Should Budget 2024 concentrate on making the new income tax regime more lucrative?
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As Budget 2024 approaches, individual taxpayers are eagerly awaiting potential changes, particularly in the limits of various exemptions and deductions. Traditionally, these areas have been of key interest, but the current government's focus on a simplified tax regime with minimal exemptions and deductions has left many wondering if it's time to adjust their expectations. Should taxpayers now look towards the New Tax Regime for relief instead?
The absence of any tax proposals in the interim budget of February 2024 has left taxpayers hopeful for positive changes this time around. With Finance Minister Nirmala Sitharaman set to present the budget on July 23, anticipation is high. Amid increasing retail inflation, relieving pressures on the common man’s wallet would be a welcome move. Subhash Chandra Garg, former finance secretary of India, noted, “As only a little less than 3 crore individuals pay income tax out of 140 crore Indians, it is not appropriate to call them common-man - but the group is a crucial vote bank for the Modi government. So while I don't think it will be on top of the NDA government’s priority list, it is certainly a constituency the government cannot and should not ignore.”
The Union Budget 2023 introduced significant updates, such as increasing the basic exemption limit to Rs 3 lakh from Rs 2.5 lakh and reducing the surcharge for incomes exceeding Rs 5 crore from 37% to 25%. These changes aimed to make the new tax regime more attractive, while the old tax regime's rates remained unchanged. According to Garg, it isn’t the income tax slabs that need tweaking, but the duality of the income tax regime that should be done away with.
To make the new tax regime more attractive, experts anticipate that the government may raise the income tax exemption limit to Rs 5 lakh from the current Rs 3 lakh in the upcoming Budget. This potential adjustment could significantly impact taxpayers' choices between the old and new regimes, ultimately simplifying the decision-making process for many.
In anticipation of the upcoming Budget 2024, discussions around India's taxation regime have intensified, with stakeholders advocating for significant reforms. One prominent suggestion is to make the new taxation system, which offers lower tax rates but fewer exemptions, the sole applicable regime. Former secretary Garg proposed raising the minimum tax slab to Rs 7.5 lakh annually, aiming to provide relief to taxpayers. He also recommended restructuring tax slabs, proposing that the highest slab of 30% should only apply to incomes exceeding Rs. 25 lakh or Rs. 30 lakh.
Meanwhile, Aarti Raote from Deloitte emphasized the need to extend increased income tax exemptions under the new regime to those opting for the old regime, currently favored by many for benefits like HRA and 80C deductions. She further suggested raising the standard deduction from its current Rs 50,000 to benefit all taxpayers. Shalini Jain of EY India echoed expectations of further relief under the new regime, with minimal changes to the old regime to encourage migration.
"Could Coalition Politics Impact Proposed Tax Relief Measures?"
Sanjeev Puri, President of the Confederation of Indian Industry, highlighted the necessity of income tax relief for low-income groups amid high inflation. He expressed confidence that coalition politics wouldn't hinder reform efforts, citing past economic successes under Prime Minister Narendra Modi's leadership. Overall, stakeholders anticipate simplified tax compliances and rationalization of complex provisions, aligning with the government's objective of easing tax burdens while stimulating economic growth and tax revenue dynamics.
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