Sunday, February 25, 2024

Budget 2024: Expectations of individual taxpayers

Notwithstanding the technicalities, there are expectations galore and, of course, there are precedents of tax concessions being proposed in an interim budget. In the 2019 interim budget, the government announced favourable tax proposals such as an increase in the standard deduction limit from 40,000 to 50,000 and an increase in tax rebate from 2,500 to 12,500 to increase the maximum income exempt from income-tax for taxpayers whose total income is up to 5 lakh, among other changes. Hence taxpayers have a basis to hope for some of their expectations to be met!

So, some of the expectations of the taxpayers, reeling under inflation and the double whammy of direct taxes and indirect taxes on purchase of most goods and services, are as follows:

1. Rationalization of capital gains tax regime

Currently, the calculation of long-term capital gains is varied and complex due to different capital gains tax rates, holding periods being applicable and whether or not indexation benefit is available. For example, the holding period to qualify as a long-term capital gain is 1 year for listed equity shares, 2 years for immovable property and unlisted shares and 3 years for any other capital asset such as gold, etc. Similarly, there are multiple capital gains tax rate depending on the holding period and type of capital asset (10% or 15% or 20% or slab rates), the government should rationalize the capital gains tax regime by standardizing the holding period(s) and introducing uniformity in the tax rates to simplify calculations and reduce confusion leading to incorrect compliance.

There is also an expectation of the burgeoning class of retail investors in the equity market that the government increases the tax-free LTCG threshold exemption on sale of equity shares/equity oriented mutual funds/units of a business trust from 1 lakh to 2 lakh if not more!

2. Exemptions and deductions related to housing

Given that the interest rates on housing loans have significantly increased from 2019 to 2024, individual taxpayers expect that the deduction for interest on housing loans for self-occupied properties should be increased from 2 lakh to 3 lakh.

Further, one of the limits to calculate HRA exemption is 40% or 50% of basic salary. For metro cities, the limit is 50% of basic salary, whereas for non-metro cities, the limit is 40% of basic salary. Currently, only Delhi, Mumbai, Kolkata and Chennai are on the list of metro cities. Salaried taxpayers, who are living in a rented accommodation in Tier 2 cities such as Hyderabad, Pune, Bengaluru, Ahmedabad, Gurgaon, Noida, etc, have long been expecting that the government should add such Tier 2 cities in the list of metro cities for higher HRA exemption calculation to account for increase in rental costs.

3. Increase in Standard deduction

Considering the continued inflation and increase in cost of living, the salaried taxpayers expect increase in the standard deduction limit from 50,000 per annum to 100,000 per annum. It was last revised from 40,000 to 50,000 in the 2019 interim budget. So maybe there is hope yet again in the 2024 interim budget.

4. Increase in deduction for health insurance

The current limit for deduction under Section 80D of the Income-tax Act, 1961 for health insurance is 25,000 and 50,000 for senior citizens. These limits have remained unchanged from 2015 and 2018, respectively. Taxpayers expect that due to the significant rise in medical costs and insurance premiums, particularly in the wake of the covid-19 pandemic, the government should enhance these deduction limits.

5. Changes to Concessional Tax Regime (CTR)

In the last budget, the government made many announcements to make CTR attractive and shift taxpayers to CTR. Taxpayers expect that to make CTR more attractive, government should consider further increase in the threshold for tax rebate from 7 lakh to 7.5 lakh.

6. Electric vehicle

Given the government’s focus on green growth, one of the ‘Saptarishi’ as pointed out in the last budget, an increase in the deduction for interest on loans taken for the purchase of electric vehicles (currently 1.5 lakh) and the removal of the sunset period for the sanction of loan (currently 31 March 2023), may be considered. Further, the government may clarify in the tax rules for calculation of perquisite value of electric vehicle provided by the employer to the employee as electric vehicles are not explicitly covered in the current rule for valuation of perquisite for employer provided vehicles.

7. Adjustment of TCS paid by the employees at the tax withholding stage

With several payments now being covered by TCS, and with the higher TCS rate that took effect on 1 October 2023 (such as TCS on foreign tour programmes, on purchase of motor vehicle, on remittance under liberalized remittance schemes, etc), there is a cash flow impact on salaried taxpayers who pay TCS upfront and then wait to file tax returns to claim refund. To mitigate, the impact of TCS, taxpayers want that the government should allow employers to grant credit/permit for adjustment for such TCS when calculating tax to be deducted as source on payment of salary.

8. Set off or some benefit of GST in personal income taxes

This expectation may be a bit too much to expect but for a common man who pays tax on the income earned and then has to pay GST on purchase of most goods and services from their tax paid income, it does seem like a double taxation for which some relief should be granted.

As taxpayers there is always a long wish list but for the finance minister, given the limited fiscal room, it is a delicate balancing act to contain the fiscal deficit and yet manage so many expectations. But taxpayers, take heart, if all the expectations don’t come through in the interim budget, there is always full budget of July 2024 to look forward to.

Sonu Iyer is Partner, People Advisory Services (Tax), EY India. Siddharth Deb & Somya Rustagi, senior Tax Professionals, EY India also contributed to this column

#Budget #Expectations #individual #taxpayers

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