Rejig of individual tax slabs, hike in exemption, deduction limits likely
Finance Minister Nirmala Sitharaman | Photo Credit: –
Nearly nine years after the Narendra Modi-led BJP government came to power, it is likely to announce a slew of measures for middle-class taxpayers that could include raising deduction limits and exemptions and rejigging of personal income tax (I-T) slabs in the upcoming Budget, sources close to the developments in the Finance Ministry told businessline.
Major relief is being considered for the salaried class under section 80C of the I-T Act which deals with exemptions on various expenditures and investments, and 80D which relates to health insurance and medical expenses, the sources said. The 80C deduction limits have seen no major changes for over a decade now.
A few key proposals that could make their way into this year’s Budget include rationalising the peak rate of I-T and bringing it down to 25 per cent instead of the current peak rate of 42.744 per cent. This is to curb the disparity between personal income tax and corporate tax rates. Also, the base minimum exemption limit for individual tax payers is likely to be raised between ₹4 lakh and ₹5 lakh from the current ₹2.5 lakh. But filing of returns would be mandatory.
This apart, for the salaried class, the limit of adjustable deductions on home loans may be raised to ₹3 lakh from the current ₹2 lakh each year, considering that interest rates have gone up significantly. Relief to the first-time home buyer under Section 24 (b) of I-T Act may be hiked too. Maximum deductions on the self-occupied property also could be enhanced to ₹3 lakh from ₹2 lakh each year.
A proposal to raise standard deduction limit, currently at ₹50,000 (announced in 2019 interim Budget) to ₹1 lakh is also being considered. Similarly, Finance Minister Nirmala Sitharaman may allow higher children’s education and hostel allowances and increase the exemption limits for Provident Fund contributions to ₹2.5 lakh- ₹3 lakh per annum. As an icing on the cake, she may hike deduction limits of National Saving Certificates, and insurance premiums from the present ₹1.5 lakh up to 2.5 lakh.
Deduction on hospital expenses may be hiked by ₹50,000. The same would be the case with children’s education allowance, college and tuition fees where the tax exemption limit would go up to ₹2 lakh from ₹1.5 lakh. These limits have remained unchanged for nearly two decades now.