As anticipation builds for the upcoming Interim Budget for the fiscal year 2024-25, there are growing expectations of significant changes in the income tax regime, particularly aimed at providing relief to the middle-class population. In this article, we explore the possibilities and implications of the speculated increase in the income tax exemption limit under the new tax regime.
Promoting the New Tax Regime
The Indian government has consistently advocated for the adoption of the new tax regime, introduced in the fiscal year 2020 budget. This regime aims to simplify tax structures and broaden the tax base. As the government aims to incentivize more taxpayers to choose this system, the upcoming budget might bring additional benefits and incentives for those opting for the new regime.
Expectations of Increased Deductions
Insider sources from the Finance Ministry hint at a potential increase in the income tax exemption limit by an additional ₹50,000 under the new regime. If realized, this adjustment could mean that income up to ₹8 lakh might be exempt from income tax in the upcoming fiscal year. This move is strategically designed to encourage more taxpayers to make the switch to the new tax system.
The Current Tax System
Presently, the existing tax regime provides a standard deduction and various rebates that collectively elevate the income tax exemption limit to ₹7.5 lakh. Essentially, this means that no tax is imposed on annual earnings up to ₹7.5 lakh. However, the new tax regime, lacking certain deductions like those under Section 80C and benefits for home loans, initially saw limited adoption among taxpayers.
Tax Expert Views
Experts in the field, such as Chartered Accountant Aseem Chawla, suggest that the government might consider increasing the standard deduction by ₹50,000 under Sections 15 and 16 of the Income Tax Act. This adjustment is envisioned to make the new regime more attractive to taxpayers.
Old vs. New Tax Regime
In a comparative analysis, the old tax regime offers no tax on income up to ₹5 lakh and provides various deductions such as HRA, home loan interest, and health insurance. With around 70 types of deductions, this system remains advantageous for individuals with substantial investments in these areas.
Government’s Stance on Tax Exemptions
While the government is cautious about granting extensive tax exemptions, its primary focus is on expanding the taxpayer base. The current fiscal year has seen over eight crore people filing Income Tax Returns (ITR), and this number is projected to reach 8.5 crore by March 31st, reflecting a significant increase.
Key Highlights:
- Income Tax Relief: Potential announcement of relief for middle-class taxpayers under the new tax regime.
- Encouraging New Regime Adoption: Government’s emphasis on promoting the new tax system with increased exemption limits.
- Additional Deductions: Anticipation of an extra ₹50,000 exemption in the new regime, raising the no-tax income limit to ₹8 lakh.
- Comparison of Tax Systems: Old regime offers more deductions, but the new regime aims for simplicity.
- Expanding Tax Base: Government’s efforts to increase the number of taxpayers in India.
In summary, the Interim Budget 2024-25 could usher in significant changes in India’s taxation system, particularly benefitting the middle class. The expected reforms align with the government’s objectives of simplifying tax procedures and widening the taxpayer base. As we await the official announcements, these potential changes signify a transformative phase in the nation’s fiscal landscape.
