Income Tax News: What Should Tax Payers Expect From Budget 2024? Basic Tax Exemption Limit to Increase

Income Tax News: Despite the fact that the National Democratic Alliance's (NDA-2) February 1, 2024 budget is an interim one and is the last one before the April–May elections, some taxpayers are hoping for some income-tax benefits given the rate of inflation. The retail inflation rate for November was 5.55 percent (year-over-year (YoY) change), which was higher than the 4.87 percent (YoY change) recorded in the previous month.

Reducing Tax Burden through New Income-Tax Regime

One method to reduce your tax burden by paying lower tax rates is to take advantage of the new income-tax regime. The new income-tax regime, which is the first significant revision since it was introduced in February 2020, received a lot of momentum from Budget 2023. Thanks to a number of measures announced to make the new tax regime more appealing than the previous one, which has numerous exemptions, many taxpayers have begun to give it a serious try.

Increased basic exemption threshold to help all tax Brackets

There is currently a case to be made for raising the basic exemption limit in both the old and new tax regimes to keep up with inflation. “The basic exemption limit under the old and new regimes can be raised further by another Rs 50,000 to account for inflation. While the government has announced a host of changes in Budget 2023, I expect them to sweeten the deal for individual taxpayers ahead of elections, even though it is an interim Budget,” says Mumbai-based chartered accountant Chirag Chauhan. An increase in the basic exemption limit will lower the tax liability across tax slabs, in contrast to the tax rebate, which is available on incomes up to Rs 5 lakh and Rs 7 lakh, respectively, under the old and new tax regimes.

A budget that is neutral for personal taxes?

Others, on the other hand, believe that since the government is only focused on the new regime, it is unlikely that it will make any changes to the current one. “I believe the central government will not tweak the old tax regime, as they want to focus on attracting taxpayers to the new system,” says Bhavesh Shah, Senior Partner with Mumbai-based chartered accountancy firm Hasmukh Shah & Co. Under either of the regimes, he does not anticipate any changes to the current rates, slabs, exemption or rebate limits.

Finance Minister Alters Rates and Slabs in New Tax Regime

The finance minister changed the new tax regime's rates and slabs last year. He also instituted a standard deduction of Rs 50,000 for pensioners and salaried taxpayers, as well as a tax refund of up to Rs 7 lakh on incomes. Many opted for the minimal-exemption regime due to its convenience, as it eliminates the need for tax-saving investments, proof-of-work, and document maintenance. “We have seen a lot of youngsters — those under the age of 30 — switching to the new tax regime this year after Budget 2023 sweetened the deal with more liberal tax slabs and rates, a higher limit for tax rebate, besides the introduction of the standard deduction of Rs 50,000,” says Shah.

Conversely, people who have mortgages are hesitant to change. “More than the Section 80C deductions of up to Rs 1.5 lakh, the home loan interest deduction of Rs 2 lakh is the key barrier to making the switch to the new regime,” he says. Chauhan proposes that the tax benefits on house rent allowance (HRA) and home loan interest be extended to the new tax system for this reason. The very goal of the new tax regime, which is to eliminate the burden of copious paperwork, compliance, and rushed tax planning during the final three months of a fiscal year, may be undermined, though, if such deductions are permitted.

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