With Finance Minister Nirmala Sitharaman preparing to present the Union Budget on February 1, 2025, everyone is waiting with bated breath to see what the government has in store for individuals. This will Ms Sitharaman's eighth budget presentation, in which she will place before the nation key fiscal policies, revenue and expenditure plans, and potential tax reforms. In the last two Budgets, several key changes were introduced by the government, with the Concessional Tax Regime (CTR) gaining a lot of attention. The CTR slabs were revised to provide additional tax saving, encouraging more taxpayers to transition to CTR.
Rama Karmakar, tax partner at EY India, said, "With the upcoming Union Budget 2025, there is a lot of optimism among individual taxpayers for potential tax legislation reforms which would benefit taxpayers. There is anticipation that the upcoming Budget will raise the basic exemption limit from Rs 3 lakh to Rs 5 lakh under the CTR. Taxpayers opting for the old tax regime are also hopeful that the tax rates under this regime may get rationalised."
"Taxpayers residing in urban areas and paying rent can claim tax benefits on their House Rent Allowance (HRA) under the old tax regime. The exemption is capped at either 50% or 40% of the basic salary, with the higher percentage applicable to those living in metropolitan cities. As cities like Bengaluru, Hyderabad, Gurgaon, and Pune experience rapid expansion, classifying them as metropolitan cities would enable taxpayers to qualify for the increased HRA exemption. This move would financially benefit many taxpayers in these cities," he further said.
The tax expert then advocated for increasing the enhancement cap of Rs 2 lakh on tax deduction on home loan interest payment in the old regime, saying it will "positively impact taxpayers".
"Electric Vehicles (EV) have gained a lot of popularity in India off late. Many employers provide EVs to employees for both personal and official use. However, there is no clarity on how the perquisite value for such vehicles needs to be determined, creating a lot of ambiguity and practical challenges for employers. It will be helpful if clarity is provided for perquisite valuation for EVs provided to employees," said Karmakar.
Another relief for individuals could come in the form of deferment of taxability of interest on provident fund (PF) contributions.
Karmakar offered another suggestion to make the Budget attractive for individuals. "Currently, tax payment deferral on Employee Stock Option Plan (ESOP) until the stage of sale is available only to employees working in certain eligible start-ups. However, other companies also rely on ESOPs to retain and attract employees, but these ESOPs are taxed at the time of exercise. There is an expectation that the benefit of tax deferral until the point of sale be extended to all companies, ensuring uniform taxation for ESOPs."
"There is a lot of expectation from the upcoming Budget to bring about changes which will streamline processes and provide clarity to individual taxpayers on various aspects. Also, some of these changes will leave more disposable income in the hands of taxpayers, leading to a rise in consumer spending and consequently stimulating economic growth," the expert said.
Alfred S Rodrigues, Director - Tax, EY India, also contributed to the article. The views are personal.
