Budget 2022: Will the salaried class get income tax relief this year?

Union Budget 2022, to be presented on February 1, is going to be closely watched by the salaried class which is keenly awaiting the announcement regarding the personal taxation. 

Income tax relief, standard deduction hike, and tax relief for saving for kids' education are some of the expectations of the salaried class from finance minister Nirmala Sitharaman, all the more in the wake of the ongoing COVID-19 pandemic. 

Salaried class taxpayers are expecting that the Union Budget 2022 will give them relief by providing a reduction in the income tax rates and surcharges as inflation continues to increase. 

Also Read: Budget 2022: Here's what the middle class expects from FM Sitharaman

What taxpayers want from Budget 2022? 

The salaried class individuals are seeking an increase in deduction available under Section 80C of the Income Tax Act. Besides this, an announcement by FM Sitharaman on an increase in home loan repayment exemption, and relief on dividend taxation will bring relief for the salaried class. 

An increase in the standard deduction limit will also bring the much-needed respite to salaried individuals. A proposal in this regard has been sent to the government by senior tax advisors, however, it remains to be seen if the finance minister will consider it. 

The expected relief comprises an increase in the basic exemption limit from Rs 2.5 lakh to Rs 3 lakh, while for senior citizens, it is being sought to be increased to Rs 3.5 lakh from the present Rs 3 lakh. 

The top income tax slab is also expected to be revised upward from the existing Rs 15 lakh. According to a pre-budget survey carried out among different stakeholders by KPMG recently, 64% of the respondents expect an increase in the basic income tax exemption limit of Rs 2.5 lakh. 

"Our pre-budget survey indicates that relief for individual taxpayers by way of an enhancement in the basic income tax exemption limit of Rs 2.5 lakh is highly awaited. Respondents also support an upward revision in the top income slab of Rs 10 lakh," said Rajeev Dimri, Partner and National Head of Tax, KPMG in India. 

Also read: Budget 2022: Here's what India's salaried class expects from Nirmala Sitharaman

Tax cuts unlikely in Budget 2022 

As per media reports, FM Sitharaman may not announce any change in the income tax slabs in Union Budget 2022 owing to policy and fiscal compulsions. The government is also unlikely to unveil any additional deductions under the ambit of the new or old tax regime in this year's budget. 

The finance minister did not make any substantial changes in the income tax slabs or rates in the 2021-22 Budget. 

Although FM Sitharaman did not change tax slabs and rates in Budget 2020 as well, she introduced a new tax regime under which the tax rates are slashed for those willing to forgo tax exemptions as well as deductions. The new tax regime continues to be optional for taxpayers, which means a taxpayer has the option to either choose the new regime or stick to the old one. 

Presently, income up to Rs 2.5 lakh is exempt from taxation under both regimes. Income between Rs 2.5 lakh to Rs 5 lakh is taxed at a 5 per cent rate under the old as well as the new tax regime.

However, personal income from Rs 5 lakh to Rs 7.5 lakh is taxed at a 20 per cent rate under the old regime, and at the rate of 10 per cent under the new tax regime. Income between Rs 7.5 lakh to Rs 10 lakh is taxed at a 20 per cent rate in the old regime, whereas the tax rate stands at 15 per cent under the new tax regime. 

Personal income above Rs 10 lakh is taxed at the rate of 30 per cent under the old regime, whereas there are three slabs above Rs 10 lakh under the new tax regime. 

Under these three slabs, income between Rs 10 lakh and Rs 12.5 lakh is taxed at a 20% rate, income from Rs 12.5 lakh to Rs 15 lakh is taxed at a 25 per cent rate and income above Rs 15 lakh attracts a 30 per cent tax rate.

Meanwhile, the effective tax rate is much higher owing to cess and surcharges. 

The salaried taxpayers also expect major steps pertaining to rationalisation and simplification of the income tax regime in this year's budget. 

"Although the Government has taken several measures to resolve tax disputes and overhaul the tax dispute resolution framework over the past few years, further measures in this regard may help in reducing litigation. Rationalisation of TDS and TCS provisions to ease compliance burdens will also be welcome," Dimri noted.