Union Budget 2024-25 – Expectations on the personal tax perspective

It is anticipated that the government may raise the income tax exemption limit to INR 5 lakh from the current INR 3 lakh limit under the new tax regime in the upcoming Budget. The new tax regime is the default tax regime now. However, there are taxpayers still opting for the old tax regime to avail of HRA exemption, 80C deduction, etc. Hence this increase in the basic exemption limit would provide even further encouragement for taxpayers to opt for the new tax regime. This would provide more disposable income in the hands of the salaried/pensioned taxpayers, thereby stimulating the economic activity and consumption, without complex investment/ expenditure related conditions.

In the last year’s budget, the FM effected some major changes in the new tax regime to attract taxpayers towards the same. A full tax rebate was also announced on taxable income up to INR 7 lakh. This year, there is a further expectation for an increase in such rebate to INR 7.5 lakh. Such adjustment would provide much-needed relief to middle-income taxpayers, potentially boosting spending and investment.

For salaried individuals, exemption towards medical reimbursement and conveyance allowance was done away with few years ago in lieu of introduction of standard deduction. To keep pace with the ever-rising medical cost and the fuel cost, the standard deduction may be increased from existing limit of INR 50,000 to atleast INR 1 lakh.

To boost the momentum in real estate sector, one can expect an increase in tax benefits for home buyers. This could include increased deduction on home loan interest or principal repayment. Currently, the overall limit to claim loss under the head income from house property is restricted to INR 2 lakhs p.a. This limit should be revisited and enhanced to, say INR 3 lakhs p.a., to provide further impetus to the ‘housing for all’ initiative.

Effective FY 2018-19, Long-term Capital Gains (‘LTCG’) exceeding INR 1 lakh earned from transfer of equity shares of a company or a unit of an equity oriented mutual funds on which Securities Transaction Tax (STT) has been paid at the time of acquisition, are subject to taxation at 10 per cent, without the indexation benefit. To boost investor confidence and incentivize infusion of further investment into the capital market, Government may evaluate to increase the existing exemption limit from INR 1 lakh to INR 2 lakh.