The HRA you receive from your employer is not completely tax-free. The tax-free portion of HRA is the lesser of the following:
A) Actual HRA from your employer
b) 50% of ‘salary’ if living in metro cities (Delhi, Mumbai, Chennai, Kolkata), or 40% for other cities
c) Surplus rent paid annually in excess of 10% of the annual ‘salary’
‘Salary’ includes basic salary, dearness allowance (if it is part of retirement benefits), and commission received as a percentage of turnover. Other allowances like special allowances are not considered for calculating the tax-free HRA amount.
EY’s interim budget 2024 The wish list from a personal taxation accommodation perspective reads:
- Include Tier 2 cities (Hyderabad, Pune, Bengaluru, Ahmedabad, Gurgaon etc.) in the list of metro cities for HRA exemption calculation purposes (40% to 50% of basic salary)
- Remove limit of Rs 2 lakh for compensation of loss on house property against other heads in the same year
- Increase the existing limit for deduction of interest on home loan for self-occupied property from Rs 2 lakh to a minimum of Rs 3 lakh.
EY has also stressed the need for an overhaul of the capital gains tax structure. EY has listed the following questions regarding capital gains tax:
- Standardize holding period and bring uniformity in tax rates across different asset classes
- Increase in the existing tax-free LTCG limit on sale of units of equity shares/equity oriented mutual funds/business trusts from Rs 1 lakh to Rs 2 lakh.
- Provide a tolerance limit of at least 10% of the actual consideration for standard taxation purposes for transfer of unlisted shares, similar to real estate
EY also says Finance Minister Sitharaman should consider increasing the tax-free limit for gifts from Rs 50,000 to Rs 100,000. Additionally, measures should be taken for expeditious disposal of pending appeals.
“Provide clarity on taxation of employer contributions to specified funds in excess of Rs 7.5 lakh and ‘accretions’ thereon – clarify aspects such as identification of the fund to which the excess contribution is made, in case of superannuation fund/NPS’ Meaning and calculation method of ‘accretion’,” says EY.
FM Sitharaman is expected to present the Interim Budget 2024 on February 1, 2024. The full year budget for the financial year 2024-25 will be presented by the new government in June-July only after the Lok Sabha elections 2024.
