Budget 2024 Income Tax: Why the new limit for 30% tax rate should be Rs 20 lakh and not Rs 15 lakh Business
By Deepika Mathur
budget 2024 income tax Expectations: Imagine working for a job that makes you less money every year. Would you continue in such a job? For most of us the simple answer to this would be a resounding “no”. Welcome to Inflation 101 – if you earn the same amount of money year after year, your real earnings have declined because you can no longer buy the same basket of goods.
The same concept applies to the tax threshold of Rs 15 lakh, India’s CPI has ranged between four-eight per cent per annum over the last few years; The post-tax income of the common man is not enough. We have all borne the brunt of the unchanged border. Under the new tax regime, this burden can be reduced by increasing the limit of Rs 15 lakh to Rs 20 lakh.
The government introduced an optional new tax regime under Finance Act2020, enabling individuals and Hindu undivided families (HUF) Applying for lower tax rates by excluding certain deductions and exemptions, such as 80C, medical insurance, house rent allowance, and interest on self-occupied property. Under this arrangement, tax rates are distributed according to various slab rates starting from five percent to 30 percent where the annual taxable income exceeds Rs 15 lakh. The new tax regime is a logical option for taxpayers who do not claim expenditure or investment profits.
Read this also Budget 2024 Expectations Live Updates: New income tax regime, changes in tax slabs, roadways and railway infrastructure in focus
income tax rates And to make the new tax regime more attractive, the tax slab has been reduced from six to five under the Finance Act 2023. The simplified regime allows a standard deduction of Rs 50,000 per year. The new tax regime is considered the default tax regime (unless otherwise opted by the taxpayer). Individual taxpayers and HUFs can still opt for the old tax regime while filing annual taxes Income tax Returns if there is lower tax outflow as a result of claiming eligible deductions and exemptions. Widespread adoption of the new tax regime is an obvious objective for the tax authorities. Increasing the threshold limit from time to time based on inflation would symbolize a practical and taxpayer-friendly approach and encourage adoption.
This concept of inflation adjustment is already present in the capital gains tax regime. Adjusting the acquisition cost of the asset based on the cost inflation index helps the asset seller to offset the impact of inflation while calculating capital gains. It is indeed logical to pursue this concept in the new income tax regime. Recent changes in income tax rates and slabs helped reduce tax outflow for all income levels. However, as income increases, these tax savings are reduced due to the 30 percent tax cost. Thus, it is time to re-think about the said limit.
Raising the tax threshold periodically will help maintain taxpayers’ real income levels, preventing unintentional increases in their tax burden as inflation reduces the purchasing power of money over time.
Read this also Budget 2024: Why is there a need to increase the standard deduction for salaried taxpayers?
Furthermore, consumer spending is an important driver of economic activity. If the minimum income tax threshold does not keep pace with inflation, taxpayers may experience a decline in disposable income, which will reduce spending.
Also, failure to adjust the minimum income tax threshold for inflation could lead to economic inequalities. Low- and middle-income earners could be pushed into higher tax brackets, increasing inequality.
Read this also Budget 2024 Income Tax: How can relief be given to taxpayers?
The minimum income tax threshold should be adjusted for inflation to ensure that individuals are not burdened with increased tax liability. The inflation-adjusted minimum income tax threshold not only protects taxpayers from unfair increases in their tax burden, but also contributes to a more equitable and dynamic economic environment.
(Deepika Mathur is Executive Director, Deloitte Haskins & Sells LLP. Abhay ChaturvediSenior manager at Deloitte Haskins & Sells LLP contributed to the article.)
budget 2024 income tax Expectations: Imagine working for a job that makes you less money every year. Would you continue in such a job? For most of us the simple answer to this would be a resounding “no”. Welcome to Inflation 101 – if you earn the same amount of money year after year, your real earnings have declined because you can no longer buy the same basket of goods.
The same concept applies to the tax threshold of Rs 15 lakh, India’s CPI has ranged between four-eight per cent per annum over the last few years; The post-tax income of the common man is not enough. We have all borne the brunt of the unchanged border. Under the new tax regime, this burden can be reduced by increasing the limit of Rs 15 lakh to Rs 20 lakh.
The government introduced an optional new tax regime under Finance Act2020, enabling individuals and Hindu undivided families (HUF) Applying for lower tax rates by excluding certain deductions and exemptions, such as 80C, medical insurance, house rent allowance, and interest on self-occupied property. Under this arrangement, tax rates are distributed according to various slab rates starting from five percent to 30 percent where the annual taxable income exceeds Rs 15 lakh. The new tax regime is a logical option for taxpayers who do not claim expenditure or investment profits.
Read this also Budget 2024 Expectations Live Updates: New income tax regime, changes in tax slabs, roadways and railway infrastructure in focus
income tax rates And to make the new tax regime more attractive, the tax slab has been reduced from six to five under the Finance Act 2023. The simplified regime allows a standard deduction of Rs 50,000 per year. The new tax regime is considered the default tax regime (unless otherwise opted by the taxpayer). Individual taxpayers and HUFs can still opt for the old tax regime while filing annual taxes Income tax Returns if there is lower tax outflow as a result of claiming eligible deductions and exemptions. Widespread adoption of the new tax regime is an obvious objective for the tax authorities. Increasing the threshold limit from time to time based on inflation would symbolize a practical and taxpayer-friendly approach and encourage adoption.
This concept of inflation adjustment is already present in the capital gains tax regime. Adjusting the acquisition cost of the asset based on the cost inflation index helps the asset seller to offset the impact of inflation while calculating capital gains. It is indeed logical to pursue this concept in the new income tax regime. Recent changes in income tax rates and slabs helped reduce tax outflow for all income levels. However, as income increases, these tax savings are reduced due to the 30 percent tax cost. Thus, it is time to re-think about the said limit.
Raising the tax threshold periodically will help maintain taxpayers’ real income levels, preventing unintentional increases in their tax burden as inflation reduces the purchasing power of money over time.
Read this also Budget 2024: Why is there a need to increase the standard deduction for salaried taxpayers?
Furthermore, consumer spending is an important driver of economic activity. If the minimum income tax threshold does not keep pace with inflation, taxpayers may experience a decline in disposable income, which will reduce spending.
Also, failure to adjust the minimum income tax threshold for inflation could lead to economic inequalities. Low- and middle-income earners could be pushed into higher tax brackets, increasing inequality.
Read this also Budget 2024 Income Tax: How can relief be given to taxpayers?
The minimum income tax threshold should be adjusted for inflation to ensure that individuals are not burdened with increased tax liability. The inflation-adjusted minimum income tax threshold not only protects taxpayers from unfair increases in their tax burden, but also contributes to a more equitable and dynamic economic environment.
(Deepika Mathur is Executive Director, Deloitte Haskins & Sells LLP. Abhay ChaturvediSenior manager at Deloitte Haskins & Sells LLP contributed to the article.)
