Changes to the Income Tax Slab and Rates are expected in the Budget: Will the Rs 2.5 lakh Basic Exemption Limit be Increased?
Income Tax Slab, Rates Changes Expected in Budget 2022
The Union Budget 2022 is expected to provide significant tax relief to taxpayers. In a pre-budget study recently conducted by KPMG, most of the respondents stated they expected an expansion in the basic income tax exemption level of Rs 2.5 lakh.
“On the individual tax front, most respondents anticipate an increase in the INR2.5 lakh basic income tax exemption level. “Respondents also support an increase in the present section 80C deduction ceiling of INR 1.5 lakh, as well as an upward revision in the top income band of INR 10 lakhs and above,” according to the poll study.
The fundamental exemption limitations were last updated in 2017-18, according to Abhishek Soni, Co-founder and CEO of Tax2win. As a result, it is envisaged that the basic exemption ceiling would be increased in this budget, allowing middle-class taxpayers to lower their tax payment to some extent.
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During the study, respondents were questioned about the most anticipated change for individual taxpayers, and the following replies were given:
- The government should raise the income cap of Rs 10 lakh at which the maximum marginal rate of 30% tax is triggered, according to 29% of respondents.
- The Section 80C deduction ceiling of Rs 1.5 lakh was hoped for by 36% of respondents.
- For the salaried class, 19% of respondents predict an increase in the standard deduction ceiling of Rs 50,000.
- With work from home arrangements in mind, 16 percent foresee tax-free allowances/perks for paid employees.
Limits under Sections 80C and 80D have been raised.
“The government should offer a separate deduction under Section 80C for house loan principal repayment.” For a long time, the limit under Section 80C has not been changed, and many things are already covered or qualify within the limit of Rs. 1,50,000. As a result, there is a good likelihood that it will be improved this year.”
“Furthermore, given the rise in real estate prices over time, the government should enable a separate deduction for principal repayment of home loans, rather than including it in the section 80C limit,” he added.
Because the restrictions on Section 80C and Section 80D have been unchanged for so long, they are almost certain to be raised this year. Additionally, substantial direct tax collections this fiscal year may aid in the modification of these ceilings upward.
“A bigger deduction under Section 80C for the Equity-Linked Savings Scheme (ELSS) might be allowed, or a separate maximum should be set to encourage additional mutual fund investments in India,” says the report.
A new tax system has been implemented.
“Many experts believe that the two tax regimes continue to perplex the average person. To make the new regime more appealing, the government may consider raising the maximum tax slab from Rs.15 lakh to Rs.20 lakh, or allowing certain deductions. The salaried class did not receive any significant relief in Budget 2021.”
Changes to the Standard Deduction Limit
This budget is likely to boost the standard deduction limit from Rs. 50,000 to Rs. 1,00,000. This would lessen the tax burden on employees while also taking into account the rate of inflation and the purchasing power of salaried individuals.
Tax-free work-from-home allowances for paid employees may be introduced in Budget 2022. Allowing such deductions will increase take-home pay, resulting in increased demand for goods and services in the country. “Given this fiscal year’s high direct tax collection, there may be room to enhance tax deduction limitations.” For example, the standard deduction given to individuals on salary income, which is presently Rs.50,000, may be increased. Every year, this might be modified for inflation.”
Isn’t there going to be a change in the tax rate?
Despite all of the high hopes for Budget 2022, EY experts believe that business and personal tax rates would remain unchanged this year. “Corporate and individual tax rates are anticipated to remain unchanged.” The standard customs duty rate may not change. There may be some change in duty rates in India to encourage value addition and straighten the inverted duty structure,” says the report.