Budget 2024: Taxpayers hopeful of more relief under new tax regime
3 min read • Updated: January 31, 2024, 1:26 PM
Currently, the new tax regime offers lower tax rates than the old regime, but doesn’t give the benefits of most of the tax deductions and exemptions.
In the last Union Budget for 2023-24, finance minister Nirmala Sitharaman made a significant announcement when she said that the new tax regime would be made the default regime.
This meant that unless a taxpayer opts out purposely, only the new tax regime would be used for computing income tax liability for FY 2023-2024.
The move clearly highlighted the government’s intent to push taxpayers towards the new regime. In fact, experts now believe that it is almost certain that the old tax regime is likely to be phased out in a couple of years.
Given this scenario, taxpayers are hopeful of more relief under the new tax regime in the upcoming Budget as the government may try to make it more attractive as compared with the old regime.
Currently, the new tax regime offers lower tax rates than the old regime, but doesn’t give the benefits of most of the tax deductions and exemptions. However, the government extended standard deduction to the new tax regime effective from the financial year 2023-24.
To recall, a standard deduction of ₹40,000 was reintroduced in 2018 in the old tax regime in lieu of medical and transport reimbursement. This limit was later raised to ₹50,000 in the Interim Budget of 2019.
As finance minister Nirmala Sitharaman is going to present Interim Budget 2024 in the Parliament on February 1, experts are now calling for an increase in the standard deduction limit given the exponential rise in transportation and medical costs in the past five years.
While some are advocating for an increase in the limit to ₹1 lakh, others are suggesting extending the relief under the new tax regime by making standard deduction as a percentage of total income.
This year, the chances of any revision in standard deduction limits look slim in the Interim Budget, given the fact that major tax amendments are typically made in a full-fledged Budget.
There is also an expectation of an increase in the overall tax exemption limit to ₹8 lakh from the current ₹7 lakh under the new tax regime.
Experts are also suggesting a hike in the limit of the National Pension Scheme (NPS) investment to ₹1 lakh for both tax regimes in order to boost voluntary subscribers to the scheme.
This recommendation is based on the calculation that the current annual investment limit of ₹50,000 in the NPS may not lead to a substantial pension amount for taxpayers.
There is also a lot of buzz around the inclusion of HRA (house rent allowance) exemption and health insurance premium deduction under the new tax regime as well. Since housing and health form the two most basic expenses for any taxpayer, their inclusion in deductions could incentivise individuals to consider the new tax system.
Also, a deduction of up to ₹1.5 lakh is currently available on the interest payable on the purchase of an electric vehicle under the old tax regime. The only condition being that the loan must have been sanctioned between 1 April, 2019 and 31 March, 2023. Not only one can expect some relaxation in these dates in the upcoming Interim Budget to include loans taken on later dates, this deduction may now also be extended to the new tax regime in order to push sales of electric vehicles.