Currently taxpayers have to choose between the old income tax regime, with its deductions and exemptions and the concessional tax regime, which offers lower tax rates but limits tax-saving options. While the concessional tax regime offers lower tax rates for most taxpayers, those earning above Rs 15 lakh face significant challenges.
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Currently, income above Rs 15 lakh attracts a tax rate of 30% under both regimes. This, coupled with the removal of most exemptions and deductions in the new regime, results in a higher effective tax burden for this segment of taxpayers. As such, there is a growing consensus among taxpayers in this bracket that the current tax rates do not adequately reflect the complexities and expenses associated with inflation and higher incomes.
Consequently, taxpayers have the following expectations from the coming budget 2024 on July 23, 2024.
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Budget 2024: Rationalisation of tax slabs
The Finance Act 2023 increased the basic exemption limit in the new tax regime from Rs. 2,50,000 to Rs. 3,00,000 reducing the number of slabs to 5 from 6, eliminating the tax rate of 25%. Accordingly, the existing tax structure under the concessional tax regime is as under:
| Total Income (In Rs.) | Rate of Tax* |
| Upto 3,00,000 | 0% |
| 3,00,001 to 6,00,000 | 5% |
| 6,00,001 to 9,00,000 | 10% |
| 9,00,001 to 12,00,000 | 15% |
| 12,00,001 to 15,00,000 | 20% |
| Above Rs. 15,00,000 | 30% |
* Excluding surcharge and cess
Due to imposition of surcharge and cess, the effective tax rate can be as high as 35.88% where taxable income exceeds Rs. 2 crore and 39% where taxable income exceeds Rs. 5 crore in new tax regime.
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Increase in basic exemption limit in Budget 2024: The basic exemption limit of Rs. 3 lakh in the new tax regime is still very low and there is a widespread expectation that the same would be increased to Rs. 3.50 lakh.
Widening of Tax Slab for 20% Tax Rate: The tax rate of 30% for income exceeding Rs. 15 lakh in this regime is very steep and should be made applicable only for income exceeding Rs. 30 lakh. This will widen the tax slab of 20% ensuring that most personal taxpayers in the mid-income group get relief which would also propel higher consumption and savings.
Maximum Marginal Rate to be reduced from 39% to 35.88%: There is a case for eliminating the highest effective tax rate of 39% (due to surcharge and cess) as this is very steep and covers very few taxpayers. The same should be capped at 35.88% [{30% tax rate plus 15% surcharge thereon} plus 4% cess thereon]. This would create a more gradual progression in tax rates for higher incomes, thereby reducing the overall tax burden. A more progressive tax structure would incentivize greater compliance and economic participation.
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Increase in Section 80C deduction limit and allowing it in new tax regime
Section 80C of the IT Act is an umbrella section which provides a cumulative deduction limit of Rs 1.5 lakh for a basket of investment/expenditure-linked tax saving options. These options include payment of life insurance premium, investment in ELSS, PPF, , senior citizen saving scheme, 5-year fixed deposits, Sukanya Samriddhi Yojana among others.. Section 80C benefit can also be claimed for expenditure for specified purposes such as children’s tuition fees, principal repayment of home loan, etc.
The Section 80C limit was last revised in Budget 2014. As such, individual taxpayers are seeking an upward revision of this limit as the existing threshold limit of Rs. 1,50,000 is very low in view of the wide range of investment/expenditure options. Thus, to ensure parity of the 80C deduction limit with the annual inflation ranging between 4-5%, it is expected that this limit be increased to at least Rs. 2,50,000. Such increase would benefit a majority of the taxpayers and has been long overdue.
The 80C deduction has been a longstanding provision in the Indian tax system, aimed at promoting savings and channelling funds into specified avenues beneficial for the economy. Therefore, excluding this benefit from the concessional regime is not justified. Thus, extending this benefit to the default (concessional regime) would encourage taxpayers to continue these investments and also further encourage adoption of the new default concessional tax regime.
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Hike standard deduction limit in Union Budget 2024
Currently the limit for claiming standard deduction from salary is Rs. 50,000 or the amount of salary (whichever is lower). This deduction is provided to cover expenses incurred during employment, excluding professional tax. It is pertinent to note that several expenses incurred by employees during the course of their jobs are not deductible under current provisions. Additionally, the exemptions available to the salaried u/s 10 are capped at outdated limits that fail to account for inflation, rendering them ineffective. Thus, in order to address this, it is expected that such standard deduction limit be increased to Rs. 60,000 and should be adjusted annually in line with the Cost Inflation Index (CII). This would ease the tax burden on salaried individuals and maintain their purchasing power amidst inflationary pressures.
