Modi 3.0 Budget 2024: Finance Minister Nirmala Sitharaman will present the first budget of Modi 3.0 government in the second half of July. Industries, farmers and other stakeholders across sectors are eagerly anticipating potential booster announcements from the Narendra Modi government in the upcoming budget. Among these hopeful groups are taxpayers also, who are particularly expecting relief from the Finance Minister in form of tax sops. The middle-class, in particular, has not seen significant tax reductions in the last two budgets.

In the Union Budget 2020, the Modi government introduced a new tax regime alongside the existing one, aiming to provide taxpayers with an alternative. Initially, the government anticipated a broader adoption of the new regime due to its lower tax slabs, albeit without the traditional deductions and exemption benefits. The assumption proved incorrect, as the new tax regime did not attract taxpayers to the extent anticipated. Subsequently, the government made adjustments to the regime, favoring taxpayers by introducing a standard deduction benefit and a rebate on taxable income up to Rs 7 lakh.

Benefits under the new tax regime

Under the new tax regime, individuals with an income of Rs 7 lakh or less pay zero tax. Salaried individuals benefit from a standard deduction of Rs 50,000, effectively allowing tax-free income up to Rs 7.5 lakh. However, for taxable incomes above Rs 7.5 lakh, income tax applies on the entire income, albeit at a reduced rate.

Under the new tax regime, there are six slabs. Under the new tax regime, the tax rates are structured as follows: income up to Rs 3 lakh attracts zero tax, Rs 3 lakh to Rs 6 lakh is taxed at 5% with a rebate under section 87A, Rs 6 lakh to Rs 9 lakh is imposed 10% tax with a rebate up to Rs 7 lakh, Rs 9 lakh to Rs 12 lakh is taxed at 15%, Rs 12 lakh to Rs 15 lakh taxable income attracts 20% tax, and income above Rs 15 lakh is taxed at 30%.

Despite offering lower tax slabs, the new tax regime has not gained significant traction among taxpayers. Therefore, it is anticipated that the government might introduce additional deductions under the new tax regime to enhance its appeal and encourage broader adoption among taxpayers.

Currently, the benefit of section 80C is not available under the default (new) tax regime and it would be expected that this benefit be extended to even the default tax regime so that more taxpayers are incentivized to opt for the default (new) tax regime, says Suresh Surana, Founder, RSM India.

He also anticipates that the government may increase the 80C deduction limit under the old tax regime from Rs 1.5 lakh to Rs 2 lakh. The last revision to the 80C limit occurred in 2014, when Finance Minister Arun Jaitley, during Modi 1.0 government, raised it from Rs 1 lakh to Rs 1.5 lakh.

Old Tax Regime: Deductions available under Section 80C

Deduction u/s 80C of the Income-tax Act, 1961 covers multiple savings/investment-based deductions such as LIC, PPF, Employees contribution to RPF/Superannuation Fund, etc. However, the overall limit is restricted to Rs 1,50,000 per annum. The overall deduction limit is still on the lower side as section 80C covers a basket of eligible investments on which deduction is allowed such as 5 years fixed deposits, Equity Linked Savings Scheme (ELSS), principal repayment on housing loan, life insurance, Sukanya Samriddhi Yojana, provident fund contribution, etc. Surana added. “As such, it is expected that the current limit of deduction u/s 80C be increased to Rs 2 lakh per annum.”

Date: 17/06/2024/ Source: Financial Express