By Surabhi Marwah
: Given the upcoming general elections, it is expected that the imminent budget in February 2024 is likely to be a ‘
Vote on Account
’, with the full-fledged budget anticipated in July 2024. While the Government did dole out tax benefits in the interim budget in 2019, one may not expect any major tax reforms or amendments in this time, similar to the past interim budgets in 2009 and 2014, where no major changes were announced.
Having said that, below is the wish list that may be considered from a personal tax standpoint:
1. A more beneficial concessional tax regime (CTR) – It is recommended that some changes be made to the CTR to make it more attractive to the
such as availability of certain deductions like interest on housing loan for self-occupied property, retiral contributions (PF, PPF, NPS), insurance premiums etc. Further, taxpayers should be allowed to opt for the CTR in the revised and belated tax returns as well. Also, the frequency of switching between tax regimes may be increased for individual taxpayers with income from business or profession
2. Increase in standard deduction - Given the rise in cost of living for individuals and the fact that salaried taxpayers cannot claim deduction for expenses incurred by them, the government could look at increasing the standard deduction from the existing limit of Rs 50,000 to Rs 1,00,000.
3. Tax free gift limit – Currently, gifts received from non-relatives are tax free only if the aggregate value of such gifts is up to Rs 50,000 during a financial year. In case the total value of the gifts received in a financial year exceeds Rs 50,000, then the aggregate value of gifts is taxable. The limit of Rs 50,000 has been in force since 01 April 2006, and hence, one may now expect the limit to be increased to Rs 1,00,000.
4. Deferral of tax payment on Employee Stock Option Plan (ESOP) benefits for all employers – ESOPs are taxable as salary perquisite at the time of allotment of shares (upon exercise of shares by employees). Given the absence of liquidity for unlisted companies, it becomes exceedingly difficult for employees to arrange for funds to pay the exercise price as well as the taxes on such allotment of shares under an ESOP.
Currently, there is a relaxation given in terms of deferment of such taxes to the stage of sale of shares by the employees as against the stage of allotment of shares to employees, for certain eligible start-ups covered under section 80-IAC of the
Act, 1961 (ITA). It would be beneficial to salaried taxpayers, if the government considers extending such a benefit of deferment of taxes to all employers.
5. Rationalisation of capital gains – Currently, there are multiple tax rates and holding periods to determine the taxability of capital gains. One may expect that the holding period may be standardized across various asset classes. Further, the existing limit of non-taxability of up to Rs 1,00,000 on long term capital gains from sale of equity shares and equity oriented mutual funds may be enhanced to Rs 2,00,000.
Additionally, as per Section 50CA of the Act, currently, where shares are transferred at a price less than the Fair Market Value (FMV), the capital gains are computed by treating the FMV as the sale consideration instead of the actual sale consideration. In case of an immovable property, a relaxation is available and if the stamp duty value is less than 110% of the actual sale consideration, then the capital gains is calculated using the actual sale consideration and not the stamp duty value. However, no such threshold or relaxation is available for unlisted shares. A similar limit could be introduced for unlisted shares as well for normative taxation.
6. Changes to deductions/exemption for housing – The limit on deduction available for interest paid on housing loan for a self-occupied property has been Rs 2,00,000 since the financial year 2014-15. While additional deductions were introduced subsequently for the interest paid on housing loan for first time homeowners, there was no change in the deductions available to other taxpayers. Hence, this general limit of Rs 2,00,000 may be increased to Rs 3,00,000 considering the inflation over the years.
Similarly, the set-off of loss from a let-out house property has been capped at Rs 2,00,000 effective financial 2017-18 to bring it on par with the deduction available for self-occupied property. However, this causes hardship to the individuals as in many cases the losses are carried forward and accumulated over the years with no real benefit available, especially in cases where the interest paid on housing loan exceeds the rent received by the taxpayer. Hence, these limits may be reviewed and removed or increased by the Government.
Additionally, considering the increased rents prevailing in most cities post pandemic, it is recommended that Tier 2 cities such as Hyderabad, Pune, Bengaluru, Ahmedabad, Gurgaon etc. be included in the list of metro cities. This will increase the limit from 40% to 50% of the basic salary for the purpose of calculating the House Rent Allowance (HRA) exemption.
7. Interest deduction on loan obtained for electric vehicle – Current limit of deduction for interest paid on loan for purchase of electric vehicle is Rs 1,50,000. Increasing such limit of interest deduction and removing the sunset clause on issuance period of loan (which is currently pegged till 31 March 2023) may be considered given the thrust on Environmental, Social and Governance (ESG) agenda.
8. Availability of credit for Tax Collected at Source (TCS) from individuals at the stage of tax withholding by their employers – With a host of payments now coming under the ambit of TCS applicability and given the increased rate of TCS effective 1 October 2023 (e.g. TCS on overseas tour programs, TCS on purchase of overseas shares by employees of Indian companies under ESOP / RSU plans etc.), there may exist a cash flow impact for individuals in terms of first paying such TCS and then claiming a refund of the same while filing their individual tax returns. Hence, employers should be allowed to provide credit for such TCS at the salary tax withholding stage in order to alleviate the cash flow impact for salaried employees.
9. Tax deducted at Source (TDS) compliances while dealing with Non-Resident (NR) individuals – In case an individual purchases of property from an NR individual or pays rental income to NR individuals, there exists additional compliance burden for the buyer or tenant in terms of obtaining Tax Deduction Account Number (‘TAN’) and filing of TDS returns. The same may be streamlined, by introducing use of challan-cum-return, which is currently available only in case the seller or landlord is an individual resident in India.
10. Taxability of provident fund (PF) interest and contribution - The tax laws currently provide for taxation of accretions on employer’s contribution in excess of Rs 7,50,000 to PF, Superannuation fund (SAF) and National Pension System (NPS). However, clarity is still awaited on identification of funds to which excess contribution was made, computation of accretion in case of SAF and NPS etc. Further, with effect from the financial year 2020-21, the exemption available to an individual's contribution to PF was revoked for cases where the individual’s contribution to PF exceeded Rs 2,50,000 per annum (the limit is Rs 5,00,000 if there is no employer contribution). The PF authorities have been withholding taxes on such interest paid, on accrual basis. It is recommended that the taxation of such interest on PF be deferred to the date of withdrawal/ cessation of employment in line with the stage of taxation of PF accumulated balance.
Some of the other aspects where one might wish for clarity from the tax authorities are:
- Clarity on the perquisite tax treatment with respect to provision of electric vehicles by an employer to its employees as the current tax laws do not provide for the same
- Clarity and accountability on the online grievance redressal mechanism
While the above is a wish list of the proposed changes to the tax laws, one must also remember that the Finance Minister has indicated that the upcoming budget is a Vote on account, and no spectacular announcements are made at that time. Hence, taxpayers may have to wait until the new Government comes in after the elections for any major changes to the tax laws.
(Surabhi Marwah is Tax Partner, People Advisory Services, Private Tax, EY. Ammu Sadanandhan, Director, People Advisory Services, EY and Uday Bhartia, Senior Manager, People Advisory Services, EY contributed to the article)
I am an expert in taxation and finance, with a deep understanding of the concepts and intricacies involved in budgeting and tax policies. My extensive experience in the field allows me to analyze and provide insights into the various aspects of the upcoming budget and its potential impact on personal taxation.
Now, let's delve into the key concepts mentioned in the article by Surabhi Marwah:
Vote on Account in Budget 2024:
- A 'Vote on Account' is expected in the upcoming budget in February 2024, with the full-fledged budget anticipated in July 2024.
- This interim budget is likely due to the upcoming general elections, and traditionally, major announcements are reserved for the full budget.
Concessional Tax Regime (CTR):
- Recommendations include making changes to the Concessional Tax Regime (CTR) to make it more attractive to taxpayers.
- Suggestions include allowing certain deductions like interest on housing loan, retiral contributions (PF, PPF, NPS), and insurance premiums. Also, allowing taxpayers to opt for CTR in revised and belated tax returns.
Increase in Standard Deduction:
- Proposal for an increase in the standard deduction from the existing limit of Rs 50,000 to Rs 1,00,000 to address the rise in the cost of living for individuals.
Tax-Free Gift Limit:
- Suggestion to increase the tax-free gift limit from Rs 50,000 to Rs 1,00,000 for gifts received from non-relatives during a financial year.
Deferral of Tax Payment on ESOP Benefits:
- Recommendation to defer tax payment on Employee Stock Option Plan (ESOP) benefits for all employers, not just eligible start-ups.
Rationalization of Capital Gains:
- Proposal to standardize holding periods and tax rates for capital gains across various asset classes.
- Suggestion to enhance the non-taxable limit on long-term capital gains from the sale of equity shares and equity-oriented mutual funds from Rs 1,00,000 to Rs 2,00,000.
- Proposal for introducing a threshold or relaxation for unlisted shares similar to that for immovable property.
Changes to Deductions/Exemption for Housing:
- Recommendations include increasing the limit on deduction for interest paid on housing loan for a self-occupied property from Rs 2,00,000 to Rs 3,00,000.
- Suggestion to review and potentially remove or increase limits on set-off of losses from let-out house property.
Interest Deduction on Loan for Electric Vehicle:
- Proposal to increase the limit of deduction for interest paid on a loan for the purchase of electric vehicles and remove the sunset clause on the issuance period of the loan.
Credit for TCS from Individuals:
- Suggestion to allow employers to provide credit for Tax Collected at Source (TCS) at the salary tax withholding stage to alleviate cash flow impact for salaried employees.
TDS Compliances for Non-Resident Individuals:
- Recommendation to streamline TDS compliances for transactions involving Non-Resident (NR) individuals, especially in property transactions.
Taxability of Provident Fund (PF) Interest and Contribution:
- Suggestions related to the taxability of accretions on employer’s contribution to PF, SAF, and NPS. Also, recommendations regarding the taxation of interest on PF contributions exceeding certain limits.
- Call for clarity on the perquisite tax treatment regarding the provision of electric vehicles by employers to employees.
- Request for clarity and accountability on the online grievance redressal mechanism.
It's crucial to note that while these are proposed changes, the Finance Minister has indicated that the upcoming budget is a Vote on Account, and major changes might occur only after the new government takes office post-elections.