Budget 2024 expectations: The Interim Budget 2024-25 is just two days away and India’s middle class is waiting for its share of tax relief and sops. This key demographic, often referred to as the driving force behind economic growth, is looking forward to tax relief to ease the burden of increasing expenses and stagnant wages. Their desire for financial respite is evident, as they strive to cope with the challenges of a changing economy.
The Budget is crucial this year as it is the election year and the government holds the key. All eyes are on Finance Minister Nirmala Sitharaman on how the NDA government would balance the fiscal goals and electoral appeal.
The government should take care to implement tax relief measures without compromising its deficit reduction goals. However, neglecting the challenges faced by the middle class could have equally harmful consequences, as it may dampen consumer sentiment and hinder economic growth.
Top points experts want the finance minister to note:
1. Hike in Standard Deduction
The Finance Act 2018 introduced a Standard Deduction from salary of Rs 40,000. This was increased to Rs 50,000 in 2019. It has been almost five years since the standard deduction was revised. It is expected that this limit will be increased to INR 1,00,000 in 2024. The demand has become louder after standard deduction was made a part of the new tax regime last year, said Rahul Charkha, Partner, Economic Laws Practice.
2. More relief under Section 80C
Section 80C is the most common tax-saving mechanism used by individuals under the Old Tax Regime. “With the increase in awareness, individuals are investing to a great extent in eligible instruments under Section 80C. The expenditure on life insurance premiums, tuition fees, principal repayment of home loans have also substantially increased. Hence, often, most of the individuals exhaust the limit of Rs 1.5 lakh. The taxpayers have thus been eagerly waiting for an increase in this limit for several budgets. With the increase in the cost of living, retail inflation, etc. at a much higher rate compared to the increase in Section 80C limit, the practical limit for Section 80C as on date should be as much as Rs 3 lakh,” said Charkha.
3. Health Insurance
For those opting for the old tax regime with exemptions, there are tax deductions related to health insurance premium payments and medical expenses incurred annually. The new tax regime does not allow these deductions. At present, deductions are covered under Sections 80D, 80DD and 80DDB of the Income Tax Act and are applicable to individuals and Hindu undivided families. Given its wider applicability, Section 80D is the most commonly used one.
The maximum amount allowed for preventive health check-ups is Rs 5,000, which is included in the overall limit of Rs 25,000. Furthermore, taxpayers can also claim an additional deduction of Rs 25,000 for health insurance premiums paid and expenses related to preventive health check-ups for their parents.
If the taxpayer – either himself, family member, or parents – for whom the premium is being paid is considered a senior citizen, the deduction limit increases to Rs 50,000.
“Looking at the current scenario, where health insurance has played a major role in the pandemic, Section 80D limit should be increased from Rs 25,000 to Rs 50,000 for individuals and from Rs 50,000 to at least Rs 75,000 for senior citizens. It would be a win-win for the taxpayers as they will have more security and gain tax advantage.
4. Other deductions
Other deductions/ exemptions usually availed by individuals include Section 80E (interest on education loan), 80EE (interest on housing loan), 80G (donation), 80GG (rent, where a person does not receive HRA) and 80TTA/ 80TTB (savings bank/ fixed deposit interest). “The limits under all these sections, be it monetary or periodic, have not been revised in the last few years. The Government should take cognizance, not just of the inflation but also the increase in interest rates, property rates, philanthropy and consider revising these limits,” said Charkha.
5. Improvements in tax slabs
The tax slabs in the Old Tax Regime were introduced by former PM Pranab Mukherjee in the Finance Act, 2013. At that time, the basic exemption limit was Rs 2 lakh. Later, in 2015, the basic exemption limit was raised to Rs 2.5 lakh, and it has remained the same since then. In 2018, the tax rate for the income bracket between Rs 2.5 and Rs 5 lakh was reduced from 10% to 5%. In the interim Finance Act, 2019 (No. 1), a rebate of Rs 12,500 was introduced for individuals with a total taxable income of up to Rs 5 lakh. This meant that individuals earning up to Rs 5 lakh had no income tax liability. However, once their taxable income exceeded Rs 5 lakh, their tax liability increased by Rs 13,000 (including tax cess).
“The Finance Act, 2019 (No. 2) was highly anticipated considering it was the first budget of the second term of the current government. However, the taxpayers were greatly disappointed when in addition to no decrease in tax rates, the rate of surcharge was increased to 25% and 37% for persons falling in the tax bracket of Rs 2 crore- Rs 5 crore and more than Rs 5 crore, respectively. Due to this, the highest effective income tax was 42.74%. In 2020, there was no reduction in tax rates, and instead, the NDA government introduced a new tax regime wherein the taxpayer could opt to pay taxes at a lower rate by trading off certain exemptions and deductions. The Union Budget 2023 amended the tax slabs under the new tax scheme marginally. Till date, the new tax regime has not received the desired acclamation as it suited only a selected group of taxpayers,” Charkha said.
source by: Business Today News
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