Budget 2024 expectations: Changes to new income tax regime
The new concessional personal tax regime aims to provide lower tax rates for individual taxpayers compared to the old tax regime. However, most commonly availed deductions and exemptions for salaried individuals have been removed. To make the new tax regime more attractive, it’s essential to retain benefits like exemption for House Rent Allowance, interest paid on housing loan, deduction for employee’s contribution to PF, health insurance, etc. Retaining these key aspects from the old tax regime in Budget 2024 can encourage investments and tax planning by salaried individuals.
Hike standard deduction for salaried taxpayers
The standard deduction for salaried individuals was reintroduced in Budget 2018 at Rs 40,000 and increased to Rs 50,000 from April 1, 2020. There have been no further changes. An indexed standard deduction is suggested to offset employee inflation in Budget 2024.
Budget 2024 income tax expectations: Changes to HRA tax exemption calculation
The current criteria for metro cities for House Rent Allowance (HRA) calculations should be updated to include cities like Bengaluru, Hyderabad, Gurgaon, and Pune, which have experienced significant progress and now have similar rental costs to traditional metro cities. These cities should be eligible for the 50% HRA exemption as well.
Hike basic exemption limit hike from Rs 3 lakh under new tax regime
“It is anticipated that the government may raise the income tax exemption limit to Rs 5 lakh from the current Rs 3 lakh limit under the new tax regime in the upcoming Budget 2024. The new tax regime is the default tax regime now. However, there are a lot of employees opting for the old tax regime to avail of HRA exemptions, 80C deductions, etc. For the benefit of all, it is expected that the increase in income tax exemption limit in the new tax regime is extended to people opting for the old tax regime as well which is at par with the new tax regime. Similarly, increasing the standard deduction from the current level of Rs 50,000 would also help,” Aarti Raote, Partner, Deloitte India wrote in an earlier column for ET Online.
Widening of tax slab for 20% tax rate
“The tax rate of 30% for income exceeding Rs 15 lakh in this regime is very steep and should be made applicable only for income exceeding Rs 30 lakh. This will widen the tax slab of 20% ensuring that most personal taxpayers in the mid-income group get relief which would also propel higher consumption and savings,” says Suresh Surana, a practising chartered accountant.
Budget 2024: Increase in Section 80C deduction limit, include it in new tax regime
“The Section 80C limit was last revised in Budget 2014. As such, individual taxpayers are seeking an upward revision of this limit as the existing threshold limit of Rs 1,50,000 is very low in view of the wide range of investment/expenditure options. Thus, to ensure parity of the 80C deduction limit with the annual inflation ranging between 4-5%, it is expected that this limit be increased to at least Rs 2,50,000. Such increase would benefit a majority of the taxpayers and has been long overdue. The Section 80C deduction has been a longstanding provision in the Indian tax system, aimed at promoting savings and channelling funds into specified avenues beneficial for the economy. Therefore, excluding this benefit from the concessional regime is not justified. Thus, extending this benefit to the default (concessional regime) would encourage taxpayers to continue these investments and also further encourage adoption of the new default concessional tax regime,” explained Surana.
Simplify capital gains tax in Budget 2024
“One simplification could be to standardise taxation for all asset classes. For example, a single 10% tax rate on LTCG could be applied to all financial assets, such as equity shares, preference shares, and mutual funds, with a uniform holding period of over 12 months to qualify as LTCG. Similarly, a consistent holding period of more than 24 months could be established for all non-financial assets. There are some other provisions that need a relook. For instance, the law stipulates that share transfers by a shareholder in a merging company are not considered transfers, provided certain conditions are met. This exemption is only granted when shares are held as an investment. If shares are held as stock-in-trade, the profits from their sale are taxed as business income, and the exemption does not apply. This distinction should be eliminated, extending the exemption to shares held as stock-in-trade,” Prachi Kulkarni, tax director, EY India wrote in a recent column.
Increase tax benefits for homebuyers
Prashant Rao, Managing Director, Poulomi Estates, a Hyderabad-based real estate developer says, “We strongly appeal to the Finance Minister to thoroughly consider increasing the income tax deduction applicable to home loan repayments in Budget 2024. The current deduction of Rs 2 lakh against home loan interest has remained unchanged for the past decade, with the last adjustment being an increase of Rs 50,000 in 2014. Considering the rise in property prices, the borrowing amounts have escalated substantially, besides that interest rates have gone up as well, resulting in higher EMIs for homebuyers. It is imperative for the government to consider doubling the home loan interest deduction limit to Rs 4 lakh. This measure would provide substantial relief to potential homebuyers and contribute to an economic boost.”