With Union Budget 2024, just days away, individual taxpayers wish that Finance Minister Nirmala Sitharaman will fulfill some of their wishes. They have certain wishes for the Finance Minister, including raising the deduction limit under Section 80 C to make the accumulated balance in the National Pension Scheme (NPS) tax-free at the time of withdrawal.
Salaried individuals are expecting a separate deduction for repayment of home loans, enhancements in Section 80C and 80D deductions, and measures to encourage the shift to the new tax regime for home loan borrowers.
Here's what a common man wishes from the Finance Minister in the Union Budget on February 1.
1)Revision in limit of deduction available under Section 80C
Presently as per Section 80 CCE the deductions available under Section 80C, 80CCC, and 80 CCD(1) put together are capped at ₹1.50 lakh per year. This limit of ₹1.50 lakh was revised from ₹1 lakh in 2014.
“The earlier limit of ₹1 lakh was fixed way back in 2003. It has been almost 18 years since the original limit of ₹1 lakh was fixed. It has only been increased by 50% in 2014 which works out to just less than 3% annually. This annual average increase is not even on par with average inflation during the same period. In my opinion, this should be directly raised minimum to ₹2.50 lakh," said Mumbai-based tax and investment expert Balwant Jain.
2) Changes in tax slabs
“Tax slabs have remained unchanged since 2014, burdening households with higher real tax rates each year. Indexing tax slab limits to inflation would put more money in the hands of middle-class consumers to counter cost pressures without fiscal damage," said Agam Gupta, Exеcutivе Dirеctor, Sharе India Fincap.
Finance Minister Nirmala Sitharaman while presenting Budget 2023 on 1 February 2023, tweaked the slab rates for individuals opting for the new income tax regime.
-No tax would be levied for income up to ₹3 lakh
-Income between ₹3-6 lakh would be taxed at 5 per cent
-Income between ₹6-9 lakh would be taxed at 10 per cent
-Income between ₹9-12 lakh at 15 per cent
-Income between ₹12-15 lakh at 20 per cent
-Income of ₹15 lakh and above will be taxed at 30 per cent.
3) Tax provisions on NPS withdrawals
The present tax law exempts only up to 60% of withdrawals from the NPS account at the time of closure of the account. For the balance, the NPS subscriber is required to purchase an annuity. “I would like to point out that the annuity becomes taxable as and when received. Put simply, effectively only 60% of the corpus is tax-free and the balance becomes taxable if not immediately then in the future," said Balwant Jain.
In contrast to the NPS withdrawals, the accumulated balance in the employee provident fund (EPF), comes fully tax-free at the time of retirement. As per Balwant Jain, if the government cannot make the EPF balance on retirement taxable to the extent of 40% of the accumulated corpus like NPS, which the government had attempted a few years back, the government should at least attempt to bring in parity by working another way round and make the entire accumulated balance in NPS at the time of withdrawal tax-free.
“The Government should do away with the requirement to buy an annuity with 40% of the corpus and leave the decision to the subscriber where to invest the money,"added Jain.
4) Introduce separate limit for Principal repayment
As per present provisions of Section 80 C of the Income Tax Act, you are allowed to claim a deduction of up to ₹1.5 lakh from your taxable income, for the repayment of the principal amount of a housing loan taken for a residential house. This deduction is available along with other eligible items of expenditure, such as life insurance premiums, tuition fees, contributions to Provident Fund and Public Provident Fund and EPF, investments in ELSS, National Saving Certificates, tax saving bank FDs, etc.
“Given the overcrowding of Section 80 C, 80CCC, and 80CCD(1) and the need for larger home loans, the finance minister should provide a separate deduction for repayment of home loans, in the ensuing budget. A leaf can be taken from Section 80EEA, under which a separate deduction was introduced in 2019, for interest on home loans for first-time home buyers," said Balwant Jain.
So, there are many expectations from the Interim Budget 24 of Modi 2.0 But how much of these expectations will be honoured remains to be seen on February 1, 2023. However, last month, Finance Minister Nirmala Sitharaman played down expectations of big announcements in the interim budget in February, saying it will be a vote-on-account, and is likely to be devoid of any ‘spectacular announcements’.
“It is a matter of truth that the February 1, 2024 budget will be a vote-on-account because we will be in election mode," she had said.
Disclaimer: The views and recommendations made above are those of individual analysts, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.
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Published: 23 Jan 2024, 11:24 AM IST
As an expert with a profound understanding of taxation and personal finance, I'd like to delve into the concepts presented in the article regarding the upcoming Union Budget 2024. My expertise in tax laws, financial planning, and investment strategies positions me well to provide insights into the expectations and suggestions outlined by individuals and experts in the field.
Revision in Limit of Deduction under Section 80C: The article emphasizes the need to revise the limit of deduction available under Section 80C. The current cap is ₹1.50 lakh per year, a limit that was increased from ₹1 lakh in 2014. The expert, Balwant Jain, suggests a minimum revision to ₹2.50 lakh. This section encompasses deductions related to various investments and expenses, such as life insurance premiums, tuition fees, EPF contributions, and more.
Changes in Tax Slabs: The article discusses the unchanged tax slabs since 2014 and suggests indexing them to inflation. The current income tax slabs, as presented in Budget 2023, feature progressive taxation based on income ranges, with the highest slab taxed at 30 percent. The expectation is for a revision that would alleviate the burden on middle-class consumers.
Tax Provisions on NPS Withdrawals: The focus here is on the taxation of National Pension Scheme (NPS) withdrawals. Currently, only up to 60% of NPS withdrawals are tax-exempt, with the remaining 40% requiring the purchase of an annuity. Balwant Jain advocates for making the entire accumulated balance in NPS tax-free at the time of withdrawal, aligning it with the tax treatment of the Employee Provident Fund (EPF).
Introduce Separate Limit for Principal Repayment: The article highlights the existing provision under Section 80C, allowing a deduction of up to ₹1.5 lakh for the repayment of the principal amount of a housing loan. Given the crowded nature of Section 80C, the suggestion is to introduce a separate deduction for home loan repayments, similar to the introduction of a separate deduction for interest on home loans for first-time home buyers in Section 80EEA.
In conclusion, the article reflects the expectations and suggestions of individuals and experts for the Union Budget 2024, with a focus on revising deduction limits, tax slabs, and addressing specific issues related to NPS withdrawals and home loan repayments. While Finance Minister Nirmala Sitharaman downplays expectations, the article provides a comprehensive overview of the key areas where individuals are hoping for positive changes.