Should Budget 2024 concentrate on making the new income tax regime more lucrative?

Budget Expectations: As Budget 2024 approaches, individual taxpayers are eagerly awaiting potential changes, particularly in the limits of various exemptions and deductions. While traditionally these have been key areas of interest, the current government’s focus on a simplified tax regime with minimal exemptions and deductions has left many wondering if it’s time to adjust their expectations. Should taxpayers now look towards the New Tax Regime for relief instead?

In the absence of any tax proposals in the interim budget of February 2024, taxpayers are hopeful for positive changes this time around. With Finance Minister Nirmala Sitharaman set to present the budget on July 23, anticipation is high. Amid increasing retail inflation, relieving pressures on the common man’s wallet would be a welcome move.

“As only a little less than 3 crore individuals pay income tax out of 140 crore Indians, it is not appropriate to call them common-man – but the group is a crucial vote bank for the Modi government. So while I don’t think it will be on top of the NDA government’s priority list, it is certainly a constituency the government cannot and should not ignore,” said Subhash Chandra Garg, former finance secretary of India.
The Union Budget 2023 introduced significant updates, such as increasing the basic exemption limit to Rs 3 lakh from Rs 2.5 lakh and reducing the surcharge for incomes exceeding Rs 5 crore from 37% to 25%. These changes aimed to make the new tax regime more attractive, while the old tax regime’s rates remained unchanged.According to Garg, it isn’t the income tax slabs that need tweaking, but the duality of income tax regime that should be done away with.

To make the new tax regime more attractive, experts anticipate that the government may raise the income tax exemption limit to Rs 5 lakh from the current Rs 3 lakh in the upcoming Budget.

“The government must make the new taxation regime (which has lower tax incidence but does not provide for many exemptions) the only applicable regime. It should be accompanied with the minimum tax slab raised to Rs 7.5 lakh for every one,” he said, when asked about the anticipated relief in income tax slabs.

Garg further added that the government should restructure the tax slabs with the maximum slab of 30 per cent not kicking in at less than Rs. 25 lakh or 30 lakh income.”The new tax regime is the default tax regime now. However, many employees opt for the old tax regime to avail of HRA exemptions, 80C deductions, etc. For the benefit of all, it is expected that the increase in income tax exemption limit in the new tax regime is extended to people opting for the old tax regime,” Aarti Raote from Deloitte wrote in a note. She also suggested that increasing the standard deduction from the current Rs 50,000 would be beneficial.

“It is likely that the Government may provide more relief to taxpayers under the new regime and continue the old regime with limited or no changes to encourage more taxpayers to continue with the new regime, which is now the default tax regime,” EY India’sTax Partner Shalini Jain added.

Will Budget 2024 simplify your taxes?

“Given the Government’s objective of simplifying the tax compliances, the common man is also expecting simplification and rationalization of certain complex provisions in the Income-tax law such as those relating to capital gains,” EY’s Jain said.

Income tax relief for the people in the lowest slab may need to be considered in the forthcoming Budget, considering the high level of Inflation, Sanjeev Puri, Confederation of Indian Industry (CII) President, said in an interview with PTI.

Will a coalition get in the way of your tax relief?

Puri said the CII body does not see compulsions of coalition politics hampering the reforms in the third term of Prime Minister Narendra Modi. Instead, it believes that the performance of the Indian economy and the success of policies in the previous two stints would set the base to accelerate the process.

From the government’s point of view, it is important to understand how it can impact the kitty overall, he added.

Can the govt afford to tweak your taxes?

The government’s kitty is most likely to remain unaffected. Considering the quantum of income tax payers in India. Iit will most likely compensate for the amount, says Garg.

“Of course, this will have a certain arithmetical impact on the government’s personal income tax revenues. This, however, should not concern the government. The dynamism of growth in personal income tax will soon make up for it. Further, a lot of people who currently don’t pay tax will become effective tax-payers,” the former secretary added.