Budget 2024: Why government should double standard deduction limit

Budget 2024: Why government should double standard deduction limit

Doubling the standard deduction limit and raising the basic exemption limit are amongst the key expectations from the government ahead of the full budget in July.

Experts argue that increasing the standard deduction limit from Rs 50,000 to Rs 1 lakh would effectively alleviate the tax burden on salaried taxpayers, potentially stimulating consumption and bolstering overall demand in the economy.

Prominent tax and consultancy firm EY has presented a case for doubling the standard deduction under the concessional tax regime to Rs 1 lakh or increasing the basic exemption limit to Rs 3.5 lakh, highlighting the need for a more taxpayer-friendly framework.

EY has outlined several priorities for taxation reforms in the upcoming budget, including maintaining stability in corporate tax rates, rationalising TDS provisions, and streamlining dispute resolution mechanisms.

These reforms are essential for fostering economic growth, encouraging investment, and ensuring a conducive business environment.

Currently, taxpayers have the option to choose between the old regime, which offers various exemptions and deductions, and the new concessional regime with lower tax rates and a standard deduction of Rs 50,000 but no exemptions.

Increase standard deduction, basic exemption limit

EY recommends enhancing the attractiveness of the new tax regime by raising the standard deduction to Rs 1 lakh, thereby making it more appealing to taxpayers seeking simplicity and lower tax liabilities.

It suggested that the government could also consider raising the basic exemption limit from Rs 3 lakh to Rs 3.5 lakh.

Among other tax-related changes,EY highlighted the importance of further enhancing interface capabilities with the Central Processing Centre (CPC).

It said this improvement is crucial to address persistent challenges faced by taxpayers in income return processing.

EY also noted the complexity in the current structure of Tax Deducted at Source (TDS), which spans 33 sections with varying rates from 0.1% to 30%. It said simplifying these rates by consolidating categories and creating a small "negative list" of non-liable payments for TDS could significantly reduce compliance burdens and streamline processes.

Efforts to expedite faceless appeals at the first appellate authority level and enhance the Advance Pricing Agreement (APA) process are also recommended by EY.

These measures aim to improve transparency, fairness, and efficiency in dispute resolution, crucial for fostering a business-friendly environment and promoting economic resilience.

In the upcoming budget, taxpayers are hoping for some positive tax relief measures. Reports indicate that the government is considering plans to provide some tax relief, either by rationalising tax slabs or by raising the basic exemption limit.

Finance Minister Nirmala Sitharaman is likely to present the full budget on July 22 or 23, 2024.