Introduction
When finance minister Nirmala Sitharaman presents the Union Budget, she faces a challenge of meeting expectations of many people at the same time. The salaried class has expectations after the Narendra Modi-led National Democratic Alliance (NDA) formed the government at the centre for a third consecutive term. Many pundits believe that the Budget should offer incentives to boost rural and urban consumption in India.
What are the Basic Expectations of Taxpayers?
The government intends to make the New Tax Regime more appealing to taxpayers, but for that, it needs to provide the people with what they need. Here is a brief look at the general expectations of the salaried class from the impending budget presented by Nirmala Sitharaman under the Modi 3.0 rule.
Increase in basic exemption slab
The New Tax Regime offers lower tax rates than the old one, but there is scope for improvement. The basic exemption slab, which is fixed at ₹3,00,000, can be increased to ₹5,00,000, which will make it more attractive for taxpayers, who can uniformly opt for the New Tax regime. This can be a win-win situation for the government and taxpayers.
Tax rate cuts
The salaried class is looking forward to some respite from high tax brackets, which would help ease their financial burden by reducing taxes. The interim budget, presented in February 2024, didn’t offer much relief, so taxpayers are anticipating substantial reforms that will allow them to save money. Under the new tax regime, the expectation is to consider reducing the highest tax slab of 30% to 25%, which will come as a huge relief for higher middle-class taxpayers.
Limit increase for standard deductions and 80C
The current standard deductions, pegged at ₹50,000 since 2019, can be considered to be raised to about ₹60,000 to ₹1,00,000. Finance experts are generally positive about achieving this limit increase on standard deductions, as it will help ensure fairness of tax liability, especially for lower and middle-income slabs, and improve the spending power of these income groups.
Under Section 80C, the threshold for tax exemptions for investments under options such as life insurance, PPF, NSC, and ULIPs stands at ₹1,50,000, which has remained constant since 2014. Considering the growing interest in investments, the government can increase the tax exemption to ₹2,00,000 to ₹2,50,000. This will boost the investment economy and reduce the tax burden on taxpayers further.
Higher HRA limit
The rising cost of rentals, especially in metros, which are home to a majority of taxpayers, has become a major bone of contention for people from small towns who intend to move to the metros for better job opportunities. An increase in House Rent Allowance (HRA) exemptions will neutralise the increase in rental costs, making it easier financially for those following the old tax regime.
Conclusion:
The Union Budget for FY 2024-25 is due in about a week, and the country, especially the taxpayers, is waiting in bated breath to see how it impacts their income. If the government intends to attract more people to accept the new tax regime, it needs to bring some basic changes to the budget, which will allow the salaried class to save taxes. Changing the tax slab, rate cut for taxes, increase in standard deductions, and 80C are some of the changes that will be welcomed by taxpayers. ​​​​​​​
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