Budget'24 Wishlist: What's in-store for salaried class taxpayers?

New Delhi: On July 23, Finance Minister Nirmala Sitharaman is scheduled to present the comprehensive budget for the Financial Year 2024-25. Amidst expectations of measures aimed at easing the burden on the middle class and low-income groups heavily impacted by inflation. The post-Lok Sabha election political landscape further intensifies the urgency of addressing these issues.

According to a report published in the Financial Express citing government sources, efforts are underway to enhance the attractiveness of the new tax regime. So that more money can be given into the hands of people, by increasing their disposable income. Officials are actively discussing providing relief to middle-class taxpayers, including proposals to increase the standard deduction limit. Officials have indicated the possibility of increasing the standard deduction from the current Rs. 25,000 to 50,000 under the new tax regime.

Under the existing FY 2023-24 tax framework, the salaried class benefits from a standard deduction of 50,000 rupees. After rebates, incomes up to 700,000 rupees are exempt from taxes, and including the 50,000 rupee standard deduction extends this exemption to 800,000 rupees. If the upcoming budget does raise the standard deduction to 50,000 rupees, individuals earning up to 800,000 rupees could potentially be exempt from income tax.

The government is also contemplating additional relief through House Rent Allowance (HRA) deductions.

Employees receiving HRA from their employers and paying rent are eligible to claim deductions under specific conditions:

• The actual amount of HRA received.
• 50% of basic salary plus DA in metro cities and 40% in non-metro cities.
• A 10% reduction from the annual rent after deducting annual basic salary plus DA.

There is speculation that the number of cities classified as metro cities for HRA purposes may be expanded. This would include cities like Bangalore and Hyderabad alongside Delhi, Mumbai, Kolkata, and Chennai. Such a move would provide residents of these cities with greater tax benefits.

Furthermore, the budget may introduce enhancements related to the National Pension System (NPS). The government is considering offering central government employees the option of a guaranteed pension under NPS, potentially amounting to 40% or more of their last basic salary. This initiative follows the establishment of a committee chaired by Finance Secretary T.V. Somanathan in March 2023, to explore ways of augmenting pension benefits under NPS. This reflects the government’s stance of not reverting to the old pension system.

BJP was short of a majority in the recent Lok Sabha elections. Inorder to sustain governance for the next five years, the government now will rely on allies within the NDA coalition. Assembly elections scheduled later this year in states like Maharashtra and Haryana underscore the budget’s critical role as a tool for voter engagement. Against this backdrop, there is mounting anticipation that the Modi 3.0 government will prioritize delivering relief to the middle class through the upcoming budget.