Budget 2024: Five new changes to income tax that FM Nirmala Sitharaman may bring

Income tax Budget 2024: Finance Minister Nirmala Sitharaman will present her seventh Budget today, July 23rd. Expectations include a potential hike in standard deduction, relief in income tax rates, and an increase in Section 80C exemptions.

Section 80C exemption

Salaried persons can use Section 80C exemptions to reduce their taxable income by ₹1.5 lakh in a fiscal year.

Archit Gupta, Founder and CEO of ClearTax, emphasised revising the Section 80C limit, which has remained unchanged since 2014 despite escalating inflation rates. Such a revision, he noted, would aid taxpayers in managing inflation and encourage savings and investments in essential financial instruments such as ELSS, tax saver FDs, and PPF. This aligns with the broader goal of fostering a financially resilient and prosperous India.

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Increase income tax exemption limit

Various media reports indicated that the Centre plans to increase the income threshold before imposing any tax from ₹3 lakh to ₹5 lakh in the upcoming budget. This adjustment will specifically affect taxpayers filing under the new tax regime.

“If the hike in income tax exemption to ₹5 lakh is implemented, it would mean that individuals with an annual income of up to ₹8.5 lakh could potentially pay no income tax. This calculation considers the standard deduction and the rebate under section 87A, assuming it remains unchanged,” said – Gaurav Gunjan, Partner at Gupta Sachdeva & Co., Chartered Accountants.

NPS

Personal finance experts increasingly call for significant changes to the National Pension System (NPS). Abhishekh Soni, CEO and Co-founder of Tax2win, supports enhanced tax benefits, advocating for potential increases in contribution limits and improved withdrawal flexibility within the NPS framework.

Tax rate reductions

“Despite the changes introduced in Budget 2023 to incentivize taxpayers to switch to the new tax regime, the adoption rate has not met expectations,” remarked Divya Baweja, Partner at Deloitte India.

Increase in the deduction limit for medical insurance premiums

Due to rising healthcare costs, there’s an expectation for an increase in the deduction limit for medical insurance premiums under section 80D of the Income Tax Act of 1961. Archit Gupta suggested that the current limits of ₹25,000 for individuals and ₹50,000 for senior citizens may be raised in the upcoming budget to ₹50,000 for individuals and ₹75,000 for senior citizens. Extending these benefits to the new tax regime would promote equal healthcare access and encourage greater adoption of health insurance.

Increase in Interest Deduction Limit under Section 24(b)

To further encourage homeownership, the government should consider increasing the interest deduction limit under Section 24(b) from Rs. 2,00,000 to Rs. 3,00,000. This change would provide additional incentives for purchasing residential properties, supporting both individual financial health and the broader real estate market.

Reclassification of Bangalore as a Metro City

As Bangalore city has grown economically and demographically, reclassification as a metro city for income tax purposes is crucial. The current non-metro classification limits HRA deductions to 40%, compared to the 50% available in other metro cities.

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