The taxpayers are expecting a widening of the tax base and a moderation in the tax rates
In the upcoming Union Budget 2024, the taxpayers are demanding reforms in tax slabs and rates applicable to individual taxpayers. A tax slab is an income range attracting a specific tax rate. Under the income tax, individual taxpayers are subjected to varying tax rates based on their income levels.
In 2023, the tax slabs under the new regime were reduced from six to five, reducing the tax on income in certain slabs. This led to a reduction in taxes of Rs 37,500. According to experts, more reduction in tax labs to three or four slabs and reducing tax on lower slabs could lead to additional tax savings for households in this financial year.
Says Aarti Raote, Partner, Deloitte India: “A change in the slab rates is what has been the constant ask of the taxpayers. However, the government in the past has refrained from making any changes to the regular tax regime but has offered some rate and surcharge changes in the simplified tax regime. This year it is expected that the government may extend slab rate changes in the simplified tax regime to give some relief to taxpayers. There is a strong ask in news reports to increase the basic exemption threshold to Rs 5 lakh for the regular tax regime but we have to wait till the Budget unfolds.”
The existing basic exemption limit of Rs 2.5 lakh in the old tax regime has remained unchanged since the Budget 2015. Further, individuals are taxed at a rate of 30 per cent on income exceeding Rs 10 lakh. Despite escalating food prices, modest income increments, and higher living costs, the government has not revised these thresholds.
Says Rahul Singh, senior manager, Taxmann, tax and corporate advisor: “Though in the upcoming Budget, the taxpayer is demanding reforms in tax slabs and rates applicable to individual taxpayers, I believe the government is unlikely to change the tax slabs and rates because the government’s primary goal is to encourage people to switch to the new tax regime. Therefore, any modifications to the old tax regime would hinder the government's objective.”
However, changes in slabs or tax rates are possible under the new tax regime. At present, the basic exemption limit in the new tax regime stands at Rs 3 lakh, with the highest tax rate of 30 per cent applicable on income exceeding Rs 15 lakh. “Despite this relief, the number of taxpayers migrating from the old to the new tax regime still needs to grow. Therefore, tax slabs or rate changes under the new tax regime may encourage greater participation,” adds Singh.
However, according to some experts, based on Nirmala Sitharaman, minister of finance of India’s ethos in easing tax compliance, the likelihood of an increase in the basic exemption limit (BES) is extremely low, as it would result in the adjustment of income tax slabs and the subsequent complexity of understanding the impact. “Additionally, we do not anticipate any major modifications to the tax slab rates under the old and new tax regimes, as the tax slab rates were rationalized in the New tax regime in the 2023 Budget. However, we anticipate that the tax rebate under the new tax regime may be increased to Rs 7.5 lakh, which would result in a tax savings of Rs 30K for middle-class taxpayers,” says Suneel Dasari, founder and CEO of EZTax.in, a tax filing platform.
“Also, to revitalize the Indian economy, particularly the housing sector, the interest rate on home loans under section 24 of the old tax regime may be raised from Rs 2 lakh to Rs 3 lakh. It benefits a significant number of taxpayers, and allied sectors, as the interest rates on loans are rising,” he adds.