On February 1st, Union Budget 2023-23 will be presented by Finance Minister Nirmala Sitharaman and the budget speech is scheduled to start in the parliament at 11 am. The Economic Survey of India will be presented on January 31st, signalling the commencement of Parliament's Budget session. Will the taxpayer and salaried taxpayers receive income tax relief in the Union Budget 2023–24?, these are two questions that are in hype ahead of Budgetary day. Let's know from one of our industry experts Deepashree Shetty, Associate Partner - Tax and Regulatory Services, BDO India, what she has to say against pre-budget expectations for individual taxpayers.

Deepashree Shetty said as we move closer to the Union Budget 2023, the expectations of individual taxpayers soar higher, anticipating increased tax-sops. Here are some of the reliefs individual taxpayers are expecting from the upcoming Union Budget:

Rejig in individual tax rates:

  • Increase in the basic exemption limit:

Individuals are expecting relief on the income-tax rates as well as tax exemptions from the annual Budget.

For individual taxpayers, the basic income exemption limit of income which is not chargeable to tax is set based on the taxpayer’s age. These are ₹250,000 for individual taxpayers below 60 years of age, ₹300,000 for individuals between 60 to 80 years (senior citizens), and ₹500,000 for individuals above 80 years (super senior citizens).

Given the high inflation rate on food and essentials, the impact is felt more by individual taxpayers. Hence, an increase in the basic exemption limit from INR 250,000 to INR 300,000 is expected from the upcoming Budget. A similar increase of INR 50,000 is expected for senior and super-senior citizens.

  • The disparity in the income slab charged at the highest tax rate of 30%:

Currently, there are two tax regimes for individuals i.e., the old/existing tax regime (OTR) and the new/concessional tax regime (NTR). The disparity in the tax rates under the OTR and NTR was made to make the NTR more lucrative. Under the OTR, income above INR 1mn is taxable at 30% while under the NTR, income above INR 1.5mn is taxable at 30%. Considering that there has not been a change in the tax rates over a year, the expectation is that the exemption limit is increased to INR 1.5mn under the OTR to be at par with the NTR

2. Deductions for salaried taxpayers

  • Standard deduction needs an uplift:

Standard deduction (SD) for salaried taxpayers is available under the OTR. It was reintroduced in the fiscal year 2018-19 in parallel doing away with the deductions for transport allowance and medical reimbursement available on salary income.

Ironically, the expenses towards transportation and medical facilities have increased substantially over the recent years, but the maximum amount for SD is pegged at INR 50,000 since the fiscal year 2019-20. It is highly expected that the SD is increased to INR 100,000 per year to help reduce the tax burden for salaried taxpayers.

  • Tax relief for electricity expenses:

The income-tax return filing is made mandatory for individual taxpayers with electricity consumption of more than INR 100,000. However, no specific deduction is available for electricity expenses for salaried taxpayers. Especially after the Work-From-Home model became prevalent, it is time that the Government gets sensitized about this and introduces a deduction of up to INR 12,000 per year for electricity expenses.

3. Increase in deduction limits

Under the OTR, there are various deductions available under sections 80C and 80D of the Income‑tax Act, 1961 (the IT Act) for specified expenses.

  • Under section 80C of the IT Act, investments and expenditures such as life insurance premiums, tuition fees, provident funds, etc. are eligible for a deduction but capped at INR 150,000 under the OTR. With the increased inflation and expenditure over the years, individual taxpayers hope that the limit of deduction under section 80C of the IT Act be increased to INR 250,000.
  • Under section 80D of the IT Act, deductions for health insurance premiums paid for self and dependants are available. Given the extensive health care expenditure, individuals prefer subscribing to health care coverage and insurance plans. However, the deduction for it is available only up to INR 25,000 per year for self. An increase in the deduction limit to INR 50,000 per year would be apropos and help increase their savings

4. Increase in deduction limits for housing loan repayments

For self-occupied house property, an individual can claim up to INR 200,000 as a deduction under the OTR for housing loan interest payment. The housing loan principal repayment can be claimed as a deduction under section 80C of the IT Act under the overall limit of INR 150,000.

While changes were introduced in the Union Budget for new home buyers, an increase in these deductions could help other taxpayers too.

Consideration of the above expectations in the upcoming Union Budget shall increase the savings for salaried class taxpayers and also encourage them to make appropriate declarations to their employers and in their annual tax declarations.

Source : Livemint