By Parizad Sirwalla
Budget 2024 income tax expectations: The Finance Minister (FM) will present the full Union Budget for Financial Year (FY) 2024-25 in Parliament on July 23rd. The Budget is of significant interest to individual taxpayers as they have a long wish list of the desired announcements on the personal tax front from the newly formed government.Some of the heightened expectations are as under:
1. Enhancing the Tax Slabs:
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 taxpayers still opting for the old tax regime to avail of HRA exemption, 80C deduction, etc. Hence, this increase in the basic exemption limit would provide even further encouragement for taxpayers to opt for the new tax regime. This would provide more disposable income in the hands of the salaried/pensioned taxpayers, thereby stimulating economic activity and consumption, without complex investment/ expenditure related conditions.
2. Increase in tax rebate:
In the last year’s budget, the FM effected some major changes in the new tax regime to attract taxpayers towards the same. A full tax rebate was also announced on taxable income up to Rs 7 lakh. This year, there is a further expectation for an increase in such a rebate to Rs 7.5 lakh. Such adjustment would provide much-needed relief to middle-income taxpayers, potentially boosting spending and investment.
Also Read | Budget 2024 income tax expectations: Why new tax regime is likely to be made more attractive
3. Enhancing the Standard Deduction limit:
For salaried individuals, exemption towards medical reimbursement and conveyance allowance was done away with a few years ago in lieu of introduction of standard deduction. To keep pace with the ever-rising medical cost and the fuel cost, the standard deduction may be increased from the existing limit of Rs 50,000 to at least Rs 1 lakh.
4. Tax Benefits for Home Buyers:
To boost the momentum in the real estate sector, one can expect an increase in tax benefits for home buyers. This could include increased deduction on home loan interest or principal repayment. Currently, the overall limit to claim loss under the head income from house property is restricted to Rs 2 lakhs p.a. This limit should be revisited and enhanced to, say Rs 3 lakhs p.a., to provide further impetus to the ‘housing for all’ initiative.
5. Enhancement of long-term capital gains exemption limit
Effective FY 2018-19, Long-term Capital Gains (‘LTCG’) exceeding Rs 1 lakh earned from transfer of equity shares of a company or a unit of an equity oriented mutual funds on which Securities Transaction Tax (STT) has been paid at the time of acquisition, are subject to taxation at 10 per cent, without the indexation benefit. To boost investor confidence and incentivize infusion of further investment into the capital market, the Government may evaluate to increase the existing exemption limit from Rs 1 lakh to Rs 2 lakh.
Also Read | ITR filing FY 2023-24: Confused between old & new tax regime? Top points to consider before filing your income tax return
Other procedural amendments
Budget 2024 income tax expectations: The Finance Minister (FM) will present the full Union Budget for Financial Year (FY) 2024-25 in Parliament on July 23rd. The Budget is of significant interest to individual taxpayers as they have a long wish list of the desired announcements on the personal tax front from the newly formed government.Some of the heightened expectations are as under:
1. Enhancing the Tax Slabs:
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 taxpayers still opting for the old tax regime to avail of HRA exemption, 80C deduction, etc. Hence, this increase in the basic exemption limit would provide even further encouragement for taxpayers to opt for the new tax regime. This would provide more disposable income in the hands of the salaried/pensioned taxpayers, thereby stimulating economic activity and consumption, without complex investment/ expenditure related conditions.
2. Increase in tax rebate:
In the last year’s budget, the FM effected some major changes in the new tax regime to attract taxpayers towards the same. A full tax rebate was also announced on taxable income up to Rs 7 lakh. This year, there is a further expectation for an increase in such a rebate to Rs 7.5 lakh. Such adjustment would provide much-needed relief to middle-income taxpayers, potentially boosting spending and investment.
Also Read | Budget 2024 income tax expectations: Why new tax regime is likely to be made more attractive
3. Enhancing the Standard Deduction limit:
For salaried individuals, exemption towards medical reimbursement and conveyance allowance was done away with a few years ago in lieu of introduction of standard deduction. To keep pace with the ever-rising medical cost and the fuel cost, the standard deduction may be increased from the existing limit of Rs 50,000 to at least Rs 1 lakh.
4. Tax Benefits for Home Buyers:
To boost the momentum in the real estate sector, one can expect an increase in tax benefits for home buyers. This could include increased deduction on home loan interest or principal repayment. Currently, the overall limit to claim loss under the head income from house property is restricted to Rs 2 lakhs p.a. This limit should be revisited and enhanced to, say Rs 3 lakhs p.a., to provide further impetus to the ‘housing for all’ initiative.
5. Enhancement of long-term capital gains exemption limit
Effective FY 2018-19, Long-term Capital Gains (‘LTCG’) exceeding Rs 1 lakh earned from transfer of equity shares of a company or a unit of an equity oriented mutual funds on which Securities Transaction Tax (STT) has been paid at the time of acquisition, are subject to taxation at 10 per cent, without the indexation benefit. To boost investor confidence and incentivize infusion of further investment into the capital market, the Government may evaluate to increase the existing exemption limit from Rs 1 lakh to Rs 2 lakh.
Also Read | ITR filing FY 2023-24: Confused between old & new tax regime? Top points to consider before filing your income tax return
Other procedural amendments
- Currently, home buyers who purchase property from non-residents (NR) are required to compute the income of the seller and deduct appropriate tax on such income. This casts an onerous obligation on the individual home buyers. In fact they are also required to obtain Tax Deduction Account (TAN) and file quarterly withholding tax returns. Contrast this with the situation where the seller is a resident – they buyer simply has to deduct 1 percent TDS on sales proceeds and file a challan-cum return without obtaining a TAN. A similar system, with a higher rate of TDS say 2 or 5 per cent, may be introduced for buyers of residential property from a NR taxpayer.
- Electric vehicles (EV) are the future. In line with the ESG agenda of the organization, many employers are encouraging employees to consider an EV in their employer car lease arrangement. However, the current perquisite rules provide for valuation only based on the cubic capacity of the car. Hence, it may be prudent for the Government to specific a separate value for EVs as well.
Like every time expectation will be high from a common man for the annual Budget exercise, it is also the most opportune time for the new Government to set the tone for accelerating economic growth by making policy announcements and addressing the structural challenges facing the country. Hence, it will be an interesting Budget to watch out for.
(The author is Partner & Head, Global Mobility Services-Tax, KPMG in India)