INSUBCONTINENT EXCLUSIVE:
Budget 2023: With the Union Budget 2023 just around the corner, the anticipation of relief in personal taxation is inevitable
The Income-tax Act, 1961 (Act) provides numerous deductions for individuals
However, the current limits of these deductions are quite low compared to the increased cost of living over the years
Some of the deductions/ exemptions for which the Government could consider revision of limits are:Standard Deduction: While introducing the
standard deduction of Rs 40,000, in the Union Budget 2018, the Finance Minister observed that a major portion of the personal income-tax
collection was from the salaried class
The standard deduction was subsequently increased to Rs 50,000 in the Union Budget 2019
While Consumer Price Index Inflation has moderated to 5.9% in November 2022, it was at a high of 7.4% in September 2022, as compared to 4%
Given the rise in the cost of living for individuals and since salaried taxpayers cannot claim a deduction for expenses incurred by them,
the government could look at increasing the standard deduction.80C: As a measure to encourage household savings, certain prescribed
contributions to life insurance, provident fund (PF), savings instruments, repayment of housing loan etc., are allowed as a deduction up to
Rs 150,000 under section 80C of the Act
The majority of this limit is usually utilised by the contribution to PF and principal repayment of housing loan; thereby leaving other
contributions/ spends unutilized
Hence, there is an expectation that the Government may consider revising it to Rs 2,50,000 in the current Union Budget.Also Read | Budget
2023 income tax: Why concessional tax regime is not popular among taxpayers; 3 steps needed80CCD: Deduction is allowed for contributions to
pension scheme of the Central Government (such as National Pension System) as under:We have seen that the limit of Rs 150,000 is generally
exhausted by the deductions under Section 80C and may leave the taxpayers with little/ nothing to claim against their contribution under
Largely, they are able to claim only the additional deduction of Rs 50,000 under section 80CCD(1B) for their own contribution to the pension
Hence, to provide some tangible benefit, the government may reconsider increasing this limit for individuals.80D: An individual can claim
deduction of Rs 25,000 for health insurance premiums paid for insuring the health of self or family, and Rs 25,000 for health of the
If insured is a resident senior citizen, the limit will be Rs 50,000
Medical expenses for resident senior citizens are also allowed as a deduction up to a maximum of Rs 50,000 if they do not have a health
Medical expenses have substantially increased over the years especially due to the global pandemic
This has necessitated opting for health insurance plans with higher coverage and resultant higher premiums
Hence, it would be beneficial for individuals if these limits are increased.Also Read | Union Budget 2023 income tax: Why FM Sitharaman
should hike standard deduction - tax saving explainedChildren Education allowance: Children Education Allowance and Hostel expenditure
allowance are exempt up to Rs 100 and Rs 300 per month respectively
These limits set in August 1997 continue till date
As compared to the high expenses that are incurred on school and hostel fees in the present day, the current limits are insignificant and
there is a need to revisit these exemptions.Deduction for interest paid on self-occupied house property: The limit of Rs 2,00,000 for
deduction of interest on housing loan for a self-occupied property was set in financial year 2014-15
The interest on housing loan is now much higher with increase in interest rates
Further, additional deduction of Rs 1,50,000 for interest on housing loan is available to taxpayers only if stipulated conditions are met
Hence, there is an expectation that this limit will be increased to at least Rs 3,00,000 to give some relief to taxpayers
Another associated relief that could be brought in is the removal of the cap of Rs 2,00,000 on set-off of loss from house property against
other heads of income.Also Read | Union Budget 2023: Will hiking basic exemption limit under new tax regime benefit taxpayers? ExplainedThe
Singapore and Germany provide for various deductions for individual taxpayers
Singapore has child relief of SGD4,000 per child, spouse relief of SGD2,000, dependent parent relief of SGD9,000 etc
These deductions are in addition to earned income deduction in the range of SGD1,000 to SGD8,000
Similarly, Germany provides for children allowance of EUR227.50 per child per month and 30% deduction for school fees subject to a cap of
These limits are much more in tune with current inflation and cost levels
In addition, many countries provide for standard deduction/ personal allowance for individuals and some countries also permit employees to
claim a deduction for the expenses incurred wholly in performance of duties and expenses incurred in working from home.Also Read | Union
Budget 2023-24: Why exemption for interest on savings bank account should be hikedThe ask for changes in these limits has been coming up in
the past few years as well and while the government has been making a few changes and also introduced the concessional tax regime, a greater
emphasis to relook at both the limits and the types of deductions/ exemptions is the need of the hour
(Surabhi Marwah is Tax Partner, People Advisory Services, EY India
Ammu Sadanandhan, Director, People Advisory Services, EY India also contributed to the article
Views expressed are personal)
