. As the countdown to the Budget begins, experts and common citizens alike hold their breath, eager to witness the strategic decisions that could shape the future of India’s economic destiny. Will the new Budget be a catalyst of change, ushering in a new era of economic reform ? Only time will tell, but one thing is certain: the stakes have never been higher.
Let us have a quick look at the expectations from a personal tax perspective as part of the upcoming Budget proposed to be announced on July 23, 2024.
Further simplification of personal tax regime
The Concessional Tax Regime (CTR), also known as the New Tax Regime, was introduced to simplify the income tax framework. The new tax regime comes with a reduced list of exemptions and deductions compared to the old regime. The idea is to offer a simplified tax structure with lower rates, thereby, removing the numerous tax concessions traditionally utilised by taxpayers.
The government’s agenda is to promote the concessional tax regime and while there may not be changes in the deduction/ exemptions currently available in the new tax regime, changes could be expected in the basic exemption limit and tax rates, to compensate the savings one could obtain from deductions/ exemptions such as:
- Increase in the basic exemption limit from ₹3 lakh to ₹5 lakh in the new tax regime
- Raising the standard deduction threshold from ₹50,000 to ₹1 lakh
- Reduction in tax rates, in order to provide more disposable income in the hands of taxpayers
Overhaul of Capital Gains tax structure
At present, there are different tax rates and holding period(s) applicable for different types of instruments falling within the same asset class, for the computation of capital gains in the hands of taxpayers. Even the indexation benefit differs in different situations.
For example: Equity mutual funds face a 10 per cent tax on long-term capital gains over ₹1 lakh, while debt-oriented mutual funds are taxed at applicable slab rates (without any exemption).
Accordingly, one could expect the following changes from the government:
- Standardisation in the holding period
- Uniformity in tax rates across various asset classes with respect to computation of taxable capital gains
- Enhancement in the present tax-free ceiling limit of ₹1 lakh with respect to listed equity shares or units of equity-oriented mutual funds
Housing
For a self-occupied house property in India, currently, the deduction for interest on housing loan is limited to ₹2 lakh per financial year, and the excess amount of interest can neither be claimed as a loss nor carried forward to subsequent years.
Further, in case of a let-out house property as well, loss in excess of ₹2 lakh cannot be set-off against any other income in the said financial year. However, it can be carried forward for set-off against income from house property (only) in subsequent years, for up to eight assessment years.
With the intent to promote affordable housing, there have been request(s) from the taxpayers to increase the tax deduction limit for interest paid on housing loan.
Accordingly, one could expect an enhancement in the existing limit for deduction of interest on housing loan for self-occupied property from ₹2 lakh to ₹3 lakh per financial year.
Other reforms on taxpayers’ wish list
Other expected measures include reverting to the previous deadlines for filing belated or revised tax returns, introducing a provision for tax treaty relief at the withholding stage by employers, clarifying the treatment of Tax Collected at Source (TCS) paid by employees during tax withholding, expediting the resolution of pending appeals and establishing accountability provisions for taxpayers’ interactions with the CPC regarding grievances and other issues.
The government has been taking measures to transition from a complex to a simpler tax system, creating awareness of the compliance requirements and use of Information technology. While there are lots of expectations that there will be some relaxations on the tax front to boost consumption, one needs to wait and watch on Budget day for the final outcome.
The writer is Tax Partner and Mobility Leader, EY India