Top 10 income tax-related recommendations for FM Sitharaman in the 2024 budget

<p><strong>Written by Surabhi Marwah</strong><br />
Budget 2024: With the general elections coming up, it’s probable that the forthcoming budget in February 2024 will be a “Vote on Account,” with the entire budget arriving in July 2024. Similar to the previous interim budgets in 2009 and 2014, when no significant changes were revealed, one may not anticipate any significant tax reforms or revisions this time around, even though the government did provide tax advantages in the 2019 interim budget.<br />
Having stated that, the wish list that may be taken into account in terms of personal taxes is as follows:</p>
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<p>1. A more advantageous concessional tax regime (CTR) – It is suggested that certain modifications be made to the CTR in order to increase its appeal to taxpayers. For example, the availability of specific deductions for things like insurance premiums, PF, PPF, and NPS contributions, and interest on housing loans for self-occupied property would all help. Additionally, the CTR should be an option for taxpayers filing amended and late tax returns. Additionally, for individual taxpayers having income from a company or profession, the frequency of transferring between tax regimes may grow.<br />
2. An increase in the standard deduction Considering the rising cost of living for people and the inability of salaried taxpayers to deduct personal costs, the government may consider raising the standard deduction from the current Rs 50,000 cap to Rs 1,00,000.</p>
<p>3. Tax-free gift limit — Presently, presents from non-family members are exempt from taxes provided their combined value does not exceed Rs 50,000 in a given fiscal year. If the gifts received within a financial year amount to more than Rs 50,000, the whole value of such presents is subject to taxation. Since the Rs 50,000 cap has been in place since April 1, 2006, it is reasonable to anticipate a rise to Rs 1,00,000.</p>
<p>4. All employers are eligible for a tax payment delay on Employee Stock Option Plan (ESOP) benefits. ESOPs are taxed as salary perquisite at the time of share allocation, which occurs when workers exercise their share options. It becomes very difficult for workers to arrange cash to pay the exercise price and the taxes on such allocation of shares under an ESOP since unlisted firms do not have liquidity.</p>
<p>For some qualifying start-ups covered by section 80-IAC of the Income tax Act, 1961 (ITA), there is now a relaxation offered in terms of deferring such taxes to the stage of sale of shares by the workers as opposed to the stage of allocation of shares to employees. If the government were to provide this tax deferral to all employers, it would be advantageous for salaried taxpayers.</p>
<p>5. Capital gains rationalization The taxability of capital gains is now determined by a variety of tax rates and holding periods. It is reasonable to anticipate that the holding duration will likely be uniform across different asset types. Additionally, the current limitation on long-term capital gains from the sale of equity shares and equity-oriented mutual funds that is not subject to taxation of up to Rs 1,00,000 may be raised to Rs 2,00,000.</p>
<p>Furthermore, in accordance with Section 50CA of the Act, capital gains are presently calculated by utilizing the Fair Market Value (FMV) as the sale consideration rather than the actual sale consideration in cases when shares are transferred at a price below the FMV. If the stamp duty value of an immovable property is less than 110% of the real selling price, there is a relaxation available. In this scenario, the actual sale consideration is used to compute capital gains rather than the stamp duty value. Nevertheless, unlisted shares are not eligible for any such relaxation or threshold. For normative taxation purposes, unlisted shares might also have a comparable cap imposed.</p>
<p>6. Modifications to housing deductions and exemptions Since the fiscal year 2014–15, the maximum amount that may be deducted for interest paid on a housing loan for a self-occupied property is Rs 2,00,000. The deductions available to other taxpayers remained unchanged, notwithstanding the introduction of increased deductions for first-time homeowners’ housing loan interest. Because of the years’ inflation, this general cap of Rs 2,00,000 may be raised to Rs 3,00,000.</p>
<p>To match the deduction allowed for self-occupied property, the set-off of loss from a let-out home property has also been restricted at Rs 2,00,000 as of the financial year 2017–18. However, this puts a strain on the people since, in many situations, the losses are carried over and accrued over time with no tangible gain accessible, particularly when the interest paid on a home loan surpasses the taxpayer’s rent. Therefore, the government has the authority to examine, raise, or decrease these restrictions.</p>
<p>Additionally, it is advised that Tier 2 cities like Hyderabad, Pune, Bengaluru, Ahmedabad, Gurgaon, etc. be included to the list of metro areas in light of the rising rents that have been seen in the majority of cities since the epidemic. This will raise the threshold for determining the House Rent Allowance (HRA) exemption from 40% to 50% of the base pay.</p>
<p>7. Interest deduction on loans taken out for electric vehicle purchases – At this time, there is a Rs. 1,50,000 cap on the amount of interest that may be deducted from loans for electric vehicle purchases. A higher interest deduction cap and the removal of the loan’s sunset provision (currently set until March 31, 2023) might be taken into consideration in light of the growing emphasis on the environmental, social, and governance (ESG) agenda.</p>
<p>8. The capacity to get credit for Tax Collected at Source (TCS) from people when their employers withhold taxes from them Many payments are now covered by TCS, and with the higher TCS rate that will take effect on October 1, 2023, there may be a cash flow impact for individuals who have to pay TCS up front and then claim a refund when filing their individual tax returns. Examples of these payments include TCS on overseas tour programs and TCS on overseas shares purchased by employees of Indian companies under ESOP / RSU plans. Therefore, in order to lessen the effect on salaried workers’ cash flow, employers need to be permitted to provide credit for such TCS at the salary tax withholding stage.</p>
<p>9. Compliance with tax deducted at source (TDS) when working with non-resident (NR) individuals – If someone buys a property from a non-resident (NR) or gives them rental income, they have an extra obligation to comply with TDS laws by obtaining a Tax Deduction Account Number (or “TAN”) and filing TDS returns. By using challan-cum-return, which is now only possible in cases where the seller or landlord is a person resident of India, the process may be expedited.</p>
<p>10. Taxability of provident fund (PF) interest and contributions – At present, the tax rules impose taxes on accretions on employer contributions to PF, Superannuation fund (SAF), and National Pension System (NPS) exceeding Rs 7,50,000. However more information is still needed to determine which funds received the surplus contributions, how the accretion in the case of SAF and NPS is calculated, etc. Furthermore, starting with the 2020–21 fiscal year, the exemption from paying income taxes that was previously granted to a person whose PF contributions surpassed Rs. 2,50,000 annually (the cap is Rs. 5,00,000 in the absence of an employer contribution). On an accrual basis, the PF authorities have been withholding taxes on this kind of paid interest. It is advised that the taxation of such PF interest be postponed until the date of withdrawal or job termination in accordance with the taxation stage of the accumulated balance of PF.</p>
<p>Other areas where one would hope for clarification from the tax authorities include:<br />
clarification of the appropriate tax treatment that employers should get when providing their workers with electric cars, as the existing tax rules do not make this provision clear.<br />
Accountability and clarity about the online grievance redressal system<br />
Although the list of suggested tax law changes above is a wish list, it’s important to keep in mind that the Finance Minister has said that the 2018 budget is a vote on account and that no major announcements will be made at that time. Therefore, any significant changes to the tax rules may need to wait until the new Government takes office after the elections.</p>