The past Budgets have brought about certain changes for the salaried class in terms of introducing new tax regime and increase in standard deductions.
Budget 2023 income tax: Top 6 expectations
The probable wish list from the 2023 budget for individual/ salaried class taxpayers are enumerated below:
- There is a wish that the Government may enhance the annual basic exemption limit to Rs 5 lakhs from the existing Rs 2.5 lakhs in the forthcoming budget under both the old and new tax regime. The existing annual basic exemption limit of Rs 2.5 Lakhs (under both the old and new tax regime) for individual taxpayers below 60 years of age has remained the same from FY 2014-15. This limit may be revisited considering numerous factors like increase in cost of living, inflation, number of taxpayers not required to file tax returns, tax revenue foregone by the Government etc.
- The limit for deduction under
Section 80Cof the Income Tax Act, 1961 (the Act) has been capped at Rs 1.5 lakhs since FY 2014-15. Most of the deductions under Section 80C encourage taxpayers to invest in long-term savings, such as Public Provident Fund (PPF), National Pension System (NPS) and fixed deposits that provide long-term finance for infrastructure projects in the country. Also, taxpayers spend significant amounts for home loan repayment, Insurance for self and dependent and education for children. Hence, it is a popular expectation that the deduction limit may be increased from Rs 1.5 lakhs to Rs 3 lakhs.
- The tax-free medical reimbursements and travel allowance exemptions were withdrawn from FY 2018-19 by introduction of standard deduction. Since then, while the quantum of deduction has remained static, there is significant rise in medical expenses and fuel costs. Thus, there is a case in point to consider increasing the
standard deductionfrom the existing limit of Rs 50,000 to Rs 1 lakh. Further, it may also be evaluated to provide the benefit of standard deduction to taxpayers opting for taxation under the new optional regime as well, as these expenses are inevitable for any salaried taxpayer.
- At present, the deduction for
health insurancepremium is capped at Rs 25,000 including preventive check-up for self, spouse and dependent children, and Rs 50,000 for parents with at least one of them being senior citizens. Considering that there has been notable increase in hospitalization costs and medical expenditure, these limits maybe enhanced to Rs 50,000 and Rs 1 lakh respectively.
- Child Education Allowance is currently exempt to the extent of Rs 100 and Rs 300 per child per month (up to a maximum of two children) for children education and hostel expenditure respectively. These amounts of exemption were fixed almost two decades ago. Hence, there is a merit in enhancing these exemption limits to at least Rs 1,000 and Rs 3,000 per child per month respectively, given the increase in cost of education in the recent times.
- Deduction for interest on housing loan is currently at Rs 2 lakhs. With the raise in the interest rates and deduction available for interest on housing being restricted to Rs 2 lakhs, the home loan buyers face a challenge in terms of interest expenses being non-tax deductible. Keeping in mind the same, this deduction can be increased from the existing limit of Rs 2 lakhs to Rs 5 lakhs. Also, this deduction (interest on housing loan on self-occupied property) is not allowed under the new tax regime. Considering that buying a house is a long-term financial commitment it may be evaluated to provide this deduction under the new tax regime as well.
Also Read | Union Budget 2023: Will hiking basic exemption limit under new tax regime benefit taxpayers? Explained
While all the above proposals may be lucrative from an individual/ salaried taxpayers’ perspective the impact they have on the finances of the Government especially the impact on direct tax collections would need to be carefully studied and evaluated before any of above is implemented.
(Parizad Sirwalla is Partner and Head, Global Mobility Services – Tax, KPMG in India. Views are personal)