Budget 2024 and the taxpayer: Need for Higher basic exemption limits, more medical deductions

Budget 2024: An increase in basic exemption limit under both the regimes, allowing NPS, health insurance as well as home loan interest deduction under the new regime and permitting self-employed professionals to switch in and out of tax regimes every year top the Wishlist for individuals.

The February 1 budget is an interim budget, before the general elections are held by May. Although finance minister Nirmala Sitharaman has indicated that there will be “no spectacular announcements” in the interim budget, some tweaks cannot be entirely ruled out.

After all, in the February 2019 budget, which was also an interim one at the end of the present government’s first term, the tax rebate was increased for those with incomes of up to Rs 5 lakh. As a result, even those with incomes of up to Rs 7 lakh could avoid a tax outgo if they claimed deductions of at least Rs 2 lakh, thus lowering their taxable income to less than Rs 5 lakh, including standard deduction of Rs 50,000.

Here’s what taxpayers, mutual funds, and the pension and insurance sectors want from Budget 2024:

  1. Higher basic exemption limit : Unlike the tax rebate (available on incomes up to Rs 5 lakh and Rs 7 lakh, under the old and new tax regimes, respectively), a hike in the basic exemption limit will reduce the tax liability across slabs, that is, for all taxpayers.
  2. More deductions on medical expenses : With rising medical costs, taxpayers are hoping for a hike in deductions for health insurance premium payments and medical expenses that are more in line with ground realities. Currently, taxpayers can claim deductions of up to Rs 25,000 per year each for health insurance premiums paid for self and family and for parents under Section 80D. The deduction limit is Rs 50,000 in case of senior citizens.
  3. Parity for self-employed professionals with salaried taxpayers : After Budget 2020 introduced the new tax regime, taxpayers could opt for lower tax rates with fewer deductions instead of the old tax regime. While salaried individuals can choose between the two tax regimes every financial year, self-employed individuals and businesses can enter the new tax regime and switch back to the old only once in their lifetime.
  4. Higher employers’ NPS contribution limit : The Pension Fund Regulatory and Development Authority wants the tax-free cap on employers’ contribution to the National Pension System to be increased to 12 percent of basic salary and dearness allowance, if any, from 10 percent for private sector employees. For government employees, the limit is already higher at 14 percent. Employees can avail of this deduction on the employers’ contribution, and employers can claim this as a business expense.
  5. Home loan tax breaks under new regime : The wish list of real estate stakeholders includes a higher deduction limit on home loan interest payments, which is available under the old tax regime. This has remained unchanged at Rs 2 lakh since 2014.

What are your expectations from the budget? Let us know.

Community Manager