Budget 2023: Here’s what a salaried employee can expect

Given that this is going to be the last full Budget of the current government, individual taxpayers, one of the largest sources of income tax revenues, have built high expectations. It will be interesting to see how the government balances expectations and addresses the fiscal deficit targets.

What to expect from Budget 2023?

1. Revision of tax slab rates

The tax rates for individuals have not been changed since FY 2017-18. The government had introduced the new tax regime in FY 2020-21 for individual taxpayers with lower tax rates. However, to avail of this benefit, the taxpayers had to let go of various deductions and exemptions which they were eligible to claim under the historical tax regime.

To make the new tax regime more attractive, taxpayers would expect a reduction in the highest tax rate from 30per cent to 25per cent which should apply to income higher than Rs.20 lakhs per annum. This should be coupled with a widening in the slab covered by 20per cent tax rate, from the current slab of Rs.10-12.5 lakhs to Rs.10-20 lakhs. Also, this regime should be extended to returns filed after the due date as well.

Applicable surcharge and educational cess will be levied on applicable taxes.

For a taxpayer with taxable income of Rs. 25 lakh, tax saving would be Rs.87,500 before educational cess on account of the above change.

2. Enhanced tax deduction limits

Taxpayers have also been looking for a long time for an increase in the limits of various tax-deductions (as mentioned below): 

Deduction under section 80EEB is available only for loans sanctioned by financial institutions between 1 April 2019 to 31 March 2023. Given the fast-expanding market for EVs, government should consider extending this timeline till 31 March 2025. Further, to boost the use of EVs, government may also consider allowing this deduction to individuals who purchase EVs with their own funds.

3. Exemption with respect to PF contribution which is already taxed in the year of contribution

As per Budget 2020, employer’s contribution (into PF, NPS and SAF) exceeding Rs 7.5 lakhs in any FY and accretions thereon are taxable as “perquisite” in the hands of employees. Withdrawal of these funds is also taxable, if the conditions for exemption (for example, five years of continuous service for PF) are not complied with. There is no specific exemption provided for excluding the income already taxed in the past FYs (in the year of contribution).

The government should outline principles and methodology to eliminate double taxation of any part of the accumulated PF/NPS/SAF balance that may have already suffered tax in the year of contribution. This would bring clarity and save taxpayers from unnecessary litigation that may arise in the future.

4. Others:

Timeline for revision of the tax return

With the reduced time frame between the original tax return filing due date (31 July of the assessment year (AY)) and revised tax return filing due date (31 December of the AY), individual

taxpayers do not get enough opportunity to identify and correct any error/omission on account of reconciliation and updated income as per AIS/TIS, updated e-TDS returns by the employers and bankers etc. Also, in a majority of countries, the fiscal year is not the same as that of India. Accordingly, as the overseas tax return is not available within the timeline of filing revised tax return in India, it creates trouble for those taxpayers who claim a foreign tax credit.

Restoring the due date for revised tax return filing to one year from the end of the assessment year will allow taxpayers sufficient time to revise their tax returns.

Exemption for House Rent Allowance (HRA)

With the significant increase in housing costs, as well as growth in population of salaried taxpayers in certain non-metro cities such as Bangalore, Hyderabad, there is a very strong case for their inclusion under the 50 per cent category of metro cities to enable such taxpayers to claim higher exemption towards rental payments in such cities.

Views are personal. Alok Agrawal is Partner with Deloitte Haskins and Sells LLP; Bhavin Rajput is Director with Deloitte; Dhananjay Kumar is Manager with Deloitte