As the Union Budget 2024 draws near, both taxpayers and financial experts are keenly anticipating potential revisions to tax deductions and policies. This annual fiscal event is a pivotal factor in the financial planning of millions of Indians and serves as a blueprint for the nation’s economic trajectory including the behaviour of two major indices SENSEX and Nifty. The central question this year revolves around whether the budget will introduce new tax breaks or modify existing ones to streamline the tax system or boost revenue.
Current Tax Structure and Potential Revisions
India’s tax structure currently offers various deductions under different sections of the Income Tax Act. For example, Section 80C permits deductions of up to ₹1.5 lakh for specified investments, thereby encouraging savings and offering tax relief. However, the introduction of the new tax regime, which features lower tax rates but fewer deductions, has introduced complexity. While this regime simplifies the process, many taxpayers still prefer the deductions available under the old regime - which can be claimed through investments in ELSS mutual funds, long term investments in the stock market and investments in government-backed securities like government bonds and PPF. The upcoming budget needs to address this dichotomy and provide clear incentives for long-term financial planning.
Section 80C: A Need for Revision?
The ₹1.5 lakh limit under Section 80C has remained static for several years. Financial experts and taxpayers have advocated for an increase in this limit to better match inflation and rising costs. There is also a call for the rationalization of eligible instruments under this section to further promote investments and savings.
Interest on Housing Loans
Deductions on interest payments for housing loans, currently capped at ₹2 lakh for self-occupied properties, may see adjustments. With the government's 'Housing for All' initiative, there is hope for increased incentives, possibly through the reintroduction of Section 80EEA, which allows a deduction for interest paid on home loans for affordable housing.
Standard Deduction: Up for Review
The standard deduction, a straightforward relief measure for salaried individuals, is also under consideration. Currently set at ₹50,000, there is speculation that this limit could be increased to between ₹50,000 and ₹1 lakh. Such a change would provide additional relief to salaried taxpayers, potentially boosting consumption and economic activity.
Overhauling Tax Slab Benefits
The Union Budget 2023 introduced notable changes to the new personal tax regime, such as increasing the basic exemption limit to ₹3 lakh from ₹2.5 lakh and reducing the surcharge for incomes exceeding ₹5 crore from 37% to 25%. These changes were aimed at making the new tax regime more appealing. However, the tax rates for the old tax regime remained unchanged, underscoring the need for significant revisions to the old income tax regime slab structure.
It is anticipated that the government may raise the income tax exemption limit to ₹5 lakh from the current ₹3 lakh under the new tax regime in the forthcoming budget. This move could simplify the tax filing process and provide substantial relief to middle-class taxpayers.​​​​​​​
Final thoughts
The Union Budget 2024 is expected to tackle several key areas of the current tax structure. Whether through increased deductions on savings and investments in the share market, revamped tax slabs, or new incentives for homebuyers, the upcoming budget has the potential to significantly influence the financial planning of millions of Indians. As taxpayers and financial experts await the final announcements, there is a collective hope for a balanced approach that simplifies the tax system while fostering long-term economic growth and stability.
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