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Budget 2023 income tax: Why it’s time to hike limits for standard deduction, Section 80C, 80D & more

Budget 2023 income tax: Why it's time to hike limits for standard deduction, Section 80C, 80D & more

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Budget 2023: With the Union Budget 2023 just around the corner, the anticipation of relief in personal taxation is inevitable. The Income-tax Act, 1961 (Act) provides numerous deductions for individuals. However, the current limits of these deductions are quite low compared to the increased cost of living over the years. Some of the deductions/ exemptions for which the Government could consider revision of limits are:
Standard Deduction: While introducing the standard deduction of Rs 40,000, in the Union Budget 2018, the Finance Minister observed that a major portion of the personal income-tax collection was from the salaried class. The standard deduction was subsequently increased to Rs 50,000 in the Union Budget 2019. While Consumer Price Index Inflation has moderated to 5.9% in November 2022, it was at a high of 7.4% in September 2022, as compared to 4% in September 2019. Given the rise in the cost of living for individuals and since salaried taxpayers cannot claim a deduction for expenses incurred by them, the government could look at increasing the standard deduction.
80C: As a measure to encourage household savings, certain prescribed contributions to life insurance, provident fund (PF), savings instruments, repayment of housing loan etc., are allowed as a deduction up to Rs 150,000 under section 80C of the Act. The majority of this limit is usually utilised by the contribution to PF and principal repayment of housing loan; thereby leaving other contributions/ spends unutilized. This limit of Rs 150,000 was last revised in the financial year 2014–15. Hence, there is an expectation that the Government may consider revising it to Rs 2,50,000 in the current Union Budget.
Also Read | Budget 2023 income tax: Why concessional tax regime is not popular among taxpayers; 3 steps needed
80CCD: Deduction is allowed for contributions to pension scheme of the Central Government (such as National Pension System) as under:

We have seen that the limit of Rs 150,000 is generally exhausted by the deductions under Section 80C and may leave the taxpayers with little/ nothing to claim against their contribution under section 80CCD(1). Largely, they are able to claim only the additional deduction of Rs 50,000 under section 80CCD(1B) for their own contribution to the pension scheme. Hence, to provide some tangible benefit, the government may reconsider increasing this limit for individuals.
80D: An individual can claim deduction of Rs 25,000 for health insurance premiums paid for insuring the health of self or family, and Rs 25,000 for health of the individual’s parents. If insured is a resident senior citizen, the limit will be Rs 50,000. Medical expenses for resident senior citizens are also allowed as a deduction up to a maximum of Rs 50,000 if they do not have a health insurance. Medical expenses have substantially increased over the years especially due to the global pandemic. This has necessitated opting for health insurance plans with higher coverage and resultant higher premiums. Hence, it would be beneficial for individuals if these limits are increased.
Also Read | Union Budget 2023 income tax: Why FM Sitharaman should hike standard deduction – tax saving explained
Children Education allowance: Children Education Allowance and Hostel expenditure allowance are exempt up to Rs 100 and Rs 300 per month respectively. These limits set in August 1997 continue till date. As compared to the high expenses that are incurred on school and hostel fees in the present day, the current limits are insignificant and there is a need to revisit these exemptions.
Deduction for interest paid on self-occupied house property: The limit of Rs 2,00,000 for deduction of interest on housing loan for a self-occupied property was set in financial year 2014-15. The interest on housing loan is now much higher with increase in interest rates. Further, additional deduction of Rs 1,50,000 for interest on housing loan is available to taxpayers only if stipulated conditions are met. Hence, there is an expectation that this limit will be increased to at least Rs 3,00,000 to give some relief to taxpayers. Another associated relief that could be brought in is the removal of the cap of Rs 2,00,000 on set-off of loss from house property against other heads of income.
Also Read | Union Budget 2023: Will hiking basic exemption limit under new tax regime benefit taxpayers? Explained
The case for a rejig in the limits is strengthened when one compares these to other countries – to take a few examples, countries such as Singapore and Germany provide for various deductions for individual taxpayers. Singapore has child relief of SGD4,000 per child, spouse relief of SGD2,000, dependent parent relief of SGD9,000 etc. These deductions are in addition to earned income deduction in the range of SGD1,000 to SGD8,000. Similarly, Germany provides for children allowance of EUR227.50 per child per month and 30% deduction for school fees subject to a cap of EUR5,000 per child. These limits are much more in tune with current inflation and cost levels.
In addition, many countries provide for standard deduction/ personal allowance for individuals and some countries also permit employees to claim a deduction for the expenses incurred wholly in performance of duties and expenses incurred in working from home.
Also Read | Union Budget 2023-24: Why exemption for interest on savings bank account should be hiked
The ask for changes in these limits has been coming up in the past few years as well and while the government has been making a few changes and also introduced the concessional tax regime, a greater emphasis to relook at both the limits and the types of deductions/ exemptions is the need of the hour.
(Surabhi Marwah is Tax Partner, People Advisory Services, EY India. Ammu Sadanandhan, Director, People Advisory Services, EY India also contributed to the article. Views expressed are personal)



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Budget 2023 income tax: Why concessional tax regime is not popular among taxpayers; 3 steps needed

Budget 2023 income tax: Why concessional tax regime is not popular among taxpayers; 3 steps needed

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Budget 2023 income tax expectations: The concessional tax regime (“CTR”) was introduced in the Budget 2020 (effective form FY 2020-21) with an intent to do away with a host of exemptions and deductions under the Income Tax Act, 1961 (“Act”) in order to reduce the compliance burden for individual taxpayers as also the administrative burden for employers and tax authorities. It was also inferred as a first step for eventually moving towards a tax regime of low/moderate tax rates without exemptions & deductions.
The CTR provides individual taxpayers with an option to pay taxes at reduced slab rates by forgoing certain deductions and exemptions which are otherwise available under the existing tax regime. A comparison of the slab rates under both regimes is enclosed.

Why isn’t the CTR popular/widely opted for by individual taxpayers?
Though the tax rates under the CTR are lower as compared to the existing regime, however, basis the number of taxpayers opting for the CTR, one can infer that the reduction in tax rates is not attractive enough for individuals to forego their exemptions and deductions. For instance, take the case of an individual with an annual income above Rs 15,00,000, the CTR is only beneficial if the combined exemptions and deductions not allowable under CTR are less than Rs 2,50,000.
If one were to consider only some of the basic exemptions and deductions (amongst others) availed by most salaried individuals in India i.e., 80C, 80D, standard deduction (Rs 50,000) and HRA exemption – these would in most cases add up to much more than Rs 2,50,000 thereby making the CTR academic. This is explained by way of the table below:

The threshold of Rs 2,50,000 worth of deductions and exemptions (discussed above) further reduces as the annual income reduces below Rs 15,00,000. e.g., For an individual having an annual income of Rs 7,50,000, the CTR is beneficial only if the combined exemptions and deductions (which they give up under the CTR) are less than Rs 1,25,000 (which in most taxpayers is not the case given the increased awareness and adoption by Indians towards insurance products (health and life) and investments – PPF, ELSS, etc.).
Also Read | Union Budget 2023-24: Why exemption for interest on savings bank account should be hiked
How can the CTR be made more effective?
1. Change in slab rates under CTR as provided below:

2. Retain the standard deduction of Rs 50,000 under the CTR
3. Introduce a combined deduction of up to Rs 2,50,000 in the CTR under the following:

  • 80C – Provident fund (including PPF) & qualifying life insurance products (To clarify, while the current scope of section 80C is very wide and covers a gamut of insurance savings, expenditure, etc., under the proposed CTR, its scope may be reduced to PF/PPF and qualifying life insurance products)
  • 80CCC – Pension policies
  • 80CCD(1)/(1B) – Employees / self-contribution to NPS
  • 80D – Mediclaim Insurance
  • Interest on housing loan

The rationale for retaining the above is the absence of a universal social security benefit to all citizens of India, regardless of the level of income in view of which middle- and high-income earners need to provide for their own security.
Also Read | Union Budget 2023: Will hiking basic exemption limit under new tax regime benefit taxpayers? Explained
However, finally, the call of the day may be to gradually shift towards a unified tax regime with lower tax slab rates and specific/pertinent exemptions and deductions (instead of having two different tax regimes) which will go a long way in reducing the compliance and administrative hassles for both taxpayers and the tax authorities.
(Surabhi Marwah is Tax Partner – People Advisory Services at EY India. Uday Bhartia, Senior Tax Professional, EY India contributed to the column. Views are personal)



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Union Budget 2023: Will hiking basic exemption limit under new tax regime benefit taxpayers? Explained

Union Budget 2023: Will hiking basic exemption limit under new tax regime benefit taxpayers? Explained

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Union Budget 2023 may look to tweak the alternate income tax regime in order to make it more attractive for individual taxpayers, says a news report. The Modi government is mulling the possibility of raising the tax free income tax slab from Rs 2.5 lakh at present to Rs 5 lakh under the new income tax regime, the report said.
How will this benefit salaried tax payers? Will a change in income tax slabs for FY 2023-24 under Union Budget 2023 make the concessional tax regime more lucrative? TOI asks experts to decode the math and also analyze what other steps FM Nirmala Sitharaman can take for taxpayers.

New Income Tax Regime: Existing Tax slabs

The alternate income tax regime was introduced in FY 2020-21 by FM Nirmala Sitharaman. It is subject to certain conditions – mainly disallowance of various deductions). The income tax slabs under this new alternate income tax regime are as under:

To further incentivize individuals to opt for this new optional tax regime, Budget 2023 may look at enhancing the basic tax exemption limit. This will increase the net disposable incomes and hence the spending/ investment capacity of individuals.

Union Budget 2023: Proposed New Income Tax Slabs Under Alternate Tax Regime

Surabhi Marwah, Tax Partner – People Advisory Services at EY India is of the view that increasing the basic exemption limit will lower the effective tax rate. “It does seem to appear that the adoption of the concessional tax regime has been low amongst individual taxpayers,” she tells TOI. “An increase in the basic tax exemption limit to Rs 5 lakh will lower the effective tax rates for individual taxpayers,” she says.
Also Read | Union Budget 2023: Why income tax slabs need to be revised
However, Marwah also advocates introduction of certain exemptions in the concessional tax regime to make it more lucrative for individual taxpayers. According to her, the following exemptions must be considered in the alternate tax regime apart from an increase in the basic exemption limit:
1. Standard deduction should be retained at Rs 50,000
2. Benefit of the section 80C/CCC/CCD/D deduction up to Rs 2,50,000 should be provided. The benefits for these sections should be limited to provident fund including PPF, qualifying life insurance products, interest on housing loan, pension policies, employees/self-contribution to New Pension Scheme and mediclaim insurance.
Parizad Sirwalla, Partner at KPMG in India points out that increasing the basic exemption limit under new tax regime to Rs 500,000 will not benefit the relatively lower income group. “Currently, the basic exemption limit under both the existing and the optional new tax regime is Rs 250,000. Also, resident individuals having taxable income up to Rs 500,000 are not effectively required to pay any tax as they are entitled to a tax rebate of Rs 12,500 or equal to the amount of tax payable (whichever is lower) under both the existing and new regime as well,” she substantiates.
For individuals with income slightly higher than Rs 500,000, the incentive to choose the new alternate income tax regime may be limited. “As an example, if an individual’s gross income was Rs 650,000, he would be neutral to the tax regime selection as he would have still been at NIL tax liability by investing Rs 150,000 in eligible investments under Section 80C of the Income Tax Act, 1961 (the Act),” Sirwalla tells TOI.
For higher income category taxpayers, the quantum of tax benefit under the new optional tax regime would depend on how the tax rate for subsequent income slabs are adjusted. KPMG’s Sirwalla elaborates on tow possible alternatives that the Modi government can consider after increasing the basic exemption limit to Rs 5 lakh.
Also Read | Budget 2023: How new income tax regime can be made more attractive
As alternative 1, post this recommended increase of basic exemption limit (to Rs 500,000), the tax rate of 10% could continue to apply for income between Rs 500,000 and Rs 750,000 and so on and so forth. In other words, there will be no income slab to which the 5% rate will apply. Hence, the tax slabs under the new tax regime would be as under:

In such a scenario, the below might be the proposed impact/ income tax savings on a per annum (p.a.) basis for an individual, basis the applicable taxable income:

  • For a taxable income of Rs 750,000 the income tax savings would be approximately Rs 13,000.
  • For a taxable income of Rs 2,000,000 the income tax savings would be approximately Rs 13,000
  • For a taxable income of Rs 6,000,000 the income tax savings would be approximately Rs 14,300;
  • For a taxable income of Rs 11,000,000 the income tax savings would be approximately Rs 14,950
  • For a taxable income of Rs 22,000,000 the income tax savings would be approximately Rs 16,250.
  • For a taxable income of Rs 55,000,000 the income tax savings would be approximately Rs 17,810.

Hence, as you will observe the tax savings under this alternative will range from Rs 13,000 p.a. to Rs 17,810 p.a. (base tax of Rs 12,500 plus applicable cess and surcharge).
Also Read | Budget 2023: How income tax burden of common man can be reduced; top 3 ways
As alternative 2, the rate of tax pertaining to each set of taxable income could also be decreased. i.e., post the recommended increase of basic exemption limit (to Rs 500,000), the 5% tax rate could be made applicable for taxable income between Rs 500,000 to Rs 750,000. Considering the same, the threshold limit for the highest tax rate (of 30 per cent) may be increased from 1,500,000 to 1,750,000 consequently.
Hence, the tax slabs under the new tax regime would be as under:

In such a scenario, the below might be the proposed impact/ income tax savings on a per annum (p.a.) basis for an individual, basis the applicable taxable income:

  • For a taxable income of Rs 750,000 the income tax savings would be approximately Rs 26,000.
  • For a taxable income of Rs 2,000,000 the income tax savings would be approximately Rs 78,000.
  • For a taxable income of Rs 6,000,000 the income tax savings would be approximately Rs 85,800.
  • For a taxable income of Rs 11,000,000 the income tax savings would be approximately Rs 89,700.
  • For a taxable income of Rs 22,000,000 the income tax savings would be approximately Rs 97.500.
  • For a taxable income of Rs 55,000,000 the income tax savings would be approximately Rs 1,06,860.

While the tax savings range cannot be determined under this alternative, the maximum tax savings under this alternative 2 can be Rs 1,06,860 p.a. (base tax of Rs 75,000 plus applicable cess and surcharge).
Sirwalla concludes that a careful evaluation will need to be done of various factors by FM Sitharaman before considering an increase in basic exemption limit under the new alternate income tax regime. Some of these factors are number of taxpayers falling out of the mandatory return filing requirement, benefit to common man, net tax collection foregone by the government etc.



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Budget 2023: How new income tax regime can be made more attractive for taxpayers – explained

Budget 2023: How new income tax regime can be made more attractive for taxpayers - explained

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Union Budget 2023: Finance Minister Nirmala Sitharaman should look to incentivise salaried individuals to opt for the new Concessional Tax Regime in Budget 2023-24, says EY. In a report on Union Budget 2023 expectations, EY says that to increase adoption of the new Income Tax Regime, the slab rates should be revised and certain deductions included.
The government introduced the Concessional Tax Regime effective 01 April 2020 under Section 115BAC of the Income-tax Act, 1961. It was the first step taken to eventually move towards a tax regime of low to moderate tax rate without exemptions & deductions. “However, based on press reports, it appears the Concessional Income Tax Regime is not very popular and very few individual taxpayers have opted for it,” notes EY.

According to EY, in Budget 2023, the Concessional Income Tax Regime can be made more attractive for individual taxpayers in the following ways:
1. EY proposes a new Concessional Income Tax Regime under which the tax slabs are revised and up to Rs 5 lakh, there is no tax. Additionally, the 30% income tax slab rate should kick in above Rs 20 lakh instead of Rs 15 lakh. The proposed changes are listed in the table below:

2. Allow standard deduction of Rs 50,000
3. The benefit of section 80C/CCC/CCD/D deduction should be provided up to Rs 2.5 lakh. However, it should be limited to provident fund (including PPF) & qualifying life insurance products, interest on housing loan (presently covered by section 80C), pension policies (presently covered by section 80CCC), employees/self-contribution to New Pension Scheme (presently covered by section 80CCD(1)/(1B) and Mediclaim insurance (presently covered by section 80D).
Also Read | Budget 2023: How income tax burden of common man can be reduced
According to EY, while the present scope of section 80C is very wide and covers a gamut of insurance, savings, expenditure, etc. Under the proposed new Concessional Income Tax Regime, it can be reduced to PF/PPF, qualifying life insurance products and interest on housing loan.
Also Read | Union Budget 2023: Top 4 income tax expectations of salaried individuals
EY is of the view that regardless of the level of income, there is a need for social security. “There is no universal social security benefit to all citizens of India, regardless of the level of income. In view of this, middle and high income earners need to provide for their own security,” EY states. “The tax deduction results in much lower outgo/expenditure for the Government in providing for such benefit without significantly impacting the object of Concessional Tax Regime of having a lower tax rate without exemptions/deductions,” it adds.



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Union Budget 2023 for salaried: Why income tax slabs need to be revised; top 4 expectations for individuals

Union Budget 2023 for salaried: Why income tax slabs need to be revised; top 4 expectations for individuals

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By Tapati Ghose
The Indian economy has been resilient during and post the pandemic, and is slowly returning to normalcy. From an individual’s perspective, the first expectation would be to spur investments and savings and the government would do well to channel these in the right direction. This could be put into effect in a few ways:
Expectation #1 Revision of tax slab rates:
As per current income-tax provisions, the highest slab rate (after including surcharge and cess) for income exceeding Rs 5 crores in India is 42.744%. This is significantly higher than some of the countries in Asia Pacific. To name a few- the highest tax rate for Hongkong is 17%, that of Singapore is 22%, while in Malaysia it is 30%.
The tax rates for individuals have not been changed since FY 2017-18, apart from the new tax regime, which is subject to onerous conditions. Hence, to give more purchasing power to individuals and provide some tax relief, it is expected that the highest tax rate of 30% be reduced to 25%, and the threshold limit for the highest tax rate be increased from Rs 10 lakhs to Rs 20 lakhs. With this, the highest slab rate (including surcharge and cess) may be reduced to 35.62% from 42.744%.
Similar changes may be considered under the new regime for annual income of Rs 15 lakhs and above as well.
Expectation #2 Increasing the limit for various deductions
With the intent to incentivise the lower and middle class that have faced the most hardship during COVID, the government is expected to relook at the deductions that are currently available, and that have remained unchanged for several years.

  1. Section 80C of the Act for payments/investments towards life insurance premia, contributions to provident fund, subscription to certain equity shares or debentures, etc., is capped at Rs 150,000. With increase in cost of living and increase in inflation, the government should look at increasing the limit under section 80C to Rs 250,000. This will have two-fold benefit – individual taxpayers would be willing to save more and in turn will benefit from a lower tax outgo, thereby increasing their disposable income to meet the rise in prices of various commodities.
  2. Section 80D – Deduction in respect of health insurance premium is capped at Rs 25,000/Rs 50,000. Considering the increase in the cost of medical treatment and insurances, the erstwhile limit under this section is expected to be revisited.
  3. Section 80TTA allows deduction of up to Rs 10,000 in the hands of individuals and HUFs, in respect of interest on savings account with banks, post offices and with co-operative societies carrying on business of banking. This benefit should be extended to all types of bank deposits including fixed deposits. Further, the limit should be increased from Rs 10,000 to Rs 50,000.
  4. Section 80EEA – In order to avail a deduction in respect of affordable housing, loans should be sanctioned during the period April 2019 to March 2022. With the rise in demand for residential real estate in metropolitan and Tier-II cities, it is expected that deduction be allowed for the following years as well. The condition for availing loan should be extended for at least 3 years i.e. up to 31st March 2025.
  5. 80EEB – Deduction in respect of purchase of electric vehicle is available only if loan has been sanctioned by the financial institution between April 2019 and 31st March 2023. The condition for availing such loan should be extended by at least 2 years i.e. up to 31st March 2025.

Also Read | Budget 2023: How income tax burden of common man can be reduced; top 3 ways
Expectation #3 Provide relief for expenditure incurred to work from home
The concept of a workplace has changed significantly, thanks to COVID. With homes becoming extensions of offices and the new workplace, employers need to ensure that employees, from administrative staff to senior management, are able to work efficiently and effectively. Facilities which in normal course are made available to employees in offices, must be extended to homes – not as benefits to employees, but to enable effective work. These facilities are not specifically called out as exempt in India’s taxation laws. It is crucial that this is clarified in the Budget to avoid litigation. Some areas of consideration are:
1) Support for infrastructure costs: These could include furniture such as ergonomic chairs, work tables, computers, power back up, OR could be
2) Periodic expenses: Internet charges, electricity bills, mobile expenses
3) Companies will be looking at alternatives to gym and crèche facilities in the offices
These may be provided as a reimbursement or as an allowance and should not be looked at as benefits that are taxable.
Expectation #4 – DTAA benefits at withholding stage
With travel returning to normal, employees have started moving across borders and will need to avail of relief under the Double Taxation Avoidance Agreement to avoid double taxation.
Section 192 of the Act provides for tax deduction at source on taxable salary, by the employer. However, it does not explicitly provide claiming DTAA benefit while calculating tax at source (TDS) in case of individuals.
Also Read | Budget 2023: Why FM Sitharaman should target reduction in fiscal deficit to GDP ratio
Typical benefits under DTAA would include the following:

  • Exemption of salary paid in India for services rendered outside India in case of individuals who qualify as a Non-resident (‘NR’) of India as per the DTAA
  • Foreign tax credit in case of individuals who qualify as Resident and Ordinarily resident (‘ROR’) of India.

Since the current provisions do not allow for relief under DTAA at withholding stage, higher tax is deposited which is claimed as refund at the tax return stage. It also poses hardship to employers such as cash flow and administrative challenges, in following up for refunds.
Section 192 should be amended to expressly provide that while calculating TDS at the time of payment of salary, benefit under DTAA should be provided for.
(The author is a Partner at Deloitte India. Views expressed are personal)



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