Budget 2024: Finance Minister Nirmala Sitharaman is set to unveil the Interim Budget on February 1. This budget is categorized as ‘interim’ due to the upcoming general election scheduled for April-May this year. The full-fledged budget, whether presented by a re-elected or new government, will follow in July. The middle class is anxiously anticipating potential income tax reforms that could reduce their tax burden. There is widespread hope for an increase in tax exemption limits under key sections such as Section 80C and Section 80D.
1) Revision of Income Tax Brackets
Anticipating a revision in the income tax exemption limit, the middle class hopes for an increase from ₹2.5 lakh to ₹5 lakh. In the Budget presentation on February 1, 2023, Finance Minister Nirmala Sitharaman adjusted the slab rates for individuals opting for the new income tax regime.
- No tax will be applicable for income up to ₹3 lakh.
- Income ranging from ₹3-6 lakh will incur a 5% tax.
- Income between ₹6-9 lakh will be taxed at 10%.
- Income between ₹9-12 lakh will face a 15% tax.
- Income between ₹12-15 lakh will attract a 20% tax.
- Income of ₹15 lakh and above will be taxed at 30%.
2)Elevation of Section 80C Threshold
The existing cap of ₹1.5 lakh for investment deductions under Section 80C, stagnant for over a decade, should be augmented to facilitate greater tax savings and encourage higher investments. Mumbai-based tax and investment expert Balwant Jain suggests, “The earlier limit of ₹1 lakh was set in 2003, almost 18 years ago. The increase of just 50% in 2014 amounts to an annual average of less than 3%. This incremental rise does not even align with the average inflation rate during the same period. In my opinion, the minimum threshold should be directly elevated to ₹2.50 lakh.”
3) Elevation of Standard Deduction
Initially set at ₹40,000 by the Finance Act 2018, the Standard Deduction from salary was later raised to ₹50,000 in 2019. Given the escalating expenses associated with medical and fuel costs, there is a compelling argument for further elevating the standard deduction limit from ₹50,000 to ₹1 lakh.
4) Assistance for Homebuyers
Under the existing provisions of Section 80C of the Income Tax Act, individuals can claim a deduction of up to ₹1.5 lakh from their taxable income for the repayment of the principal amount of a housing loan taken for a residential house. This deduction can be availed in conjunction with other eligible expenditures, including life insurance premiums, tuition fees, contributions to Provident Fund, Public Provident Fund, EPF, investments in ELSS, National Saving Certificates, tax-saving bank FDs, and more.
Acknowledging the saturation in Sections 80C, 80CCC, and 80CCD(1), and understanding the increasing demand for more substantial home loans, specialists recommend incorporating a dedicated deduction for home loan repayments in the upcoming budget. Taking cues from Section 80EEA, which introduced a specific deduction in 2019 for interest on home loans aimed at first-time homebuyers, tax reform advocate Balwant Jain advocates for a parallel strategy.
5) Enhancement of 80D Deduction Cap
Archit Gupta, the Founder, and CEO of ClearTax suggests elevating the deduction limit under Section 80D for medical insurance premiums. He proposes an increase from ₹25,000 to ₹50,000 for individuals and from ₹50,000 to ₹75,000 for senior citizens, aligning with the escalating healthcare expenses. Including Section 80D benefits in the new tax regime would foster equal access to healthcare.
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