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The Union Minister Nirmala Sitharaman is going to present the interim budget before next general elections, on 1 February 2024. In general, no major tax amendments are pronounced in an interim budget, however some tax reliefs are still expected by individual taxpayers which are summarized below:
Key amendments in the new tax regime
In order to promote more taxpayers to opt for new tax regime, it is expected that the government would further reduce the tax rates. Increasing the basic threshold from existing Rs 3,00,000 to Rs 5,00,000 would definitely provide a sign of relief to the middle-class taxpayers.
Since majority of the tax deductions /exemptions are not available under the new tax regime, it would be fair to increase the limit of standard deduction from INR 50,000 to INR 1,00,000 in order to account for the deduction of various expenses being incurred by the salaried taxpayers. This will go towards salaried taxpayers being at par with other individual taxpayers with income from business or professional who are eligible to claim deductions of a variety of expenses incurred against the income earned.
Access and subscription to health insurance and pension benefits continues to be a requirement for a large segment of the working population. The old tax regime provided certain tax deductions to encourage this habit amongst the individuals, especially in the organized sector. However, the new tax regime does not provide these deductions since the intent is to move towards a simpler tax regime. Accordingly, it is hoped that the government rationalises the tax slab/ rates under new tax regime or includes deductions to incentivize savings towards health care and retirement.
Simplifying withholding tax-related provisions
There are currently more than thirty sections in the Income Tax Act, 1961 (the Act) for deducting TDS, with various slabs and rates (i.e., ranging from 0.1% to 30%). This adds to the complexity and potential for tax-related conflicts. The industry has raised a number of concerns regarding classification and interpretation in recent years. The distinction between fees for technical services (FTS) and professional services - where TDS is withheld at 2% on FTS and 10% on professional services - is the most prominent example of these problems. Hence, it is important to review the TDS regime in India and bring in the necessary amendments for ease of compliance.
Extension of revised return timelines
The timelines for filing belated tax return and revised tax return has been revised by Finance Act 2021, wherein the filing timeline was reduced by three-months due. The reduction in timelines was carried out based on the department's significant technological advancement in tax return processing and to meet the objective of providing early tax refund/ demand intimation to taxpayers. However, in situations where overseas income is also subject to tax in India for individual taxpayers, an extension should be provided to file a revised tax return.
Please note that while filing tax return for a given financial year, an individual who needs to report foreign income and taxes may not have the required information for their foreign income and taxes by 31st December (i.e. the last date to file revised tax return) as every country follows different tax year.
If the Individual taxpayer files his overseas tax return after 31 December (i.e. the last date to revise the India tax return), it poses a genuine practical challenge since such individual currently does not have any opportunity to revise the India tax return for any changes to the foreign income or foreign tax credit as declared in the overseas return.
Other eco-friendly and welfare-related amendments
In the continued approach to promote healthier environment and welfare of taxpayers, the below are few of the suggestions which may be incorporated in Budget 2024:
Increase in time limit for sanctioning electric vehicle loan
In order to encourage a safer environment through use of electric vehicles (EVs), Section 80EEB of the Act was introduced. As per the provision, if a loan was approved between 1 January 2019 to 31 March 2023, a deduction of INR 1,50,000 was available for the interest paid on loan obtained to purchase an electric vehicle, subject to the prescribed conditions. It is expected that in order to promote greener practices, the time window for approving such loans should be extended. Further, this benefit should also be extended under new tax regime, so as to promote the eco-friendly solutions in our daily lives.
Simplification of capital gain tax regime
By harmonizing the different tax rates as applicable on sale of listed securities, unlisted securities, any other long-term or short-term capital asset, the current capital gains tax regime can be made easier for taxpayers. This would bring ease of compliance and administration.
As we approach the date of presenting Union budget 2024, we are hopeful to have some tax reliefs for the Individual taxpayers.
This article first appeared in Business Today on 27 January 2024.