The salaried class can hope for some relief from Budget 2023-24 as finance minister Nirmala Sitharaman is expected to allow certain exemptions related to house rent, housing loan interest, social security and medical insurance even for the new income tax regime to make it attractive and incentivise people to shift to it.
Experts want the finance minister to announce some tax relief in the last full budget of the Modi government ahead of the 2024 Lok Sabha election to leave more disposable income that will boost spending and give a much needed fillip to the economy.
The mandarins at North Block, however, would have to weigh up whether consumers can afford to splurge amidst the global slowdown. Under the new personal income tax regime, individual taxpayers who forgo most deductions and exemptions can pay taxes at comparatively lower rates.
However, with no exemption for long-term investments, social security and medical insurance, the option has not got the expected adoption among taxpayers.
Indications are that the government is expected to continue with both the tax regimes, with discussions revolving around making the new regime more attractive.
The standard deduction has been stagnant at Rs 50,000 since the Finance Act, 2019: it’s objective is to allow salaried individuals to claim a flat deduction from income towards expenses that would be incurred in relation to their employment.
In the new regime, under section 115BAC of the Act, there is no benefit of standard deduction. Industry chambers have suggested a standard deduction between Rs 1 lakh and Rs 2 lakh be provided even for individuals/HUF opting for the concessional tax regime (CTR)
Alternatively, deduction under section 80C/CCC/CCD should be retained but limited to Provident Fund (PF), Public Provident Fund (PPF), life insurance, pension policy, National Pension Scheme (NPS), and Secition 80D for Mediclaimto encourage insurance and retirement savings.
Adoption of any of the alternative measures will encourage the individual taxpayers to move to CTR and facilitate the convergence to one tax regime in the near future.
The experts said the government should encourage investments in such schemes and incentivise people to put their money in them as a long-term corpus for old age.
They said the savings of the middle class has eroded because of inflation and Covid 19.
Taxpayers can expect the deduction limit under section 80C to be raised to Rs 2.5 lakh from Rs 1.5 lakh.