Taxation: 9 expectations of the layman from Union Budget 2023

The last few years have been challenging for many individuals and households, with many facing job losses, reduced income, and increased expenses : Manorama

The budget expectations of the common man with regard to direct tax proposals is likely to be shaped by the ongoing impact of COVID-19, the looming prospects of an economic recession, and inflationary pressures.

The last few years have been challenging for many individuals and households, with many facing job losses, reduced income, and increased expenses. The economic downturn and the pandemic have hit the common man the most. In light of these significant economic challenges, there may be a desire for increased tax relief and financial support to help offset the negative effects of these factors. This could include proposals for increased deductions and credits, such as a higher standard deduction, an increase in the tax-free limit of the health insurance premium and an increase in the tax benefit on home loans. Let us look at what the common man is expecting from the upcoming Union Budget.

Increase in basic exemption limit to Rs 5L
The current basic exemption limit of Rs. 2.50 lakh for non-senior citizens was enhanced in the year 2014 and has remained unchanged since then despite inflationary pressures. An increase in the basic exemption limit would provide much-needed relief to the lower and middle-income groups, who are struggling to make ends meet. The inflation rate has increased significantly during the last 7 years, which has resulted in a decrease in the purchasing power of the citizens. Therefore, an increase in the basic exemption limit to Rs.5 lakh will help to mitigate the impact of inflation on the citizens and ensure that they are not unduly burdened by taxes.

Increase in Standard Deduction
The government reintroduced a flat standard deduction of Rs 40,000 for salaried individuals in the Union Budget 2018-19. This was later increased to Rs 50,000 in the Interim Budget of 2019, providing some relief for their tax outgo. However, with the rising cost of living and inflation, the salaried class is expecting the government to provide further relief in the forthcoming budget. An increase of the standard deduction by Rs 25,000 would provide a significant financial boost for salaried individuals, helping them to better manage their finances in these challenging economic times.

Increase in Sec 80C Limit
The Section 80C limit, which encourages in making tax-saving investments, has remained unchanged since it was last increased in the financial year 2014-15 (from Rs 1 lakh to Rs 1.5 lakh). With the current inflationary times, often the principal portion of the home loan EMI and children's tuition fees itself exhaust the deduction limit of Rs 1.50 lakh per financial year.

In light of this, there is a strong demand for an increase in the deduction limit under Section 80C. The government should consider increasing the limit to at least Rs 2 lakh. By giving more space for tax-saving investments, this action will help individuals achieve their long-term financial objectives. This move will be an effective way to provide relief and support to individuals in managing their finances in these challenging times.

Increase in Health Care Expense Deduction
Healthcare costs have been on the rise and it is essential for every individual to have adequate health insurance coverage. However, the reality is that health insurance premiums have also increased in recent years, particularly after the COVID-19 pandemic.

India reports over 18,000 new COVID-19 cases; Active cases cross 1-lakh mark
A medic collects swab sample of a woman for COVID-19 test, at Meenatai Thackeray Hospital, in Navi Mumbai, Saturday, June 25, 2022. Photo: PTI

Given this, it is a reasonable expectation of the common man that the government will consider increasing the Section 80D deduction limit, which allows for tax deductions on health insurance premiums. The current limit is Rs 25,000 for non-senior citizens and Rs 50,000 for senior citizens, an increase in this limit would provide much-needed relief and support to individuals in managing the rising costs of healthcare.

Housing Loan Interest Deduction
Home buying, particularly in urban areas, has become more costly, particularly after the COVID-19 pandemic created a demand for larger homes. This is a great concern for individuals who are genuinely looking to purchase a primary home. To add to their financial burden, the interest rates have also been rising, which has resulted in home loan EMIs taking up a larger share of the household's monthly income.

Given this challenging scenario, the common man is expecting the government to increase the current deduction limit of Rs 2 lakh per financial year under Section 24(b) of the Income Tax Act, 1961, for interest paid on a home loan EMI in the case of Self-Occupied Property to at least Rs 2.50 lakh to Rs 3 lakh. This will provide much-needed relief and support to individuals who are trying to purchase a primary home and manage the rising costs of housing.

Increase the limit of Deduction under Sec 80TTA & 80TTB
The layman expects to see an increase in the limits of Sec 80TTA and 80TTB in the upcoming budget. Currently, Sec 80TTA has a limit of Rs 10,000 for interest earned on savings account and Sec 80TTB has a limit of Rs 50,000 for interest earned on fixed deposits. It's been more than a decade since the introduction of Sec 80TTA in 2009 and more than 3 years since the introduction of Sec 80TTB in 2018 and the limits have not been adjusted to account for inflation. The common man is expecting the enhancement of these limits to Rs 20,000 for Sec 80TTA and Rs 75,000 for Sec 80TTB, which will help them in managing their finances and saving for their future.

New Tax Regime
Ahead of the Union Budget for 2023, the common man is eagerly awaiting for simplification and relief in the personal Income Tax Act. The current options for individual taxpayers to choose between the New Tax Regime and the Old Tax Regime can be confusing and overwhelming. The New Tax Regime may be suitable for those with a Gross Total Income of up to Rs 15 lakh, however, it comes with certain limitations, such as the lack of exemptions and deductions, which has led many taxpayers to opt for the Old Tax Regime. The common man is hoping that the upcoming budget will address these issues and provide a more streamlined and simplified tax system.

Hike in Long Term Capital Gain Exemption Limit
Since the onset of the pandemic in India in March 2020, there has been a significant increase in the number of demat accounts, with over 100 million accounts being opened as of December 2022. This indicates that the retail investors' base is widening, and they are taking the risk to generate wealth and achieve an efficient real return (Inflation-Adjusted Return).

Given this trend, direct tax collection from stock market activity has increased significantly and it is expected to increase by 25%-30% in the fiscal year 2022-23, according to finance ministry officials. With this in mind, the government should consider revising the Long-Term Capital Gain (LTCG) exemption threshold for equities upwards from the current Rs 1 lakh. This would add to the disposable income of people and provide a further boost to the Indian equity markets, encourage more retail participation in the stock market or equity mutual funds, and promote the culture of equity investing. This would eventually boost the direct tax collection of the government further.

Extension of time limit to file Individual Returns
Filing income tax returns is a crucial responsibility for every taxpayer in India. However, the current time frame for filing individual income tax returns may create difficulties for taxpayers. As the TDS portion reflects in the 26AS form only after June 15, the 45 days window provided to file tax returns is inadequate for taxpayers to gather all required documents and information. To address this issue, it is recommended to extend the time limit for filing individual income tax returns from July 31 to August 31. This will provide taxpayers with more time to file accurate and complete returns, and align the due date for filing individual income tax returns with the due date for filing TDS returns, making the process more convenient and efficient, ultimately reducing the compliance burden on taxpayers and increasing the compliance rate

(Subin VR is a Chartered Accountant. Views expressed are personal)

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