Union Budget 2023: What relief can the middle class expect

Budget 2023 relief in tax: As Finance Minister Nirmala Sitharaman would present the much-awaited Budget statement for the forthcoming fiscal later today, the middle-class section of India's demography will be expecting some relief this year, especially on the personal tax front amid the rising inflation. A few days ago, the Finance Minister said that the middle-class section is a crucial piece of the puzzle to boost India’s speed of development and prosperity.

 

India has more than 80 million taxpayers, and salaried employees are the biggest contributors to indirect taxes. Experts have noted that the middle class in India, especially the households earning in the range of Rs 5 lakh to Rs 10 lakh annually, has been struggling with high inflation, falling income, and mass layoffs across industries. Besides, as the section does not qualify for subsidies, the situation is far worse than others. 

According to a Reuters report, the government could introduce revised slabs to make the optional tax regime more attractive. A final decision on the plan will be taken by the Prime Minister’s Office, it said citing top government sources. 

Recently, the Finance Minister said she understands the pressures faced by India’s middle class and assured that the government will keep working for their benefit. Some of the proposals the finance ministry might be looking at in the upcoming Budget statement are: 

Tweaks in income tax 

There was no change in personal income tax slabs in the last budget. The middle-class section will be expecting the government would increase the basic exemption limit of Rs 2.5 lakh to an amount looking at the rising inflation.  The exemption limit was last revised by late minister Arun Jaitley in 2014. 

“The present exemption limit of Rs 250,000 is completely out of sync with ground realities. Government has itself declared families with incomes below Rs 8 lakh as eligible for benefits meant for Economically Weaker Sections. The policy aim should be that individual incomes up to Rs 1 lakh per month should not suffer Income tax. This can be done by raising the exemption limit to Rs 8 lakh and exemptions through saving instruments to Rs 4 lakh. The resulting increase in disposable incomes with individual consumers will help spur consumption, provide support for growth, and indirectly make up for a part of revenue loss,” said Shahid Khan, Senior Partner, Kochhar & Co.

As inflation is touching new highs of late, it is expected that the government would raise the exemption limits of Rs 50,000 for salaried individuals. 
The government is also expected to provide relief to employed taxpayers by reducing the highest tax rate of 30 per cent to 25 per cent. 
The government is expected to increase the threshold limit for the highest tax rate from Rs 10 lakh (under the older, with-exemptions tax regime) to Rs 20 lakh. With this, the proposed highest slab rate, which includes surcharge and cess, will come down to 35.62 per cent from the current 42.744 per cent, as per experts. 
The government is expected to introduce a hybrid tax system, which would combine the new and old systems of income tax. Wherein it is expected that the highest slab of income tax of 30 per cent, which now starts at Rs 10 Lakh, is taken up to Rs 15 lakh. 

“At present, there are two tax regimes that taxpayers can choose between. Under the old and new tax regimes, income up to Rs 2.5 lakh is exempted from any tax. Additionally, you get an exemption of Rs 12,500 under the Income Tax Act, Section 87A. This makes selecting a suitable tax regime quite confusing for taxpayers. Consequently, they feel that the basic tax exemption limit needs to be raised to Rs 5 lakhs or more,” said Nidhi Manchanda, Certified Financial Planner, Head of Training, Research & Development at Fintoo.

The government is expected to take up the Section 80C limit of Rs 1.5 lakh to encourage more savings from the salaried class.  
With the rising healthcare costs, the government is expected to raise the medical insurance premium amount of Rs 25,000 as it is very less given that an equivalent of the Rs 5 lakh cover under the Ayushman Bharat Scheme costs well over Rs 35,000 when purchased at a personal level. 

“In terms of the individual tax regime, while the government has introduced alternate tax slabs subject to certain restrictions, this new regime is not very popular since the individual cannot claim any tax deductions such as 80C, 80D making it less favourable. The Government should revise these slabs or allow certain tax deductions to make it a viable option for individuals. Further,  while there seems to be a buzz about the potential increase in the PPF limit, the 80C limit is only Rs 1.5 lakh for several years. The Government should aim at increasing this limit given the inflation,” said Bijal Ajinkya, Partner, Khaitan & Co. 

Savings and limits 

The government is expected to enhance the deduction under Section 80 A so that the salaried class can opt for more investments and savings schemes. The limit has remained at Rs 1.50 lakh for many years. 

The government is also expected to encourage individuals to invest more in government schemes, such as the National Savings Certificate (NSC) and Public Provident Fund (PPF), among other investments.  

Exemptions for home buyers  

The maximum limit on interest deduction for house purchases through a bank loan is Rs 2 lakh. The experts feel it is much lower than the industry standards as there are constant hikes in interest rates on loans by banks. 

(With agency inputs)