Revamping tax slab benefits
Union Budget 2023 made significant changes to the new personal tax regime tax slabs such as an increase in the basic exemption limit to Rs 3 lakh from Rs 2.5 lakh, a reduction in surcharge for taxpayers whose income exceeds Rs 5 crore, from 37% to 25%. These changes were made to make the new tax regime attractive. However, the tax rates for the old tax regime remained unchanged. Hence, there is a pressing need for a significant upgrade in the old income tax regime slab structure.
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. 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.
Adjusting HRA rates to match rental trends
The rental market in the top cities of India has experienced a resurgence post-pandemic, with a striking year-on-year growth of over 30% in 2023. The rental surge is fueled by the reopening of offices and the transition to hybrid work models. Today cities such as Bengaluru, Hyderabad, Pune, and Gurugram also command premium rent on account of increasing economic growth. Hence, there is a need to review the House Rent Allowance (HRA) deduction, in light of the situation on the ground.
Often the House Rent Allowance (HRA) component constitutes 20-30% of an employee’s total pay package. At present, as per section 10(13A), the exemption for HRA is the lower of 50%/40% (depending on the category of the city of residence) of basic salary, actual HRA received or actual rent paid in excess of 10% of the basic salary. Currently, 50% of basic salary is allowed only for a few major cities. For others, it is 40%. Allowing 50% of the basic wage for more cities such as NCR, Bangalore, Pune, and Hyderabad will provide relief to a larger populace. This change is much needed as small-time cities have grown as big if not bigger than metros (e.g. Delhi, Mumbai) earlier covered under this condition.
Incentivise EV sales and usage in India
Given the focus on reducing carbon emissions, electric vehicles (EVs) are being promoted as the vehicles of the future. The demand for EVs is rising and the government is incentivizing these through various schemes and subsidies. To achieve the goal of EVs comprising 30% of all vehicle sales in India by 2030, India has been actively promoting the manufacturing and usage of EVs through schemes like FAME II. In light of this, section 80EEB was introduced in the Income Tax Act, of 1961, in 2019. This section allowed a deduction of up to Rs 1.5 lakh per annum., of interest paid on loan for the purchase of an electric motor car. The deduction was from gross total income thereby reducing taxable income and tax payable on it. However, this deduction was not extended beyond March 2023. Considering that green growth is at the top of the government agenda, the government should extend the deduction under section 80EEB, preferably with an enhanced limit of Rs 2 lakh per year, to encourage the adoption of electric vehicles.
Home loan interest deduction for affordable housing
The government has a vision of providing housing for all and in line with this vision, section 80EEA was also introduced in 2019 in the Income Tax Act, 1961. As per this section, up to Rs 1.5 lakh (per annum) of interest paid on a loan taken for the purchase of a house by a first-time home buyer was allowed as a deduction from gross total income. The first-time home buyer had to meet other requisite conditions also in order to avail of this benefit. However, this deduction was not extended beyond March 2022. Hence, in line with the ‘housing for all’ objective of the present government, the reintroduction of section 80EEA, which allows a deduction for interest paid on home loans for affordable housing, is hoped for. Addressing these key aspects related to personal taxes in the Union Budget 2024 would not only benefit salaried taxpayers but also make the country’s tax system more equitable and efficient.The article has been written by Aarti Raote, Partner, Deloitte India with inputs from Nidhi Agarwal, Manager, Deloitte Haskins and Sells CA LLP.