Budget 2023 was the last full-fledged Union Budget of the current government before the 2024 Lok Sabha elections. The Budget presented by the government on 1st February 2024 would be a ‘vote on account’. While no major announcements are expected, individual taxpayers have expectations on the same.

Some key expectations from the Budget 2024 from an individual taxpayer’s perspective are:

Change in tax slabs and rates

Tax slabs and tax rates have remained constant for a long time now. A new simplified tax regime was introduced in the Budget 2020 with lower tax rates if one forgoes certain deductions and exemptions. But there was no change in the regular tax rates for individuals. Last year, some changes were made to the tax slabs and tax rates under the new regime with an intention to popularise the same.

However, with the cost of living going up and loan interest rates rising, a relaxation in the income tax rates for individuals would be a welcome measure for individual taxpayers.

Also Read: Where and how to invest in 2024 to save more tax & accumulate wealth

The highest effective income tax rate in India, including surcharge and cess, stands at 42.744% under the old tax regime and 39% under the new tax regime.

One of the main expectations by the common man is to increase the income threshold for the highest tax rate from Rs 10 lakh to Rs 20 lakh and reduce the rate from 30% to 25%. To make the new tax regime attractive, the income tax rate could be 20% for income between Rs 10 lakh and Rs 20 lakh and 25% for income over Rs 20 lakh.

Increase in standard deduction

Standard deduction is a fixed deduction available to salaried individuals without the need for providing evidence of actual expenses incurred. Historically, this deduction was available for many years, but in 2005, this was removed only to be reintroduced in the 2018 Union Budget.

Although the standard deduction was initially set at INR 40,000 in the Budget 2018, it was later increased to INR 50,000 in the subsequent Budget, and there have been no further adjustments since then.

The current deduction of INR 50,000 is deemed insufficient to cover the escalating costs and expenses associated with the higher standard of living and thus there is a need to increase the standard deduction. This adjustment would also bring parity with individuals 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.

Moreover, post the pandemic, there has been an increase in medical costs, which should be factored in when considering an increase in the standard deduction. To address these concerns, the government could consider increasing the standard deduction to INR 100,000.

Deductions from income tax under old tax regime

There have been persistent expectations for some time now to raise the exemption limit on tax-saving investments under Section 80C of the Income Tax Act, 1961 (Act) to at least INR 2.5 lakh. The current limit of INR 1.5 lakh appears quite insufficient and has remained unchanged since fiscal year 2014-15. Considering the increased cost of living and inflation, the government should consider raising the limit under Section 80C of the Act.

Currently, Section 80C allows a deduction for tuition fees paid to any educational institution in India for up to two children, subject to the overall limit of Rs 1.5 lakh. As a result, the deduction is not fully utilised. Given escalating costs of education, it is time this deduction is treated separately, similar to medical insurance. Therefore, the government could likely contemplate introducing a distinct section to enable a deduction for education expenses.

In light of rising expenses for medical treatments, the cost of comprehensive insurances has surged significantly. Consequently, the existing limit of INR 25,000 (INR 50,000 for senior citizens) needs to be reconsidered and potentially increased to INR 50,000 (INR 1,00,000 for senior citizens).

Additionally, considering that salaried individuals are unlikely to keep all their savings in a single savings bank account, which typically earns a lower interest rate compared to term deposits, there may be the tendency to transfer a portion of savings to term/recurring deposits in banks for better returns. Therefore, the government can consider including the interest on various types of bank deposits (e.g., Fixed Deposits) within the scope of section 80TTA. Furthermore, the limit for this inclusion could be raised from INR 10,000 to INR 50,000.

Enabling tax payments from and refunds to the overseas bank accounts of the taxpayer

Currently, tax payments in India can be made through various modes such as net banking, debit cards, NEFT/RTGS, and over-the-bank counter. Recently, the options have been expanded to include a wide range of Indian banks, NEFT payments, RTGS payments and UPI payments. However, these options are limited to Indian banks, creating challenges for non-resident taxpayers who wish to make tax payments.

Likewise, non-residents, particularly foreign nationals, encounter difficulties in claiming refunds in their income-tax returns when they leave India after closing their Indian bank accounts. To address this issue, it is time that foreign bank accounts are considered for tax refunds, especially for PAN-holders registered as non-residents or foreign nationals.

E-verification using OTPs to foreign mobile numbers

Introduction of the verification process for tax returns and the filing of compliance forms, such as Form 67, has brought in efficiencies in terms of time and effort. However, this process has certain limitations, such as the requirement for specific means of verification, like having accounts with net banking/demat facilities with specified banks, Aadhaar OTPs sent to Indian mobile numbers, and digital signature certificates.

For non-resident individuals living outside India who need to complete the tax return filing process or file forms, there could be benefits if the e-verification process is extended to include OTPs sent to foreign mobile numbers or involves two-factor authentication (with different OTPs for foreign mobile numbers and email addresses). This extension could streamline the process, reduce paperwork and administrative tasks, such as tracking receipt by the tax office and applying for condonation of delays.

Enhancement of Annual Information Statement (AIS)

Currently, the AIS captures information related to various transactions, including those involving deducted or collected taxes, bank interest, dividends, sale and purchase of capital assets, foreign remittance, and refunds from the income tax department. This data is crucial for preparing tax returns. The AIS compiles information based on PAN to offer an overview of transactions under the PAN, but it does not encompass certain transactions that are relevant and reportable in the tax return.

To enhance the coverage of AIS, it is proposed to include additional transactions where the PAN is quoted, such as transactions involving the Employer Provident Fund, Public Provident Fund, National Pension Scheme, life and health insurance policies, as well as principal and interest on loan repayment.

This expansion would contribute to pre-filling the tax return with pertinent data, including details about applicable exemptions, deductions, and the taxability of withdrawal proceeds, providing a more comprehensive picture for tax reporting purposes.

While the upcoming Budget would be ‘vote on account’, it remains to be seen if any of the above expectations would see the light of the day on 1st February or if taxpayers would need to wait till the full-fledged Budget post elections, for the relief being sought by them.

(By Divya Baweja, Partner with Deloitte Touche Tohmatsu India LLP. Views are personal)