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As we approach the full budget of 2024 after the general elections, it presents the government with an excellent opportunity to refine the provisions of salary taxation to make it more effective and supportive of the salaried individuals and spur overall economic growth. Time and again the government has acknowledged the contribution of salaried individuals in the overall direct tax collections.
As taxpayers eagerly anticipate the Budget announcements, there are various areas of salary taxation where amendments could positively impact the salaried individuals. Some of the key Budget 2024 expectations are:
The new concessional personal tax regime aims to provide lower tax rates for individual taxpayers as compared to the old tax regime and therefore a lot of Individual taxpayers can benefit by opting this. However, most of the commonly availed deductions and exemptions which salaried individuals used to claim under the old regime have been removed under the new tax regime. Therefore, to make the new tax regime more attractive, its essential to retain commonly availed benefits by salaried individuals such as exemption for House Rent Allowance, interest paid on housing loan for self-occupied house property, deduction for employee’s contribution to PF, health insurance etc. It is important to note that these tax benefits were historically an integral part of tax planning for salaried individuals. At macroeconomic level, denying these tax benefits discourages investments by individuals in certain investments, insurances, real estate etc. Hence, a single version of the personal tax regime retaining key aspects of the tax regime with few benefits from the old tax regime is proposed.
To provide relief to the salaried individuals, the standard deduction of INR 40,000 for salaried individuals was reintroduced in Budget 2018. The said limit was enhanced to INR 50,000 w.e.f. April 1 2020. There has been no change in this limit since then. The government may consider bringing an indexed standard deduction similar to capital gains provisions so that standard deduction can effectively beat inflation for the employees.
Presently, only Chennai, Mumbai, Delhi and Kolkata qualify as metro cities for House Rent Allowance (HRA) calculations under the Act and are eligible for exemption of 50% of salary. Non-metro cities are eligible for HRA exemption of 40% of salary. It is worthwhile to note that the cities like Bengaluru, Hyderabad, Gurgaon, Pune, etc., have experienced significant progress in terms of infrastructural development and are at par with the traditional metro cities. As a result, these urban centres now attract a much higher rent outflow, sometimes surpassing the rent paid in the traditional metro cities. Therefore, Budget 2024 should include these established cities under metro cities category and allow 50% allowance for these cities as well.
The value of free food and non-alcoholic beverages provided during the working hours by the employer at business premises or through electronic meal cards which are not transferable and usable only at eating joints is non-taxable up to INR 50 per meal. However, the current threshold of INR 50 per meal for food coupons or canteen expenses may be insufficient given the rising costs and good quality of food to be provided to employees. Accordingly, there is a need to enhance this limit of INR 50 per meal significantly.
Once considered a privilege, work from home has now become a necessity considering urban traffic and flexibility provided by employers especially post COVID. A lot of companies have allowed employees to work remotely or on a hybrid model. Consequently, work from home benefits for employees have gained popularity in industry. For example, one time home office setup cost provided by the employer to employees is the most common benefit provided to employees working from home or opting for Hybrid working style. However, no clear guidelines have been issued in terms of taxation/ exempting such benefits and reimbursements given by employers.
Currently, exemptions of INR 100 and INR 300 per child per month for education and hostel expenses (for up to two children) is available under the Act. Considering the significant rise in cost of education, it would be reasonable to revisit and consider raising the limits significantly so that the provisions remain relevant with the changing times.
As the full budget by the new government is on cards, there is hope and anticipation that there would be announcements providing relief to salaried taxpayers which would enhance their take home salaries and provide increased disposable income for increasing consumption.
This article first appeared in The Economic Times on 5 July 2024.
