Union Budget 2024: Key Provisions for Employees in India

The Union Budget 2024, presented by Finance Minister Ms. Nirmala Sitharaman on July 23, 2024 has introduced several provisions that are directly relevant for employees and are aimed at boosting employment, skilling, and providing benefits to employees.

Some of the significant provisions relating to employees are as follows:

New Pension Scheme (NPS)

• Increased deduction of expenditure by employers towards NPS from 10% to 14% of the employee's salary.

• Similar deduction of up to 14% of salary allowed for employees in the private sector, public sector banks, and undertakings opting for the new tax regime.

• Further, a non-government employee in the new tax regime shall be allowed deduction of an amount not exceeding 14% of the employee’s salary in place of 10%.

• These amendments will take effect from 1st April, 2025 and will, accordingly, apply in relation to the assessment year 2025-2026 and subsequent years.

• Introduction of a new 'NPS-Vatsalya' plan for contributions by parents and guardians.

Income Tax

• Standard deduction: Increased from INR 50,000 to INR 75,000 for those opting for the new tax regime.

• Deduction on family pension: Enhanced from INR 15,000 to INR 25,000.

Decriminalisation

·       The Budget has noted that Indian professionals working in multinationals get Employees’ Stock Option Plan (“ESOP”) and invest in social security schemes and other movable assets abroad.

Non-reporting of such small foreign assets has penal consequences under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015. Such non-reporting of movable assets up to INR 2,000,000 is proposed to be de-penalised.

Transactions not regarded as transfer

·       The Budget seeks to amend section 47 of the Income-tax Act,1961 relating to transactions not regarded as transfer. The provisions of clause (iii) of the said section provide that any transfer of a capital asset, under a gift or will or an irrevocable trust shall not be regarded as a transfer. The proviso to the said clause makes an exception to the clause in respect of specified ESOP or Scheme of a company. It is proposed to substitute the said clause so as to provide that nothing contained in section 45 shall apply to any transfer of a capital asset by an individual or a Hindu undivided family under a gift or will or an irrevocable trust. This amendment will take effect from 1st April, 2025 and will, accordingly, apply to assessment year 2025-2026 and subsequent years.

Employment-Linked Incentives (ELI)

The Budget proposes 3 schemes for ‘Employment Linked Incentive’, as part of the Prime Minister’s package. These will be based on enrolment in the Employees Provident Fund (“EPF”) scheme, and focus on recognition of first-time employees, and support to employees and employers.

·       Scheme A: First Timers- This Scheme will provide one-month wage to all persons newly entering the workforce in all formal sectors. The direct benefit transfer of one-month salary in 3 instalments to first-time employees, as registered in the EPF scheme, will be up to  INR 15,000. The eligibility limit will be a salary of INR 100,000 per month. The scheme is expected to benefit 210,000 youth.

·       Scheme B: Job Creation in manufacturing- This Scheme will incentivize additional employment in the manufacturing sector, linked to the employment of first-time employees. An incentive will be provided at specified scale directly both to the employee and the employer with respect to their EPF contribution in the first 4 years of employment. The scheme is expected to benefit 3 million youth entering employment, and their employers.

·       Scheme C: Support to employers - This employer-focussed Scheme will cover additional employment in all sectors. All additional employment within a salary of Rs. 1 lakh per month will be counted. The government will reimburse to employers up to INR 3,000 per month for 2 years towards their EPF contribution for each additional employee. The scheme is expected to incentivize additional employment of 5 million persons.

Participation of women in the workforce

·       The Budget proposes to facilitate higher participation of women in the workforce through setting up of working women hostels in collaboration with industry, and establishing creches. In addition, the partnership will seek to organize women-specific skilling programmes, and promotion of market access for women self-help group (SHG) enterprises.

Skilling programme

·       The Budget announces a new centrally sponsored scheme, as the 4th scheme under the Prime Minister’s package, for skilling in collaboration with state governments and Industry. 2 million youth will be skilled over a 5-year period. 1,000 Industrial Training Institutes will be upgraded in hub and spoke arrangements with outcome orientation. Course content and design will be aligned to the skill needs of industry, and new courses will be introduced for emerging needs.

Skilling Loans

·       As per the Budget, the Model Skill Loan Scheme will be revised to facilitate loans up to INR 750,000 with a guarantee from a government promoted Fund. This measure is expected to help 25,000 students every year.

Education Loans

·       For helping our youth who have not been eligible for any benefit under government schemes and policies, the Budget announces a financial support for loans upto INR 1,000,000 for higher education in domestic institutions. E-vouchers for this purpose will be given directly to 100,000  students every year for annual interest subvention of 3 per cent of the loan amount.

Overall Impact

The above measures in the Budget are expected to boost employment opportunities, especially for young professionals, and improve social security benefits for employees. The increase in NPS contributions and tax benefits will also positively impact the financial planning of employees.