2023 Pre Budget: Will Salaried individuals get relief this year?
The total approximate population of India is 1.39 billion, making it the second most populated country in the world, after China. Centre for Monitoring Indian Economy (CMIE) in its November 2022 report stated that the total number of salaried employees in the country reach about 86 million. Out of this, more than 80 million individuals pay tax in India and thus are one of the major contributors to the Indian economy. Due to the global economic crisis, these individuals are facing many problems in terms of the unemployment, inequality in income distribution, hike in commodity prices, etc. In order to overcome the problems faced by the salaried individuals, it is expected that the Union Budget will bring up the necessary amendments in policies and procedures under the Income Tax Act, 1961 (‘IT Act’). Some of the key expectations from Budget 2023 for salaried taxpayers are discussed as under:
- Enhancing the limit of Savings based tax deductions under section 80C of the IT Act:
As regards to deduction under section 80C of the Act, the limit is currently restricted to Rs. 1,50,000/- per annum in respect of investment made in Public Provident Fund (PPF), Employee Provident Fund (EPF), LIC premium, Equity Linked Saving Scheme (ELSS), National Saving Certificate (NSC), etc. However, the said limit under the aforesaid section was last revised in Budget 2014. Thus, in order to rationalize the quantum of deduction with the available number of investment options, it is recommended to increase the limit of said deduction at least to Rs. 2,00,000/- per annum under section 80C of the IT Act.
- Convergence of the Tax Regimes for Salaried Taxpayers
The Income Tax law provides for an option between two tax regimes i.e. old tax regime with all available deductions and exemption and new concessional tax regime with concessional tax rates wherein certain specified exemptions and deductions cannot be availed by the taxpayers, thus making the new tax regime very rigid.
Most of the salaried taxpayers are not aware about the intricacies of the new tax regime and are reluctant to opt for the new tax regime and choosing to stick with the old tax regime.
Considering that the new concessional tax regime unnecessarily makes the tax structure complicated for the taxpayers especially salaried taxpayers making it difficult for them to assess and chose the favourable tax regime, it is recommended to converge both the tax regimes and maintain only one tax regime with maximum benefits, so as to simplify and rationalize the personal tax structure for salaried taxpayers.
- Increasing the limit of salary standard deduction under section 16(ia) of the Act:
Presently, section 16(ia) of the IT Act provides for a standard deduction of Rs. 50,000/- per annum to salaried employee. Considering the constant increasing cost of living and rising trend in the level of inflation, it is recommended to enhance the limit of standard deduction to Rs. 75,000/- per annum under the said section of the IT Act.
- Rationalisation of Period of Holding and Tax rates for Capital gains investment
As per the provisions of section 112 of the IT Act, the gain or loss on transfer of capital assets such as units of Debt Oriented Mutual funds, Unlisted Bonds, Unlisted Debentures and other capital assets would be classified as long term capital gain (LTCG) or long term capital loss (LTCL), if the period of holding is 36 months or more.
Further under section 112A of the IT Act, where Listed Equity Shares, Unit of Equity Oriented Mutual Funds and Unit of Business Trust are transferred, the gain or loss on the said assets will be classified as LTCG/LTCL if the period of holding is 12 months or more.
With regards to Section 111A of the IT Act, the gain or loss on transfer of capital assets as mentioned under the aforesaid section such as unlisted shares, land or building or both, would be classified as LTCG/LTCL, if the period of holding is 24 months or more.
Considering the complexity of the above provisions, it is recommended to revise the period of holding from 36 months to 24 months for capital assets such as Units of Debt Oriented Mutual funds, Unlisted Bonds, Unlisted Debentures covered under section 112 of the IT Act.
Further, considering that different assets are subjected to tax at different tax rates giving rise to complexity, the Government may consider rationalizing the same by applying uniform tax rates for all the capital assets (other than listed shares and units which are subjected to tax at 10% u/s 112A) and restrict such tax rate to 15%.
- Increasing the threshold limit of certain allowances under the provisions of the Act:
There are many allowances that salaried employee receives from the employer. Some of these allowances are exempt upto the threshold limit as specified under the IT Act, while some are taxable under the head “salary”. At present with respect to Children Education Allowance, the salaried employee can claim exemption upto Rs. 100 per month per child and can claim exemption upto Rs. 300 per month per child in respect of Children Hostel Expenditure Allowance. Such limits are not in consonance with the current education cost and needs to be adjusted for inflation, as they have not been revised upwards since more than 20 years. Considering the aforesaid factors, it is expected that the said threshold limits also be revised to make it more contemporary and realistic.
- Increase in the threshold limit in respect of contribution made by the salaried employees to certain specified Pension schemes under section 80CCD(1B)
As per the provisions of Section 80CCD(1B), a salaried employee can avail an additional deduction of upto Rs. 50,000 per annum, which is over and above the benefit available under section 80C. Such additional deduction is with respect to contributions made to certain specified pension schemes of the Central Government such as National Pension Scheme, Atal Pension Scheme, etc. In order to encourage investments in retirement plans, the limit of investment under section 80CCD(1B) is sought to be rationalized upwards to Rs. 100,000 per annum.