Union Budget 2024: What Individual Taxpayers Expect From FM Nirmala Sitharaman

Ahead of the budget 2024, individual taxpayers are looking for some relief in the form of reduced tax rates, changed income tax slabs, and higher deductions

Finance Minister Nirmala Sitharaman will present the full Union Budget for the fiscal year 2025 in July, marking her seventh budgetary address. Sitharaman had already announced the interim budget in February.

Ahead of the budget 2024, individual taxpayers are looking for some relief in the form of reduced tax rates, changed income tax slabs, and higher deductions. However, since the government is looking to consolidate the fiscal deficit, major tax reforms could be kept at bay.

Industry bodies including FICCI and CII in pre-budget discussions with the government suggested providing a marginal relief in income tax at the lower end of the spectrum with taxable income up to Rs 20 lakh as one of the measures to boost consumption demand.

Prashant Bhojwani, Partner, BDO India, expects the government to provide relief to individual taxpayers by increasing the basic exemption limit and also adjusting tax slabs. "Standard deduction for salaried class should be increased from the current level of Rs 50,000 to Rs 75,000," he suggested.
 

In recent years, personal tax collections have exceeded the collections from corporate income tax.

In 2023-24, net corporate tax collections amounted to Rs 9.11 lakh crore while net personal income tax collections amounted to Rs 10.44 lakh crore. Similarly in 2022-23, corporate tax collections stood at Rs 8.25 lakh crore and the personal tax collection was Rs 8.33 lakh crore.

Analysts suggest that the government may increase the basic exemption limit from the current threshold of Rs 2.5 lakh in the old tax regime and Rs 3 lakh in the new tax regime.

Individual taxpayers are also looking for an increase in the limit of Section 80C under the Income Tax Act, 1961. This year marks a decade since the limit was last increased. A deduction of up to Rs 1.5 lakh can be claimed by individuals for FY25 if they choose the old tax regime. The benefit, introduced by then finance minister Arun Jaitley in 2024, has not been adjusted since.
 

Bhojwani highlighted that while the government appears to favour the new tax regime, it lacks certain benefits such as Section 80C (investment-linked deductions). Therefore, he proposes for incentivising the taxpayers to migrate to the new regime, Section 80C benefit should also be granted under the new regime.

"The government should raise the Section 80C deduction limit from Rs 1.5 lakh, which has remained unchanged for nearly a decade, to Rs 2.5 lakh. Both the above will encourage the taxpayers to build long-term savings," he said.

Section 80C is a popular tax-saving avenue among taxpayers in the old tax regime, with increasing financial awareness leading to significant investments in eligible instruments.

Investors are eyeing for a potential long-term capital gains (LTCG) tax relief. Long-term capital gains (LTCG) are the profits that one earns when one sells off their capital assets after one year. Currently, a 10 per cent tax is charged on annual profits exceeding Rs 1 lakh for holdings over a year, and 15 per cent for shorter durations.

Sandeep Agrawal, Director and Founder of Teamlease Regtech says, in the 2023 Budget, the government removed the benefit of indexation and long-term capital gains for non-equity mutual funds. The government also set a ceiling of Rs 10 crore for the long-term capital gain tax deduction for reinvestment in residential properties.

“The adjustments leave space for speculation around further changes to capital gains taxes. While any reduction in the capital gains tax rates will be a welcome step, it is quite unlikely that the rates will be adjusted,” he said.