With the union budget fast approaching, the middle class is eagerly awaiting some income tax reform that will allow them to reduce their tax spending. The budgetary expectations in this regard are very high as this will be the last full budget of the current central government led by Narendra Modi and the upcoming Budget 2023 is expected to be populist.
The middle class anticipates that there will be an increase in some of the tax relief limits available in various sections like Section 80C, Section 80D, Section 87A, etc.
On income tax reforms that could buoy up the middle class, Archit Gupta, founder and CEO of Clear, said: "We hope that the Union Budget 2023 puts more in the hands of low and middle-income people. This should allow them and their families to use this extra income to meet their consumption needs.”
On why he expected such an income tax exemption from Finance Minister Nirmala Sitharaman, Archit Gupta said: “The past few years have been difficult for many people due to the ongoing COVID-19 pandemic, rising inflation, the war crisis, layoffs, rising medical costs and fear of global recession. To address this, the Indian government is likely to focus on stimulating demand in various industries."
On the income tax reforms that the middle class could expect from Nirmala Sitharaman, Archit Gupta of Clear has listed out the following five exemptions that he expects in the Budget 2023:
Hike in Basic exemption limit
Various options are being considered to boost consumption, but various reports indicate that the government is considering raising the basic tax exemption limit from Rs. 2.5 lakhs to Rs. 5 lakhs. Residents earning up to Rs. 5,00,000 may not be affected by this as they always enjoy a section 87A discount. However, this would remove their requirement to file mandatory tax returns, thus supporting the government's goal of making it easier for small taxpayers to comply.
Rise in Section 80C limit
Current limit of Rs. 1.5 lakhs for investment deduction under Section 80c, which has not been updated in over a decade, to allow for more tax savings and higher investment.
Revision in Section 80D limit
The Indian middle class is looking for ways to raise their standard of living, including access to affordable housing and better healthcare facilities. As the cost of health insurance rises post-Covid, the threshold for these deductions must also be raised to better accommodate the financial burden on the middle class. Section 80D should be expanded to include health care expenses, such as doctor consultation fees and diagnostic test costs.
Relief for homebuyers
Buying a home is still considered a luxury for middle-class taxpayers. To ease this burden, taxpayers are asking for an increase in the home loan interest deduction from the current limit of Rs. 2 lakhs. In addition, home buyers can also take advantage of deduction under Section 80EEA for up to Rs. 1.5 lakhs of interest paid on home loans approved between April 1, 2019 and March 31, 2022. To encourage home ownership, the holding period and threshold for these deductions may be extended.
Raise in Standard deduction
Five years ago, the standard deduction was introduced in the 2018-2019 tax year. Now, in the wake of rising fuel and medical costs, there is a strong case for raising the standard deduction limit from Rs. 50,000 to Rs. 1 lakh in Budget 2023.
Also Read: 5 Major Announcements Expected From Union Budget 2023