A senior government official informed Business Standard that in the forthcoming Interim Budget on February 1, Union Finance Minister Nirmala Sitharaman is considering the introduction of further tax waivers or exemptions exclusively applicable to the Old Income Tax regime. The proposed measures may involve extending income tax exemption thresholds to around Rs 7 lakh and introducing additional benefits for women farmers.
The proposed measures, combined with initiatives to enhance the direct tax system, are not anticipated to adversely impact the government’s projected fiscal deficit figures.
It’s noteworthy that Finance Minister Sitharaman has explicitly stated that the February Interim Budget will lack any “spectacular announcements.” Major changes are not expected until the full Budget is presented in July, following the Lok Sabha elections.
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Over the past three to four years, the Finance Minister has implemented numerous income tax-related regulations for taxpayers. In the fiscal year 2020-21, the finance ministry introduced an optional simplified income tax regime, resulting in significant reductions in tax rates and a decrease in opportunities for exemptions.
In the FY24 Budget, Finance Minister Sitharaman implemented substantial modifications by introducing the New Tax Regime as the default option. She enhanced incentives to bolster the new tax system, offering a complete tax rebate of up to Rs 7 lakh, an increase from the Rs 5 lakh limit under the Old Tax system.
The current tax slabs in the old tax regime were established by Late Pranab Mukherjee through the Finance Act, 2013, setting the basic exemption limit at Rs 2 lakhs. Subsequently, in 2015, the basic exemption limit was raised to INR 2.5 lakhs and has remained consistent since. The tax rate for the income bracket between 2.5 to 5 lakhs was further reduced in 2018, dropping from the existing 10% to 5%.
Through the interim Finance Act, 2019 (No. 1), a rebate of INR 12,500 was introduced for individuals with total taxable income up to INR 5 lakhs. Consequently, individuals earning up to INR 5 lakhs had no income tax liability. However, once a person’s taxable income exceeded the threshold of INR 5 lakhs, their tax liability surged by a significant INR 13,000 (tax + cess).
The government might contemplate revising the tax slabs for both regimes. In addition to raising the basic exemption limit, there should be an increase in the rebate threshold. Furthermore, a reduction in the surcharge rate should be considered by the government.
