Income Tax rules may see a rehaul in Union Budget 2023-24
Will the Budget 2023-24 be a landmark in terms of direct tax reforms. That looks very unlikely. The consensus is that, at best, there may be a status quo on the income tax rules, since the government may not want to tinker too much with the provisions of the Income Tax Act. The theme of the budget is likely to be boosting economic growth but some significant changes in the tax rules are expected. For starters, it is unlikely that special tax sops would be announced for individual taxpayers. Also, high collection activities headers like STT are unlikely to be tinkered with since they are already contributing their share of revenues to the exchequer.
What is expected in the Budget 2023-24 on Direct Taxes
The theme would be one of status quo, but specifically here are some of the major expectations in the Union Budget 2023-24.
Not much changes are expected in the personal income taxes front. However, the government may look to formalize the base exemption level of tax-free income at Rs. 5 lakh and do away with the complicated rebate system that is followed today.
The new tax regime of lower rates and zero exemptions has not found too many takers. The Union Budget 2023-24 may take a final view on whether the dual system of taxation is required or merge it into a simplified system of taxation with limited exemptions.
The government is expected to increase its capital expenditure budget for FY24 to Rs. 9 trillion from Rs. 7.5 trillion in FY23. That would mean that any major tax reduction are unlikely, especially considering that there is just one year to go for the general elections.
There is a possibility that the government may look at tweaking the income tax at the borders to improve the consumption surplus in the hands of the people. The base exemption may help to avoid unnecessary return filing as more than 75% of the tax returns are currently below Rs5 lakhs.
It is also likely that to boost consumption, the government may enhance the limits of Section 80C and Section 24, since higher tax exemption means lower tax outflow and lower tax outflows directly translate into higher disposable income in the hands of the consumer. This is likely to be a consumption booster.
Finally, there is also a possibility that the government may look to merge the old tax regime and the new tax regime into a simplified tax regime. The difference is that while the tax rates would still be lower, the overall exemptions like standard deduction, Section 80C and Section 24 would still be permitted. That is likely to make this simplified structure more meaningful for consumers.
Finally, there have been discussions about the scrapping of long term capital gains tax, but that may not happen in the last budget ahead of elections. That may have to wait for a future date.
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