As the Union Budget 2024 approaches, all eyes are on Finance Minister Nirmala Sitharaman and her potential tax relief measures for India's middle class. This demographic, often seen as the backbone of the country's economic growth, has long sought relief from rising living costs and stagnant wages. With the budget set to be presented in the third week of July, experts and salaried individuals alike are keenly watching for changes that could significantly impact their financial well-being.
The Case for Raising Standard Deduction
One of the most anticipated changes is an increase in the standard deduction limit. The standard deduction, which allows salaried employees to reduce their taxable income, was last set at ₹50,000 in 2019. Prior to that, it was reintroduced at ₹40,000 in 2018, replacing the travel allowance and medical deduction. Given the inflationary pressures and the rising cost of living, there is a widespread demand to raise this limit substantially.
Rahul Charkha, a Partner at Economic Laws Practice, emphasizes that the current limit does not provide sufficient relief to taxpayers. "The middle class, especially the salaried, are anticipating quite a few tax reliefs in the upcoming budget," he states. Charkha and other experts suggest that the standard deduction should be increased to at least ₹1,00,000 to offer meaningful financial relief to the middle class (India Today) (Business Today).
Expanding Section 80C Benefits in Union Budget 2024
Section 80C of the Income Tax Act is another area where taxpayers are seeking greater relief. This section allows individuals to claim deductions on various investments and expenses, including life insurance premiums, tuition fees, and home loan repayments, up to a limit of ₹1.5 lakh. However, many taxpayers exhaust this limit quickly due to the high costs associated with these expenditures.
Experts argue that the limit under Section 80C should be raised to ₹3 lakh to reflect the increased financial burdens on individuals. "With the increase in the cost of living, retail inflation, etc., the practical limit for Section 80C as on date should be much higher," says Charkha (Business Today). An increase in this limit would enable more individuals to maximize their tax-saving investments and reduce their overall tax liability.
Addressing Health Insurance Deductions
Health insurance is another critical area where taxpayers are seeking enhanced deductions. Under the current regime, deductions are available for health insurance premiums and medical expenses under Sections 80D, 80DD, and 80DDB. However, these benefits are primarily available to those opting for the old tax regime.
Given the importance of health insurance in financial planning, there is a growing demand to extend similar benefits under the new tax regime. This would ensure that all taxpayers, regardless of the regime they choose, can avail themselves of deductions related to health insurance and medical expenses, thereby reducing their taxable income and encouraging greater investment in health coverage (Business Today).
Balancing Fiscal Goals and Electoral Appeal
While the middle class eagerly anticipates these tax relief measures, the government faces the complex task of balancing fiscal prudence with electoral appeal. The upcoming budget is crucial as it is an election year, and the government must navigate the tightrope of addressing the fiscal deficit while meeting the expectations of its electorate.
Amit Bansal, Partner at Singhania & Co., cautions against expecting significant changes or new provisions. He notes that the government has already published the budget details, and recent cabinet approvals are merely confirmations of previously outlined fiscal plans (India Today). This suggests that while there may be some adjustments, sweeping changes are unlikely.
The Broader Economic Impact
Providing tax relief to the middle class is not just about easing individual financial burdens; it has broader economic implications. Increased disposable income among the middle class can lead to higher consumer spending, which in turn can stimulate economic growth. Experts argue that boosting consumption through tax relief measures is essential for sustaining India's economic momentum.
"The government should take care to implement tax relief measures without compromising its deficit reduction goals," advises Basudha Das from Business Today. "However, neglecting the challenges faced by the middle class could dampen consumer sentiment and hinder economic growth" (Business Today).
As the Union Budget 2024 presentation approaches, the middle class remains hopeful for meaningful tax relief. While the government must navigate fiscal constraints, addressing the financial needs of this key demographic could have far-reaching benefits for the economy as a whole. The balance struck in this budget will likely shape economic sentiment and electoral outcomes in the months ahead.