Union Budget To Be Presented On July 23, Here’s What Taxpayers Can Expect In Potential Income Tax Adjustments

Parliamentary affairs minister Kiren Rijiju announced that the Budget Session 2024 is scheduled from July 22 to August 12. The Union Budget will be presented in the Lok Sabha on July 23.

Finance Minister Nirmala Sitharaman is set to present the Union Budget for 2024-25 later this month. Taxpayers have been anticipating relief and concessions on the tax front since the beginning of the year. However, hopes were dashed in the Interim Budget as the finance minister proposed to keep the tax rates unchanged for both direct and indirect taxes, including import duties. She also decided to maintain the current structure for capital gains without introducing any alterations.

Despite India’s rapid economic growth, the increase in per capita income among the vast middle-income group, largely comprised of salaried individuals, has been sluggish. This disparity has led to a slowdown in private consumption, crucial for economic growth.

Experts suggest that providing tax relief to salaried taxpayers could stimulate higher spending and boost consumption. Sources within the finance ministry indicate that the government is considering tax relief measures, with a decision expected just before the budget presentation. The rising cost of living in India is also a factor prompting the government to consider these tax relief measures.

Here are the expectations on the tax front from taxpayers and experts:

1. Standard Deduction in the New Tax Regime: The Finance Ministry is reportedly exploring increasing the standard deduction threshold for income taxpayers in the new regime, while maintaining the tax exemption-heavy structure of the old regime. Previously, the standard deduction was reinstated at Rs 40,000 annually in Budget 2018, later raised to Rs 50,000 in the interim budget of 2019. There is a suggestion to introduce an indexed standard deduction mechanism to ensure it keeps pace with inflation.

2. Simplification of Income Tax Regime: Ernst & Young suggests that the government might streamline tax slabs and lower rates to provide relief to individual taxpayers. Currently, tax rates under the new regime range from 5% to 30%, depending on income levels.

3. NPS Taxation: There is a push to clarify taxation rules concerning employer contributions exceeding Rs 7.5 lakh to specified funds like NPS, particularly defining ‘accretions’ and their computation methods.

4. Exemption Limits under the New Tax Regime: Deloitte India highlights recent modifications in tax slabs under the new personal tax regime, including raising the basic exemption limit and reducing the surcharge for high-income earners. However, adjustments in the old tax regime slabs are deemed necessary.

5. ESOPs Taxation: Proposals are being considered to extend tax deferral benefits for Employee Stock Option Plans (ESOPs) to all employers, not just eligible startups as currently practiced.

6. Adjustment in HRA Rates: Given the significant rise in rental rates in major Indian cities post-pandemic, there is a need to review House Rent Allowance (HRA) deductions. Cities like Bengaluru, Hyderabad, Pune, and Gurugram have seen over 30% year-on-year rental growth in 2023, necessitating a potential adjustment in HRA rates aligned with current market trends.

The HRA component, typically 20-30% of an employee’s total compensation, plays a crucial role in financial planning. Current exemptions are based on a percentage of basic salary or actual rent paid, with variations across city categories, highlighting the importance of aligning these rates with prevailing rental costs.