Modi 3.0’s First Budget: 10 Key Income Tax Predictions
Finance Minister Smt. Nirmala Sitharaman is set to present her seventh consecutive budget on July 23, 2024, marking the highest number of budgets presented by any female finance minister in India’s history. This will also be the inaugural budget of the Modi 3.0 Government. With impressive growth in tax collection in earlier years, there are high hopes for tax reliefs and concessions. Here are 10 predictions for what Budget 2024 might bring:
1. Deduction towards purchase/expenditure available only after actual payments to MSME:
Current regulations disallow deductions for non-payment to MSMEs within agreed terms not exceeding 45 days. This proposal from Budget 2023 faced strong opposition from business groups. During the election period, Sitharaman hinted at potential easing of this rule. Budget 2024 may defer this requirement by a year or extend the payment date to the ITR filing due date.
2. Tax Rebate U/s 87A:
Section 87A currently provides tax rebates for incomes up to ₹5 lakh under the Old Tax Regime (OTR) and ₹7 lakh under the New Tax Regime (NTR). There have been drafting errors resulting in inconsistent results, and recent updates to the tax utility disallow deductions against STCG or normal LTCG. Budget 2024 might witness the retrospective amendment to (a) restrict deductions to regular income and (b) correct drafting anomalies.
3. Widening the scope of Statement of Financial Transactions (SFT) Reporting & TDS applicability:
Income tax department is collecting data & information from multiple sources & agencies by way of SFT by the reporting entities & TDS returns by the deductor. It is also used as a base for generating pre-filled income tax returns. The scope of SFT/TDS is widening with each passing year. In the forthcoming budget, there are chances that SFT / TDS may be made mandatory for credit co-operative societies & various other persons doing high volume financial transactions.
4. Revisiting the basic exemption limit of Rs. 2.50 Lakh:
The last enhancement in the threshold of Basic Exemption Limit (BEL) to Rs 2.50 lakh was done in 2014. By & large, the slab rate has also remained unaltered since then with an exception that the limit has been raised to Rs. 3 Lakh for taxpayers opting for NTR. However, the tax liability is zero with taxpayers with income up to Rs. 5 Lakh for taxpayers in OTR and Rs. 7 Lakh for taxpayers in the NTR. Increasing the BEL could reduce the taxpayer base, so any increase might come with mandatory ITR filing for incomes above ₹3 lakh.
5. Standard Deduction to Salaried taxpayer:
Salaried taxpayers currently receive a standard deduction of ₹50,000. Given their significant contribution to revenue, there’s been a demand to raise this deduction. Budget 2024 might see this increase to ₹75,000.
6. Whether the limit under section 80C, 80D, housing loan interest deduction limit may be enhanced?:
In the last 2 years, the Government has made the NTR very lucrative & appealing. It appears that the finmin wishes to scrap the OTR & so the chances of any increase in the limit of deduction under section 80C, 80D, etc looks doubtful. However, to make NTR all the more lucrative and to promote housing for all scheme, the benefit of deduction towards interest on housing loans may be extended to NTR.
7. F & O Taxation & Rationalization of the Capital Gain Taxation Law:
There are rumours that the Government may introduce a special rate of tax for F & O income and may also enhance the holding period as well as tax rate for Short Term & Long Term Capital Gain of shares investments. However, considering the adverse impact it may have over market sentiments, it is unlikely to find a place in the budget document.
8. Rationalization of Tax rate under Sec. 115BBE:
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. Hope, Budget-2024 restores the rate back to 30%.
9. Support for Start-ups:
Modi 2.0 was keen in promoting the start up through tax exemption. Earlier, the benefit for tax exemption was extended to March 31st, 2024. Hopefully, the Modi 3.0 would further continue to give the impetus to start up by providing the tax exemption for another 2 years.
10. Tax Incentives to MSME in manufacturing sector:
New manufacturing companies registered on or after 1.10.2019 & commenced commercial production on or before 31.03.2024 are liable for taxation at a concessional rate of @15%. With Modi 3.0 back in power, it is likely that the benefit may be extended for another 2 years.
Taxpayers are looking for more simplification & ease in the tax compliances. Let’s anticipate that Budget 2024 will set the economy on a path toward accelerated growth, bringing us closer to the $5 trillion economy goal.
[Views expressed are the personal view of the author. Readers are advised to seek professional advice before taking any decisions. Readers may forward their feedback & queries at nareshjakhotia@gmail.com. Other articles & response to queries are available at www.theTAXtalk.com]
