Budget 2023: Government may focus on populist measures as it is last full Budget ahead of polls
Individuals and experts are eyeing a favourable capital gains tax regime to promote investments in the economy
The Union Finance Minister Nirmala Sitharaman will unveil Budget 2023 on 1 February, 2023. This will be the last full Budget ahead of the 2024 Lok Sabha elections, so there could be an increased focus on populist measures.
With the consequences of the pandemic still persisting in the global economy, all eyes are on the finance minister to provide some relief and incentives on the income tax front for the common man and industries.
Expectations of middle-class
Middle-class taxpayers have been hard hit by the rising inflation and mass layoffs by tech companies. From the income tax perspective, the government will not likely introduce new taxes on the middle class.
It may introduce some tax relief measures, such as revisiting the basic exemption limit, which was revised around a decade ago. This limit may be increased from Rs 2.5 lakhs to Rs 5 lakhs, which will leave more disposable income in the hands of taxpayers. Bringing down the tax burden will benefit middle-class households who do not qualify for most of the subsidies and face the brunt of inflation.
Since 80C is the most common tax saving pool for middle-class taxpayers, the deduction limit is expected to be increased from the current threshold of Rs 1,50,000. 80C was earlier revised in 2014 when the Cost Inflation Index (CII) was 240, which has increased to 331 in 2022, while the 80C limit has remained the same. Also, since it covers various investment options such as National Pension System (NPS), Public Provident Fund (PPF), tuition fees, Unit Linked Insurance Plans (ULIPs), Sukanya Samriddhi account, etc., a division in the major segments with separate limits can be expected.
Under Section 80D, individuals can claim a deduction of Rs 25,000 for the payment of health insurance premiums. Given the exorbitant medical expenses in the past few years, this limit should be raised to Rs 50,000. Doctor consultation fees, diagnostic tests, and medical bills should also be brought under the purview of 80D.
To compensate salaried individuals for the increased cost of living, the standard deduction limit may be raised from the current threshold of Rs 50,000.
Rejig new I-T regime
The government introduced a new tax regime with concessional rates of tax, doing away with all the exemptions and deductions to simplify the tax structure. However, not many individuals have opted for it. Certain tweaks in the tax regime can be expected in the form of allowing foregone deductions.
Simplified capital gains tax
Individuals and experts are eyeing a favourable capital gains tax regime to promote investments in the economy. The current tax structure is a complicated maze with different tax rates for different asset classes depending on the period of holding. Currently, shares are taxable based on listing criteria and period of holding. If listed shares are held for more than a year, a 10 per cent tax rate is applicable, while a 15 per cent tax rate is applicable if the share is held for up to one year. Unlisted shares are taxable at 20 per cent if held for more than two years and at a normal slab rate if held for up to two years. Debt securities, mutual funds, immovable properties, etc., also have different tax rates. The government should redefine the conceptual framework for taxing capital gains and simplify the same.
Expectations of the real estate sector
Homebuyers should be granted an individual deduction for repaying their housing loan, which is currently combined with Section 80C with a maximum limit of Rs 1,50,000. Furthermore, the limit under Section 24(b) for housing loan interest payments should be increased from Rs 2 lakhs. This would encourage investment in residential projects and benefit the realty developers. It would also incentivise individuals to purchase homes.
Investing in REITs offers steady returns due to regular rental payments from tenants. Decreasing the TDS rate from 10 per cent is expected to drive growth and improve the working capital in this sector.
The government is expected to implement necessary reforms to boost the country’s economic growth and reduce the compliance and tax burden on individuals.
We hope this Budget will provide a strong foundation and roadmap to revive the Indian economy amid global recession concerns.
The writer is Founder and CEO, Clear. He tweets @architgupta @ClearfromCT. Views expressed are personal.
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