Union Budget 2023: Taxpayers seek relief amid economic uncertainties

As Union finance minister Nirmala Sitharaman is expected to announce Union Budget for the financial year 2023-24 in the Parliament on 1st February 2023, income taxpayers, especially the salaried class are pinning high hopes on the current government, to introduce some tax-related relief or change in income tax slabs.The current economic situation of rising interest rates due to the rise in the repo rates has affected the borrowers significantly with increase in EMIs. The salaried class is feeling the strain of a cash flow crunch, and they hope the Union budget will bring relief and improve their financial situation in 2023. Here are some of these expectations.Revamping tax slabsCurrently, taxpayers have the option to file taxes by opting between two tax regimes which sometimes becomes a confusing task. Take note that under both the tax regimes, your income is exempt from tax up to Rs 2.5 lakh, and you don’t have to pay any taxes up to the income of Rs 5 lakh as you get an exemption of Rs 12,500 under section 87A of the Income Tax Act. Considering increase in expenses, taxpayers are of the opinion that there is a need to raise the basic tax exemption limit from Rs 2.5 lakh to at least Rs 5 lakh or more.Increasing minimum tax exemption limit for home buyersSalaried taxpayers hope for more incentives for affordable housing in the Union Budget. Currently, homebuyers can claim a deduction up to Rs 2 lakh for annual interest paid on housing loan EMI under Section 24b and up to Rs 1.5 lakh under Section 80C for the principal amount paid. They expect the 24b limit to be raised upto Rs 5 lakh along with an increment in the limit of Section 80C up to the extent of Rs 3 lakh.Extending the tax exemption limit for first-time home buyersSection 80EEA of the Income Tax Act of India provides an additional income tax deduction of up to Rs. 1.5 lakh for first-time home buyers. This deduction can be availed for a financial year in which the property is purchased, in addition to the Rs 1.5 lakh tax deduction available under Section 80C of the act. To be eligible for this deduction, the cost of the property must not exceed Rs 45 lakh, and the loan amount must not exceed Rs. 35 lakh. However, this benefit was only available till 31st March 2022. Taxpayers expect that similar benefits should be re-introduced for the upcoming years too.Increase in the limit under Section 80 GG for non-salaried employeesSection 80GG of the Income Tax Act of India pertains to deductions for rent paid by individuals who do not receive any house rent allowance (HRA) from their employer or are self-employed. The maximum deduction that can be claimed is the lower of the following:* Rent paid less than 10% of the total income of the individual.* Rs. 5,000 per month.* 25% of the total income of the individual.To claim the deduction, the individual must submit a declaration in Form 10BA, along with proof of the rent paid, such as rent receipts.Considering how the rent expenses have increased over the years, the maximum limit in this section i.e. Rs. 5,000/- per month is too less and it needs to be increased at par with the current rent expenses. Additionally, there could be different upper limits for metro and non-metro cities.Increase in the exemption limit of Children's Education and Hostel Expenditure Under Section 10(14) of Income Tax Act 1961, to promote higher education of children and improve the literacy rate in India, Children's Education Allowance received from the employer is tax-exempt up to Rs. 100 per month, per child up to a maximum of 2 children. Additionally, Hostel Expenditure Allowance paid for hostel facilities is exempt from tax up to Rs 300 per month per child up to a maximum of 2 children.However, these limits were set long ago. Thus, keeping in view current education costs and expenses, these exemption limits seem negligible. In order to make these exemption limits viable in view of today’s educational costs, these exemption limits should be increased in the upcoming budget.Exemption on Personal LoansPersonal loans and education loans comprise 35% of the Indian lending market. While there's a tax exemption for interest on education loans under Sec. 80E of the Income Tax Act, personal loan borrowers don't have a similar incentive. It's hoped that the upcoming Union Budget will bring some relief to personal loan borrowers too.Uniform Capital Gain Taxation The diverse asset classes available for investment in India have varying capital gain structures, making it challenging for taxpayers to determine their tax liability on capital gains.Currently, in India the tax rates among different asset classes and their holding period is not uniform and that needs to be aligned in the upcoming budget. Please note that capital gains on different assets are taxed differently based on their holding period. For example, investments in equity or equity-oriented mutual funds for more than one year are considered long-term. On the other hand, investment in debt-oriented mutual funds is considered long-term if held for at least three years, while immovable property needs to be held for at least two years to be categorized as long-term.Not just holding periods, but the rate of taxation is also different across asset classes. LTCG on debt mutual funds is taxed at 20% with indexation benefit whereas LTCG on Equity oriented mutual funds is exempt up to 1 lac and taxed at 10% if gain exceeds 1 lac in one financial year.Moreover, Capital gains tax computation can vary even within the same asset class. Real estate investments and REITs have different holding periods and tax rates. Gold MF/Gold ETF/Physical Gold and Sovereign Gold Bonds also have differing holding periods and tax rates. Additionally, the tax structure for capital gains from Indian equities differs from that of international equities. Thus, investors hope for a uniform tax structure for capital gains in the upcoming Union Budget to make it simple to understand.Personal taxes and Personal Finance are closely related, as the amount of money you take home each month can have a significant impact on your ability to spend, save, and invest for the future. Remember that tax laws are subject to change, so it's always a good idea to stay informed and seek professional advice when necessary. The expected incentives and exemptions which may be provided to taxpayers in the upcoming Budget 2023-24 will help Indian taxpayers to have more disposable income in hand, which can be mobilized into more investments and savings and contribute to building wealth for taxpayers.Founder at Fintoo