Ahead of the Union budget speech by the finance minister on the floor of Parliament, citizens pin a lot of hopes while keeping their fingers crossed. Across the length and breadth of the country, people from all walks of life nurture expectations of a lower income tax burden either as a result of a change in the tax rates, or of revision of tax slabs.
In 2014, the then Union Finance Minister Arun Jaitley increased the basic income tax exemption from ₹2 lakh to ₹2.5 lakh for young people, and from ₹2.5 lakh to ₹3 lakh for senior citizens. And since then, it’s business as usual when it comes to the basic exemption threshold in Budget speeches.
There is a widely-held belief that the Union Finance Minister Nirmala Sitharaman would announce a major relief to taxpayers in the Union Budget 2022-23.
The basic exemption limit is expected to be increased from ₹2.5 lakh to ₹3 lakh. This limit for senior citizens is currently at ₹3 lakh, and is likely to be raised to ₹3.5 lakh.
There are also expectations that the top income slab would be raised from the existing level of ₹10 lakh.
Raising the exemption limit
Recently, KPMG carried out a pre-budget survey among a number of stakeholders. A vast majority i.e., 64 percent of respondents expect an increase in the basic exemption limit of ₹2.5 lakh. The survey respondents also expected an increase in the top income slab of ₹10 lakh.
The deduction under section 80C has also remained constant since 2014. That year, the deduction was raised from ₹one lakh to ₹1.5 lakh. At the same time, the cap on deduction for home loan interest was raised from ₹1.5 lakh to ₹2 lakh.
In another survey by Deloitte, 74 percent of respondents wanted income tax rates to be reduced or slabs revised.
Also, a majority of people (nearly 60 percent) expect the limit under section 80C to be hiked, while 50 percent want standard deduction to be raised. The salaried individuals are given a standard deduction of ₹50,000 from their gross total income, bringing their taxable income lower by this amount
Tax payers’ expectations also stem from the fact that the Union Finance Minister Sitharaman, who would present her fourth budget on Tuesday, has not made any radical change in the tax slab or tax rates in the past two years.
In 2020, however, the FM introduced a new optional tax regime wherein the tax rates were slashed for those who were willing to forego exemptions and deductions such as house rent allowance, leave travel concession, deduction under section 80C.
Since a majority of taxpayers still opt for the old tax regime, expectations are high that the new regime would get phased out.