Wish-list of the Middle Class from Union Budget -2023
With the 5 Trillion economy in mind, Smt. Nirmala Sitharaman would be presenting her 5th successive budget in the Parliament on 1st Feb 2023. This would be the last full-fledged budget before the 2024 general elections. With tax collection for the current year showing magnificent growth, expectations of relief and concessions are running high. Middle class is the backbone of the economy & main drivers of consumption and economic growth. Budget 2023 may carry special focus on them. Let us have a look at some of the changes that may find the place in the upcoming Union Budget 2023:
1. Revisiting the basic exemption limit of Rs. 2.50 Lakh:
The last enhancement in the threshold of basic exemption limit to Rs 2.50 lakh was done in 2014. By & large, the slab rate has also remained unaltered since then. Though the new taxation regime without any exemption / deduction was added 2 years back in the income tax law, it is not so appealing. There are chances that the basic exemption limit may be raised to Rs. 5 Lakh and the slab gap & rate may be revisited so as to provide relief to the middle class taxpayers. New tax regime without exemption/ deduction may be more lucrative by reducing the highest tax rate for such taxpayers opting for a new optional tax regime.
2. Standard Deduction to Salaried taxpayer:
Salaried taxpayers contribute a significant amount of revenue to the treasury without much effort and pain. They are eligible for standard deductions of Rs. 50,000/- form their salary income. There has been a demand for its enhancement since last 2 years. Hopefully, it may witness the enhancement to Rs. 75,000/-.
3. Enhancement of deduction under section 80C and section 80D:
Ceiling of Rs. 1.50 Lakh under section 80C was fixed way back in 2014. Considering the inflation, the demand for increasing the ceiling has been there since last few years. Hopefully, the Government may revisit the ceiling limit and may consider it to revise it to at least Rs. 2 Lakh. Further, the present limit of deduction towards medical policy U/s 80D of the Act seems insignificant as compared to the amount normally spent on this front. Hopefully, the ceiling placed U/S 80D may be doubled considering the medical needs of the society.
4. Rationalization of the Capital Gain Taxation Law:
Different capital gain income is subject to differential tax rate. Further, the holding period is different for different classes. FM has already hinted at the need for rationalization of the provision related to the capital gain taxation.
Hopefully, the holding period of the capital assets may be fixed at 2 years for short term vs. Long Term Capital gain computation. Further, the differential tax rate for different classes of assets may also be aligned to a single tax rate. The only exception could be in the taxation of the Long Term capital gain arising from shares transaction wherein the present exemption of Rs. 1 lakh may be doubled to Rs. 2 Lakh.
5. House for All:
“House for all” is one of the noble projects of the Modi Government. Rising interest rates are adversely affecting the demand for the houses. The Finance Minister may compensate for the higher interest rate & lower demand in the housing industry with suitable amendments in the tax policy. Ceiling of deduction towards housing loan interest of Rs. 1.50 Lakh may be enhanced to Rs. 2.50 Lakh. Besides, it may happen that the separate deduction limit of Rs. 1 Lakh may be provided under Chapter VI-A or Section 80C exclusively for repayment of housing loan.
6. Simplifying property related Taxation issues:
(a) Section 50C, 43CA & 56(2)(x) of the Income Tax Act- 1961 provides for taxation of immovable property transactions on notional basis wherein if the property is sold / purchased below its stamp duty valuation, the difference between actual sale consideration & stamp duty valuation is liable for income tax in the hands of seller as well as buyer. There are various situations like distressed sale, sale of encroached property, sale of disputed property, sale of mortgaged assets by banks & various other issues which make it impossible to sell the property at its Fair Market Value (FMV).
(b) The representation has been given by various association to carve out an exception for the following situation:
i) Sale of Industrial properties which are owned or leased by State Industrial Development Corporation across the country.
ii) Sale of property in bank auction
iii) Distress sale
iv) Transfer pursuant to a court order.
(c) Option to refer the property for valuation to the Departmental Valuation Officer (DVO) is presently available only to the Assessing officer (AO) which can happen only after the transaction is completed i.e., the sale deed is executed. This has resulted in complication & uncertainty in the taxation. It is suggested that the options be given to the assessee to approach the AO for getting a DVO report even before the transaction is executed. It could be subject to payment of prescribed fees by the taxpayers. This option is going to remove the contingency involved in the property transactions.
Let us hope the finance Minister gives due weightage to this long standing demand of the taxpayers and carry out due amendment in the income tax law with regard to above provisions.
7. Tax under Sec. 115 BBE:
Section 115BBE provides for levy of tax on certain income @ 60% which is further subject to surcharge @ 25% & Cess @ 4%, resulting in aggregate tax rate of 78%. If the addition is done by the Assessing Officer then penalty @ 10% of tax is also attracted U/s 271AAC resulting in total liability of 84%. The rate was enhanced from 30% to take care of the unexplained deposit of cash during demonetization. This huge tax rate is only adding to the tax litigations and disputes, resulting in piling of appeal cases. It needs to be restored to the original tax rate of 30%. Reasonable tax rate reduces the litigation and creates the atmosphere of trust and confidence amongst the taxpayers as well.
8. No presumptive scheme of taxation for F & O & Intra-day Transactions in shares:
New demat account openings have witnessed drastic growth which means that more and more investors are entering the stock market. At present, Income from Future & Options (F&O) transactions and Intra-day share transactions is taxable under the head “Income from Business & Profession”. There is no immunity from the presumptive scheme of taxation for such income/loss. As a result, many taxpayers doing these transactions are unnecessarily required to get the books of accounts audited which is unwarranted for the reason that all such income is well backed by proper documentation and records from the share broker. Let us hope that the Budget 2023 gives relief to all such investors by excluding these transactions from the purview of the presumptive scheme of taxation u/s 44AD.
9. Reducing Impact of Surcharge:
New manufacturing companies are eligible for income tax @ 15%. Even the Corporate Tax in general has been reduced to 22% without any capping (effectively tax rate – 25.18% with surcharge and Cess). However, the rate of personal Income Tax is still at 30% for all income above Rs 10 Lakh or Rs. 15 Lakh (as per the optional schemes offered to the individual taxpayers). In addition to 30% of tax rate & 4% of Cess, there is a surcharge (better known as the Super Rich Tax) if income exceeds Rs. 50 Lakh. The surcharge ranges from 10% to 37%. The effective tax rate for High Net worth Individual (HNI) goes up to 42.75%. High rates of tax acts as a discouragement for taxpayers and results in tax evasions/ avoidance. The tax rates including all Cess & surcharges need to be capped in the range of 30% to 35% for better sentiments & tax compliances.
Taxpayers are looking for more simplification & ease in the tax compliances. Let us hope that the Budget-2023 puts the economy on the fast accelerated growth path to make the 5 Trillion economy a reality.
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