Finance Minister Nirmala Sitharaman is scheduled to announce the Interim Budget 2024 on February 1, 2024. Different sectors in India have put forth their needs and demands. Here are 15 important things in the wish list of the common man regarding income tax
Finance Minister Nirmala Sitharaman is all set to read out the Interim Budget statement on February 1 for the first three months of the next fiscal. The interim budget will be valid till the Lok Sabha elections are held and the new government is formed. The comprehensive Budget is scheduled to be presented in the month of July.
An interim budget is what the government puts forward in Parliament when there’s not enough time to show a full budget or when elections are getting close. Normally, the new government that’s coming in would make the whole budget.
A full budget lets the government spend money until the financial year ends on March 31st. But if they can’t do a full budget by then, they need permission from Parliament to spend money in the new year until they pass a new budget. So, the interim budget helps cover the government’s basic expenses before the Parliament talks about and agrees on the whole year’s budget.
Here Are 15 Terms Every Income Tax Payer Must Know To Under Budget
1. New Tax Regime
In the Budget of 2020, a fresh tax regime was introduced, bringing alterations to the existing tax slabs and providing taxpayers with concessional rates. However, those who opt for this new regime cannot avail themselves of various exemptions and deductions, such as HRA, LTA, 80C, 80D, and more. Due to these restrictions, the new tax regime did not gain widespread acceptance.
2. Old Tax Regime
The old tax regime refers to the system in place before the introduction of the new regime in 2020. Under this old tax system, there are more than 70 exemptions and deductions available, including HRA and LTA, which can effectively reduce taxable income and subsequently lower tax payments. Taxpayers have the flexibility to choose between the old and new tax regimes based on their preferences and financial considerations.
3. Virtual Digital Assets – What Are They?
Virtual digital assets are digital representations of value exchanged electronically. This includes codes, tokens, and non-fungible tokens used in financial transactions or investments.
4. Tax Deducted at Source (TDS)
TDS involves deducting tax from certain payments at prescribed rates and depositing it to the Central Government promptly to ensure a steady flow of revenue.
5. Tax Rebate – What Is Income Tax Rebate?
A tax rebate is getting a refund of taxes when an individual’s tax liability is less than what they’ve paid the government refunds it – if your tax liability falls within the rebate limit, you can expect a full refund of the tax amount. This refund can be claimed by leveraging
6. Tax Saving Instruments
Virtual digital assets are digital representations of value exchanged electronically. This includes codes, tokens, and
Tax-saving instruments such as PPF, NSC, and NPS provide taxpayers with opportunities to claim deductions in their income tax.
7. Assessee – Who is an Assessee?
An assessee is one who must pay taxes under the Income-tax Act.
8. Capital Asset
Capital asset refers to property held by an assessee, including securities, certain insurance policies, and more.
9. Short-term Capital Asset
Assets held for less than 36 months are considered short-term asset, except for certain types like unlisted shares, immovable property, and select financial instruments that may be considered short-term if held for 12 or 24 months.
10. Income Escaping Assessment or Reassessment
Tax authorities review tax returns to check for understated or unreported income, known as income escaping assessment or reassessment.
11. Revised Return
A revised return is filed to fix errors or omissions made in the original return submitted to the tax authorities.
12. TDS Return
A TDS return is a statement filed by tax payers for deducting tax at source, providing details about deductions made during a quarter.
13. Unit Linked Insurance Plan (ULIP)
A ULIP is a hybrid investment, combining insurance and investment components. The premium paid is divided between insurance and investment in equity, debt, or money markets based on the investor’s goals and risk appetite.
14. Total Income – What Does It Include?
Total income includes all income received or deemed to be received in India. Income from outside India is included only for residents, and for non-residents, only if derived from Indian business or profession.
15. Advance Tax – What Is Advance Tax?
Advance tax is the income tax that must be paid in advance instead of a lump sum payment at year-end. As per the due dates provided by the income tax department, these payments must be made in installments.
1. Improvement in tax slabs
One of the main demands of the taxpayers is a potential decrease in taxes. As inflation and rising prices continue to affect households, people are optimistic that the Centre will take steps to ease their financial burden. The income tax slab is also a topic of great interest for the average person, as many are hopeful for a revision that could result in lower tax obligations or an increase in income brackets.
“In the last few years, the total trajectory of the world changed due to health scares and warlike situations. Owing to this, nations across the globe revisited their tax policies and provided tax reliefs for businesses to stay afloat and individuals to preserve employment. However, no tax concessions were given to the middle-class Indians. It would only be fair to revise the income tax slabs in the upcoming budget to relieve our taxpayers from the burden of high tax rates. While this is an interim budget of the current Government, reduction in tax rates is a reasonable expectation of the taxpayers,” said Rahul Charkha, Partner, and Economic Laws Practice.
“Considering the general election in sight, it is highly expected that one may not witness any surge in the tax rate for individuals. The collections in direct and indirect taxes have been on the surge this fiscal year so far. This has resultantly will boost the tax-to-GDP ratio. Looking at the robust tax collections, lower- and middle-income class taxpayers are expecting tweaking of personal tax slabs. It is reasonable demand. Besides, it is also expected that the standard deduction for salaried class may get increased from Rs. 50,000 to Rs. 75,000 per annum, along with the increase in limits under section 80C, 80D, etc of the Income Tax Act, 1961,” said Amit Singhania of Areete Law Offices.
2. Tax rebate and exemption limit
Last year, FM Sitharaman increased the threshold for income-tax rebates from Rs 5 lakh to Rs 7 lakh for assessees opting for the new direct tax regime. The basic exemption limit was also hiked to Rs 3 lakh from Rs 2.5 lakh earlier. The Centre also introduced a deduction of Rs 15,000 for a family pension. In Budget 2023, for salaried individuals, pensioners and family pensioners, the standard deduction clause was introduced under the new tax regime. The old tax regime currently provides salaried employees and pensioners with a standard deduction of Rs 50,000.
“Anticipating the upcoming interim Union Budget, there are expectations for an increase in the tax rebate to Rs 7.5 lakh. Such an adjustment would offer much-needed relief, particularly for middle-income taxpayers. Individuals falling under this income threshold, post standard deductions, would enjoy exemption from income tax, potentially encouraging increased spending and investment, thereby contributing to economic growth. However, it is imperative for the government to not solely rely on tax rebates. Comprehensive economic policies must be concurrently addressed to ensure sustainable, long-term growth. While a higher tax rebate benefits individuals, a holistic approach, including structural reforms and sector-specific policies, is essential for overall economic stability and advancement. The government’s focus should be on striking a judicious balance between immediate relief measures and enduring economic strategies for a resilient and thriving economic landscape,” said Prateek Bansal, Partner, Taxation & Regulatory, White & Brief Advocates & Solicitors.
3. Capital gain taxes
At present, the Centre has set different taxation slabs for different types of assets, such as equity, debt, and real estate. Depending on the time periods, the assets are classified as short-term or long-term. Experts have called for a revision in the capital gain tax system.
“Capital gains require an overhaul. Currently, capital gains are taxed as long-term or short-term based on their holding period, and the tax rates on these capital gains vary, creating complexity. Rationalizing and standardizing the capital gains regime with regards to certain aspects e.g., streamlining of the holding period i.e. long-term or short-term, uniformity in long-term/short-term tax rates across various asset classes, a change in the base year for indexation for long-term capital gains etc. would be favourable to the investor community at large. Aligning these changes with the visions of the government for encouraging taxpayer-friendly initiatives such as common income-tax return forms, annual information statements etc. could enhance overall compliance,” said Puneet Mishra, Partner, M&A Tax & Regulatory Services, BDO India.
4. New Tax Regime
The New Tax Regime was introduced with the altered tax slabs and concessional tax rates. It is applicable to all taxpayers, including individuals, Hindu Undivided Families (HUFs), and Association of Persons (AOPs). In Budget 2023, the income tax slabs were reduced to six from seven earlier in a bid to make the personal income tax rules easier. Experts feel more benefits should be added under the New Tax Regime
Most Indian taxpayers have the habit of initially investing their savings in investment avenues that provide tax deductions under Section 80C (i.e. INR 1,50,000). Additionally, the salaried class claims exemptions such as HRA, LTA and housing loan deductions. For an individual earning a salary income of INR 10 Lakhs, the old regime is more favourable in case exemptions / deductions exceed Rs 2,50,000. This situation applies to most taxpayers leading to acceptance of the New Tax Regime. The New Tax Regime provides favourable results for taxpayers up to an income level of Rs 7,50,000. To increase acceptance for New Tax Regime, the government should allow deductions under this regime, for say employee’s contribution to PF (under Section 80C) and employee’s contribution to NPS (under Section 80CCD). This would also promote the habit of building a retirement corpus for individuals,” said Preeti Sharma, Partner, Tax & Regulatory Services, BDO India.
5. NPS deduction expanded under the New Tax Regime
At present, the Centre doesn’t allow taxpayers opting for New Tax Regime to avail deduction under Section 80CCD (1B) after a contribution of up to Rs 50,000 to the National Pension System (NPS). It is only restricted to the Old Tax Regime.
The Rs 50,000 deduction that was allowed under NPS under Section 80CCD(1B) under the new tax regime, which was removed w.e.f. Apr 1, 2023, should be brought back in the budget for FY25. Going one step further, we would advocate that this limit should be increased to Rs 1,00,000, under both the tax regimes. This benefit under Sec 80CCD(1B) was quite popular with tax planners and largely played a key role in getting individuals investing into the NPS whether they were employed in the organized sector or otherwise,” said Kurian Jose, CEO, Tata Pension Management
6. Remove GST from insurance policies
Rationalization of Good and Services Tax (GST) and tax-break on annuity top the wish list of life insurance industry. Experts feel the current GST rate of 18% should be re-evaluated to ensure that the pricing advantage of insurance products is passed on to the end consumer, thereby promoting greater investment in life insurance products.
In the upcoming budget, we anticipate that the finance minister will exempt insurance policies from GST, which will bring down insurance premiums. This step will increase insurance affordability and help fulfill PM Narendra Modi’s dream of insurance for all Indians by 2047. Additionally, we expect the government to increase the tax exemption limit under 80C, which will encourage savings, promote insurance coverage, and stimulate economic growth,” said Ankit Agrawal, Founder and CEO, InsuranceDekho.
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