Budget 2024 Expectations: Top wishes of salaried taxpayers ranging from revised tax slabs to longer exemption list

Finance Minister Nirmala Sitharaman is set to deliver the Union Budget for the fiscal year 2024-2025 later this month. Taxpayers have been eagerly anticipating potential tax relief and concessions since the start of the year. However, hopes were dashed during the presentation of the Interim Budget as the finance minister announced the continuation of existing tax rates for direct and indirect taxes, as well as import duties. Additionally, she decided to uphold the current capital gains framework without any alterations.

While India has experienced significant economic growth, the rise in per capita income among the middle-income bracket, predominantly composed of salaried workers, has been sluggish. This imbalance has led to a decrease in private spending, a critical component for economic progress.

Economists have said that offering tax concessions to employees could drive higher expenditure and consequently enhance consumption levels. Reports from the Finance Ministry suggest that the authorities are deliberating on taxation adjustments, with an official announcement anticipated shortly before the budget unveiling. Moreover, the increasing living expenses in India have also pushed the government to weigh the necessity of implementing these tax relief initiatives.

Income Tax slabs

Salaried taxpayers are anticipating an overhaul of the income tax slabs. In the Union Budget 2023, adjustments were made to the new personal tax regime. Some notable changes included increasing the basic exemption limit to Rs 3 lakh from Rs 2.5 lakh and reducing the surcharge for high-income earners. However, the old tax regime was left unchanged. 

Looking ahead, there are expectations that the upcoming Budget will bring substantial improvements to the Old Tax Regime slab structure. This could involve raising the income tax exemption limit to Rs 5 lakh to align it with the New Tax Regime.

Accounting company EY (Ernst & Young) has said the NDA government might streamline tax slabs and reduce rates to provide relief to individual taxpayers. Currently, the tax rates under the new regime range between 5 and 30%, depending on income levels.

Longer exemption limit

Deloitte India has highlighted that the Union Budget 2023 made significant changes to the tax slabs in the updated personal tax regime. This involved increasing the basic exemption limit from Rs 2.5 lakh to Rs 3 lakh and reducing the surcharge for individuals earning more than Rs 5 crore from 37% to 25%. These changes were introduced to improve the appeal of the new tax regime. However, the tax rates for the previous tax regime have not been modified. Consequently, there is a pressing need for a substantial restructuring of the old income tax regime slabs.

Deduction list and Section 80C

Individual taxpayers, who want to opt for Old Tax Regime, are advocating for an increase in Section 80C tax deduction benefits. Section 80C tax deduction benefits facilitate a reduction in taxable income when investing in a variety of financial instruments or specified expenditures, up to a maximum limit of Rs 1.5 lakh. Speculation within the financial sphere suggests an impending rise in this threshold.

Section 80C serves a dual purpose by offering tax benefits on both investments and expenditures within specified categories. Various instruments qualify for Section 80C tax deduction benefits including the Public Provident Fund (PPF), Employee’s Provident Fund (EPF), Equity-Linked Savings Scheme (ELSS), National Pension Scheme, and more. It's important to note that while you can invest a higher amount in these instruments, the tax deduction benefits under Section 80C are capped at Rs 1.5 lakh.

Moreover, tax deductions are also applicable for certain expenditures such as school or college fees for your children, insurance premiums, including traditional endowment plans or Unit-Linked Insurance Plans. These expenditures also fall under the purview of Section 80C tax deductions.

HRA regulation

The current House Rent Allowance (HRA) regulations specify that only Chennai, Mumbai, Delhi, and Kolkata are recognised as metro cities eligible for a 50% HRA exemption. Other cities receive a 40% exemption, despite the fact that metropolises such as Bengaluru, Hyderabad, Gurgaon, and Pune have experienced significant growth and now contend with high rental costs. 
It is imperative that the regulations be reevaluated in Budget 2024 to incorporate these burgeoning cities into the metro classification for a 50% HRA exemption.

Home loan interest deduction 
Addressing the NDA government's vision of 'Housing for All,' there is a call for the reintroduction of section 80EEA of the Income Tax Act, 1961.  This section allowed first-time home buyers to deduct up to Rs 1. 5 lakh per annum of interest paid on home loans.  The benefit, which was not extended beyond March 2022, is crucial for promoting affordable housing.  Reintroducing this deduction would align with the government’s objective and provide significant relief to first-time home buyers. 

Standard Deduction

Standard deduction under the Income Tax Act allows a deduction under the head of salaries. The government may increase the standard deduction threshold, currently set at Rs 50,000, for salaried individuals. Reports suggest a possible hike to Rs 1 lakh, which could provide significant relief to taxpayers.