Union Budget 2023-24: Six Key Household Expectations For Wealth Generation
While Finance Minister Nirmala Sitharaman is all set to present the Union Budget for 2023-24 in the Lok Sabha on February 1, let's take a look at all the possible ways the government can help for payers with tax deductions to save more and grow their personal wealth
The Indian tax system is said to be structured and progressive. However, the majority believe that the tax rates have been unfair to people, salaried and non-salaried. The government, with the introduction of the New Tax Regime in 2020, aimed at easing the pressure taken by taxpayers. The government gave salaried individuals the option to choose between the New Tax Regime and the Old Tax Regime on a yearly basis.
While Finance Minister Nirmala Sitharaman is all set to present the Union Budget for 2023-24 in the Lok Sabha on February 1, let's take a look at all the possible ways the government can help for payers with tax deductions to save more and grow their personal wealth.
House Rent Allowance (HRA)- Under the New Tax Regime, Sitharaman announced that salaried individuals, in order to come under reduced tax slabs, would have to let go of the Home Rent Allowance. The HRA is a major relief for salaried taxpayers as it amounted to about 40-50 per cent of the basic salary under the old tax regime. The HRA can be covered by the New Tax Regime.
Increase standard deduction limit- The standard deduction tax exemption was introduced in 2018 at INR 40,000 and was later hiked to INR 50,000 in the interim budget of 2019. However, experts believe that it should be further increased from INR 50,000 to meet the ever-increasing cost of living and inflation. This exemption is available only under the Old Tax Regime.
Tweaking tax rates and slab- Experts have suggested that limiting the maximum tax rate from 30 per cent to 25 per cent (under the New Tax Regime) will help the country attract manpower and global talent. The same is endorsed by Deloitte in their December report. A general demand for the budget has been to increase the basic exemption limit from INR 2.5 lakh to INR 5 lakh in both tax regimes. Whereas it is also being suggested that income from INR 12.5 lakh up to INR 20 lakh should be covered at the 25 per cent rate.
Increase deduction limit under 80C- One of the best ways to reduce your taxable income is to invest in schemes under Section 80C. The section allows individuals to invest in Public Provident Fund(PPF), National Saving Certificate(NSC), 5-year term deposit with banks, Life Insurance Corporation (LIC) premiums, Employers Provident Fund(EPF), Equity Linked Savings Scheme(ELS), and Unit Linked Insurance Premiums(ULIP). However, the limit for deduction claims is up to INR 1.5 lakh. People have been hoping that the deduction limit will be increased. Prior to Budget 2022, speculations were made that the limit would be increased to INR 2.5 lakh. The section should have the limit increased in the Old Tax Regime. This will further encourage an investing mentality among people.
Increase deduction limit under 80D- Salaried employees have been hoping that an increase in tax deduction under section 80D will be announced in the budget. 2020 and succeeding years have put emphasis on having health insurance and coverage. Currently, the limit for deductions is set at INR 25,000 for non-senior citizens and INR 50,00 for senior citizens (60 and above). The tax deduction should be increased, something which the general public and the insurance companies have been wanting. The desired limit for the non-senior category is said to be INR 50,000. However, the desired limit for senior citizens is not clear.
Increase deduction under 24(b) - Owning a house is one of the major accomplishments for people. However, with the ever-rising cost of purchasing a house, growing interest rates, and EMIs, the present limit of INR 2 lakh should be increased to INR 5 lakh.
In early December 2022, Deccan Herald reported that only 33-37 per cent of taxpayers moved to the new tax regime. The cutting of 70 exemptions under it has been one of the biggest concerns which are stopping people from making a switch. In order to make the New Tax Regime an attractive one, Sitharaman and the government should cover HRA, Section 80C, Section 80D, and Section 24(b) under the new tax system. While opting between the two has been an open option, the government clearly would want preference for the 2020 introduced system.
BONUS: Seeking a work from home exemption
2020 saw a drastic shift when people and companies had to adopt a new form of work- work from home. Jump three years; several companies have completely adopted a WFH model or have a hybrid work system in place. While in the past budgets, a WFH tax exemption has been called for; there is no concrete reason or structure to push this notion into a reality. So, it seems very unlikely that the budget 2023-24 brings something pertaining to WFH.