Union Minister of Finance Nirmala Sitharaman is set to deliver the Union Budget for fiscal year 2024-25 in a few days from now, which has heightened the expectations of taxpayers, who are hoping for some benefits in the form of enhanced exemption limits and rebates, among others.

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However, the interim budget presented in February 2024 did not extend any such benefits. The government decided to continue with the existing tax rates for both direct and indirect taxes, import duties, and well as with the prevailing capital gains framework without making any changes.

Economists believe that extending tax concessions to employees could boost expenditure and consumption. The Ministry of Finance has also hinted that authorities are considering taxation adjustments, with an official announcement expected before the unveiling of the Budget. The rising living expenses in India has likely prompted the government to consider these tax relief initiatives.

Income Tax Slabs

Salaried taxpayers are anticipating an overhaul of the income tax slabs in Budget 2024. In Budget 2023, the government reduced the number of income tax slabs from seven to six. Income up to Rs 3 lakh is tax-free. For income from Rs 3,00,001-6 lakh, it is 5 per cent. For Rs 6,00,001-9 lakh, it is 10 per cent. For Rs 9,00,001-12 lakh, it is 15 per cent, and for Rs 12,00,001-15 lakh, it is 20 per cent. Above Rs 15 lakh, it 30 per cent.

In addition, a rebate of Rs 12,500 was available on income up to Rs 5 lakh, effectively making incomes up to Rs 5 lakh tax-free. This was enhanced to Rs 25,000 for income up to Rs 7 lakh in Budget 2023, effectively making income up to that threshold tax-free. The standard deduction of Rs 50,000 available to taxpayers under the old tax regime was also made available in the new tax regime.

The old tax regime was left unchanged.

Now, experts are hoping for some changes in the slab structure in the old tax regime, too, potentially raising the income tax exemption limit to align with the new tax regime. Under the old tax regime, there is nil tax on income up to Rs 2.5 lakh, while for income above Rs 10 lakh it is 30 per cent. Experts believe that the National Democratic Alliance (NDA) government may streamline tax slabs and reduce rates to provide relief to individual taxpayers.

Longer Exemption Limit

In Budget 2023, the government increased the basic exemption limit from Rs 2.5 lakh to Rs 3 lakh under the new tax regime, and reduced the surcharge for those earning more than Rs 5 crore annually from 37 per cent to 25 per cent. This was done to make the new tax regime more appealing. However, the old tax regime was left untouched.

Salaried individuals are now hoping for restructuring to be included in the Budget 2024.

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Deduction List

Individual taxpayers are advocating for an increase in the Section 80C limit, which will reduce taxable income when investing in various financial instruments or specified expenditures. At present, this limit is capped at Rs 1.5 lakh, and taxpayers are hoping this will be increased to at least Rs 2.5 lakh.

Section 80C serves a dual purpose by offering tax benefits on both investments and expenditures within specified categories.

Various instruments that qualify for Section 80C tax deduction benefits includethe Employees’ Provident Fund (EPF), Public Provident Fund (PPF), National Pension System (NPS), equity-linked savings scheme (ELSS), National Savings Certificate (NSC), Senior Citizens Savings Scheme (SCSS), Sukanya Samriddhi Yojana (SSY), and payment of life insurance premium, among other. Additionally, tax deductions are also available for certain expenditures, such as school or college fees for children. However, all these deduction are only available under the old tax regime.

HRA Regulations

Recognised metro cities, such as Delhi, Mumbai, Kolkata and Chennai offer house rent allowance (HRA) exemption of up to 50 per cent, whereas other big cities such as Pune, Gurgaon, Hyderabad, and Bengaluru offer only 40 per cent exemption, though the rent in these cities are as high as those in the Big-4 metros. It is expected that all these cities will also be allowed HRA exemption of 50 per cent.

Home Loans

The Income-tax Act, 1961 provides for two benefits on home loans. The principal amount of the loan can be claimed as deduction under the overall limit of Section 80C, while Section 24(b) of the Act provides for a benefit of up to Rs 2 lakh per annum on the interest component of the loan. Taxpayers are hoping for an increase in the limit in Section 24 (b), and including a separate section outside of Section 80C for claiming deduction on the principal amount on the home loan.