By S. Ravi, Former Chairman of Bombay Stock Exchange (BSE); Founder and Managing Partner of Ravi Rajan & Co.
The 2023 Budget is the last full-year budget before the general elections in 2024. The Indian government has a challenge on hand: with global recession knocking at our doors, global GDP growth is expected to slow down to 2.7% in 2023, and not to forget our own fiscal deficit which is projected to be 6.4% of GDP in FY23. The government is also reeling under the pressure of lackluster collection from disinvestment, which has been to a certain extent offset by higher personal tax and GST collections in this financial year. Most nations, including India, are burdened by the stimulus packages offered to tackle the pandemic and the inflationary pressures on account of the Russia-Ukraine War.
In order to pave way for tackling inflationary pressures, along with sustained GDP growth and reduced fiscal deficit, the option before the Hon’ble FM could be limited with the main focus being enhanced capital expenditure to alleviate the hurdles bogging the economic growth and to provide reasonable disposable income in the hands of the common man to keep the consumption story intact.
Given the aforesaid backdrop, it would be a tough call for the Hon’ble FM to consider the personal tax expectations of the common man to enhance spending capability considering the inflation, high cost of living, and high rate of interest. However, a few of the areas wherein personal taxpayers are looking for relief are increasing the standard deduction, enhancing basic exemption limits, increasing 80C exemption limits, reworking the income tax slab rate, increasing the deduction limit under Section 80D, increasing deduction on home loan interests, allowing higher children’s education allowance, and increasing exemption limits for PF contribution to INR 2.5-INR 3 lakhs per annum, to name a few.
Revamping Tax Slabs and Enhancing Basic Exemption & Standard Deduction Limits
It would provide immense benefit to the lower income groups already riddled with debts on account of the pandemic and cost of living pressure if the basic exemption limit is increased to INR 5 lakhs from the present level of INR 2.5 lakhs. Another aspect could be increasing the standard deduction limit from the present INR 50,000 (which was announced in the interim budget of 2019) to INR 1,00,000. This would provide impetus to spending as well as saving by the common man.
In the current personal tax regime, the tax rate is in the range of 5% to 42.744% for people earning more than INR 5 crores. It would be a welcoming move if a new slab is introduced and taxed at 25%. It could be called wishful thinking, but revisiting the surcharge rate on personal taxes would be highly appreciated.
80C, 80D Limit, and Children Education & Hostel Allowance Enhancement
It has been over a decade since the government left the 80C deduction limit untouched. To mobilize funds for investment in infrastructure spending through government investment mechanisms like the Public Provident Fund (PPF), National Savings Certificate (NSC), and insurance premiums, one can wish for an increase in this deduction limit from the present INR 1.5 lakhs to INR 2.5 lakhs.
The pandemic has further highlighted the need for adequate medical coverage. To boost investment in this segment as well as keep in view the steep rise in medical and hospitalization expenses, an increase in the deduction by INR 50000 would go a long way.
Another expense of the common man which has increased significantly over the years has been the cost of education. Increasing the children’s education and hostel allowance level from INR 100 and INR 200 respectively to INR 2000 and INR 5000 per child could be considered, as the tuition fees for educating children have been rising high, but the government has not considered raising the allowance for over 2 decades.
It is crucial that the government, instead of relying on borrowing, encourages the average person to save more money. This will enhance the amount of money available for public spending. Further, with a continuous increase in repo rates, the cost of home loans has been increasing with rising interest rates. In order to provide an engine to push the growth in the affordable housing and real estate sector as well as provide some relief to first-time home buyers under Section 24 (b) of the Income Tax Act, the maximum amount of deduction could be enhanced to INR 3 lakhs from the present INR 2 lakhs per financial year for a self-occupied property.
The expectations are running high from the Hon’ble FM due to the double whammy on the common man, that is, the already-rising domestic living expenses and interest rates may continue to rise on account of geo-political pressures, as well as erosion of savings due to the pandemic. However, the Hon’ble FM has to find a balance between the continued growth of the economy, plugging the gap of fiscal deficit, and maintaining required tax collections. Fulfilling a few on this long wishlist will relieve at least some concerns of the common man.
