Written by Alok Aggarwal and Anmol Naithani:
At a time when Lok Sabha elections are to be held around May this year, Union Finance Minister Nirmala Sitharaman is scheduled to present the interim budget on February 1, 2024. The FM had recently said that there will be no major announcement in this interim budget.
Despite uncertainties in the global economy, India’s growth outlook remains positive. Considering several global factors like wars, geopolitical tensions etc., India will have to depend on its domestic demand to drive its growth, especially private consumption and investment spending. So, while it is not a full budget, it is not expected to be any less significant either. Aspects such as making the new tax regime more attractive, reducing complexities, ensuring strong tax collection and ensuring speedy resolution of litigations can be addressed.
Key expectations of individual taxpayers from Budget 2024:
1) Changes in the new tax regime:
surcharge rates
In last year’s budget, emphasis was laid on making the new tax regime more attractive and the new regime was also made the default option. Although the benefits of these changes in tax rates under the new regime have provided relief to both low income and very high income earners, no major relief was given to the income group of Rs 50 lakh to Rs 5 crore. Under the new regime, the existing tax surcharge rate is also the same for those with income above Rs 2 crore. To address these concerns, reductions in surcharge rates can be expected as follows:
- Taxable Income – Current Surcharge – Expected Surcharge
- Rs 50 lakh to Rs 1 crore – 10% – 5%
- Rs 1 Crore to Rs 2 Crore – 15% – 10%
- INR 2 Crore to INR 5 Crore – 25% – 15%
- Above Rs 5 crore – 25% – 25%.
standard deduction
While the focus under the new tax regime is to ensure that the simplified rules are followed and no deductions are analyzed and claimed, the government had also allowed standard deduction under the new regime. Since the salaried class does not get any expenditure and investment deduction under the new regime and considering the continuous increase in cost of living, it is expected that this standard deduction will be increased from Rs 50,000 to a lump sum amount and if not, So a minimum increase can be made each year in line with the bare cost inflation index.
2) Changes in the old tax system:
Metro cities for HRA
Despite rapid growth and high cost of living in all Tier 1 and Tier 2 cities, income tax provisions currently limit the higher House Rent Allowance (HRA) exemption percentage of 50 per cent to only Delhi, Mumbai, Chennai and Kolkata. Therefore, taxpayers residing in other Tier 1/2 cities, which are defined as metros (e.g. Bengaluru, NCR, Hyderabad, Pune, etc.) based on limitations such as population, will also be able to get a higher (50 per cent) exemption. are supposed to. Instead of the existing 40 per cent for HRA.
home loan interest deduction
Currently, a new home loan borrower can deduct the interest paid on the loan from his taxable income (like salary income) up to a maximum of Rs 2 lakh. Compared to the actual interest expense, this limit is very small, for example for a loan of Rs 50 lakh even for a long repayment tenure of 20 years, the annual interest may exceed Rs 4 lakh. To address this concern and considering the financial burden on salaried employees, the existing limit may be increased to Rs 3,00,000.
Deduction for health insurance premium
The cost of health insurance premiums has increased following COVID-19, and this has significantly impacted the disposable income of individuals. To address this increase in costs, it can be expected that the existing exemption limit for payment of mediclaim insurance be increased from Rs 25,000/50,000 to Rs 50,000/1,00,000 in view of the rising costs. Additionally, the limit of preventive health checkup of Rs 5,000 included in the above should be fixed separately.
Encouraging purchase and use of electric vehicles
Interest on loans sanctioned for purchasing electric vehicles till March 31, 2023, is eligible for deduction up to a maximum of Rs 1.5 lakh per annum. Unfortunately, this deadline was not extended in the last budget. Keeping in mind that EVs provide environmental benefits, reduce emissions and carbon footprint, and offer lower operating costs, all vehicle buyers need to be motivated to move towards EVs. Therefore, it can be expected that the Finance Minister will extend the deadline for this cut.
3) Ease of obligations for non-residents:
E-verification process for tax returns
E-verification of tax returns is currently limited to options like Aadhaar OTP, net banking etc. for Indian mobile numbers. In the absence of foreign mobile numbers being allowed for this verification process, manually signed ITR V is not required to be submitted within 30 days. Of filing tax returns. Starting the authentication process with foreign mobile numbers for such non-resident individuals can reduce paperwork and administrative efforts, and reduce unnecessary complications for those who miss the 30-day deadline.
Issues in claiming relief from double taxation
The current revised/delayed return deadline for individuals is 31st December (i.e. 3 months before the end of the assessment year). This creates a challenge especially for individuals claiming foreign tax credit in India for taxes paid in countries that do not consider the financial year as their tax year.
Tax returns for those jurisdictions in India are not finalized before the due date, leading to loss of credit claims. For example in case of US where tax year is calendar year, if tax credit needs to be claimed for the period January to March 2023, the US tax return will not be ready till 31st December 2023 (for FY 2023-24 Current deadline for revised returns) Relief from this issue is long awaited.
4) Other key expectations:
Already exempt from tax in respect of provident fund contributions
Employer’s annual contribution of more than Rs 7.5 lakh to the provident fund, superannuation and national pension system is taxable in the hands of the employee. If exemption conditions are not met at the stage of withdrawal of accumulated PF balance, for example, less than 5 years of continuous service, then there is a risk of the same contribution being inadvertently taxed twice – once contributed. Over and over again during the period. In the withdrawal phase. Clarity can be expected in this regard.
Aligning exemption of NPS contribution with PF contribution
Employer contribution to NPS is tax-free, subject to a maximum of 10 per cent of salary, while for PF employer contribution, it is 12 per cent of salary. While, as mentioned above, there is an aggregate limit of Rs 7.5 lakh beyond which the employer’s contribution is taxable, for most taxpayers this limit is not breached. Therefore, there is a demand to limit the NPS rebate to a minimum of 12 per cent, which will motivate individuals to invest more in NPS and improve the financial security of post-retirement life.
(Alok Aggarwal is Partner at Deloitte Touche & Tohmatsu India LLP and Anmol Nathani is Deputy Manager at Deloitte Touche & Tohmatsu India LLP. Views expressed are personal.)
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