Income Tax Bonanza in Budget 2024: Will FM Sitharaman make new tax regime attractive in Budget? Changes taxpayers want

The new income tax regime, also known as the concessional tax regime, is designed to offer lower tax rates for individual taxpayers compared to the old tax regime. As a result, many individual taxpayers can benefit from choosing the new tax regime. Further, starting from FY 2023-24, the new income tax regime has become as the default option if a tax regime has not been selected.

Finance Minister Nirmala Sitharaman must make the new tax regime more appealing to taxpayers while ensuring the retention of key benefits. These benefits, such as exemption for House Rent Allowance, deduction for housing loan interest, and provident fund contributions for salaried individuals, have been instrumental in tax planning. Their preservation is not just about maintaining the status quo, but about providing a sense of security and continuity for taxpayers. "Hence, a single version of the personal tax regime retaining key aspects of the tax regime with few benefits from the old tax regime is proposed," Akhil Chandna, Partner, Grant Thornton Bharat & Ankur Agrawal, Director, Grant Thornton Bharat LLP wrote in a column for ET Online earlier.
Here's what financial experts recommend for Finance Minister Nirmala Sitharaman to enhance the appeal of the new income tax regime.

New income tax regime: Raise standard deduction limit

Under the new tax regime, the 2023 Budget introduced a standard deduction of Rs 50,000 for salaried taxpayers and individuals receiving pensions. The rebate under Section 87A was also increased for taxable incomes not exceeding Rs 7 lakh under the new tax regime. This meant that individuals with taxable incomes up to this level were exempt from paying taxes under the new regime. Further, the highest surcharge under the new regime was eliminated from the tax structure. Most deductions and exemptions are not allowed under the new tax regime. Therefore, increasing the standard deduction is important, as it will encourage more people to opt for the new income tax regime. Since the standard deduction is likely the only deduction most people can claim under the new tax regime, increasing it in Budget 2024 will help more people benefit from the new tax rules.

Also read: Budget may hike standard deduction under new tax regime

Hike basic exemption limit hike from Rs 3 lakh under new tax regime

"It is anticipated that the government may raise the income tax exemption limit to Rs 5 lakh from the current Rs 3 lakh limit under the new tax regime in the upcoming Budget 2024. The new tax regime is the default tax regime now. However, there are a lot of employees opting for the old tax regime to avail of HRA exemptions, 80C deductions, etc. For the benefit of all, it is expected that the increase in income tax exemption limit in the new tax regime is extended to people opting for the old tax regime as well which is at par with the new tax regime. Similarly, increasing the standard deduction from the current level of Rs 50,000 would also help," Aarti Raote, Partner, Deloitte India wrote in an earlier column for ET Online.

Also read: Budget should hike basic exemption limit to Rs 5 lakh in both tax regimes

Deductions that must be added in new tax regime to make it attractive

From FY 2023-24, the new tax regime offers two deductions that a salaried individual can claim to save income tax. These are standard deduction and National Pension System (NPS) contributions by the employer to the employee's account. Tax experts suggest that the new tax regime should include more income tax deductions to appeal to a wider group of salaried individuals. Although the new tax regime offers lower income tax rates and more tax brackets, it doesn't allow deductions under sections like 80C or 80D. The government in Budget 2024 should consider allowing deductions to improve the new tax regime's acceptance. Deductions could be allowed for employee contributions to the Employees' Provident Fund (EPF) under Section 80C and NPS under Section (1b) for up to Rs 50,000. This change would also encourage people to save for retirement.

Certain deductions, like employee contributions to NPS, medical health insurance premium deductions under Section 80D, up to Rs 2 lakh interest on housing loans, and interest earned on savings bank account under Section 80TTA, should also be applicable in the new tax regime.

Additional Rs 50,000 deduction for NPS under new income tax regime

In recent budgets, the government has been focused on expanding the reach of NPS and the new personal tax regime. It has implemented various measures to make both schemes more appealing. "Presently, the additional deduction in respect of voluntary contribution of Rs 50,000 under section 80CCD(1B) is allowed under the old tax regime only. The government may consider allowing the said deduction under the new tax regime also. This would serve a two-fold purpose with the taxpayers enjoying additional deduction under the new tax regime and higher investment in the retirement scheme aligned with the government's objective to promote the new tax regime," Chander Talreja, Partner, Vialto Partners wrote in a column for ET Online.

Also read: More tax savings from NPS in Budget 2024?

"Considering the Government's inclination to the new tax regime and the new tax regime having only a few alternatives for tax deductible investments, it would be highly beneficial for individuals if the benefit of deduction under section 80CCD(1B) is extended also to the new regime," says Yogesh Kale, Executive Director,Nangia Andersen India.