Finance Minister Nirmala Sitharaman is scheduled to announce the Interim Budget 2024 on February 1, 2024 and India’s middle class is waiting for its share of tax relief and sops. This key demographic, often referred to as the driving force behind economic growth, is looking forward to tax relief to ease the burden of increasing expenses and stagnant wages. Their desire for financial respite is evident, as they strive to cope with the challenges of a changing economy.
The Budget is crucial this year as it is the election year and the government holds the key. All eyes are on Finance Minister Nirmala Sitharaman on how the NDA government would balance the fiscal goals and electoral appeal.
The government should take care to implement tax relief measures without compromising its deficit reduction goals. However, neglecting the challenges faced by the middle class could have equally harmful consequences, as it may dampen consumer sentiment and hinder economic growth.
In the personal taxation domain, the government wants more and more taxpayers to switch to the new regime, to reduce the complexities in income tax return filing and assessments arising out of the plethora of deduction claims of the assessees applicable in the old regime. However, the restriction pertaining to the mandatory requirement of forgoing of house rent allowance (HRA) deduction by salaried individuals and the deduction in respect of interest paid on home loan taken for self-occupied property—for availing the benefit of reduced personal tax rates in the new regime—is acting as the main deterrent for such individual taxpayers to switch to the new personal taxation regime.
So, the new tax regime can be made more appealing by allowing in it the deductions in respect of HRA and interest paid on home loan taken for self-occupied house property. Having a roof on one’s head is a basic necessity, so any expenditure incurred towards house rent or interest on home loan should be allowed as deductions in the new personal tax regime as well.
In the old personal tax regime, the current exemption limits in respect of children’s education allowance is ₹100 per child per month and in respect of their hostel expenditure allowance is ₹300 per child per month, for a maximum of two children in a nuclear family. These exemption limits, in respect of the basic necessity of primary education of the children, have not been revised since ages. Thus, there is a dire need to revise these exemption limits in line with the realistic and currently prevailing cost inflation index pertaining to education in primary schools and hostels. Further, like house rent, the child education expenditure is a basic necessity, and as such must also be allowed in the new personal tax regime of reduced tax rates.
Any deduction in respect of donations made to the ‘Shree Ram Janm Bhoomi Teerth Kshetra’ Trust, under section 80G is allowed only in the old personal tax regime. The government should consider allowing the same in the new regime as well, as a special gesture.
Further, it would do well to rationalize the advance tax instalments mandating the payments of 25%-50%-75% instead of the existing 60%-75%-90%. This, along with ensuring more speedy refunds, can result in increased disposable income in the hands of the taxpayers.
What Does The Middle Class Want?
Since the middle class forms a significant part of the population and a big contributor to the country’s economic growth. The expectations of the middle class thus plays an integral role in the budgetary process as they reflect on the expectations of a significant part of the population.
The Indian middle class faces a myriad of challenges, from income disparities to the cost of living to debt accumulation among others. We spoke to some members from this segment of the country and interestingly, a reduction in GST is on every individual’s wishlist.
Expectations of Union Budget 2024
Top points experts want the finance minister to note:
1. Hike in Standard Deduction
The Finance Act 2018 introduced a Standard Deduction from salary of Rs 40,000. This was increased to Rs 50,000 in 2019. It has been almost five years since the standard deduction was revised. It is expected that this limit will be increased to INR 1,00,000 in 2024. The demand has become louder after standard deduction was made a part of the new tax regime last year, said Rahul Charkha, Partner, Economic Laws Practice.
2. More relief under Section 80C
Section 80C is the most common tax-saving mechanism used by individuals under the Old Tax Regime. “With the increase in awareness, individuals are investing to a great extent in eligible instruments under Section 80C. The expenditure on life insurance premiums, tuition fees, principal repayment of home loans have also substantially increased. Hence, often, most of the individuals exhaust the limit of Rs 1.5 lakh. The taxpayers have thus been eagerly waiting for an increase in this limit for several budgets. With the increase in the cost of living, retail inflation, etc. at a much higher rate compared to the increase in Section 80C limit, the practical limit for Section 80C as on date should be as much as Rs 3 lakh,” said Charkha.
3. Health Insurance
For those opting for the old tax regime with exemptions, there are tax deductions related to health insurance premium payments and medical expenses incurred annually. The new tax regime does not allow these deductions. At present, deductions are covered under Sections 80D, 80DD and 80DDB of the Income Tax Act and are applicable to individuals and Hindu undivided families. Given its wider applicability, Section 80D is the most commonly used one.
The maximum amount allowed for preventive health check-ups is Rs 5,000, which is included in the overall limit of Rs 25,000. Furthermore, taxpayers can also claim an additional deduction of Rs 25,000 for health insurance premiums paid and expenses related to preventive health check-ups for their parents.
If the taxpayer – either himself, family member, or parents – for whom the premium is being paid is considered a senior citizen, the deduction limit increases to Rs 50,000.
“Looking at the current scenario, where health insurance has played a major role in the pandemic, Section 80D limit should be increased from Rs 25,000 to Rs 50,000 for individuals and from Rs 50,000 to at least Rs 75,000 for senior citizens. It would be a win-win for the taxpayers as they will have more security and gain tax advantage.
4. Other deductions
Other deductions/ exemptions usually availed by individuals include Section 80E (interest on education loan), 80EE (interest on housing loan), 80G (donation), 80GG (rent, where a person does not receive HRA) and 80TTA/ 80TTB (savings bank/ fixed deposit interest). “The limits under all these sections, be it monetary or periodic, have not been revised in the last few years. The Government should take cognizance, not just of the inflation but also the increase in interest rates, property rates, philanthropy and consider revising these limits,” said Charkha.
5. Improvements in tax slabs
The tax slabs in the Old Tax Regime were introduced by former PM Pranab Mukherjee in the Finance Act, 2013. At that time, the basic exemption limit was Rs 2 lakh. Later, in 2015, the basic exemption limit was raised to Rs 2.5 lakh, and it has remained the same since then. In 2018, the tax rate for the income bracket between Rs 2.5 and Rs 5 lakh was reduced from 10% to 5%. In the interim Finance Act, 2019 (No. 1), a rebate of Rs 12,500 was introduced for individuals with a total taxable income of up to Rs 5 lakh. This meant that individuals earning up to Rs 5 lakh had no income tax liability. However, once their taxable income exceeded Rs 5 lakh, their tax liability increased by Rs 13,000 (including tax cess).
What Do Industry Leaders Want?
Expectations: Reduction in GST, restoration of Input Tax Credit (ITC)
Simranjeet Singh, Director of CYK Hospitalities, said, “As restaurateurs, we anticipate a pre-budget focus on vital aspects affecting our industry. The current high GST on raw materials poses challenges, limiting the benefits derived. We hope for a revision to make it more conducive for growth. The cumbersome process of obtaining licenses for bars and restaurants requires streamlining and fostering a business-friendly environment. Additionally, the restoration of the Input Tax Credit (ITC) system would be a significant step in supporting the sustainability and prosperity of the restaurant sector. We look forward to measures that promote ease of doing business and contribute to the industry’s overall development.”
Expectations: Reduction in GST, custom duty rates, government-funded health insurance schemes
Mr. Sanjay Bhutani, Board Member, MTaI & Managing Director, Bausch & Lomb said, “The rising demand for quality medical devices is driven by the growing demand for healthcare due to an increasing population, increased life expectancy, and lifestyle-related ailments. Also, initiatives like Ayushman Bharat (PMJAY) have further advanced the usage of medical devices and equipment. However, high taxes such as customs duty and health cess, along with GST, pose challenges for both patients and the industry. Therefore, we suggest a reduction in customs duty rates to 2.5% across all medical devices, to bring in more accessibility and affordability to Indians”.
Devlina Chakravarty, MD & CEO, of Artemis Hospitals, Gurugram said, “As we stand at the threshold of the 2024 Union Budget, Artemis Hospitals underscores the indispensable role of India’s healthcare system in steering national progress. A strategic infusion of resources into healthcare can unlock immense potential, steering our nation towards a healthier and more dynamic future. Our expectation from the government is clear: With India’s current healthcare expenditure at 2.1% of GDP, trailing behind the global average of 5-6%, a significant boost to at least 3% of GDP is vital. This step will be important in ensuring accessible and high-quality healthcare for all.
Sudarshan Suchi, Chief Executive Officer, Bal Raksha Bharat, said, “As India strives towards becoming a developed nation, it is crucial to invest comprehensively in the well-being and development of its children. Hence, a holistic child budget for the fiscal year 2024-25 is proposed, targeting areas that align with the demographic dividend and youth empowerment through skill building. This budget could create a robust foundation for the nation’s progress by focusing on the key pillars of skill development for the youth, child-centric health and nutrition, child protection and welfare, strengthening district child protection units with additional funding to provide emergency support, education for sustainable development, youth entrepreneurship and innovation, digital literacy for all, climate-resilient education infrastructure and empowering women and girls.
Expectations: Support to startups, growing a collaborative ecosystem
With demand all-time high in hospitality, we are expecting a transformative year ahead. The upcoming budget holds the key to unlocking innovation and progress. As pioneers in these industries, we approach the budget with optimism, anticipating policies that encourage investment in cutting-edge technologies to enhance guest experiences in our sector and elevate healthcare services. We seek a budget that fosters a collaborative ecosystem, providing support for startups to flourish and contribute meaningfully to the growth of these sectors. A forward-looking budget will not only fuel innovation but also create a resilient foundation for the future of hospitality in our nation,” said Dawn Thomas, Co-founder, VRO Hospitality.
In anticipation of the upcoming Union Budget 2024, the hospitality sector in India stands at a crucial juncture, showcasing significant growth prospects. According to a recent report by the Hotel Association of India (HAI), the sector is poised to contribute a substantial $1,504 billion to the country’s GDP by 2047, marking a noteworthy increase from $65 billion in 2022. To ensure the continued development of the hospitality industry, several key expectations deserve attention. These include allocating funds for essential infrastructure development, revisiting the current tax structure to stimulate demand, increasing budgetary support for tourism promotion, enhancing digital infrastructure, and encouraging sustainability initiatives. We also anticipate that in the upcoming budget earmark resources for skill development and establishing robust training infrastructure, the government can empower the workforce, stimulate job creation, and fortify the foundation of a skilled talent pool within the hospitality sector. This strategic focus on human capital development will not only support the industry’s expansion but also positively impact India’s economic landscape by fostering innovation, excellence, and long-term sustainability,” said Mr. Davinder Juj, General Manager, Eros Hotel, New Delhi.
Expectations: Provision for learning courses
We are looking forward to important schemes being introduced in the education sector this year. More students are now keen on being a part of professional and skill development courses. From becoming an influencer to being a social educator, students are now looking at different career options. This being the current situation, there is likely to be a high demand for professional courses. There should be a provision in the budget for such courses,” said Srishti Dixit, Assistant Professor.
Expectations: Investment in R&D and investment in the well-being and development of children
Mr Sanjeev Ingti, Director and Co-founder, Eliea Wellness said, “The Union Budget of 2024 presents a pivotal opportunity for India to steer its economic trajectory towards innovation and sustainable development by placing a strategic emphasis on Research and Development (R&D). A robust investment in R&D is not just an expenditure but a forward-looking investment that can catapult India into a knowledge-driven economy.
One of the pressing issues that the budget should address is the geographical concentration of R&D activities. Currently, the lack of R&D infrastructure in remote areas is impeding the growth of startups. By allocating funds for establishing research centers and incubation hubs in such areas, the government can unlock the latent potential of innovators who might otherwise be excluded due to geographical constraints. This decentralization of R&D facilities can stimulate local economies, foster entrepreneurship, and bridge the urban-rural innovation divide.
Expectations: Increase in global renewable energy capacity
Aligning the budget with technology-driven initiatives can accelerate progress toward net-zero targets. Investing in research and development of innovative technologies, such as advanced energy storage solutions and grid optimization systems, will be instrumental in achieving these ambitious goals. The government’s commitment to tripling global renewable energy capacity by 2030 should be underpinned by robust technology-driven strategies that enhance the efficiency, scalability, and sustainability of renewable energy sources,” said Mr Shashank Donthi, CEO, Hynetic Electronics.
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