It’s the season for wishlists. And individual taxpayers hope that Finance Minister Nirmala Sitharaman will pay heed to some of their hopes on February 1.
The general consensus among tax experts is that the old tax regime is unlikely to see any changes in favour of taxpayers, as the government is keen to promote the new, minimal-exemption one. However, the latter can be made more appealing to attract more taxpayers towards the simpler structure that it offers.
“In last year’s Budget, the Finance Minister had raised the standard deduction limit and also rationalised the tax slabs under the new tax regime to provide relief to taxpayers. This year too hopes for tax relief on these fronts are high, in the backdrop of high interest rates, increased cost of living, and the need to spur consumption to sustain economic growth. If there’s some relief this year too, that will leave more disposable income in the hands of individual taxpayers,” says Kuldip Kumar, Partner, Mainstay Tax Advisors.
Besides the increase in basic exemption limit, standard deduction, and other tax benefits, a key demand pertains to the simplification of tax laws and the income tax return-filing process — a more realistic item on the wishlist as it does not have revenue implications.
Also read: Top five changes in income tax rules in 2024
HRA exemption under the new regime
Some tax experts believe the restructuring of the Income Tax Act may not be completed this year. “So, there is room to make changes to the new tax regime. It can be made more attractive by incorporating the house rent allowance (HRA) exemption,” says Mayank Mohanka, Founder-Director, TaxAaram.com, a tax consultancy firm.
The rationale is that rent is not a discretionary expense as housing is a basic necessity. The exemption allowed is the lowest of: actual HRA received, 50 percent (40 percent in the case of non-metros) of your basic salary and actual rent paid minus 10 per cent of basic salary. “The huge tax benefit that HRA provides (under the old regime) is one of the reasons why many taxpayers have not shifted to the new regime. So, bringing HRA into the new regime will help such people make up their mind to make a switch,” he says.
Also read: Why HRA could be the ace in the pack that helps you choose between old and new tax regimes
Hike standard deduction to Rs 1 lakh
Rising inflation and growing household expenses call for an increase in standard deduction, feel tax consultants. “While standard deduction under the new regime was hiked from Rs 50,000 to Rs 75,000, that was too little. It should go up to at least Rs 1 lakh as expenses have surged. A salaried person who earns, say, Rs 15 lakh, could be spending Rs 7-9 lakh a year. And he or she is already paying tax on these expenses in the form of goods and services tax (GST) or value-added tax (VAT) — on fuel, children’s school fees, household expenses, and so on. So a higher standard deduction is needed,” says Abhishek Soni, Co-Founder, Tax2Win, a tax consultancy and return-filing portal.
Ease ITR filing for NRIs
A more realistic expectation is around simplifying the return-filing process. “Non-resident taxpayers are facing several challenges. Refunds are not directly credited to their overseas bank accounts, though they can mention the same in the return form to receive tax refunds, if any. Also, there are not many options available for NRIs to digitally e-verify their return,” says Kumar.
The amended time limit of 30 days to submit the ITR-V (return acknowledgement) in physical form to the income tax department has put them in a corner. “The time limit to submit the ITR V should be extended to 120 days until the time more options to e-verify the return is provided to NRIs,” he adds.
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