Expectations from the Union Budget 2024-25: An Interim Budget

Introduction

The Union Budget 2024 is to be presented by Finance Minister Nirmala Sitharaman on February 1, 2024, and is anticipated to be an “Interim Budget” which means a temporary budget or trial budget until the general elections, ruling out any significant announcements. This interim budget is going to address tax deductions, changes in tax slab, capital gain, TDS compliance for home buyers, infrastructure investment, fiscal deficit, etc. The full budget is expected to be presented in July after the new government comes to power. In this blog, we will walk you through the key highlights that are going to be discussed in the Union Budget of 2024.

Key Expectations from the Upcoming Union Budget 2024

1. Changes in Income Tax Sectors

• Individuals can now enjoy relaxation in income tax rates as the government is expected to increase the threshold amount for each tax slab or reduce the rate of tax slabs.

• The standard deduction for salaried individuals is expected to increase from 50,000 rupees to 1 lakh rupees. Salaried individuals will expect a new deduction specifically for repaying home loans, along with increased allowances in Sections 80C and 80D. Measures will be taken to incentivize the transition to the new tax system for home loan borrowers.
• To encourage individuals to save more for their future, the government is expected to raise the limit for Section 80C from the current Rs. 1.5 lakhs.
• The tax deduction limit in Section 80G is going to increase from ₹25,000 to ₹50,000, for individuals and from  ₹60,000 to ₹75,000 providing a higher scope for claiming deductions on expenses such as medical insurance premiums and education loans.

2. Simplify the TDS compliance process for home buyers

• The current process of deducting 1% TDS on property purchases exceeding INR 50 lakh needs to be simplified, especially for Non-Resident Indian (NRI) sellers.
• Non-resident Indian (NRI) sellers face more complexity in the TDS process compared to resident sellers.

3. Changes in GST Law

The Interim Budget 2024 is expected to focus on streamlining Customs law compliance rather than GST law. While the GST Council meetings predominantly address GST law, there may be amendments to the Central GST Act to align with recently passed GST Rules.

1. In the upcoming budget, a revised annual GST return form is expected to be introduced, allowing taxpayers to rectify errors in the GSTR-9 form, particularly for B2B transactions. This measure will aim to prevent unnecessary scrutiny by tax officers due to errors in the originally filed returns.

2. A new reverse charge-based mechanism will be implemented for better GST compliance. Buyers who are large taxpayers with turnovers exceeding Rs.100 crore or Rs.500 crore will be able to directly pay GST dues to the government instead of their small vendors.

4. Capital Gain Tax

The current capital gains tax regime is complex and poses challenges for investors due to various factors such as asset classes, holding periods, tax rates, and residency status. To simplify this process, the government should streamline the classification of equity and debt instruments, unify tax treatment for listed and unlisted securities, and simplify indexation provisions.

5. Bengaluru to be eligible for HRA deduction

Despite being recognized as a metro city by the Indian Constitution, Bengaluru is classified as a non-metro for income tax purposes. This classification limits the House Rent Allowance (HRA) deductions for Bengaluru residents to 40% instead of the 50% available in other metro cities. To rectify this discrepancy, Bengaluru should be considered a metro city for HRA exemption purposes. This adjustment would ensure that Bengaluru residents receive the same HRA benefits as residents of other metro cities and provide them with the necessary financial support for their housing expenses.

6. Fiscal Deficit  

Budget 2024 is expected to bring about significant changes in the fiscal deficit. It is projected to be lower than the previous year’s target of 5.9 % of GDP. Additionally, estimates for FY25 indicate that the fiscal deficit will range between 5.4-5.5 % of GDP. However, these estimates are contingent upon the government’s ability to increase revenue and effectively control subsidy provisions.

7. Other Expectations

• The budget may include measures to promote green growth and reduce the country’s carbon footprint. The government has been taking steps to promote renewable energy and reduce the country’s dependence on fossil fuels.
• The travel and tourism industry experts expect positive changes in the upcoming interim budget.
• The National Pension System (NPS) could receive tax concessions on contributions and withdrawals, especially for senior citizens above 75 years.
• The upcoming interim Budget may announce a significant increase in the agricultural credit target for the next fiscal, aiming for ₹22-25 lakh crore.
• The concessional 15 percent income tax rate for corporations setting up new manufacturing units could be extended for one more year till March 31, 2025.
• Expecting a complete regulatory framework for cryptocurrencies following the successful G20 Summit discussions on the topic.
• The Railways department may receive a budget allocation of around Rs 3 lakh crore, with plans to produce 400+ fuel-efficient Vande Bharat trains.
• The pharmaceutical sector hopes for a substantial budget allocation considering its scale, success rate, high risk, and economic factors.
• Many developers in the real estate sector are hoping for a reduction in interest rates on project finance.
• The government is expected to support the current momentum by implementing initiatives that improve the affordability index, such as increasing the limit for tax deductions for home loan interest and implementing the interest subvention scheme for urban housing.

Conclusion

In conclusion, these are the expectations from different sectors. This time the Union Budget is going to focus on individuals and rural areas rather than companies. As the interim budget, it may not include spectacular announcements, but it will offer valuable insights into the government’s economic priorities and strategies like tax slabs, tax deductions in medical expenses under Section 80G, fiscal deficit etc.