Top 10 expectations of individual taxpayers which Budget 2024 needs to fulfill

Severely impacted by soaring inflation, declining real wages, and the escalating cost of living, individual taxpayers are eagerly looking to Finance Minister Nirmala Sitharaman as the Budget 2024 is scheduled to be presented on Tuesday (July 23rd).

This being a full-fledged budget, unlike the last one, they anticipate the FM to address their concerns. Key expectations include rationalizing income tax slab rates, raising the Section 80C deduction limit, increasing the standard deduction limit, providing more tax benefits for homebuyers and investors, and making adjustments to the New Tax Regime to enhance its appeal.

Sanjiv Malhotra, Senior Advisor, Shardul Amarchand Mangaldas & Co, says, “Despite the consistent demand for a decrease in personal income tax prior to each budget, I am of the opinion that the current moment is suitable to implement this change. The middle class has been significantly impacted by years of inflation, making it reasonable for them to anticipate some form of relief. The Indian economy appears to be stable, with a GDP growth rate of 7-8%. To further stimulate growth, it is essential to shift towards a consumption-driven strategy. This shift would involve restructuring tax brackets to provide individuals with greater disposable income.”

Adhil Shetty, CEO of Bankbazaar.com, has similar views. “Taxpayers eagerly await budget announcements that will increase their disposable income. This year is no different; taxpayers expect higher deductions under the old regime and hope the new regime will allow more people to retain a greater portion of their income after taxes,” he says.

Given below are a few of the main anticipations that individual taxpayers have for Budget 2024:

1. De-cluttering of Section 80C

The Income Tax Act’s Section 80C has not been reviewed since 2014, and it is now necessary to make adjustments to this important aspect of tax savings. Section 80C covers various financial obligations such as housing loan principal repayments, tax-saver fixed deposits, employees’ provident fund, children’s school fees, and life insurance premiums. To maximize benefits for taxpayers, it would be beneficial to strategically streamline Section 80C. By separating loan repayments and insurance premiums, the government can offer more focused and efficient tax incentives for investments.

2. Increase in 80C deduction limit

The revision of the Section 80C deduction limit has been a long-standing desire of individual taxpayers, in addition to the de-cluttering of Section 80C of the I-T Act. The last revision was made in 2014, increasing the limit to Rs 1.5 lakh.

According to Bankbazaar, the current 80C limit of Rs 1.5 lakh, unchanged since 2014, should be increased to at least Rs 2 lakh to account for inflation and rising expenses. This enhancement will encourage taxpayers to save more and invest in financial instruments.

3. Change in Income Tax Slabs

It is always speculative to opine on the revised income tax slabs, but tax experts feel that the basic exemption limit may increase by Rs 100,000 and similarly the successive slabs may also see Rs 100,000 – Rs 200,000 increase. These numbers may look modest but given the fiscal deficit target, the FM may have a limited bandwidth.

4. More Relief under New Tax Regime

The two parallel tax regimes are likely to stay for a while, however, the government may offer some more relief under the new regime to motivate taxpayers to move towards it.

Shetty says, “Given that most taxpayers favor the old regime despite the absence of inflation adjustment, the new tax regime will need to offer higher tax exemptions. This will enhance the appeal of the new regime.

”“Income tax relief in the hands of taxpayers may partially get offset by increased GST collections (due to increased expenditure by households). Hence its net impact may not be of a significant concern to the exchequer,” suggests Malhotra.

5. Increase in Standard Deduction

Salaried individuals no longer receive travel allowance exemption and medical reimbursement starting from the Financial Year 2018-19, as they are now eligible for standard deduction. In order to address the increasing medical and fuel expenses, it is necessary to raise the standard deduction limit from the current Rs 50,000 to Rs 100,000 per annum. This adjustment will also bring parity with those earning income from business or profession, who have the option to claim actual expenses or choose a presumptive basis of taxation based on a certain percentage of their gross income.

6. Tax Sops for Homebuyers

Homebuyers who purchase their homes through a housing loan can avail tax benefits. Section 24 of the Income Tax Act allows for a deduction of up to Rs 2 lakh on the annual interest paid on the home loan EMI, while Section 80C of the I-T Act permits a deduction of up to Rs 1.5 lakh for the principal amount paid. Tax experts suggest that the deduction under Section 24 should be increased to at least Rs 5 lakh, given the significant rise in home loan interest rates and housing prices. Additionally, they propose enhancing the limit for housing loan principal repayments under Section 80C or introducing a separate deduction specifically tailored for home loans.

7. Increase in 80D deduction for health insurance premium

Salaried taxpayers seek an increase in the health insurance premium deduction under section 80D from Rs 25,000 to Rs 50,000 at least. This change will offer significant relief and encourage prioritizing health insurance. Similarly, the 80D deduction for health insurance premium needs to be increased to Rs 100,000 for senior citizens. This change is crucial due to the significant rise in insurance premiums post-COVID-19, ensuring that health care remains affordable for all.

8. Rationalisation of capital gains tax regime

The capital gains tax structure in India is complex, with different rates for different types of assets and varying periods of holding to qualify as long term. For example, listed equity shares require a 12-month holding period, real estate requires 24 months, and debt instruments require 36 months. While there may have been historical reasons for this complexity, it may be beneficial to consider a more uniform capital gains tax structure in line with the government’s objective of simplifying the tax system, according to KPMG in India.

9. Change in HRA tax exemption rules

The House Rent Allowance (HRA) remains a valuable exemption for individual taxpayers residing in rented accommodations, particularly in cities other than their home city. According to the exemption formula, only four cities – Chennai, Mumbai, Delhi, and Kolkata – are eligible for a 50% salary basis exemption, while the rest of the places receive a 40% salary basis exemption. However, cities such as Bengaluru, Hyderabad, Gurugram and Pune have also become increasingly expensive. Therefore, there is an expectation that the HRA rules may be revised in the Union Budget 2024 to include these cities for a 50% salary basis exemption.

10. Increase in exemption limit for interest on bank deposits

Under Section 80TTA of the Income Tax Act, 1961, individuals can avail a deduction of up to Rs 10,000 on the interest earned from savings in a bank, co-operative society, or post office. However, the current Rs 10,000 exemption limit for interest on bank deposits is insufficient and should be increased to Rs 50,000 at least to better reflect the current economic environment.