6 key tax amendments likely to be in focus of Budget 2023

“The cost of living has increased in the past few years which has added to inflationary pressures. Budget 2023 is likely to be focused on small and middle taxpayers by offering them tax relief and addition of tax deductions to revive the Indian economy”, said Abhishek Soni, Co-Founder of Tax2win.

CA Abhishek Soni said Tax2win pre-budget expectations for the FY 2023-24, with in-depth coverage of expectations from the budget supported by the reasoning and practical problems faced by the people with the complete understanding of the existing provisions, faced by the taxpayers in our country is listed below:-

1. Increase the Exemption Limits

Currently, the Income Tax exemption limit is Rs. 2.5 lakhs/ year under both the new and the old income tax regime. This means individuals earning up to Rs. 2.5 lakh are not liable to pay any taxes. Above this slab, i.e., income in between Rs. 2.5 lakh and Rs. 5 lakhs, individuals have to pay 5% tax, and further on. The last changes made under exemption limits were in FY 2014-15.

Furthermore, the annual inflation rate was increased to 6.95 per cent in March 2022, which was recorded as the highest since October 2020. Hence, to adjust the high inflation rate, an enhancement in the exemption limit should be done.

Our expectations from the upcoming budget:-In the coming budget for 2023-24, the government should enhance the income tax exemption limit to Rs. 5 lakhs under the new tax regime. It will be fruitful in various aspects like-

● Increase disposable income in the hands of consumers

● Increase the investment capacity of individuals

● Lower the effective tax rate

● Boost the economic growth

2. Cut-down Tax Rate under presumptive tax scheme for professionals

Under section 44ADA, the presumptive taxation scheme, the benefit can be taken by specified professionals whose annual gross receipt is up to Rs. 50 lakhs. The profits are preassumed at 50% of the gross receipts 50% or actual profit, whichever is higher. This means an individual has to pay taxes on 50% of the revenue, which is not feasible for all.

Our expectations from the upcoming budget:-To bring harmony under the tax laws, an amendment is expected to reduce this rate to 35%-40% to-

● Avoid genuine hardship for professionals

● Reduce the tax burden on professionals

3. Enhancement in the Home Loan deduction limit

The maximum tax deduction that can be claimed on a home loan is Rs. 2 lakh per FY on a self-occupied property. However, property prices across the country have risen in the past five years. The country has also seen inflation of 6%-7% over the years.

Our expectations from the upcoming budget:- Noticing the present price bands of houses, the tax saving cap of Rs. 2 lakh on housing loans as per section 24(b) needs to be increased. The limit needs to be hiked to at least Rs. 3 lakhs, regardless of the property’s price.

4. Enhancing the deduction limit under Section 80C

Deduction u/s 80C is the most common tax saving avenue that taxpayers avail. This section covers PPF/EPF, ELSS, NSC, NPS, SSY, and more. In 2014, the limit for maximum deduction under Section 80C was raised to Rs. 1.5 lakh. Although, the continuous rise in living expenses exhausts this limit in just one or two contributions. And, no more scope is left for further tax saving under Section 80C.

Our expectations from the upcoming budget:-Enhancement in the maximum deduction limit under Section 80C to at least Rs. 2.5 lakhs. This enhancement in tax deduction will:-

● Motivate people to invest more in various tax saving options

● Relief from unprecedented inflation

● Help in effective tax saving

5. Enhancing the deduction limit under Section 80TTA

As per section 80TTA, a deduction of up to Rs. 10,000 per annum is granted for interest on saving bank accounts. For generations, an individual preferred to keep money in savings accounts held with banks and post offices. The benefit of investing in savings account is that the money can be used whenever needed.

Our expectations from the upcoming budget:-There are no changes in the threshold limit since its introduction. Also, the rate of interest for savings accounts is very low. Thus, to levy the tax on interest income up to ₹20,000 must be exempted. This increment in the tax deduction will allow individuals to:-

● Build interest among the taxpayers to invest in such interest-bearing investments

● Reduce the tax burden on small taxpayers

6. Expand the standard deduction limit

As per the current taxation system, a salaried individual can claim a standard deduction of Rs.50,000 from their salary income without showing any declarations & proofs of expenses. The standard deduction was introduced to salaried taxpayers to take care of the expenses generally not covered under income tax provisions.

Our expectations from the upcoming budget:-Due to a periodic rise in inflation, and an increase in expenses due to the continuation of the hybrid working model, it is the need of the hour to increase the standard deduction limit. Salaried-class taxpayers expect a rise up to Rs. 1,00,000/- in the standard deduction. Also, this limit for army personnel must be high. A rise in the standard deduction limit will be helpful in the following manner:-

● Reduce paperwork and compliance burden

● Tax relief to salaried individuals

Mr. Abhishek Soni, Co-Founder, of Tax2win, further believes that the revised monetary limit and amendments are necessary to keep the current inflation rate in view and shall help increase individuals’ savings.