Hit hard by high inflation, fall in real wages and the rising cost of living, taxpayers and the common man are looking towards Finance Minister Nirmala Sitharaman with much hope as the Budget 2024 is going to be presented in just a couple of days, and they expect the FM to do something for them despite this being an interim budget.
Rationalization of the income tax slab rates, increase in the Section 80C deduction limit, de-cluttering of Section 80C, hike in the standard deduction limit, more tax sops for homebuyers and investors are among the key expectations of taxpayers. Taxpayers are also expecting some changes in the New Tax Regime to make it more attractive.
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Here are some of the key expectations of taxpayers from the Budget 2024:
De-cluttering of Section 80C
The last review of Section 80C of the Income Tax Act was done way back in 2014. So, it’s time to adjust this crucial element of tax savings. Section 80C encompasses a diverse range of financial commitments, including housing loan principal repayments, tax-saver fixed deposits, employees’ provident fund, children’s school fees, and life insurance premiums.
“To optimize the benefits for taxpayers, it may be good to have a strategic de-cluttering of Section 80C. By distinctively separating loan repayments and insurance premiums, the budget can provide more targeted and effective tax breaks on investments,” says Adhil Shetty, CEO, Bankbazaar.com.
Additionally, “we propose the introduction of a separate deduction specifically tailored for home loans. This move aims to streamline the tax-saving process for homeowners, recognising the unique financial commitment they undertake. Further, we suggest the de-coupling of prepayments from Section 80C, recognising that the current structure may not fully align with the diverse financial strategies of individuals,” adds Shetty.
Also Read: Fixed Deposit: How to make the most of rising FD rates
Increase in Section 80C deduction limit
Along with de-cluttering of Section 80C of the I-T Act, increase in the Section 80C deduction limit is also on the wishlist of individual taxpayers for a long time as it was last revised in the year 2014 to Rs 1.5 lakh. It is the most important tax benefit deduction used by individual taxpayers under the old tax regime. Taking in view the soaring cost of living, an increase in the deduction limit to at least Rs 2 lakh from the current Rs 1.5 lakh will provide the much-needed relief to most of people.
Increase in Standard Deduction limit
For salaried persons, travel allowance exemption and medical reimbursement were done away with from the Financial Year 2018-19 in lieu of standard deduction. To keep pace with the ever-rising medical cost and the fuel cost, there is need for the standard deduction limit to be increased from the existing Rs 50,000 to Rs 100,000 per annum. This move will also bring parity with those earning income from business or profession, who can claim actual expenses or opt for a presumptive basis of taxation, where a certain percentage of gross income is considered as an expense.
Tax Benefits for Homebuyers
Individuals buying their home by taking a housing loan are entitled for tax benefits. Under Section 24 of the Income Tax Act, homebuyers can claim a deduction of up to Rs 2 lakh on the annual interest paid on their home loan EMI, while a deduction of up to Rs 1.5 lakh can be claimed for the principal amount paid under Section 80C of the I-T Act. According to tax experts, the deduction u/s 24 needs to be raised to at least Rs 5 lakh as both home loan interest rates and housing prices have gone up significantly. Similarly, the limit for housing loan principal repayments u/s 80C should be further enhanced by increasing the limit of Section 80C deduction or there should be a separate deduction specifically tailored for home loans.
Make the New Tax Regime more appealing
The New Tax Regime has become the default option now and has lower tax rates than the Old Tax Regime. Still various recent studies have revealed that taxpayers still prefer the Old Regime because of variuos reasons. Therefore, to further increase the appeal of the New Tax Regime, the Finance Minister needs to take several steps, including lowering the highest tax rate from 30% to 25% and increasing the income threshold for this highest rate from Rs 15,00,000 to Rs 20,00,000.
“Additionally, the government should allow the set-off for house property loss under the new regime. This would be a major incentive for taxpayers to switch to the new system, as it could potentially offset some of the lost deductions from the old regime,” advises Maneesh Bawa, Partner, Nangia Andersen LLP.
Apart from these, a majority of taxpayers also want several other sops from the government, including increase in the limit of deduction on the health insurance premium paid under u/s 80D of the I-T Act, inclusion of more cities in the 50% HRA tax exemption list, etc. However, whether the wishes of taxpayers and salaried individuals are fulfilled by the FM or their hopes are belied in this interim budget, remains to be seen!
