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Income Tax LIVE Updates: Union Budget 2023 is set to be tabled on Wednesday, February 1, in which Finance Minister Nirmala Sitharaman is likely to announce some modifications to the personal income tax regime. Income tax is an important aspect of financial planning for working professionals, and with the new financial year approaching, it’s important to start thinking about ways to save taxes.
What Is Income Tax?
The term “income tax” refers to a type of direct tax imposed by governments on income generated by businesses and individuals within their jurisdiction. As per law, individuals earning more than a certain amount of money are obliged to file their income tax return annually. These taxes are a source of revenue for governments, and this money is used to fund public services and fulfil government.
Salaried employees are one of the major tax contributors in India. When it comes to Budget, the one thing that these individuals look forward to the most is the income tax rebate. The income tax slabs have not been changed since 2014 when the basic personal tax exemption limit was last revised.
In budget 2020, FM Sitharaman introduced a new tax regime, however, it remains optional for taxpayers.
What Are Old & New Tax Regimes?
Common Factors: Income up to Rs 2.5 lakhs per annum is exempt from taxation under both regimes, while income between Rs 2.5 to Rs 5 lakh per annum is taxed at the rate of 5 per cent.
Differences: Under the new slabs, personal income from Rs 5 lakh to Rs 7.5 lakh per annum is taxed at a rate of 10 per cent, while it is taxed at a rate of 15 per cent under the old regime.
Income between Rs 7.5 lakh to Rs 10 lakh per annum is taxed at a rate of 15 per cent under the new regime. It is taxed at a rate of 20 per cent in the old regime.
Under the old regime, personal income above Rs 10 lakh per annum are taxed at a rate of 30 per cent.
However, there are three slabs for income above Rs 10 lakh in the new regime. Personal income between Rs 10 lakh to Rs 12.5 lakh is taxed at a rate of 20 per cent, between Rs 12.5 lakh to Rs 15 lakh at 25 per cent, and above Rs 15 lakh at a rate of 30 per cent.
Budget Expectation
The lesser tax one has to pay, the more disposable income one can have. While taking advantage of the tax-saving options available, one can save a significant amount of taxes.
More Tax Exemption or Rebate: In the Budget 2023, there is an expectation that the government might give relief to individual taxpayers by raising tax exemptions or rebate limits. Under both old and new tax regimes, if the total salary of an individual is below Rs 5 lakh in a year, it is tax-free.
However, it is a rebate under Section 87A, not an exemption. If the salary goes above Rs 5 lakh in a year, the tax on the whole amount except the exemption limit of Rs 2.5 lakh will be applicable. Now, there are demands for raising the exemption limit to Rs 5 lakh.
Increased Tax Deduction Limit: There are also demands to raise the deductions limit under Section 80C, compared with Rs 1.5 lakh currently.
Income tax deductions are related to specific deductions that a taxpayer is eligible for on account of investments made (Section 80C) or the sum expended (Section 80D or Section 80E).
The real estate sector is also urging the government to provide a separate deduction for realty purchases, apart from Section 80C. The current 80C limit was fixed about a decade ago.
More Home Loan Tax Incentives: People are also anticipating an increase in tax exemptions on home loan principal and interest payments. Currently, the maximum tax deduction that can be claimed on a home loan interest payment is Rs 2 lakh per FY on a self-occupied property.
However, due to the rise in property prices and inflation over the years, there is a demand for the tax saving cap of Rs 2 lakh on housing loans as per section 24(b) needs to be increased.
Long-term capital gains (LTCG) tax relief: There are also expectations that the government would provide long-term capital gains (LTCG) tax relief to retail mutual funds and stock investors in the market through Budget 2023.
Work-from-home allowance & Layoff policy: In the Budget 2023, experts also hope that the government announcements will bring some stability to the job market shaken by the Covid-19 pandemic and increased pressure due to inflation and fear of recession. The industry fraternity is also expecting the Centre to announce regulations on issues like Work from Home allowance, notice periods, severance pay, job retention and support, and regulations for layoffs.
Additionally, the government can also issue notification outlining the tax consequences of moonlighting.
Increase in Health Care Expense Deduction: Healthcare insurance coverage has become essential, particularly following the Covid-19 pandemic. However, insurance costs have been on the rise. With the budget 2023, the common man is expecting the government will consider increasing the Section 80D deduction limit, which allows for tax deductions on health insurance premiums. An increase in this limit would provide much-needed relief and support to individuals.
Currently, the limit is Rs 25,000 for non-senior citizens and Rs 50,000 for senior citizens.
Union Budget 2023: Date & Time
FM Sitharaman is scheduled to present the Budget 2023-24 on February 1 at 11 am. This will be Sitharaman’s fifth straight budget as the Finance Minister for the fiscal year beginning April 1. This is set to be the last full budget of the Prime Minister Narendra Modi-led Central government ahead of the 2024 Lok Sabha polls and will be delivered in paperless forms, like the two previous ones.
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