Expectations from Nirmala Sitharaman’s Interim Budget 2024

That being said, there are many expectations of the common man before going to the polls. Will Modi 2.0 appease the voters? Watch this video to know:

Well, technically speaking, as per the Code of Conduct of the Election Commission, the incumbent or the ruling party cannot woo voters with many tax sops. This is done 'from the time of elections are announced' to ensure a level playing field between the contesting parties. So far, the dates of the general elections haven't been officially announced. And considering that nothing can be ruled out in politics, electorates are hopeful.

In 2019-20, when the Interim Budget was presented by Mr Piyush Goyal (as Mr Arun Jaitley was unwell and undergoing surgery in the U.S.), although there was no change in the tax structure, individual assessees whose taxable income was up to Rs 5 lakh were granted a full tax rebate of Rs 12,500. Besides, the standard deduction limit was increased for salaried individuals from Rs 40,000 to Rs 50,000. Also, the Tax Deduction at Source (TDS) threshold limit for bank fixed deposits was raised to Rs 40,000 from Rs 10,000 earlier. Similarly, it was proposed to exempt the levy of income tax on notional rent on second Self-Occupied house Property (SOP). There were many other proposals made to woo investors in the real estate sector.

Likewise, during the Congress regime in 2009-10, when Pranab Mukherjee presented the Interim Budget, the basic exemption threshold limit was increased across categories of individual assessees (non-senior citizens, women, and senior citizens).

So, both the BJP and Congress have provided some tax sops or sweeteners ahead of polls in the past.

Against this background, the common man does have some realistic expectations from Ms Nirmala Sitharaman's Interim Budget 2024. Here's what Ms Sitharaman should consider...

1. Increase the deduction limit under Section 80D and extend it to the New Tax Regime

   Due to rising healthcare costs, an increasing number of people are opting to have health insurance coverage. Currently, around 35% to 40% of India's population have some form of health insurance coverage.

   But a fact is that health insurance premiums have also gone up in the last couple of years, particularly after the COVID-19 pandemic. Taking this into consideration, raising the limit from the present Rs 25,000 for non-senior citizens and Rs 50,000 for senior citizens is very much a justified expectation.

   Moreover, given that the New Tax Regime is now the default tax regime, and the government wants more individuals to opt for it, the deduction under Section 80D should be extended to the New Tax Regime (just as how the Standard Deduction, which was available only under the Old Tax Regime, is now extended even under the New Tax Regime for salaried individuals as well as pensioners). Currently, the New Tax Regime is devoid of several exemptions and deductions, which are available under the Income Tax Act 1961.

2. Increase in Standard Deduction Limit for Salaried Individuals

   While it looks unlikely that tax slabs will be altered, or there will be a change in the income-tax rebate, or the Section 80C limit of Rs 1.50 lakh will increase, the salaried individuals are hoping to see the existing Standard Deduction limit of Rs 50,000 raised by another Rs 25,000. This shall provide some relief in times when inflation has eroded the purchasing power of hard-earned money.

3. Increase in HRA Exemption Limit

   Salaried individuals receiving House Rent Allowance (HRA) as a part of salary income and staying on rent, hope to see the present HRA exemption limit under Section 10(13A), which can be availed under the Old Tax Regime, being increased.

   Also, given the development in other cities, salaried individuals hope to see expansion in the list of metro cities to include Pune, Bangaluru, Hyderabad, etc. and not limit it only to Mumbai, Delhi, Chennai and Kolkata) thereby permitting 50% of Salary (Basic + Dearness Allowance) to calculate the exemption, instead of 40% as applicable currently to non-metro cities.

4. Extending the Benefit of the National Pension System to the New Tax Regime

   India's social security is nowhere close to the other developed and developing countries, and much progress needs to be made from the current score of 45 on the Global Pension Index (which appraises 47 retirement systems of countries across the world).

   In this respect, to encourage individuals, the government must also consider extending the deductions for the contributions made to NPS to the New Tax Regime. At present, only the employer's contribution limited to 10% of the employee's salary (Basic +Dearness Allowance) is allowed as deductible under Section 80 CCD(2) under the New Tax Regime. To also facilitate employees' own contributions as a deduction, the Pension Fund Regulatory and Development Authority (PFRDA) has also reportedly proposed to the government to extend NPS deductions to the New Tax Regime.

5. Flexibility to Shift Between the Old Tax Regime and the New Tax Regime

   At present, salaried individuals can choose and switch between the Old Tax Regime and the New Tax Regime every financial year. However, non-salaried individuals or self-employed earning income from business or profession are not eligible to switch the tax regimes more than once in a lifetime (vide Form 10IE).

   This is a bit discriminatory given that those self-employed have variable income. Self-employed individuals hope to see more flexibility being offered to choose the tax regime based on the total income in the financial year.

6. Rationalisation of Capital Gains Taxation

   The tax treatment of capital gains at the moment is different, even for similar products. For example, tax treatment between equity mutual funds and ULIPs. When it comes to capital gains of ULIPs, if the annual premium is less than Rs 2.5 lakh, the returns are not taxed. However, in the case of equity mutual funds the realised gains are subject to Short Term or Long Term Capital Gain tax, as the case may be.

   I believe it's vital to bring both ULIP and equity mutual funds on par as regards taxation (since ULIPs are essentially investment products providing some risk cover).

   Also, intra-scheme switches, i.e. moving of units from (a) Regular Plan to Direct Plan or vice-versa and (b) Growth Option to Dividend Option or vice-versa, in my view, should not be regarded as transfers as there are no realised capital gains -- it's a mere switch transaction -- and hence there should be no capital gain tax payable.

Notwithstanding the above, to ensure that India continues to walk on the path to progress and becomes the third-largest economy in the next few years, the government is also likely to increase the capital outlay to Rs 12 trillion from the FY24 budgeted value of Rs 10 trillion.

In the last two terms of the Modi-led-NDA government, extraordinary reforms viz. Make In India, Production-Linked Incentive (PLI) scheme, Start-up India, National Single Window System (a digital platform to help businesses apply for approvals from central and state governments), Skill India, Digital India, development of India's core infrastructure, financial inclusion for all, Housing For All (also known as the Pradhan Mantri Awas Yojana), RERA, renewal energy, indirect tax reforms such as GST, the Insolvency and Bankruptcy Code, merger of PSU banks, and many others have been successfully implemented. These, along with prudent and timely monetary policy measures by the Reserve Bank of India, have made India a bright spot and an attractive investment destination.

By and large, the Interim Budget 2024 is likely to maintain fiscal discipline, albeit with some sweeteners for the electorates. Keep your expectations rational, set realistic return expectations from your investments, and be thoughtful in your approach.

Until then, Happy Planning and Investing!

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