Budget 2024-25: Increased 80C Deduction, Simplified Tax Structure Top Expectation List Of Taxpayers

As the Modi government assumes office for its third term after the announcement of the General Election results, taxpayers are eagerly anticipating the upcoming Union Budget 2024-25, which is scheduled to be presented in July 2024.

According to some reports, Union Minister of Finance Nirmala Sitharaman is set to hold a pre-Budget consultation with industry stakeholders on June 20. The budget for this fiscal year (2024-25) is likely to be presented in July. As this was an election year, the government had presented an Interim Budget in February.

The Centre had introduced a new tax regime in Union Budget 2020, announcing lower slabs, but without traditional deductions. As such, it did not receive much widespread adoption, which led to the government to introduce adjustments, such as introduction of a standard deduction and a rebate of up to Rs 7 lakh to incentivise taxpayers.

As with any other budget, taxpayers will be expecting some sort of incentives from the new budget, too.

Says Sakchi Jain, chartered accountant and a financial educator: “A few of the key expectations are simplifying the tax code to make compliances easier, reduced tax slabs, and streamlining exemptions. It is also crucial to enhance digital infrastructure within the tax administration to reduce processing times and improve transparency. Leveraging artificial intelligence (AI) and big data analytics for better fraud detection and accurate assessments can significantly benefit taxpayers.”

Also read; Don’t Have Form 16? You Can Still File Your Income Tax Returns! Here’s How

Additional Deductions And Limits Anticipated Under Budget 2024-2025

To broaden the appeal and encourage wider adoption of the new income tax regime, the Centre may introduce additional deductions.

Says Jain, “Taxpayers can indeed anticipate the introduction of additional deductions under the new government in Budget 2024-2025.”

Under Section 80C of the Income-tax Act, 1961, deductions encompass various savings and investments, such as premiums for life insurance policies, investments in Public Provident Fund (PPF), Employees’ Provident Fund (EPF) and other sovereign savings instruments such as National Savings Certificate (NSC), and the principal repayment of home loan, under the overall limit of Rs 1.5 lakh per year.

“The current deduction limit of Rs 1.50 lakh under Section 80C of the Income-tax Act, 1961, is inadequate, given the rising inflation and financial burdens,” says Jain.

As such, there is a huge expectation of the deduction limit under Section 80C being increased this budget.

How Will It Benefit Taxpayers?

If the government announces an increase in the deduction limit under Section 80C, it would greatly benefit taxpayers.

Says Jain: “This would provide taxpayers with more opportunities to save and invest, ultimately leading to higher disposable incomes. Additionally, extending these deductions to the new tax regime, where they are currently unavailable, would be very beneficial for taxpayers.

According to Jain, this change would particularly benefit the middle class, as it would allow them to manage their financial burdens better, while also giving a boost to the economy through increased consumer spending.

“However, the likelihood of the government implementing this reform is low, as the government is promoting new schemes that do not incentivise traditional investments,” says Jain.

So, if the government chooses to rationalise (income) tax slabs, what changes can taxpayers expect?

Under the existing tax laws, individual taxpayers have the option to choose either the old or the new tax regime.

Says Preeti Sharma, partner, corporate tax, tax and regulatory services, BDO India: “The new tax regime offers a lower rate of tax, but in exchange, the individuals have to forego several exemptions and deductions. Under the new tax regime, income starting at Rs 3 lakh is taxable at 5 per cent, but this rate escalates sharply to 30 per cent at just Rs 15 lakhs. Such a sharp increase in tax rates does seem excessive and needs rationalisation.”

Taxpayers expect the government to reduce the tax burden which may help in increasing the disposable income in their hands.

Sharma says the government can take a few steps to reduce the tax burden. These would include:

1) Increasing the limit of minimum income subject to tax from Rs 3 lakh to Rs 5 lakh

2) Increasing the threshold for income taxable at 30 per cent from Rs 15 lakh to Rs 25 lakh

3) Increasing the amount of rebate available to lower income category so that individuals earning income up to Rs 10 lakh per annum are not required to pay taxes. At present, this limit is Rs 7.50 lakh.

Further, “to make the new tax regime more attractive, certain types of investments (such as those in the National Pension Scheme and payment towards insurance premiums) should be allowed as deductions while calculating taxable income,” says Sharma.

This will also reduce the overall tax outflow for Individual taxpayers, she add

“This change shall also lead to increased GST collection,” she says, as it would enhance consumption by way of putting more money in the consumers’ hands.

Direct Taxes Code

Taxpayers are also expecting that the government will finally make a move on the long-delayed Direct Taxes Code (DTC) which was initially proposed in 2009, but after several revisions, it ultimately lapsed in 2014.

“A simplified direct tax law in the form of DTC could be one of the top agenda of Modi 3.0. If implemented, the DTC would certainly help taxpayers, as it would reduce complexity and make the law easier to comprehend. A simplified tax regime would help in reducing litigation, increase the tax collection, and boost investments from both domestic and foreign investors,” says Mihir Gandhi, partner, corporate tax, tax and regulatory services, BDO India.