Union Budget 2024: More clarification on the New Tax Regime is the need of the hour

It is that time of the year when the hottest topic of discussion is the upcoming Union Budget, with expectations of the common man running high. However, being an election year, the upcoming Budget in February will be a “vote-on-account”, and therefore, no major tax reforms or changes are expected to take place. The Finance Minister has also clarified that the focus of the upcoming Budget will be on meeting the current government’s expenditure with significant adjustments (if any) to be made post-election. While we may see more tax-related changes in the budget post-elections, it is possible that the upcoming budget may address some procedural aspects.

Nonetheless, any changes, however minor, may focus on the new simplified regime introduced in the year 2020 and on the rationalisation of the tax processes. While the old tax regime has been the preferred option in the past few years, the new tax regime is gaining popularity amongst taxpayers after Budget 2023. Budget 2023 introduced welcome changes in the new regime, such as increasing the maximum amount of income not chargeable to tax from Rs 2.5 lakh to Rs 3 lakh, allowing a standard deduction of Rs 50,000, widening the slab with lower tax rates, reducing the surcharge for income over Rs 5 crore and increase in the income threshold for rebate from Rs 5 lakh to Rs 7 lakh.

The above changes have surely incentivized taxpayers to move to the new regime, but still, the shift to the new regime has not been as anticipated by the government. Therefore, making the new regime more attractive could be a focus area for the government. While major changes are not expected, taxpayers are looking for relief in the form of higher standard deductions, reduced tax rates and a simplified process. It is expected that the authorities may consider reducing the highest tax rate of 30% to 25% under the new regime and increasing the standard deduction from the current threshold of Rs 50,000.

Increasing the threshold limit for the highest tax rate from Rs 10 lakhs to Rs 20 lakhs under the old tax regime could also be a welcome change for taxpayers who prefer the old tax regime.  

Moving to rationalisation of processes and procedures, an important aspect that taxpayers are eager to see addressed is faster processing of tax refunds. While the refund process has been streamlined substantially in the past few years, processing returns and refunds within a few days or on a real-time basis would be a welcome move. This would align with the thinking of the government to ensure that taxpayers receive their refunds in a timely manner.

It is also expected that the government will come out with some measures to ensure the speedy disposal of appeals, which are currently pending with income tax authorities. Taxpayers have always found pending appeals with authorities to be a source of frustration. Therefore, the government may look at implementing some additional reformative measures, including setting disposal timelines for at least first-level appeals.  

Related to this is the process of receiving refunds into overseas bank accounts. Non-residents, especially foreign nationals who leave India after closing their Indian bank accounts, face difficulty in claiming refunds in their income-tax returns. To address this challenge, foreign bank accounts could be considered for tax refunds, at least in the case of PANholders registered as non-residents/ foreign nationals.

Another aspect that needs rationalisation is the e-verification of returns/ income-tax forms received in foreign mobile numbers using OTP. While the online verification of tax returns and filing of various compliance Forms, such as Form 67(for claiming credit of taxes paid in foreign countries), has brought efficiencies, the said process can be looked at for improvement, especially for non-resident individuals living outside India.  

Non-resident individuals living outside India who need to complete the tax return filing process/ filing Forms could benefit immensely if the e-verification process can be extended to foreign mobile numbers or have two-factor authentication (with different OTPs for foreign mobile numbers and email addresses). This would reduce the paperwork and administrative tasks for such taxpayers, such as tracking the receipt of documents by post to the tax office, applying for condonation of delays, etc., as there could be delays in receipt of documents by the tax office when dispatched from overseas.

With the budget looming on the horizon, there is a sense of eagerness in the minds of the taxpayers on whether some of the above expectations will be met or postponed to later once the final budget is announced after the elections. Be it the ‘vote-on-account’ or the final Budget, the above expectations, if met, would be a welcome relief for taxpayers and at the same time, these changes would be in line with the thinking of the government to simplify the law and the processes for the benefit of taxpayers.  

Views are personal. The author is Partner, Deloitte India 

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