Budget 2023: With Union Budget 2023 just hanging around, anticipating personal tax cuts is inevitable. The Income Tax Act of 1961 (Act) provides many deductions for individuals. However, the current limit of these deductions is quite low compared to the cost of living that has increased over the years. Some of the deductions/waivers that the Government may consider modifying the limit are:
Standard deduction: While offering a standard deduction of Rs 40,000, in the 2018 Union Budget, the Finance Minister observed that a large portion of personal income tax revenue is from the salaried class. The standard deduction was then increased to Rs 50,000 in the 2019 Union Budget. Although Consumer Price Index Inflation fell to 5.9% in November 2022, it was already at a high of 7. .4% in September 2022, compared to 4% in September 2019. With the increase in the cost of living for individuals and as salaried taxpayers cannot claim deductions for expenses. fees incurred, the government may consider increasing the standard deduction.
80C: As an incentive to household savings, certain prescribed contributions to life insurance, fiduciary funds (PF), savings instruments, mortgage repayments, etc., are deductible. up to Rs 150,000 per section 80C of the Act. Much of this limit is typically used to contribute to PF and to repay the principal on a home loan; thus not using up other contributions/expenditures. This Rs 150,000 limit was last revised in the 2014–15 financial year. Hence, there is an expectation that the Government may consider amending it to Rs 250,000 in the current Union Budget.
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80CCD: Contributions to a Central Government pension scheme (such as the National Pension System) are allowed as follows:
We have found that the Rs 150,000 limit is often exhausted by Section 80C deductions and can leave taxpayers with little/nothing to claim for their 80CCD contribution(s). first). In general, they can only claim an additional deduction of Rs 50,000 under section 80CCD(1B) for their own contribution to the pension scheme. Therefore, to provide some tangible benefit, the government may reconsider increasing this limit for individuals.
80D: An individual can claim a deduction of Rs 25,000 for health insurance premiums paid for the health of themselves or their family and Rs 25,000 for the health of the individual’s parents. If the insured is a resident senior, the limit will be Rs 50,000. Medical expenses for permanent residents are also deductible up to Rs 50,000 if they do not have health insurance. Medical costs have increased dramatically over the years, especially due to the global pandemic. This necessitates choosing health insurance plans that have higher coverage and result in higher premiums. Therefore, it would be beneficial to individuals if these limits were increased.
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Children’s Education Subsidies: Child education allowance and dormitory expenditure allowance are waived up to Rs 100 and Rs 300 per month respectively. These limits were set in August 1997 and continue to this day. Compared with the high costs incurred by tuition and accommodation today, the current limits are insignificant and these exemptions need to be reconsidered.
Deducting interest paid on self-employed home property: A limit of Rs 2,00,000 for deducting home loan interest on self-owned properties was introduced in the 2014-15 financial year. Home loan interest rates are now much higher with rising interest rates. Furthermore, taxpayers are only entitled to an additional deduction of Rs 1,50,000 on home loan interest if the specified conditions are met. Therefore, there is an expectation that this limit will be increased to at least Rs 3,00,000 for the relief of taxpayers. Another related relief measure that could be introduced is the removal of the Rs 2,00,000 ceiling on offsetting losses from residential properties against other incomes.
Also Read | Union Budget 2023: Will the increase in the base exemption limit under the new tax regime benefit taxpayers? Explain
The case for changing limits is reinforced when one compares these limits with other countries – to take a few examples, countries like Singapore and Germany provide different deductions for individual payers. tax. Singapore has a child allowance of S$4,000 per child, a spousal allowance of S$2,000, a dependent parent allowance of S$9,000, etc. These deductions are in addition to the earned income deduction. be in the range of 1,000 to 8,000 SGD. Similarly, Germany provides a child allowance of 227.5 EUR per child per month and a 30% deduction of tuition fees up to a maximum of 5,000 EUR per child. These limits are much more relevant to current levels of inflation and costs.
In addition, many countries provide a standard deduction/personal allowance for individuals, and some countries also allow employees to claim the full deduction of expenses incurred in performing duties and development expenses. born while working from home.
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Requests to change these limits have also emerged over the past few years and while the government has made some changes and also introduced a preferential tax regime, more emphasis is needed to review both the limit and the tax regime. Types of deductions/exemptions are the need of the hour.
(Surabhi Marwah is Tax Partner, People Advisory Services, EY India. Ammu Sadanandhan, Director, People Advisory Services, EY India also contributed to the article. Opinions expressed are personal)
Standard deduction: While offering a standard deduction of Rs 40,000, in the 2018 Union Budget, the Finance Minister observed that a large portion of personal income tax revenue is from the salaried class. The standard deduction was then increased to Rs 50,000 in the 2019 Union Budget. Although Consumer Price Index Inflation fell to 5.9% in November 2022, it was already at a high of 7. .4% in September 2022, compared to 4% in September 2019. With the increase in the cost of living for individuals and as salaried taxpayers cannot claim deductions for expenses. fees incurred, the government may consider increasing the standard deduction.
80C: As an incentive to household savings, certain prescribed contributions to life insurance, fiduciary funds (PF), savings instruments, mortgage repayments, etc., are deductible. up to Rs 150,000 per section 80C of the Act. Much of this limit is typically used to contribute to PF and to repay the principal on a home loan; thus not using up other contributions/expenditures. This Rs 150,000 limit was last revised in the 2014–15 financial year. Hence, there is an expectation that the Government may consider amending it to Rs 250,000 in the current Union Budget.
Also Read | Budget income tax 2023: Why the preferential tax regime is not favored by taxpayers; 3 essential steps
80CCD: Contributions to a Central Government pension scheme (such as the National Pension System) are allowed as follows:
We have found that the Rs 150,000 limit is often exhausted by Section 80C deductions and can leave taxpayers with little/nothing to claim for their 80CCD contribution(s). first). In general, they can only claim an additional deduction of Rs 50,000 under section 80CCD(1B) for their own contribution to the pension scheme. Therefore, to provide some tangible benefit, the government may reconsider increasing this limit for individuals.
80D: An individual can claim a deduction of Rs 25,000 for health insurance premiums paid for the health of themselves or their family and Rs 25,000 for the health of the individual’s parents. If the insured is a resident senior, the limit will be Rs 50,000. Medical expenses for permanent residents are also deductible up to Rs 50,000 if they do not have health insurance. Medical costs have increased dramatically over the years, especially due to the global pandemic. This necessitates choosing health insurance plans that have higher coverage and result in higher premiums. Therefore, it would be beneficial to individuals if these limits were increased.
Also Read | Income Tax Union Budget 2023: Why FM Sitharaman should increase the standard deduction – tax savings explained
Children’s Education Subsidies: Child education allowance and dormitory expenditure allowance are waived up to Rs 100 and Rs 300 per month respectively. These limits were set in August 1997 and continue to this day. Compared with the high costs incurred by tuition and accommodation today, the current limits are insignificant and these exemptions need to be reconsidered.
Deducting interest paid on self-employed home property: A limit of Rs 2,00,000 for deducting home loan interest on self-owned properties was introduced in the 2014-15 financial year. Home loan interest rates are now much higher with rising interest rates. Furthermore, taxpayers are only entitled to an additional deduction of Rs 1,50,000 on home loan interest if the specified conditions are met. Therefore, there is an expectation that this limit will be increased to at least Rs 3,00,000 for the relief of taxpayers. Another related relief measure that could be introduced is the removal of the Rs 2,00,000 ceiling on offsetting losses from residential properties against other incomes.
Also Read | Union Budget 2023: Will the increase in the base exemption limit under the new tax regime benefit taxpayers? Explain
The case for changing limits is reinforced when one compares these limits with other countries – to take a few examples, countries like Singapore and Germany provide different deductions for individual payers. tax. Singapore has a child allowance of S$4,000 per child, a spousal allowance of S$2,000, a dependent parent allowance of S$9,000, etc. These deductions are in addition to the earned income deduction. be in the range of 1,000 to 8,000 SGD. Similarly, Germany provides a child allowance of 227.5 EUR per child per month and a 30% deduction of tuition fees up to a maximum of 5,000 EUR per child. These limits are much more relevant to current levels of inflation and costs.
In addition, many countries provide a standard deduction/personal allowance for individuals, and some countries also allow employees to claim the full deduction of expenses incurred in performing duties and development expenses. born while working from home.
Also Read | Union Budget 2023-24: Why interest-free savings bank accounts should be increased
Requests to change these limits have also emerged over the past few years and while the government has made some changes and also introduced a preferential tax regime, more emphasis is needed to review both the limit and the tax regime. Types of deductions/exemptions are the need of the hour.
(Surabhi Marwah is Tax Partner, People Advisory Services, EY India. Ammu Sadanandhan, Director, People Advisory Services, EY India also contributed to the article. Opinions expressed are personal)
