By Abhishek Soni
Budget 2023 session is down the pike. Finance Minister Nirmala Sitharaman will be presenting Budget 2023 on February 1, 2023. The expectations from the forthcoming budget are very high as it would be the last full budget of the current government before the general elections in 2024.
In the 2020 budget, Finance Minister Nirmala Sitharaman announced a new tax regime with new tax slabs and lower tax rates. Salaried taxpayers are not allowed to claim the following tax exemptions under the new tax regime:-
- House rent allowance and leave travel allowance.
- Standard deduction of Rs 50,000 on salary
- Tax deduction for the contribution made to Employees’ Provident Fund, Public Provident Fund, life insurance premium, health insurance premium, etc.
- Not allowed to offset interest paid on a home loan for self-occupied house property.
It has been reported that the new tax regime was opted for by very few people and is not very popular. Therefore, in the upcoming budget of 2023, the expectations are high to make the new regime more attractive. To grab more attention towards the new tax regime and increase the adoption rate, the expectations are to get the slab rates revised, and certain deductions should be included.
Following is a list of expectations which government should take to make the New Tax Regime more effective
Increase the Exemption Limits
Currently, the Income Tax exemption limit is Rs. 2.5 lakhs/ year under both the new and the old income tax regime. This means individuals earning up to Rs. 2.5 lakh are not liable to pay any taxes. Above this slab, i.e., income in between Rs. 2.5 lakh and Rs. 5 lakhs, individuals have to pay 5% tax, and further on.
To adjust the high inflation, an enhancement in the exemption limit should be done. In the coming budget for 2023-24, the government should enhance the income tax exemption limit to Rs. 5 lakhs under the new tax regime. It will be fruitful in various aspects like-
- Increasing disposable income in the hands of consumers
- Increase the investment capacity of individuals
- Lower the effective tax rate
- Boost the economic growth
Allow Section 80C tax Deduction
Deduction u/s 80C is the most common tax-saving avenue that taxpayers avail. This section covers PPF/EPF, ELSS, NSC, NPS, SSY, and more. However, the continuous rise in living expenses exhausts the limit of Rs. 1.5 lakh as provided under the old regime. And, no more scope is left for further tax saving under Section 80C.
Under the new tax regime, the benefit of Section 80C deduction is not provided. Therefore, there should be a deduction of up to Rs 2.5 lakh under the new tax regime. This enhancement in tax deduction under the new tax regime will:-
- Motivate people to invest more in various tax-saving options
- Relief from unprecedented inflation
Also Read: Budget 2023: Will the basic income tax exemption limit be raised to Rs 5 lakh?
Allow and revise the standard deduction limit
As per the old regime, a salaried individual can claim a standard deduction of Rs.50,000 from their salary income without showing any declarations & proofs of expenses but the same is not allowed under the new tax regime.
Due to a periodic rise in inflation and an increase in expenses because of the continuation of the hybrid working model, it is the need of the hour to introduce a standard deduction under the new tax regime with a rise up to Rs. 1,00,000/-. Introduction & a rise in the standard deduction limit under the new tax regime will be helpful in the following manner:-
- Reduce paperwork
- Reduce the compliance burden
- Tax relief to salaried individuals
Housing Loan Deductions
The maximum tax deduction that can be claimed on a home loan is Rs 2 lakh under the old regime on a self-occupied property. However, property prices across the country have risen in the past five years. The country has also seen inflation of 6%-7% over the years.
Noticing the present price bands and incurring interest costs on newly-owned properties, the government should allow individuals to set off such interest losses under the new regime which will make it more attractive.
Also Read: What is the best time of the year to plan your taxes?
Health Insurance Premiums
Under the old regime, you can claim deductions up to Rs. 25,000 or Rs. 50000 (in the case of senior citizens) under Section 80D. Also, if you paid health insurance premiums for your parents, you can claim an additional tax deduction of up to Rs. 25000 or Rs. 50,000 (in the case of senior citizens). However, the new tax regime doesn’t provide any such benefits.
Availing of health insurance is one of the key areas to which individuals give priority, especially after the COVID-19 outbreak. Therefore, providing the deduction for a medical insurance premium expenditure for self & family and parents under the new tax regime with an enhancement of up to Rs. 30,000 will be beneficial.
(The author is Co-founder and CEO of Tax2win, a Fisdom company)
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