Budget 2024: 2 tax clarifications you should know about
Let out house not business income
The taxman has observed that some taxpayers are reporting their rental income generated by letting out of house property under the head ‘Profits and gains of business or profession’, while the ideal classification would be under ‘Income from house property’. This helps the taxpayer reduce their tax liability (albeit fraudulently) and thus, lowers the revenues for the taxman.
In view of the same, changes have been brought in this Budget to plug the hole and clarify that any income from letting out of a residential house or a part of it by the owner, can be charged only as “Income from house property”.
This amendment will take effect from the first day of April, 2025.
Foreign tax credits are your income too
The taxman has also observed that some resident taxpayers are not including taxes withheld outside India for the purposes of calculating their total income at the time of filing returns in India. When the taxpayer provides only his/her net income earned outside India after adjusting the withheld taxes, the taxman is not provided with the accurate gross income and it is a classic case of under-reporting of income.
On top of this, when the taxpayer claims such withheld taxes as a deduction against the tax liability, it results in a double whammy for the taxman — an under-reported income and an inflated claim of withheld taxes.
To address this, the Budget has proposed to make necessary amendments to make it explicit that such foreign tax credits shall be deemed to be an income for the purpose of calculation of total taxable income.
This amendment will take effect from the first day of April, 2025.