The budget 2023 that will set the tone for the financial year 2023-24 is just round the corner. Taxpayers have pinned hopes on finance minister Nirmala Sitharaman for tax relief. The fact that she called herself a middle-class person has raised expectations that the budget 2023 may have in store the announcements for the middle-class.
Moreover, this budget being the last full-year budget before general elections of 2024 could well be populist, as has been the norm before elections. We have listed key expectations that might see the light of the day in the budget speech.
A hike in basic exemption limit
In the current set-up, an income up to ₹2.5 lakh per year is tax-free. Hiking it to ₹5 lakh is very much a possibility. “The basic exemption limit was last revised in FY 2014-15 and is expected to be hiked to ₹5 lakh from ₹2.5 lakh now,” says Vikas Kumar, Director at Vialto Partners.
The slab rates too need a revision. Kumar expects the following rationalisation in income tax slab rates: Up to ₹5 lakh - nil, ₹5 to ₹7.5 lakh - 10%, ₹7.5 lakh to ₹10 lakh - 20 %, above ₹10 lakh - 30%.
Making new tax regime more appealing
The old tax regime with all its exemptions and deductions offers a much better tax deal to the salaried class compared to the new tax regime. Those who don’t make such investments and prefer higher take-home pay choose the new tax regime. The tax rationalisation is needed to make the new tax regime appealing to a broader audience. Kumar says the government might consider increasing the slab rates to the following order in the new tax regime:
|Total Income||Tax rate|
|Upto ₹5 lakh||Nil|
|₹5 lakh to 7.5 lakh||5%|
|₹7.5 lakh to 10 lakh||10%|
|₹10 lakh to 12.5 lakh||15%|
|₹12.5 lakh to 15 lakh||20%|
|₹15 lakh to 20 lakh||25%|
|Above ₹20 lakh||30%|
The taxpayers have been hoping for a revision in Section 80-C and 80-D limits under the Income Tax Act, 1961. It is high time the government acts on it. The 80-C limit was last revised in FY 2014-15.
“It is expected that 80-C limits may be increased to ₹2 lakh from ₹1.5 lakh, Mediclaim policy (80D) - from ₹25,000 to ₹35,000 ( ₹50,000 to ₹75,000 in case of senior citizens), interest deduction on housing loan - from ₹2 lakh to ₹2.5 lakh, deduction from bank interest income (80TTA) - from ₹10,000 to ₹20,000 and an increase in standard deduction for salaried class from ₹50,000 to ₹75,000,” says Kumar.
As per existing rules, companies pay tax on buybacks while shareholders are not liable to pay any tax. If they participate in a buyback, they incur tax-free capital gains. This has given way to companies bearing the tax burden on behalf of promoter-shareholders and professional investors.
A Sebi committee, headed by HDFC vice-chairman & CEO Keki Mistry, has recommended making buybacks taxable in shareholder’s hands in line with how dividends are taxed. FM Sitharaman might take this into consideration. “Under the current taxation mechanism, the tax on buyback is borne by the company and in-turn by all the shareholders irrespective of their participation in the buyback. Moving the onus of the tax to the shareholders offering their shares for buyback may reduce the short-term impact on the continuing shareholders,” says Bhavin Shah, Partner & Leader - Deals, PwC India.
Among other equity-market related expectations, the holding period for short-term and long-term capital gains which differ for different asset classes may get aligned.
Interest on loan for electric vehicle
Notably, if someone has taken a loan to purchase an electric vehicle, a deduction of ₹1.5 lakh per annum against interest payment is allowed. But this is applicable only for loans sanctioned until March 31, 2023. “This deadline is expected to be extended till March 31, 2025 to encourage the EV industry,” says Kumar.
Aprajita Sharma is a freelance journalist and a certified financial planner. She can be reached at @apri_sharma on Twitter and LinkedIn.