seek professional advice when needed. By staying informed and proactive, companies can optimise their tax planning, make well-informed financial decisions, and position themselves for success in the coming financial year. This approach will help businesses not only comply with the new tax regime but also leverage it to their advantage.

Disclaimer: This article provides general tax information and is not a substitute for professional advice. Please consult a tax expert for guidance tailored to your business needs.

Contributed by Denila Lobo

Denila is a content writer at Winvesta. She crafts clear, concise content on international payments, helping freelancers and businesses easily navigate global financial solutions.