Interim Budget 2024-25: A List of Few Key Expectations

On February 1, 2024, Finance Minister Nirmala Sitharaman is scheduled to present the Interim Budget 2024-25, unlike the full budget presented in other years. 

The Union Budget 2023-24 witnessed the Centre introducing multiple new norms for income tax. Significantly, the announcement of establishing the new tax regime as the default tax system was an important one related to personal taxation. 

Earlier, the finance minister had said that this budget would have no major announcements as the Lok Sabha Election 2024 is due in April-May this year. In addition, the Election Commission’s Code of Conduct mandates that the Interim Budget in the election year cannot have major schemes. 

Despite this, experts anticipate that the Centre could focus on a few of the tax clauses and exemptions and aim to provide further relief to the taxpayers.

80D Deduction Limit: As per experts, the Centre should mull increasing the deduction limit under Section 80D for medical insurance premiums from Rs 25,000 to Rs 50,000 for individuals and Rs 50,000 to Rs 75,000 for senior citizens. This adjustment is necessary to accommodate the spike in healthcare expenses. In addition, there should be an extension of Section 80D benefits to the new tax regime, as this would aid in ensuring fair and equal access to healthcare services.

Basic Exemption Limit: Experts say the basic exemption limit should be raised both in the new and old tax regimes, considering high inflation. An increase in the basic exemption limit can influence the tax liability across slabs in both old and new tax regimes,

In addition, the basic exemption limit under the old and new regimes could be raised further by another Rs 50,000 on account of high inflation, mention these experts. 

In her Budget speech for 2023-24, the finance minister stated that the government proposes to increase the income tax rebate limit from Rs 5 lakh to Rs 7 lakh in the new tax regime.

Experts say that a further rise in the taxable income limit would increase the take-home salaries of the salaried class.  

TDS Compliance for Homebuyers: Currently, the threshold for tax deducted at source (TDS) on property purchases is Rs 50 lakh. In case the value of the property exceeds this amount, the buyer must deduct TDS at a rate of 1% of the total consideration amount. This rule applies to both residential and commercial properties.

Experts state that the Interim Budget can introduce a bit of clarity on this clause for Non-resident Indian (NRI) sellers. While the taxation process is straightforward for resident sellers using Form 26QB, it remains comparatively complex for NRI sellers.

Taxation of Capital Gains: Any profit or gain that arises from a capital asset can be defined as the income from capital gains. These incomes are taxable in the year in which the transfer or sale of the capital asset occurs. There are two categories of capital gains: short-term capital gains (STCGs) and long-term capital gains (LTCGs). 

The complex structure of the current capital gains tax regime remains a challenge for investors. Several factors need to be considered, including asset classes, holding periods, tax rates, and residency status. 

Experts state that the Centre should ease out the classification of equity and debt instruments, unify tax treatment for listed and unlisted securities, and simplify indexation provisions.

Home loan relief in the New Tax Regime: After the new tax slabs were introduced under the new tax regime, several taxpayers, especially the younger lot, preferred to move to the new system. However, those who had to service their home loans stuck to the old regime. 

Experts aver that the home loan interest deduction of Rs 2 lakh is the essential blockade to making a move to the new tax regime.