Wishlists are popular right now. Additionally, on February 1, individual taxpayers anticipate that Finance Minister Nirmala Sitharaman will take some of their wishes into consideration. Tax experts generally agree that since the government is eager to promote the new, minimal-exemption tax regime, it is doubtful that the old one will change in a way that benefits taxpayers. To draw more taxpayers to the latter’s more straightforward structure, it may be made more enticing.
“In last year’s Budget, the Finance Minister had raised the standard deduction limit and also rationalised the tax slabs under the new tax regime to provide relief to taxpayers. This year too hopes for tax relief on these fronts are high, in the backdrop of high interest rates, increased cost of living, and the need to spur consumption to sustain economic growth. If there’s some relief this year too, that will leave more disposable income in the hands of individual taxpayers,” says Kuldip Kumar, Partner, Mainstay Tax Advisors.
In addition to raising the basic exemption limit, standard deduction, and other tax benefits, one of the main demands is to simplify tax rules and the process of filing income tax returns. This is a more practical wishlist item because it has no bearing on revenue.
Some tax experts believe the restructuring of the Income Tax Act may not be completed this year. “So, there is room to make changes to the new tax regime. It can be made more attractive by incorporating the house rent allowance (HRA) exemption,” says Mayank Mohanka, Founder-Director, TaxAaram.com, a tax consultancy firm.
The argument is that since housing is a basic need, rent is not a discretionary expense. The lowest of the following exemptions is permitted: actual HRA received, 50% (or 40% for non-metros) of your base pay, and actual rent paid less 10% of your base pay. “The huge tax benefit that HRA provides (under the old regime) is one of the reasons why many taxpayers have not shifted to the new regime. So, bringing HRA into the new regime will help such people make up their mind to make a switch,” he says.
Tax advisors believe that an increase in the standard deduction is necessary due to rising inflation and rising household spending. “While standard deduction under the new regime was hiked from Rs 50,000 to Rs 75,000, that was too little. It should go up to at least Rs 1 lakh as expenses have surged. A salaried person who earns, say, Rs 15 lakh, could be spending Rs 7-9 lakh a year. And he or she is already paying tax on these expenses in the form of goods and services tax (GST) or value-added tax (VAT) — on fuel, children’s school fees, household expenses, and so on. So a higher standard deduction is needed,” says Abhishek Soni, Co-Founder, Tax2Win, a tax consultancy and return-filing portal.
Simplifying the return-filing procedure is a more reasonable goal. “Non-resident taxpayers are facing several challenges. Refunds are not directly credited to their overseas bank accounts, though they can mention the same in the return form to receive tax refunds, if any. Also, there are not many options available for NRIs to digitally e-verify their return,” says Kumar.
They are in a tight spot because of the revised 30-day deadline for physically submitting the ITR-V (return acknowledgement) to the income tax department. “The time limit to submit the ITR V should be extended to 120 days until the time more options to e-verify the return is provided to NRIs,” he adds.
