Expectations From Union Budget 2023-24: For Employers And Employees

The Union Budget 2023 will be presented by the Government of India on 1 February 2023. Needless to say, the expectation from the salaried class is multifold. With increasing interest rates and inflation, there is an expectation from the common man that the government would adopt steps to put more money in the hands of the salaried class. Here are some key expectations from the upcoming Budget.

Lowering tax payouts

• The maximum marginal rate of tax in India is at 42.74 per cent, including tax rate of 30 per cent, education cess of 4 per cent and surcharge of 37 per cent.  The 30 per cent tax rate is triggered where the taxable income is more than Rs 10 lakhs under the regular tax regime, and Rs 15 lakhs under the simplified tax regime. The simplified tax regime provided for lower rates of taxes with minimal deductions / exemptions. However, not many taxpayers have seen the benefit of this regime, since there has been no significant reduction of tax rates. When the government adopted a similar approach for corporate tax and exemptions and deductions were removed, the tax rate was reduced to 25 per cent. Therefore, one key expectation from the upcoming Budget is that the simplified tax regime would be made more attractive either by decreasing the tax rates or increasing the income threshold for the higher tax rate of 30 per cent.

• Tax benefits form a significant driving factor in the investment decisions of individuals. There is an expectation from taxpayers opting for the regular tax regime, that the maximum deduction under Section 80C which includes contribution to PF, PPF, LIC premia, repayment of housing loan as well as investment in specified mutual funds etc., would be enhanced from Rs150,000 to at least Rs 250,000.

• Another long standing asks from the taxpayers investing in house property has been to increase the deduction available for interest on housing loans from Rs 200,000 to Rs 300,000. This is more so considering the recent increase in interest rates, and the restriction introduced (effective FY 2017-18) on set-off of house property loss with other income such as salaries and income from other sources beyond Rs 200,000.  The provisions relating to taxation of deemed house property income, where the property is not actually let out for the whole year, also needs revisiting. 

• As an incentive to retail investors, the provisions related to taxation of long-term capital gain from listed securities may be revisited, and the non-taxable limit of Rs 100,000 may be increased to Rs 200,000. 

• Section 80D provides for deductions on medical insurance premium. Due to increased health concerns post pandemic, the deduction limits may be enhanced both for senior citizens as well as other taxpayers, to accommodate the increased payments towards medical insurance premium. 

• Leave travel concessions provide for specific exemptions for employee travel based on specific rules which limit the benefit to travel costs, incurred not more than twice in a four-year block. These provisions need realignment, since employees are encouraged to take vacations on a yearly basis, and incur substantially higher costs on travel, accommodation etc. 

Focus on administrative challenges of taxpayers

• Over years, the focus of the government has been to simplify the administrative aspects in relation to tax return filing and processing. With the introduction of the Annual Information Statement (AIS), and pre-population of income tax returns based on the same, collation of information has indeed been streamlined. However, where there is a mismatch between the actual data and the information captured in the AIS, responding to high-value transaction notices pose a serious challenge to taxpayers and need a more simplified approach.  

• Post-pandemic, global mobility of employees is rising, triggering double taxation across jurisdictions. Standardised processing of reliefs under double taxation avoidance agreements, opportunity to amend the tax returns based on overseas tax return filings beyond the current revised return due date of December of the subsequent financial year etc., would definitely minimise challenges for such employees. 

• While tax return processing time has been significantly reduced with the Centralised Processing Centre, better transparency can be achieved through better communication to taxpayers with specific information, where the claims for tax reliefs or exemptions are denied, or a tax demand is raised.  

To conclude, the government may need to adopt a well-balanced approach to ensure that the taxpayer base is not eroded, while at the same time, extending tax benefits and managing expectations of the salaried class.   

The article has been authored by Saraswathi Kasturirangan, Partner and Priyanka Bhutada, Manager, Deloitte Haskins & Sells LLP. Views expressed are personal.