By Surabhi Marwah
Budget 2024 income tax expectations: The government is set to table its first full budget after elections and the wish list of taxpayers is as long as ever. This is especially so as the government did not make any key changes in the interim budget as it was a Vote on Account budget. Over the years, the government has been taking steps to make the concessional tax regime or the new tax regime more attractive for individual taxpayers.
Few changes which were introduced in the last year’s budget i.e., Budget 2023 were:
a) Increase in the basic exemption limit to Rs 3,00,000 from Rs 2,50,000
b) Capping of maximum surcharge at 25%
c) Introduction of standard deduction of Rs 50,000
d) Rejig of the tax slabs.
Keeping in view the government’s intent to simplify/ rationalise tax laws and enhance compliance, one may expect a few changes in the upcoming Union Budget 2024 to make the new income tax regime more attractive.
Also Read | Budget 2024 income tax expectations: Why 50% HRA exemption should include cities like Bengaluru, Hyderabad
At present, for individuals with gross income above Rs 15,50,000, if their total deductions and exemptions exceed Rs 3,75,000* (excluding standard deduction), the old regime is more beneficial as compared to the new one.
Further, the increased cost of housing and increased awareness towards various investment instruments has led to higher claim of HRA exemptions and higher investment-based deductions (eligible under sections 80C, 80D of the Income-tax Act, interest on housing loan for self-occupied house property etc.) among salaried taxpayers and in many cases such limit of Rs 3,75,000 is easily breached resulting in taxpayers opting for existing / old tax regime.
Therefore, in order to make the new tax regime more attractive and to keep up with the government’s intent of having a unified tax regime with fewer deductions / exemptions, one may expect few changes in the new regime as below:
Budget 2024 income tax expectations: The government is set to table its first full budget after elections and the wish list of taxpayers is as long as ever. This is especially so as the government did not make any key changes in the interim budget as it was a Vote on Account budget. Over the years, the government has been taking steps to make the concessional tax regime or the new tax regime more attractive for individual taxpayers.
Few changes which were introduced in the last year’s budget i.e., Budget 2023 were:
a) Increase in the basic exemption limit to Rs 3,00,000 from Rs 2,50,000
b) Capping of maximum surcharge at 25%
c) Introduction of standard deduction of Rs 50,000
d) Rejig of the tax slabs.
Keeping in view the government’s intent to simplify/ rationalise tax laws and enhance compliance, one may expect a few changes in the upcoming Union Budget 2024 to make the new income tax regime more attractive.
Also Read | Budget 2024 income tax expectations: Why 50% HRA exemption should include cities like Bengaluru, Hyderabad
At present, for individuals with gross income above Rs 15,50,000, if their total deductions and exemptions exceed Rs 3,75,000* (excluding standard deduction), the old regime is more beneficial as compared to the new one.
Further, the increased cost of housing and increased awareness towards various investment instruments has led to higher claim of HRA exemptions and higher investment-based deductions (eligible under sections 80C, 80D of the Income-tax Act, interest on housing loan for self-occupied house property etc.) among salaried taxpayers and in many cases such limit of Rs 3,75,000 is easily breached resulting in taxpayers opting for existing / old tax regime.
Therefore, in order to make the new tax regime more attractive and to keep up with the government’s intent of having a unified tax regime with fewer deductions / exemptions, one may expect few changes in the new regime as below:
- Increase in the basic exemption limit under the new tax regime – One key change expected from the upcoming budget is the increase in the basic exemption limit from Rs 3,00,000 to Rs 5,00,000.
- Reduction in tax rates under new tax regime – It is expected to have reduced tax rates / rejig in tax slabs under the new tax regime.
*This limit is for deductions and exemptions not available under the new tax regime
Also Read | Income Tax expectations Budget 2024: Tax exempt limit for savings account interest to be raised to Rs 25,000?
There are a few other expectations as well from the upcoming budget such as:
- Increase in standard deduction – It is expected that the standard deduction is increased from Rs 50,000 to Rs 1,00,000 as this limit has remained the same for the last 5 years.
- Increase in deduction for interest on housing loan for self-occupied house property – It is expected that the limit for deduction towards interest on housing loan for self-occupied house property will be increased from Rs 2,00,000 to Rs 3,00,000. This may also help promote home ownership and help the government in its mission of ‘Housing for All’.
- Overhaul of the capital gains tax structure – Currently there are various tax rates and holding periods for different types of instruments and also the indexation benefit differs in different situations for the purpose of computation of capital gains tax. It is expected that the government may bring about some amendments such as changes in tax rates, method of computation, period of holding etc. to have a more unified and simplified capital gains tax regime. One specific wish from a capital gains taxation standpoint would be the increase in the tax-free ceiling limit on long-term capital gains from sale of equity shares (listed) / equity oriented mutual funds from Rs 1,00,000 to Rs 2,00,000.
While the wish list of individual taxpayers is long, these are some of the key changes expected to be made by the government in the upcoming budget to increase the disposable income in the hands of individual taxpayers and enhance their spending capacity to boost the economy.
(The author is Tax Partner, People Advisory Services Tax, Private Tax, EY)