Modi 3.0 Budget 2024 Expectations: What are Finance Minister Nirmala Sitharaman's plans for taxpayers?
With the dawn of Modi 3.0, attention across the world is focused on the proposed Union Budget 2024, scheduled to be presented in July. Industrialists, farmers, taxpayers and the middle class are excited by the possible tax hikes and cuts by Finance Minister Nirmala Sitharaman.
As this is the first budget of the new term, expectations are high that it will contain impactful announcements that may shape India's economic development next year.
In the 2020 Union Budget, the Modi government introduced a new tax regime with lower tax rates but no traditional deductions. Far from meeting the expected acceptance, tweaks such as standard deductions and refunds of up to Rs 7 lakh were made as incentives for taxpayers.
Expected changes under the new tax regime
Despite the reduction in tax rates, the new tax regime has not garnered much support among taxpayers. To make it more attractive and encourage wider acceptance, the government is expected to introduce additional deductions under the regime.
Notably, the deduction limit under 80C may be increased to Rs 20 lakh from Rs 1.5 lakh under the old tax regime, which was last amended by Finance Minister Arun Jaitley in 2014 during the Modi 1.0 government.
Currently, the benefit under section 80C is not available under the (new) standard tax regime. As suggested by Suresh Surana, founder of RSM India, the benefit will also be extended to the standard tax regime to encourage more taxpayers to opt for this benefit, according to the Financial Express.
Expected changes under the old tax regime
As per Section 80C of the Income Tax Act, 1961, deductions include various savings and investments including LIC, PPF, RPF contributions etc. The current limit for these deductions is Rs 150,000 per annum.
However, stakeholders argue that this limit is too restrictive given the range of investments permitted, which include fixed deposits, ELSS, mortgage capital and life insurance premiums.
To better reflect the range of investment options available, this deduction limit is expected to be increased to Rs 20 lakh per annum, reported the Financial Express.
Will Budget 2024 provide tax cuts to boost consumption?
The 2024 budget is expected to introduce reforms to India's income tax structure, focusing on tax cuts for lower-income earners to boost consumption. The Indian Express reported that the government may prioritise tax cuts over increasing social spending in its July budget announcement.
Currently, income tax starts at 5% for incomes above 300,000 rupees and is rapidly increasing to 30% for incomes above 150,000 rupees, a six-fold increase despite a five-fold increase in income. Officials say streamlining these tax brackets could significantly increase disposable income, thereby boosting economic activity.
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The finance minister will begin pre-budget consultations with industry associations from June 20 after discussions with Finance Minister Sanjay Malhotra on June 18. The upcoming budget under Modi 3.0 aims to strike a balance between accelerating growth and controlling inflation while funding the coalition government's pledges.
India aims to build a $5 trillion economy and achieve "developed India" status by 2047. The RBI expects economic growth to be 7.2% this fiscal year, driven by rural demand and easing inflation.