After being denied any tax sops in the interim Budget 2024 announced in February ahead of the general elections, individual, middle-class tax-payers are now pinning their hopes on the full-year Budget to be unveiled on July 23.
Their wishlist includes lower tax rates, higher basic exemption limit as well as standard deduction. However, financial experts feel the government may announce a few tax tweaks but the benefits will be largely limited to the new, minimal exemptions tax regime.
Hike basic exemption threshold to Rs 5 lakh
The basic exemption limits – income thresholds below which no tax is payable – under the old as well as new tax regimes are Rs 2.5 lakh and Rs 3 lakh, respectively. The expectation is that the limit under new tax regime will be raised to Rs 5 lakh.
“This will neither greatly impact the government’s tax revenue collections nor shrink the tax base, but it will help those in the higher tax brackets reduce their tax outgo. My assessment is that those in the tax slab of Rs 15-20 lakh could save Rs 50,000-60,000 if this move is announced,” says Mayank Mohanka, chartered accountant and founder-director of TaxAaraam India, a tax consultancy firm.
Introduce an additional tax slab of Rs 15-20 lakh
This demand is high on the wishlist of many taxpayers and financial experts. “Under the new tax regime, taxable incomes of up to Rs 15 lakh attract a tax rate of 20 percent, and beyond Rs 15 lakh, the tax rate is 30 percent. A tax bracket of 25 percent does not exist. So, there’s scope to introduce this additional bracket for Rs 15-20 lakh incomes. The 30 percent tax rate will then be applicable for taxable incomes of over Rs 20 lakh,” says Pankaj Mathpal, Founder, Optima Money Managers, a financial advisory firm.
Extend HRA or home loan interest to the new regime
The key hurdles to the shift to the new tax regime include availability of house rent allowance (HRA) and home interest tax benefits under the old tax regime. These, rather than section 80C benefits, act as incentives to stay on in the old regime. “Rental accommodation is a basic necessity. If permitted under the new regime, over 70 percent of taxpayers sticking to the old tax regime will shift to the new regime. The government should either allow HRA or home loan interest deduction under the minimal exemptions regime,” says Mohanka.
Increase equity LTCG tax limit from Rs 1 lakh to Rs 2 lakh
Since the financial year 2018-19, long-term capital gains made on sale of equity shares or mutual fund units in excess of Rs 1 lakh in a year attract a tax of 10 percent. “It’s been over six years since the threshold was set. The government could consider raising the limit to Rs 2 lakh,” says Mathpal.
‘Speculative business’ definition for F&O could make a comeback
While individual taxpayers are expecting a host of positive news from the Budget, some need to be prepared for setbacks too. “There is a sense that retail participation in futures and options (F&O) trading needs to be reined in. In our experience, we have seen nearly 80 percent of taxpayers making losses in this segment. There is a possibility that the government could, once again, define F&O trading as speculative business. At present, they can offset F&O losses against their business, interest, dividend or house property income, which cannot be done if it is termed speculative,” says Mohanka. In this case, they will be able to set off F&O losses only against gains made while trading in this segment.
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