Income Tax Budget 2024 Highlights | Interim Budget maintains status quo: No changes to tax rates, aligning with expectations of continuity

Finance Minister Nirmala Sitharaman on February 1 maintained the status quo on the capital gains structure, opting not to introduce any changes. However, the interim Budget for 2024 did not bring any relief on the front of debt taxation.

Taxation experts were hoping that the government would rationalise and streamline the capital gains structure, which is different for different assets (equity, debt, real estate, and so on) across time periods. (Read Full Story Here)

The salaried class, who have been consistently lauded for their contribution towards the nation's tax pool, were keenly awaiting the announcements to be made by Finance Minister Nirmala Sitharaman as part of the Interim Budget she presented on February 1. (Read Full Story Here)

Finance Minister Nirmala Sitharaman on February 1 unveiled measures to enhance taxpayer services by addressing long-standing issues related to non-verified, trivial direct tax demands that have lingered in litigation since 1962. These unresolved matters, still on the books, have been a source of concern, causing anxiety and impacting subsequent-year refunds.

To alleviate these concerns, the FM announced a significant step forward. Direct tax demands with disputes up to Rs 25,000, linked to the fiscal year up to 2009-10, will be waived off. Additionally, outstanding demands up to Rs 10,000 will be waived for disputes associated with the financial years 2010-11 to 2014-15. This bold move is anticipated to bring relief to approximately 1 crore taxpayers, streamlining the resolution of long-standing disputes and contributing to a more taxpayer-friendly environment.

No changes in income-tax rates and slabs.

Old and pending cases of “petty” tax demands will be dropped. Some of these demands debate back to 1962.

Real rate of return on investments has gone by 50 percent between 2014-2023 because of inflation management.

A new scheme to be announced for building or buying homes for those currently living or renting in chawls and slums.

Benefit of tourist hubs will benefit employees claiming LTA (Leave Travel Allowance).

Finance Minister Nirmala Sitharaman announced during the interim budget presentation that there will be no changes in tax rates for both direct and indirect taxes, including import duties. This decision signifies continuity in the existing tax framework, providing stability for businesses and individuals during the interim period.

"I do not propose to make any changes to taxation and proposed to retain same tax rates for direct and indirect tax rates including import duties," the FM said.

Finance Minister Nirmala Sitharaman announced a housing scheme targeted at the middle class during the budget presentation. The scheme aims to assist deserving sections of the middle class residing in rented houses, slums, chawls, and unauthorised colonies in purchasing or building their own homes. This initiative reflects the government's commitment to addressing housing needs and promoting homeownership within the middle-income demographic.

Finance Minister Sitharaman asserted that the economy is thriving, and inflation remains moderate. Her statement implies a positive assessment of the economic landscape, signifying that inflation levels are being effectively managed, as per the Finance Minister's perspective.

In her Budget 2024 speech, Finance Minister Nirmala Sitharaman announced that the average real income of the people has surged by 50 percent. She said that the Goods and Services Tax (GST) has successfully facilitated the concept of "one nation, one market, one tax".

FM Sitharaman highlighted that Direct Benefit Transfers (DBTs) amounting to Rs 34 lakh crore, disbursed by the government through PM Jan Dhan accounts, have resulted in savings of Rs 2.7 lakh crore. She attributed these savings to the successful avoidance of leakages that were prevalent in the previous system. These accrued savings, she noted, provide additional funds for the Garib Kalyan initiative. The PM Jan Man Yojana, as part of this effort, extends support to particularly vulnerable tribal groups.

During the presentation of her sixth budget on February 1, Finance Minister Nirmala Sitharaman highlighted that Prime Minister Narendra Modi took office in 2014 amid significant challenges. However, she emphasised that through the inclusive approach of "Sabka Saath Sabka Vikas" (Together with All, Development for All), the government successfully navigated these challenges. FM Sitharaman further noted that the Indian economy has undergone substantial transformation over the past decade.

In her Budget speech, FM Sitharaman affirmed that the government, through the pursuit of Sabka Saath has aided 25 crore people in breaking free from multidimensional poverty over the past decade. She underscored that the needs and aspirations of these individuals are the government's utmost priority, emphasising that the nation advances when they progress.

There is a growing call for a reconsideration of the Section 80C limit, currently fixed at Rs 1.5 lakh for investment deductions. The current limit, established more than a decade ago, remains unchanged despite shifts in economic dynamics. Tax experts say that the initial Rs 1 lakh limit, set in 2003, underwent a mere 50 percent increase in 2014, resulting in an annual average increment of less than 3 percent.

They propose a direct elevation to a minimum of Rs 2.50 lakh, stating that such an adjustment would better align with the evolving economic landscape. This revision holds the potential to offer individuals more substantial opportunities for both tax savings and strategic investment planning.

The government could also consider linking the tax slabs to inflation to provide relief to taxpayers from the rising cost of living. Overall, taxpayers hope that the upcoming budget addresses their concerns and provides a much-needed boost to the personal taxation front.

Taking cue from the last interim budget presented in 2019 when certain tax proposals were introduced, there is some expectation this time as well.

Taxpayers in the lower and middle income category are hopeful for some relief in the form of a reduction in tax rates or an increase in tax slabs. In recent years, the government has taken several steps to simplify the tax structure and make it more taxpayer-friendly. The introduction of lower tax rates for individuals under the new tax regime was a welcome move, but it lacked the desired impact due to parity with corresponding deductions and exemptions under the old tax regime. Therefore, taxpayers expect the government to strike a balance between lower tax rates under the new tax regime or increasing the threshold for various deductions/exemptions to incentivise savings and investments.

In the case of the old tax regime, there has been an expectation for higher deduction limits such as u/s 80C (PPF, LIC, etc.), 80D (health insurance premium), and housing loan interest payments. Also, the standard deduction applicable under both tax regimes is expected to be raised to meet the inflation over the last five years.

The middle class is eagerly expecting a revision in the income tax exemption limit, aspiring for an adjustment from Rs 2.5 lakh to Rs 5 lakh. The anticipation stems from the Budget 2023 presentation on February 1, 2023, where Finance Minister Nirmala Sitharaman made adjustments to the slab rates specifically for individuals who choose the new income tax regime.

The expectations signal a potential shift in tax policies aimed at providing relief and financial flexibility to the middle-income bracket.

Madan Sabnavis, Chief Economist at Bank of Baroda, suggests that the government has limited leeway to make changes in the income tax structure. He emphasizes the need for individuals to transition to the new income tax regime. Similarly, Radhika Rao, Senior Economist at DBS Bank, agrees that significant changes to the income tax structure are unlikely.

Indranil Pan, Chief Economist at Yes Bank, adds that given the absence of issues with urban consumption, relying on income tax adjustments is unlikely to effectively address the current economic scenario, according to a report on the Times of India website.

Expectations for increased tax exemptions in the interim Budget 2024 suggest that individuals might have the opportunity to invest up to Rs 2.5 lakh for tax savings. Instruments eligible for tax savings under Section 80C, such as PPF, EPF, Equity Linked Savings Scheme, National Pension System, Senior Citizen Saving Scheme, Sukanya Samriddhi Yojana, National Savings Certificate, and 5-year FD, could see potential benefits from this adjustment.

Furthermore, there is speculation that tax exemptions might broaden to cover additional expenses such as school fees, home loan payments, and insurance premiums. This potential expansion of tax-saving avenues could offer individuals more flexibility in optimising their financial planning.

In the fresh income tax framework, a pinnacle tax rate of 30 percent is relevant to incomes surpassing Rs 15 lakh. This stands in stark contrast to the former tax system, where the 30 percent tax rate was imposed on incomes exceeding Rs 10 lakh.

Anticipations linger that, in a bid to furnish individuals with heightened disposable income, the threshold for the 30 percent tax bracket in the updated income tax structure might see an elevation from Rs 15 lakh to Rs 20 lakh. Such a modification has the potential to alleviate the tax burden on individuals.

The insurance industry expresses optimism that the interim Budget will introduce much-needed reforms aimed at promoting the acquisition of insurance and strengthening initiatives to enhance insurance penetration in the country. With a significant portion of the population approaching retirement age in the coming decade, encouraging the purchase of products in the pension category is considered crucial in this budget.

A proposal has been presented to align life insurance annuity or pension products with the National Pension Scheme (NPS). The industry advocates for an additional deduction, suggesting an amount of Rs 50,000 or more. This recommendation extends across various product categories, including pension products, ULIPs, and traditional plans.

Taxpayers have been consistently advocating for a much-needed revision in the exemption limit under Section 80TTA, presently capped at Rs 10,000. Section 80TTA offers an exemption for interest income derived from savings bank accounts, up to the stipulated threshold of Rs 10,000.

Tax experts assert that this limit requires reevaluation, considering it to be inadequately modest in light of inflation. The persistent call for adjustment underscores the necessity for an updated threshold to harmonize with the evolving economic scenario and the escalating cost of living.

The President of the IMC Chamber of Commerce and Industry, Sameer Somaiya, expressed his views on the interim budget, emphasising the need for simplification in the tax process. Speaking on behalf of the IMC, he highlighted the demand for streamlined procedures in both direct and indirect taxes.

Somaiya made it clear that the organisation did not offer a specific opinion on petroleum-related matters. He expressed optimism and stated that the IMC looks forward to simplified processes in direct and indirect taxes.

Experts expect the government to unveil several populist promises in this interim budget, strategically aligning with the impending Lok Sabha elections. Similar to previous practices, notable announcements, reminiscent of schemes like the PM Mudra Yojana and various initiatives focused on women, might be on the horizon.

Finance Minister Nirmala Sitharaman is scheduled to present the interim budget at 11 am. Prior to the presentation, FM Sitharaman convened with the budget team at the finance ministry and subsequently visited Rashtrapati Bhavan. Following the President's approval, she will proceed to Parliament House. This marks FM Sitharaman's sixth budget.

Prime Minister Narendra Modi confirmed on January 31 that this is indeed an interim budget, with the new government slated to present the full budget post-assuming office. Despite its interim nature, this budget holds considerable significance in light of the upcoming Lok Sabha elections.

Expectations are high among the common man, and it is expected that the government may announce substantial measures benefitting taxpayers, farmers, and the underprivileged. Additionally, significant updates related to the Ayushman Bharat Scheme are also expected.

Experts are of the opinion that the deduction limit under Section 80D for medical insurance premiums is likely to be increased. The proposed change indicates a potential hike from Rs 25,000 to Rs 50,000 for individuals and from Rs 50,000 to Rs 75,000 for senior citizens. This adjustment is seen as a response to the escalating costs of healthcare.

Furthermore, extending the benefits of Section 80D to the new tax regime could contribute to fostering more equitable access to healthcare.

The Centre is poised to benefit from higher-than-budgeted revenue receipts this fiscal, driven by a massive surge in direct taxes. As the interim Budget is set to be unveiled shortly, there is widespread anticipation for potential relief on personal income taxes, particularly in the run-up to Lok Sabha polls. Speculation is rife that the personal income tax rebate might see an increase from the current Rs 7 lakh to Rs 7.5 lakh in the forthcoming vote-on-account.

VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, suggests that while the interim budget may not feature "spectacular announcements," relief on income tax for lower income tax slabs is likely.

In the Union Budget for 2023-24, the finance ministry raised the limit for income-tax rebate from Rs 5 lakh to Rs 7 lakh for those opting for the new direct tax regime. Moreover, the basic exemption limit in the new tax regime was hiked to Rs 3 lakh from Rs 2.5 lakh, a move aimed at enhancing the attractiveness of the new tax system by providing more substantial rebates.

Tax Burden Reduction

Expectations for measures aimed at reducing the overall tax burden for salaried class.

Tax Structure Revamp

Expectations for a potential overhaul or adjustments to the existing tax structure.

Raising Minimum Pension Amount Under APY

Hopes for an increase in the minimum pension amount under the Atal Pension Yojana (APY).

Tax-Free Status to Annuity Income from NPS

A potential proposal for granting tax-free status to annuity income derived from the National Pension System (NPS).

Separate Tax Deduction for Life Insurance Premiums

Expectations for the introduction of a distinct tax deduction category for life insurance premiums.

Finance Minister Nirmala Sitharaman is poised to present the interim budget for 2024, also known as a vote-on-account. This temporary financial measure is introduced by the government when time or mandate constraints prevent the presentation of a full budget. While major changes to the income tax policy are unlikely, there are significant expectations and wishlist from taxpayers.

Among these desires, such as the plea to 'increase the basic exemption limit from Rs 2.50 lakh to Rs 3.5 lakh, a consistent request involves the simplification of income tax rules and the reduction of complexities, particularly in the new tax regime.

Additionally, there is a collective hope for an augmentation in the rebate limit under the new tax regime, potentially raising it from the existing Rs 7 lakh to Rs 7.5 lakh or even Rs 8 lakh. Such an adjustment would render taxable income up to that limit tax-free for individuals opting for the new regime.

In the Interim Budget 2019, major tax changes were proposed, including:

(A) Income up to Rs 5 lakh exempted from income tax: Individuals with annual taxable income not exceeding Rs 5 lakh were set to receive a full tax rebate of Rs 12,500.

(B) Increase in standard deduction for salaried persons: The quantum of Standard Deduction was proposed to be raised by Rs. 10,000, increasing the total benefit to Rs. 50,000 in each tax year.

(C) Increase in TDS thresholds under Section 194A for interest and 194I for rent: The TDS threshold on bank Fixed Deposits (FD) was raised to Rs 40,000 from Rs 10,000.

Finance Minister Nirmala Sitharaman’s earlier indication that the industry should not expect significant new announcements in the interim Budget, coupled with the ruling party's recent electoral success in the assembly elections, suggests that electoral considerations for more tax concessions or increased spending on welfare programmes might be less prominent than in the interim Budget of 2019.

This could pave the way for a more fiscally prudent interim Budget for the fiscal year 2024-2025, with a potential focus on maintaining fiscal discipline and economic stability rather than introducing extensive new fiscal measures.

"As per the Election Commission Model Code of Conduct, the party in power cannot dole out any tax sops, which may have the effect of influencing the voters in favour of the party in power. Hence, the ruling party typically refrains from announcing any major changes ahead of the general elections, and lets the incoming government present a full budget later in the year," says consulting firm EY.

Raising Standard Deduction Limit: There is an expectation for an increase in the limit of standard deduction to provide relief to salaried individuals.

Tax-Free Annuity Income: Hopes are high for the Finance Minister to make annuity income tax-free, providing a boost to individuals receiving pension or annuity.

Revision of Income Tax Slabs: There is anticipation for a revision in income tax slabs to reduce the tax burden on individuals and provide more disposable income.

Incentives for Homebuyers: Expectations include incentives or deductions for homebuyers to boost the real estate sector and stimulate economic growth.

Boost for MSMEs: Hopes are high for measures to support Micro, Small, and Medium Enterprises (MSMEs), such as easier access to credit and financial support.

Healthcare Sector Boost: In the wake of the COVID-19 pandemic, there are expectations for increased allocations to the healthcare sector to enhance infrastructure and services.

Focus on Digital Infrastructure: Anticipations include investments in digital infrastructure to foster a digital economy and support the growth of the technology sector.

Green Initiatives: There is hope for measures to promote sustainable and green initiatives, reflecting a commitment to environmental conservation.

Interim Budget 2024: Personal tax amendments over the election years

2009 : Slight modifications in the tax slab rates.

2014 : No modifications were expected in the domain of personal taxation.

2019 : Significant tax reforms have been implemented in India, including an increase in standard deduction from Rs 40,000 to Rs 50,000, expanded allowances for self-occupied properties, and greater benefits under Section 54. Also, increased TDS thresholds under Sections 194A and 194-I reflect positive changes for rental and interest income.

2024 : India's tax reforms may see a rise in the standard deduction from Rs 50,000 to Rs 1,00,000. The TDS under section 194A on PF interests over Rs 2.5 lakh may be deferred until employment cessation, while clarity on TCS payments impact on tax withholding is anticipated.

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