Budget 2024: Top Expectations of Income Taxpayers from this Year Budget

In view of upcoming elections, this year’s budget, which will be announced on February 1, 2024, will be an interim budget. Although no big adjustments are typically revealed in interim budgets, budget events always generate enthusiasm as people expect relief.

The government redesigned the slabs and tax rates under the new tax regime in last year’s budget to encourage taxpayers to switch to a simpler tax regime by eliminating various exemptions and deductions.

The slabs and rates remained unchanged under the old tax regime. However, many taxpayers continued to prefer the old tax regime, as giving up deductions such as HRA, LTA, deductions for investments under Section 80C/80D, and so on did not reduce their tax liability when compared to the new tax regime.

The fact that the government made the New Tax Regime the default regime last year implies that there would eventually be only one regime. But, until that convergence occurs, even those who prefer the old regime have expectations from the budget.

Here’s the wish list, and some of them, if not now, should be considered later, when the new government presents its full-year budget.

Increasing the Basic Exemption Limit and lowering the Surcharge

Those who remain under the old regime expect the basic exemption limit to be raised to Rs. 300,000, which is the same as under the new regime. The 37% surcharge should also be reduced to 25%, as applicable under the New Tax Regime because the maximum marginal rate under the old regime is high in comparison to rates typical in developed countries.

Raise the Standard Deduction

Currently, salaried taxpayers can claim a standard deduction of Rs.50,000. It was last revised in 2018 from Rs.40,000. Given the growth in the cost of living, it is worth revising, and in the future, it should be tied to automatic adjustments at the end of the year based on cost inflation. Furthermore, there is no specific deduction for expenses made by employees working from home.

Several firms have permanently implemented the work-from-home model, which requires workers to work from home on at least a set number of days each week. This is another reason to increase the current standard deduction limit.

Interest Deduction in Housing Loan

Currently, the deduction for housing loan interest is limited to Rs. 200,000 under the old tax regime. The set-off loss under the head income from house property against other heads is limited to Rs. 200,000. Considering the rise in interest rates and construction costs, the limit may be increased to Rs. 300,000.

Housing is a basic need for all families in society. The government is also working to provide housing for low-income households. As a result, the deduction for housing loan interest should be allowed under the new tax regime in order to retain taxpayers motivated to buy their own property.

Extension of the Deduction under sec 80EEB for an Electric Vehicle purchase

A deduction of up to Rs.150,000 is provided for interest paid on the purchase of an electric vehicle. However, there was a stipulation that the loan be approved between April 1, 2019 and March 31, 2023.

Given India’s goals and commitment to net zero emissions, the deduction under Section 80EEB should be extended for interest on loans sanctioned beyond April 1, 2023, to encourage taxpayers to switch to electric cars. Furthermore, to reward taxpayers in general, deductions under 80EEB should be available under the new tax regime.

Deduction for medical insurance or expenditures

In the aftermath of COVID-19, there is a special emphasis on one’s own health and well-being, as well as those of loved ones. The cost of medical treatment has gone up dramatically and demands higher coverage for medical insurance. As a result, the deduction maximum for medical insurance should be increased from Rs. 25,000 to Rs. 50,000, and to Rs. 100,000 for senior citizens, including expenses for which they do not have insurance.

The risk of COVID like diseases and their spreading tendency do necessitate citizens to seek immediate medical assistance, not only for their own safety but also that of others in society. Medical treatment is an important part of quality of life, thus the deduction under Section 80D of the Income-tax Act of 1961 (Act) should be allowed under the new tax regime to keep taxpayers motivated to have their plans in place in the event of medical emergencies.

Taxation of Capital Gain

The existing method of taxing capital gains is somewhat complex. Different tax rates and holding periods apply to different assets and taxpayers with different residential statuses. Given the substantial increase in capital market investment, taxpayers will benefit greatly from simplification in this area.

Deductions for Retirement Planning

India has a big young population, and providing social security planning for its citizens is essential to a safe future and societal balance. The government implemented a new tax regime, and deductions under Sections 80C and 80CCD (except for employer contributions) have been removed for individuals who choose the new tax regime.

These should be reinstated in relation to individual contributions for retirement planning in order to encourage taxpayers to save for retirement.

Real Income should be taxed

There are currently provisions in the tax laws where one ends up paying taxes on notional income. For example, if a taxpayer owns more than two self-occupied residential properties, one of which is vacant, tax is imposed on a notional basis. This should be done away with.

One-point taxation of Stock options

Currently, stock option income is taxed twice: first when shares are allotted and again when shares are sold. When an employee is allotted shares, tax is payable at the applicable slab rates on the perk value, which is computed as the difference between the market value of shares at the time of allocation and the price paid by the employee. This causes a cash flow issue because employees wind up paying taxes without realising any gains.

When these shares are sold, employees pay capital gains tax on the increase in value since the allotment of shares. If the share price falls, employees lose the taxes they paid at the time of allotment, in addition to not generating any profit from the shares.

A stock option is one type of compensation that is used to not only incentivise but also remunerate employees in a non-cash manner. This is especially important for startups, who have a limited amount of funding and must hire and keep employees.

As a result, one point of taxation at the moment of sale, which existed several years ago, should be reinstated.