Budget 2024: Common Taxpayer’s Expectations; Will Nirmala Sitharaman Open Gift Box Before Elections?

Union Budget 2024: What should common taxpayers expect from Finance Minister in the interim budget? Will Modi Government's budget, to be presented on February 1, going to bring any big good news or relief for common taxpayers this time? Even though this question pops up before every budget but this time around the election atmosphere has reached its peak even before the announcement by the Election Commission of India. In such a situation, it should not be surprising if common voters expect the Finance Minister Nirmala Sitharaman to present an election-oriented budget.  Sameer Gogia, Direct Tax Professional said, "Given that the "Budget 2024" to be presented on February 01, 2024 is an interim budget, expectations of any significant changes are low. However, a common man is still expecting some relief in the upcoming budget to beat the inflation and for having more disposable income in their hand. Such measures include increase in standard deduction on the taxable income of salaried employees and pensioners, increase in deduction u/s 80D for Mediclaim and allowing the same in new tax regime to reflect the rising costs of healthcare, Increase in deduction u/s 80C to promote savings and Increase in limit for housing loan interest deduction to cope up with a surge in housing loan interest rates and real estate price. Further, common man also is also expecting, clarification on few aspects such as taxability of the amounts received through the Systematic Lump sum Withdrawal (SLW) facility under NPS, perquisite tax treatment as regards provision of electric vehicles by an employer to its employees and taxation of employer's contribution to specified funds in excess of INR 7.5 lakhs and 'accretions' thereon."

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What should the common taxpayer expect?

Finance Minister Nirmala Sitharaman had said some time ago that since it is an interim budget, there will be no major announcements this time. But the way Prime Minister Narendra Modi, after returning to Delhi from Ayodhya, announced the ambitious Pradhanmantri Suryodaya Yojana to install solar panels on the roofs of 1 crore houses, it indicated that the some other big announcements can also be made in this budget. Modi government is known for taking out-of-the-box decisions. For example, in the interim budget presented before the 2019 Lok Sabha elections, the government had made many big announcements for individual taxpayers, from increase in standard deduction to full tax rebate of Rs 12,500. Therefore, this time also if the common taxpayer can expect a shower of gifts from the government during the election season. So, let's take a look at the relief that common individual taxpayers are expecting from this Union Budget 2024 in terms of income or personal tax.

Change in income tax slab and rate

There has been no change in the income tax slabs and rates of the old tax regime since 2014. However, the cost of all essential things has increased significantly in the last 10 years. These essential things include food items, medicines, electricity, transport and loan costs. This is the reason why taxpayers are expecting relief in tax slabs and rates this time. It remains to be seen whether the government pleases the voters in this matter in the election year or their wait remains incomplete.

Anupama Bhargava, a Certified Financial Planner and Partner at Beekay Taxation & Investment LLP said,  “The Union Budget is an important annual activity and rightly so as it is a road map to the financial balance sheet of the country. On a more micro level, the common man looks for more money in his pocket through lower tax slabs, more tax reliefs and optimum Govt spending. Being an election year, the Budget 24 is riding high on the common man’s expectations.”

Ashish Aggarwal, Director of Acube Ventures added, “Income tax thresholds desperately need revision to account for inflation. Raising basic exemption limits and adjusting tax slabs can spur spending and cushion households from price rise. Alongside, streamlining convoluted rebates and procedures could improve compliance and collections - steering India's tax regime to become taxpayer-friendly.”

Agam Gupta, Executive Director at Share India Fincap Pvt. Ltd. echoed the views and said, “With rising costs pinching middle-income groups, income tax relief has become essential. The budget can hike basic exemptions, adjust tax brackets more progressively and expand rebates. Coupled with simplified tax rules and digital services, it can enhance taxpayer trust and participation - laying the road for an efficient, transparent regime aligned to 21st century realities.”

Read More - Budget Expectation For Personal Tax: Hoping For Reduction In Overall Tax Burden

Standard deduction limit should be increased

The standard deduction for the salaried class was reintroduced by the Modi government in 2018 and in the interim budget of 2019, it was increased from Rs 40 thousand to Rs 50 thousand. After that, keeping in mind the decline in the value of rupee due to inflation in the last 5 years, it has become absolutely necessary to increase the standard deduction. “To my mind some of the things that the common man is looking forward include firstly, higher deductions in the form of standard deductions and tax savings under section 80 C. Currently the standard deduction is Rs. 50,000.The last raise on this was done in 2019 and given the consistent high inflation, this would be a great move.” Bhargava said.

Increase in tax saving investment limit

The maximum limit for tax-saving investment under Section 80C of the Income Tax Act is Rs 1.5 lakh, which was last increased 10 years ago. Children's school fees are also included in this limit of Rs 1.5 lakh. Now the demand to increase this limit to Rs 2.5 lakh is gaining momentum. In view of the huge increase in the expenditure on children's education, there is a demand to give a separate deduction on it like health insurance. After Covid-19, treatment expenses and health insurance premiums have increased significantly, hence the demand to increase the limit of tax exemption on these is also gaining momentum. “Tax savings form an integral part of household savings. With a threshold limit of saving Rs. 1.5 lakhs per year under section 80 C, an individual in the highest tax-slab stands to save Rs.45,800. An increase in this limit of Rs. 1.5 lakhs would not only help the common man save on taxes but also motivate him to save up for his financial goals. It is like having your cake and eating too!” Bhargava said.

Deduction on home loan interest should be increased

There is an annual limit of Rs 2 lakh on income tax deduction on home loan interest, which has not been changed since 2014. Whereas, house prices have increased tremendously in the last 10 years. The increase in interest rates has made this limit even more inadequate. Therefore, this limit should be increased. “Increase in the home loan deductions under section 24(b) is what taxpayer expects, currently this is capped at 2 lakh per year. Given the high cost of real estate, this deduction limit needs to be more realistic. Today, a home buyer needs to take a higher loan to cater to the rising costs. An increase in this limit will be an incentive for thousands of home buyers to achieve their goal of owning a house,” Bhargava said.

Increase in limits of HRA, transport and LTA

Despite the sharp increase in house rent and transport expenses, the tax-free limit of allowances related to these has not increased since 2017. Therefore, to do justice to the taxpayers, it is necessary to increase the tax free limit of all these allowances.

Capital gains taxation on Equity/Equity Mutual funds

Bhargava said, “The year 2023 has been a phenomenal one for the Indian financial markets. Retail investing has kept the Indian markets buoyant even while the global markets struggled. Increasing the threshold LTCG taxation limit from current Rs 1 lakh, or even better all together removing the long term capital gains tax on equity would be a great move that would incentivize the common man to invest more in the financial markets leading to an increase in the Market capitalization which in turn will lead the GDP of the country. A Win-Win for all.”

“Apart from the above, the common man also seeks to have a common capital gains tax structure across all assets. Right now the capital gains tax is very complicated and different for different assets. The expectations are many but one thing that is common to the common man is to have more tax reliefs which could be in the form of tax deductions or increased limits on tax slabs. How the story unfolds will be apparent in less than a day.  Meanwhile it is good to have a wishlist,” Bhargava said.

Can big announcements be made in the interim budget?

Amidst all these demands, this question can also be raised whether the government can make important announcements related to tax in the interim budget i.e. vote-on-account? It is true that for decades there has been a tradition of not making major announcements in the interim budget before the elections. But the Model Code of Conduct of Elections i.e. Model Code of Conduct comes into force only after the announcement of the election programme. Before that, there is no constitutional bar on any government making changes in tax provisions through the budget. After all, the government had done this in the pre-election interim budget of 2019 too!