Budgets are known for raising expectations of relief and benefits among various sections of the population. That’s truer for budgets that come just before elections. When the talk is about freebies, populism, welfare schemes, cash handouts, the taxpayers, though a small section of the voting population, too expects some benefits from the budget, even though the governments prioritise the people at the bottom who are more deserving. Yet, taxpayers too can have a strong case for benefits, incentives, parity and easier compliance.
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An Interim Budget is traditionally supposed to be just a vote-on-account shorn of any mega announcements or benefits to people. The government is likely to stay on the fiscal course-correction glide path in the Interim Budget for FY25, shunning populist spending or incentives ahead of the summer general election, ET has reported recently, based on information from people aware of deliberations on the subject.
The government is also concerned that any consumption booster could exacerbate inflationary pressures and jeopardise efforts to rein in prices. At the same time, capital expenditure may be raised again in FY25 from the ₹10 lakh crore budgeted in the current fiscal year to spur economic growth, given its high multiplier effect, including the crowding in of private investment. The government expects to meet the FY24 fiscal deficit target with a higher-than-anticipated revenue mop-up, making up for the increase in spending under some heads.
Where does all this leave the taxpayer who expects Finance Minister Nirmala SItharaman to announce income-tax incentives and benefits in the Interim Budget?
The headroom
Direct-tax collections have been on the rise. Personal income and corporate tax collections are likely to rise to more than Rs 19 lakh crore in 10 years of Prime Minister Narendra Modi-led government.
Driven by the increasing income of individuals, net direct tax collections after adjusting for refunds increased from Rs 6.38 lakh crore in FY 2013-14 to Rs 16.61 lakh crore in FY 2022-23. In the current financial year, the collections from net direct taxes — personal income tax and corporate tax — have so far grown by 20 per cent and at this pace, the mop-up is likely to be around Rs 19 lakh crore in the fiscal ending on March 31, 2024.
This provides enough headroom for Sitharaman to consider people-friendly tax measures and benefits in her Interim Budget. It makes political sense to offer such benefits, if at all these have to be offered, in the Interim Budget that comes right before elections instead of announcing them in the full budget later.
These factors could be the basis of expectations of the taxpayers from the Interim Budget. Moreover, the poll season does create expectations among all sections of voters.
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What the previous interim budgets offered
A look at the previous interim budgets will tell you that interim budgets do not by definition avoid tax relief and benefits.
In the 2019 interim budget by then finance minister Piyush Goyal, no change was proposed in the tax structure. But in a major relief to taxpayers at the bottom, income up to Rs 5 lakh was exempted from tax. There was an Increase in standard deduction for salaried persons: The quantum of standard deduction was proposed to be raised by Rs. 10,000 from the previously existing deduction of Rs. 40,000 to give a total benefit of Rs.50,000 in each tax year.
In the 2014 interim budget, )then finance minister P. Chidambaram announced no change in the tax structure, nor offered any big benefits. But in the 2009 interim budget, then finance minister Pranab Mukherjee had changed the income tax slabs.
This means interim budgets can very well announce tax reliefs and benefits if the government wants to.
What the taxpayer wants
If not an outright revision in income tax slabs, Sitharaman can introduce some specific measures. Standard deduction is one of the most widely used deductions as salaried taxpayers can claim it without making any investments. There has been a longstanding demand to increase the standard deduction limit. The demand has become louder after standard deduction was made a part of the new income tax regime last year. It has been almost five years since standard deduction was revised, in the previous interim budget in 2019.
Standard deduction is a flat deduction salaried individuals can claim against taxable salary income without requiring any proof of actual expense incurred. It aims to achieve parity between taxpayers who receive income through salary and those who receive income from business. Standard deduction is available under the old income tax regime as well as the new income tax regime.
Increasing standard deduction will be a quick and surefire way to please the salaried middle class which carries little weight with governments focused on providing financial benefits to people at the bottom of the pyramid. Experts have argued that the salaried middle class actually deserves this benefit. There is a need to raise standard deduction now due to the impacts of inflation and before that the pandemic on the salaried class as well as to bring parity with business-income earners.
Over the last few years, capital gains taxation is one aspect of individual taxation which needed some reform. While some changes have been made over the years, the structure is still pretty complex and difficult to comply with for a layperson.
One of the changes, Shalini Jain, Tax Partner, People Advisory Services, EY India, thinks should figure in the upcoming budget is having a uniform holding period for all Indian domestic shares and mutual fund units (whether listed or unlisted/ equity or non-equity) for qualification as long-term capital asset. The long-term capital gains tax rate can be aligned at 10% and short-term capital gains tax at 15% for all types of financial assets (such as listed and unlisted equity / preference shares, equity oriented mutual funds and instruments like REIT/Invit units and other financial assets like debt oriented mutual fund units, bonds, debentures).
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If not any big changes, Sitharaman can certainly consider some streamlining of income tax rules.
At present, if a taxpayer misses the due date of advance tax instalments for a single day, an interest for three months is charged. This needs to be addressed because interest is related to time and so a person making a delay of two months and someone making a delay of two days should not be saddled with the same amount of interest, Uday M Karve, a chartered accountant, has written in ET recently.
Another thing that needs to be fixed is unfair discrimination made between those in business and those pursuing a profession, says Karve. For instance, the business community is exempted from tax audits if their turnover is ₹10 crore and if 95% or more of their business receipts and business payments are carried out in non-cash modes. However, for professionals, this limit is ₹ 50 lakh, which gets extended to ₹75 lakh if they choose to opt for presumptive taxation. Businessmen can opt for presumptive taxation if their annual turnover exceeds ₹50 lakh (extended to ₹75 lakh, if a minimum 95% of the receipts are in non-cash mode).
The rates at which profits are presumed to have been earned, under presumptive taxation, is another area of discrimination, Karve writes. For businesses, the profit offered is acceptable if it is not less than 8% of the turnover (6% for non-cash turnover) while for professions, it is acceptable only if it is not less than 50% of the turnover. This presumptive rate for professionals certainly deserves to be lowered. At least a lower rate for their non-cash turnovers would be a fair ask.
