Budget 2024: 4 ways the FM can make the new income tax regime more attractive

incomes not exceeding Rs 7 lakh. The highest surcharge was eliminated, and most deductions and exemptions are not allowed under the new tax regime. Increasing the standard deduction in Budget 2024 will encourage more people to opt for the new income tax regime.

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“It is anticipated that the government may raise the income tax exemption limit to Rs 5 lakh from the current Rs 3 lakh limit under the new tax regime in the upcoming Budget 2024. The new tax regime is the default tax regime now. However, there are a lot of employees opting for the old tax regime to avail of HRA exemptions, 80C deductions, etc. For the benefit of all, it is expected that the increase in income tax exemption limit in the new tax regime is extended to people opting for the old tax regime as well which is at par with the new tax regime. Similarly, increasing the standard deduction from the current level of Rs 50,000 would also help,” Aarti Raote, Partner, Deloitte India wrote in an earlier column for ET Online.

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Starting from FY 2023-24, the new tax regime offers two deductions for salaried individuals to save income tax: standard deduction and National Pension System (NPS) contributions by the employer. Tax experts suggest that more income tax deductions should be included in the new tax regime to attract a wider group of salaried individuals. Although the new tax regime offers lower income tax rates and more tax brackets, it doesn’t allow deductions under sections like 80C or 80D. In Budget 2024, the government should consider allowing deductions for employee contributions to the Employees’ Provident Fund (EPF) under Section 80C and NPS under Section (1b) for up to Rs 50,000 to improve the new tax regime’s acceptance and encourage retirement savings.

Certain tax deductions, such as NPS employee contributions, medical insurance premium deductions under Section 80D, up to Rs 2 lakh interest on home loans, and interest earned on savings bank account under Section 80TTA, should also apply in the new tax system.

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The government’s recent budgets have emphasized the expansion of NPS and the new personal tax regime. Various measures have been put in place to enhance the attractiveness of both schemes.”Presently, the additional deduction in respect of voluntary contribution of Rs 50,000 under section 80CCD(1B) is allowed under the old tax regime only. The government may consider allowing the said deduction under the new tax regime also. This would serve a two-fold purpose with the taxpayers enjoying additional deduction under the new tax regime and higher investment in the retirement scheme aligned with the government’s objective to promote the new tax regime,” Chander Talreja, Partner, Vialto Partners wrote in a column for ET Online.

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