Budget Day in India is typically filled with a whirlwind of emotions such as anxiety, surprise, nervousness and so on. Different stakeholders have different expectations from the Budget. For the salaried class the expectations revolve around tax relief – deductions/exemptions, better rate of returns and measures that can reduce prices of commodities.

It is important to note that there were no major announcements in the interim budget of February 2024 as it was only a vote on account. Therefore, all eyes and ears will be on the Union Budget 2024 scheduled for July 22. Some key expectations of the salaried taxpayers are mentioned below.

1. Increase in basic exemption limit

During Budget 2020, the government announced the introduction of a new simplified tax regime (which is now the default tax regime) and increased the basic exemption limit gradually. This regime benefits taxpayers who do not currently claim deductions for investments. Consequently, they are not obligated to submit investment documentation to their employers as well. It is also an agreed position that a substantial share of a salaried taxpayer’s income is incurred in expenses such as housing loan repayments, life and health insurance premiums, etc. When it comes to the old regime, the last revision was done in FY 2014-15, marking a decade since the last revision. While incomes of salaried taxpayers has risen over the decade, the basic exemption limit has remained at the same level. Hence, it may be reasonable to expect the limit to be revised to INR 5 lakhs for both the tax regimes.

Also Read: Union Budget 2024: 5 key announcements senior citizens can expect from FM Nirmala Sitharaman

2. Increase in 80C limit

While recent policy changes suggest a shift towards the new tax regime, a majority of salaried taxpayers have investments qualifying for deductions and hence prefer the old tax regime. Similar to the change to the basic exemption limit, the last increase to the 80C deduction under the old tax regime happened in FY 2014-2015. Over the past decade, cost of living has increased causing a strain on the common man’s wallet. Even with the hike in salary, this section remains committed to investing in avenues such as LIC, Provident Fund contributions, Equity Linked Savings Scheme, Public Provident Fund, Sukanya Samriddhi Yojana, National Savings Certificate, Fixed Deposits etc., amidst inflationary pressures. In light of the above changes, a revision in the 80C deduction limit from INR 1.5 lakhs to INR 2 lakhs would be well received by salaried taxpayers.

3. Standard deduction

Budget 2018 witnessed a change in the tax landscape where transport allowance and medical reimbursement were replaced with a standard deduction of INR 40,000. This meant that the salaried taxpayer need not produce any bills (required for medical reimbursement) and was eligible for a blanket deduction. The limit of standard deduction was further increased to INR 50,000 in Budget 2019. This was subsequently extended to taxpayers opting for the new tax regime in last year’s budget. While this has been welcomed by salaried taxpayers, there is also the expectation for a further increase in the limit to INR 1 lakh for new tax regime users and INR 70,000 for old tax regime users.

4. Capital gains tax

For a salaried taxpayer, any decrease in capital gains tax wouldn’t necessarily translate to immediate savings. It is irrefutable that a substantial segment of our nation’s population, actively engages in the securities market. Previously, the sale of long-term capital gains from listed equity shares and equity-oriented mutual funds was exempt from taxation. However, Budget 2018 introduced the tax regime for such capital gains exceeding INR 1 lakh. The past few years have been characterized by a robust growth in the stock market leading to a substantial increase in many stocks and investment units. Hence, increasing the threshold limit for capital gains tax from INR 1 lakh to INR 2 lakhs, would help maintain the tax in line with the market growth and reduce the tax burden of such investors.

5. Interest paid on housing loan

Owning a house is the dream and aspiration of every person and salaried taxpayers are no exception. To achieve this goal, many have secured, or will likely secure, financing through bank loans. However, it is important to acknowledge that not only have property values increased over the years, interest rates too have risen on such loans. Given the front-loaded nature of many loan structures, interest payments incurred during the initial years may be subject to a higher effective interest rate. As a result, the total interest paid during this period could surpass the limit allowable under the Act. It is pertinent to note that the maximum interest that could be claimed was last increased from INR 1.5 lakhs to INR 2 lakhs during the FY 2014-15. Hence, raising this limit to INR 4 – 5 lakhs (considering the current market situation) could help taxpayer in reducing their tax outflow. While the above would only benefit taxpayers opting for old tax regime, taxpayers who have opted for the new tax regime expect the deduction should also be offered to them as well, since the interest paid on housing loans represents a significant financial burden for most taxpayers, regardless of the chosen tax regime.

6 Procedural alignment of AIS before filing tax return

Parallel to Form 26AS, the Income tax Department rolled out the Annual Information Statement (AIS) during 2021. The AIS is a comprehensive statement which includes additional information related to interest, dividends, securities, transactions, mutual fund transactions, foreign remittance information, advance tax / self-assessment tax etc. Due to its reliance on information provided by third parties and their e-TDS filings, the AIS update process may not guarantee complete data accuracy by the tax return filing deadline. Therefore, a system is needed to ensure streamlined data is available by May 31st, allowing taxpayers to file returns with complete information.

Having said all of that, one fervently hopes the above expectations of the salaried taxpayer will be considered by the government. Even if only a select few of these expectations are addressed in the upcoming budget, it would serve to enhance the morale and financial well-being of salaried taxpayers and potentially lead to a sense of optimism regarding the following year’s fiscal budget.

(By Radhika Viswanathan and Rajesh Ramachandran from Deloitte Haskins & Sells LLP)

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