Lower income tax slab rates under new tax regime
Individuals opting for the new tax regime have to forego multiple deductions and exemptions. Due to this, the tax regime has not found favour with a large section of the taxable population, believe experts. “To increase disposable income in the hands of individuals and bring back momentum to savings, investments, and consumptions to pre-Covid level, the Budget 2023 could reduce the highest income tax slab rate in the new tax regime,” said Tapati Ghose, Partner, Deloitte India
“Hence, there is a need to relook at the slabs and the tax rates. The tax rates at the highest slab may be reduced to 25 per cent (with a surcharge) at par for corporate tax rates. The consequent reduction of the rates for the lower slabs will be required,” she added.
Simplify capital gains tax
The current capital gains tax regime in the country is complex. There are different periods for the classification of assets into short-term and long-term, depending on the class of asset. Whether the capital gains earned from an asset is a long-term gains or short-term gains depends on the asset and holding period.
For example, the sale of listed equity shares or units of equity-oriented fund attracts a 10 per cent long-term capital gains (LTCG) tax and the holding period to qualify as long term in this case is 12 months. The shares, if unlisted, will attract a 20 per cent LTCG tax for residents and 10 per cent for non-residents with a longer holding period of 24 months. The tax gains on short-term capital gains (STCG) also range from 15 per cent in the case of listed shares to the taxpayer’s income tax slab rate, as dependent on the status of the tax investors. Further, certain assets are eligible for indexation benefits and others are not.
Union Budget 2023 should simplify the capital gains tax system by introducing a more rationalised tax structure, said experts. “The holding period for all financial assets including both listed and unlisted equity/preference shares, equity-oriented mutual funds, etc., instruments like RIET/InvtIT units, debt-oriented mutual fund units, bonds, debentures, etc should be aligned to a uniform 12 months. The holding period for non-financial assets may be longer than 36 months. As for rates, all financial assets may have a uniform rate of 15% for short-term capital gains and 10 per cent for long-term, for both residents and non-residents. With the suggested alignment, indexation benefits on LTCG on financial assets may not be required. This would encourage investment decisions to be guided by factors other than just the distinction in the holding period and tax rates,” said Sameer Gupta, National Tax Leader at EY India.”To simplify capital gains taxation, capital assets could be categorised in a maximum of two to three categories and tax rates could be made uniform across these categories, thus reducing the disparity that exists in tax rates for similar asset classes,” Ghose added. “Further, the holding period for determination of long-term and short-term gains could be rationalised to result in fewer capital gains classifications and applicable rates. This would enable simpler choices for the retail investor and minimise errors,” she added.
Housing for the middle class: More income tax deduction on home loans
Back-to-back repo rate hikes by the Reserve Bank of India (RBI) to fight inflation have pushed the interest rate of home loans sharply in the last few months. Budget 2023 could provide some relief to homebuyers. The deduction limit for housing loan repayment, both interest, and principal, could be increased, said experts.
Currently, interest on housing loans in case of self-occupied property is limited to Rs 2 lakh under section 24(b) of the Income-tax Act, which does not cover the interest levels for the first few years, even for low-cost housing, mentioned experts. “To attract homebuyers from across the country, particularly first-time buyers, the government should raise the tax deduction limit for home loans from Rs 2 lakh to Rs 5 lakh per year, thereby providing tax relief to homebuyers,” said Kaushal Agarwal, Chairman, The Guardians Real Estate Advisory.
The deduction for principal payments on housing loans is limited to Rs 1.5 lakh under section 80C which includes several other contributions and payments and has been stagnant for several years, said Ghose. “It is important to increase the tax subsidy on housing loans for both the principal and interest from its historical level of Rs 2 lakh and Rs 1.5 lakh. An increase in an existing tax deduction for home loans will offset the increased EMI burden and leave some surplus to spend and boost the Indian economy,” said Shrikant Shrivastava, chief risk officer, of IMGC (India Mortgage Guarantee Corporation).