Rationalization of Tax Slabs

The Finance Act 2023 introduced changes like increasing the basic exemption limit and reducing the number of tax slabs. However, taxpayers are looking for further adjustments:

• Increase in Basic Exemption Limit: Raising the basic exemption limit from Rs. 3 lakh to Rs. 3.5 lakh is expected, providing more relief to taxpayers.
• Widening of the 20% Tax Slab: It is suggested that the 30% tax rate should apply only to incomes exceeding Rs. 30 lakh, rather than the current Rs. 15 lakh. This would widen the 20% tax slab, benefiting mid-income taxpayers and potentially boosting consumption and savings.

Reduction of Maximum Marginal Rate

• Cap on Effective Tax Rate: The effective tax rate can be as high as 39% due to surcharges and cess for incomes exceeding Rs. 5 crore. Proposals suggest capping this rate at 35.88%, creating a more gradual progression in tax rates for higher incomes and reducing the overall tax burden. This could encourage greater compliance and economic participation.

Increase in Section 80C Deduction Limit and Inclusion in New Tax Regime

• Revision of Section 80C Limit: Section 80C currently provides a deduction limit of Rs. 1.5 lakh for various investments and expenditures. This limit, last revised in Budget 2014, is considered low given the range of options available. Taxpayers are seeking an increase to at least Rs. 2.5 lakh to align with inflation. This change would benefit a majority of taxpayers.
• Inclusion in New Tax Regime: Extending Section 80C benefits to the new concessional tax regime would promote savings and investments, encouraging taxpayers to adopt the new regime.

Increase in Standard Deduction Limit

• Increase in Standard Deduction: The current standard deduction for salaried individuals is Rs. 50,000 or the amount of salary, whichever is lower. This deduction covers employment-related expenses, excluding professional tax. Given that many job-related expenses are not deductible under current provisions, there is a call to increase the standard deduction limit to Rs. 60,000. Adjusting this limit annually in line with the Cost Inflation Index (CII) would help maintain the purchasing power of salaried individuals amidst inflationary pressures.

These proposed changes could provide significant relief to taxpayers and address the concerns of those in higher income brackets, leading to a more equitable tax system.