Budget 2023 | Will FM Nirmala Sitharaman’s 'Bahikhata' meet Indian taxpayers’ expectations?

What's in store for tax-payers on February 1?

Union Budget 2023 is almost here.

Like every year, expectations on the personal tax front are high. The salaried class is seeking some major tax reliefs amidst rising inflation.

These taxpayers expect Budget 2023 to provide reduction in tax rates, increase in deduction/exemption limits, long-term benefits in healthcare and post-retirement, as well as affordable housing in a post-pandemic era.

Also read: All about Budget 2023

Let us look at some key income tax expectations of individuals from Budget 2023:

Change in tax slab rates  

To give more purchasing power to individuals and to provide relief to employed taxpayers, it is suggested that the highest tax rate of 30 percent be reduced to 25 percent, and the threshold limit for the highest tax rate be increased from Rs 10 lakh (under the older, with-exemptions tax regime) to Rs 20 lakh.

Therefore, the proposed highest slab rate (including surcharge and cess) can be reduced to 35.62 percent from the current 42.744 percent.

Also read: Budget 2023 | On taxpayers’ wishlist: Higher basic tax exemption limit, higher exemption from long-term gains tax on equity

Interest deduction limit for home buyers 

The maximum limit on interest deduction for house purchases through a bank loan is Rs 2 lakh, which is low considering the constant hikes in interest rates on loans by banks.

Homebuyers can now claim a yearly deduction of up to Rs 2 lakh on the interest paid on housing loan, and up to Rs 1.5 lakh under Section 80C of the Act for the principal amount re-paid on the loan. Home buyers are hoping that the limit for interest deduction is increased to Rs 3 lakh.

Enhancing various deduction limits 

a.    Increase in Standard Deduction under the head ‘Salaries’ 

Under the current tax regime, Standard Deduction of Rs 50,000 is allowed to salaried taxpayers. It is suggested that the Standard Deduction be increased to Rs 1 lakh.

Also watch: MC Budget Manifesto: Taxpayers' wishlist for Budget 2023

b.    Deductions under Chapter VIA

1.    Section 80C  

Deduction under this section is allowed for various investments and expenditure incurred. However, the limit has remained at Rs 1.50 lakh for many years.

In order to encourage individuals to invest more in government schemes, such as the National Savings Certificate (NSC) and Public Provident Fund (PPF), among other investments, it is suggested that the deduction limits under Section 80C of the Act be increased from Rs 1.5 lakh to at least Rs 2.5 lakh.

2.    Section 80D

Given the exorbitant medical expenses and hospitalisation costs, it is also recommended that the government consider increasing the deduction limits under Section 80D of the Act from Rs 25,000/Rs 50,000 to Rs 50,000/Rs 1 lakh.

3.    Section 80TTA  

Currently, deduction under Section 80TTA is allowed in respect of interest earned on savings bank accounts up to Rs 10,000. Salaried individuals transfer some portion of their savings to term deposits/recurring deposits in banks, to earn comparatively better returns.  Therefore, it is recommended that the interest on all types of bank deposits (eg. FDs) be included within the scope of Section 80TTA of the Act. Further, the limit should be increased from Rs 10,000 to Rs 50,000.

These recommendations will reduce the overall tax burden on taxpayers.