The Union Budget for 2023 is coming, and people are speculating what relief it might contain. Past budgets have included various benefits, such as deductions and exemptions, which are often subject to several conditions and restrictions. Such an approach made it difficult for taxpayers to understand the complex provisions and take advantage. To fix the issue, the Budget 2020 introduced a simple and alternative regime in Section 115BAC. This section was introduced to allow Individuals and Hindu Undivided Families (HUFs) to pay taxes at a reduced rate, with the trade-off of certain exemptions and deductions. Choosing this option means the taxpayer cannot claim any exemptions or deductions such as the standard deduction from salary, deductions under Section 80C, 80D, or 80TTA, and so on.
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Section 115BAC was introduced to benefit the taxpayers at large. However, due to the unavailability of some basic tax deductions and exemptions, taxpayers do not go with the simple regime if they are entitled to claim certain deductions. It is usual for a taxpayer to repay housing loans, pay tuition fees for children, life Insurance premiums, and medical insurance for the family. When no tax benefits are allowed for these expenses, he is not inclined to opt for the regime. Therefore, there is a need to give some tax deductions to taxpayers opting for an alternative tax regime.
It is recommended that at least the following exemptions and deductions should be allowed to enhance the utility of this section:
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- Deduction under Section 80C: Deduction under this provision is allowed to Individuals or HUFs if the payment is made for life insurance, education expenses, contribution towards provident fund, repayment of housing loans, and contribution to pension funds, fixed deposits, etc. The taxpayers can claim a maximum amount of Rs 1,50,000 under this section.
- Deduction under section 80D: Under this provision, a deduction is given to the taxpayers for paying medical insurance, preventive health check-up, or medical expenditure. An additional deduction is also allowed for medical insurance premiums paid for parents if they are senior citizens.
- Deduction under Section 80TTA/80TTB: Section 80TTA pertains to deductions available for interest earned on savings account deposits. The deduction is available to individuals and HUF (Hindu Undivided Family) taxpayers. The maximum amount of deduction that can be claimed under this section is Rs 10,000. However, Section 80TTB provides for a deduction of up to Rs 50,000, in case of a taxpayer being a senior citizen, with respect to the deposits made with the bank or post office, including interest earned on term deposits.
- Standard deduction under section 16: Deduction under this section is available to an individual earning salary income. A standard deduction of Rs 50,000 is allowed irrespective of the nature of employment and the amount of taxable income.
- Deduction under Section 24: This provision stipulates a deduction for the interest component paid by an individual or HUF on borrowings obtained for the acquisition, construction, or reconstruction of a house property. Deduction under this section shall be allowed to a maximum of Rs 2,00,000 for a self-occupied property.
- Exemption for HRA: This provision extends an exemption for the House Rent Allowance (‘HRA’) provided by an employer to the employee staying in a rented house. This is one of the common exemptions claimed by an employee earning a salary income. HRA is the component of an employee’s salary provided by an employer to meet the cost of renting a residence.
In conclusion, Section 115BAC was enacted to benefit a broad group of taxpayers, but many are unable to take full advantage of it due to the unavailability of certain tax exemptions and deductions. To enhance the utility of this section and make it more beneficial to taxpayers, common tax exemptions and benefits should be provided. These deductions and exemptions can greatly help reduce the tax liability of the taxpayers and make the most of their hard-earned money. Alternatively, the basic exemption limit of Rs 5 lakh should be allowed in Section 115BAC, and the highest slab of 30% should apply only when the taxable income cross Rs 20 lakh.
