Union Budget 2024: Experts call for enhancement of deduction limit under 80C, simpler terms for capital gains tax

Budget expectations: When it comes to yearly tax savings, Section 80C is one of the widely used tools for salaried individuals and Hindu Undivided Families (HUFs). Under Section 80C of the Income Tax Act, salaried individuals and Hindu Undivided Families (HUFs) are entitled to income tax benefits of up to Rs 1.5 lakh by investing in various tax-saving instruments such as Public Provident Fund (PPF), five-year fixed deposit (FD), ELSS, National Savings Certificate, and more. 

The current deduction limit of Rs 1.5 lakh has been in effect since the last review in 2014 by the NDA government. As working individuals heavily rely on Section 80C for income tax savings, experts are advocating for an increase in the 80C deduction ceiling in the upcoming Budget 2024. Many are hopeful that the limit for deductions will be raised to accommodate the evolving needs of taxpayers. 

In terms of taxation, Section 80C plays a dual role encompassing both investments and expenditures within specific categories. Noteworthy among the financial instruments qualified to yield tax deduction advantages under Section 80C are the Public Provident Fund (PPF), Employee’s Provident Fund (EPF), Equity-Linked Savings Scheme (ELSS), commonly referred to as tax-saving mutual funds, and the National Pension Scheme (NPS), among others. It is permissible to allocate a higher sum towards any of these instruments. However, it is essential to note that the Section 80C tax deduction benefits are applicable solely to investments amounting to Rs 1.5 lakh or less.

In his wishlist ahead of the Budget 2024, Rajarshi Dasgupta, Executive Director - Tax, AQUILAW, said the government should consider revise the Section 80C limit, which has remained unchanged since 2014, despite escalating inflation rates. 

By increasing the limit, taxpayers would find it easier to combat inflation and be encouraged to save and invest in essential financial tools like ELSS, tax saver FDs, and PPF. These measures are in line with the overarching objective of cultivating a financially robust and thriving India.

Dasgupta said the taxpayers are looking forward to the following changes: 

> Deduction under 80C limit must be enhanced to a minimum of Rs 2 lakh from Rs 1.5 lakh which were set in 2014.

> Salaried taxpayers are anticipating an overhaul of the income tax slabs. In the Union Budget 2023, adjustments were made to the new personal tax regime. 

> There are expectations that the upcoming Budget will bring substantial improvements to the Old Tax Regime slab structure. This could involve raising the income tax exemption limit to Rs 5 lakh to align it with the New Tax Regime.

> The NDA government might streamline tax slabs and reduce rates to provide relief to individual taxpayers. Currently, the tax rates under the new regime range between 5 and 30%, depending on income levels.

> 80D deductions must be enhanced to Rs 50,000 for general taxpayers and Rs 1 lakh for senior citizens in view of the rising costs of insurance premium post Pandemic.

> Home loan interest and principal payments should be separately in its own section and should go up to Rs 5 lakh.

> Rebates under 87A should be extended to incomes up to Rs 6.3 lakh benchmarking to the last such update done in 2019.

ClearTax CEO Archit Gupta said it is most likely that the government would prioritise fiscal discipline and avoid populist measures. However, there is optimism for potential relief in the realm of personal income tax, particularly in the New Tax Regime.

> The deduction limit under Section 80D for medical insurance premiums should be increased from ₹25,000 to ₹50,000 for individuals and ₹50,000 to ₹75,000 for senior citizens, reflecting rising healthcare costs.

> Additionally, extending Section 80D benefits to the new tax regime would promote equitable access to healthcare.

> Currently, 1% TDS is deducted on property purchases exceeding INR 50 lakh. While this process is straightforward for resident sellers (using Form 26QB), it becomes more complex for Non-Resident Indian (NRI) sellers. 

> The complexity of the current capital gains tax regime poses challenges for investors, with numerous factors to consider, such as asset classes, holding periods, tax rates, and residency status. The government should streamline the classification of equity and debt instruments, unify tax treatment for listed and unlisted securities, and simplify indexation provisions.

> Despite being recognised as a metro city by the Indian Constitution, Bengaluru remains classified as a non-metro for income tax purposes, limiting HRA deductions to 40% for its residents instead of 50% available in other metro cities.