Budget 2024: A look at expectations of salaried taxpayers
4 min read • Updated: January 31, 2024, 3:08 PM
One of the key expectations of the salaried class is the rationalisation of the income tax slabs under both the old and new tax regimes.
Salaried taxpayers are hopeful of some tax relief measures in the upcoming Interim Budget. Amid high inflation, the household expenses have increased significantly but their incomes have not kept pace. As the government is going to present the Union Budget in an election year, several reports suggest that salaried class may see some tax relief in the upcoming Budget.
With Lok Sabha elections scheduled in April-May, Finance Minister Nirmala Sitharaman will present the Interim Budget on February 1.
Though the finance minister has already hinted at no big ticket announcements in Budget 2024, salaried taxpayers look forward to minor tweaks to taxation structure that could ease their burden.
Let's take a look at the key expectations of the salaried class.
Rationalisation of income tax slabs
One of the key expectations is rationalisation of the income tax slabs under both the old and new tax regimes. The current slabs are seen as no longer adequate by many, with inflation increasing the cost of living significantly. Experts opine that revising the slabs to make them more progressive will help reduce taxes for the middle income group. Currently, the maximum surcharge rate under the new tax regime is 25%, but it is higher at 37% under the old regime. A few reports suggest that some relief in surcharges will be extended to the new tax regime as well to encourage more people to opt for the new one. While the Interim Budget may not carry major changes, some minor tweaks to make the tax slabs more reasonable may not be ruled out. This could provide much needed support to taxpayers battling high inflation.
Increase in the standard deduction
Another demand of salaried taxpayers is an increase in the standard tax deduction limit. The current limit of ₹50,000 has remained the same for long despite rising costs. Experts say that this limit needs to be increased substantially to provide relief to individual taxpayers. A higher standard deduction can help in reducing the tax burden of middle and lower income groups who have limited investment opportunities. It has been argued that the rise in this limit in the new tax regime shows that taxpayers do stand to benefit from it. Given that standard deduction was introduced under the new regime only recently, there are calls for extending the benefit to those still relying on the old tax regime for better deductions and exemptions.
Enhancing Section 80C limit
One deduction that is heavily utilised by salaried taxpayers is Section 80C of the Income Tax Act, 1961. The taxpayers can currently claim deductions up to ₹1.5 lakh under Section 80C. However, with the rising costs of various savings and investment avenues, many are unable to fully optimise this deduction due to the low cap. Experts opine that the Section 80C limit must be substantially raised to keep up with the changing financial landscape and aid long term savings and tax planning. Insurance premiums, PPF, EPF and similar instruments that offer the Section 80C benefits are often unable to be fully exhausted under the current low threshold. Raising the deduction limit can encourage improved financial discipline as taxpayers would aim to take full advantage of the enhanced exemption.
Revisiting perks on HRA
The Budget is also expected to review certain existing house rent allowance (HRA) benefits, observe experts. For example, currently, only select cities like Delhi and Mumbai are considered metro locations for availing a higher 50% exemption on house rent allowance (HRA). Salaried individuals residing in other major urban centres want these cities to be added to the list to get similar tax benefits. Additionally, the deduction caps for interest on home loans may be reassessed. With renting a house becoming more expensive, the existing ₹2 lakh limit is seen as inadequate by many. A revision can boost efforts to own homes.
To sum up
While the Interim Budget may not unveil any big ticket reforms, addressing some of these demands could spread goodwill and create more positive sentiment. Measures to ease the tax liabilities of salaried taxpayers seem the need of the hour, given their contributions. Minor reliefs in tax deductions and exemptions may encourage more compliance.