Budget 2023: Will FM Sitharaman revise the long-term pending income tax exemptions limit?

Budget 2023: Will FM Sitharaman revise the long-term pending income tax exemptions limit?

The rising inflationary concerns, looming fears of inflations (REPEAT) and lay-off season has kept the citizens on tenterhooks, hoping that Sitharaman will leave more purchasing power in their hand to boost the consumption.

The present income tax slabs were last revised in 2015, when the basic exemption limit was increased to Rs 2.5 lakh from Rs 2 lakh, which was revised in 2013. The present income tax slabs were last revised in 2015, when the basic exemption limit was increased to Rs 2.5 lakh from Rs 2 lakh, which was revised in 2013.

The Union Budget is just a few days away and citizens of the country will be looking at what Nirmala Sitharaman has to offer them. The Finance Minister will table the budget on February 1 and the common man will look forward to exemptions and rebates.

Interestingly, it is the last full-time budget ahead of general elections of 2024. Also, the rising inflationary concerns and the lay-off season in the job market has kept the wage-earning citizens on tenterhooks. They would want Sitharaman to leave more money and purchasing power in their hands to boost the consumption in the economy.

The present income tax slabs were last revised in 2015, when the basic exemption limit was increased to Rs 2.5 lakh, which was revised to Rs 2 lakh in 2013. Along with it, the tax rate for income bracket between Rs 2.5-5 lakh was reduced to 5 per cent from 10 per cent in 2018, with a tax rebate of Rs 12,500. This makes the income up to Rs 5 lakh annually tax free.

In the old tax regime, income between Rs 5 lakh to Rs 10 lakh was taxed at 20 per cent, whereas beyond Rs 10 lakh, tax rate went up to 30 per cent. Interestingly, in the Union Budget of 2020, Sitharaman had announced a new tax regime -- an increase in tax rate by 5 per cent for an additional income of every Rs 2.5 lakh, with the first being tax free.

Sunil Malik, Senior Tax Practitioner, Dua Associates said that the income tax slabs have not been changed since 2014. "However, a new tax regime was introduced in the budget 2020 in terms of which the tax rates were reduced for those willing to sacrifice tax exemptions and deductions."

Hence, to nullify the increase in the inflation and to give more purchasing power to individuals and provide some tax relief, personal income tax slabs should be revised and exemption should get linked to inflation, he said.

Echoing a similar sentiment, Saurav Ghosh, co-founder, Jiraaf, an alternative investment platform said that increased inflation putting a dent in customer savings due to higher cost of living, and economic growth needs. "We do believe there would be an increase in the basic exemption and increasing the threshold for 30 per cent tax bracket," he said.

People, in general, will also be keen to know if Sitharaman has increased the deduction limit under the section 80C of the Income Tax Act, which has not been revised since 2014 and currently stands at Rs 1.5 lakh. The demand to lift the exemption limit under this section has also strengthened in the recent days.

Section 80C includes investments in Public Provident Fund (PPF), National Savings Certificate (NSC), Life Insurance premium, ELSS, repayment of home loan, tuition fees, and more.

Considering the consistent increase in inflation and also the fact that the deduction limit under Section 80C has not been increased since 2014, the said limit should again be inked to inflation index after it is increased from the existing Rs 1,50,000, Malik from Dua Associates said.

"We do believe increasing 80C limit is a step made in the direction to increase disposable income in the hands of individuals given increased cost of living. This will also provide confidence to the market in terms of investing in long term products," said Ghosh from Jiraaf.

Market participants expect the Finance Minister to increase the limits for the other exemptions including medical expenses and premium under sector 80D and housing loan interested under section 80EE. They said that if the government needs to push consumption in the economy, people need to be left with more real money.

With COVID impact in the last one year or so and possibly increased medical costs and insurance premium, it would be a welcome benefit to citizens, and we do think that the deduction should be increased from Rs 25,000 to Rs 50,000 for non-senior individuals and Rs 50,000 to Rs 1 lakh for senior citizens, Ghosh added.

"Deduction on home-loan interest under section 80EE and 80EEA is subject to fulfilment of conditions such as value of the property, loan amount and period in which loan has been availed, the conditions so mentioned should be rationalized that is increase in the value of the property so that more home buyers can take advantage," said Sunil Malik.

The condition of not owning any other residential house property should be relaxed and this deduction should be available in relation to second house property also extending the period by another year to ease the financial burden on new buyers, he added further.

There are additional positive changes, which if made could support tax-payers and the Indian growth story, including increasing standard deduction, climate friendly deductions to spur EV/solar sectors, education related allowances.

Rahul Charkha, Partner, Economic Laws Practice said that Finance Act, 2018 introduced standard deduction from salary of Rs 40,000. This was increased to Rs 50,000 in 2019. It is expected that this limit will be increased to Rs 75,000 this year.

"The Finance Minister may introduce an innovative scheme where the limits for all such deductions are directly linked with the inflation rate. Once this is introduced, the requirement to increase the limit time and again would cease," he said.

Also read: Budget 2023: Tax relief likely for senior citizens, says report

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Published on: Jan 24, 2023, 10:42 AM IST
Posted by: Tarab Zaidi, Jan 24, 2023, 10:27 AM IST