Changes to the Income Tax Slab and Rates are expected in the Budget: Will the Rs 2.5 lakh Basic Exemption Limit be Increased?

  • 25 Jan 2022
  • Budget, Income Tax
  • Comments Off on Changes to the Income Tax Slab and Rates are expected in the Budget: Will the Rs 2.5 lakh Basic Exemption Limit be Increased?

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.”

The govt has extended the deadline for filing corporate ITRs for FY21. 15th of March, tax audit report due by February 15th

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.

Have an Aadhaar card? At incometaxindia.gov.in, use it to apply for an Instant e-PAN

Have an Aadhaar card? At incometaxindia.gov.in, use it to apply for an Instant e-PAN

There are specific documents that you must have in order to confirm your identification and to receive government benefits. Aadhaar Card is one of these papers. Permanent Account Number (PAN card), and Voter ID are just a few examples. Do you have them all? If not, you can apply for all of these IDs by visiting the relevant websites. If you have an Aadhaar card, you can apply for an e-PAN with your Aadhaar number. It should be noted, however, that this service is only available if you do not have a PAN but do have a valid Aadhaar card and your KYC information is up to date.

The Unique Identification Authority of India (UIDAI) issues Aadhaar cards, which can be used to gain benefits such as submitting Income Tax Returns, opening a bank account, and so on. The Income Tax Department is in charge of issuing the PAN Card. For the uninitiated, an e-PAN is a digitally signed PAN card issued by the Income Tax Department in electronic or digital format.

You should be aware that quoting your PAN when filing your income tax return is required. If you do not yet have a PAN, you can get an e-PAN by using your Aadhaar number and a mobile number associated with your Aadhaar. Additionally, generating an e-PAN is a free, online process that does not require you to complete any documents.

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Step-by-step instructions on how to apply for an e-PAN using Aadhaar.

Step 1: Go to the Income Tax Department’s official website or go to the https://www.incometax.gov.in/iec/fo portal.

Step 2: From the homepage, select the ‘Instant E-PAN’ option from the ‘Quick Links’ area.

Step 3: A new page will open; select ‘Get New e-PAN’ from the drop-down menu.

Step 4: Next, for PAN allocation, input your Aadhaar number and check the ‘I confirm that’ box before pressing the ‘Continue’ button.

Why may the cap on tax-saving deductions under section 80C be increased in Budget 2022?

Step 5: On your registered mobile number, you will receive an Aadhaar OTP. You must enter the OTP in the appropriate field and then click the ‘Validate Aadhaar OTP and Continue’ button.

Step 6: Click the Continue button after accepting the terms and conditions on the OTP Validation screen.

Step 7: Enter your OTP, check the box, and press the Continue button again.

Step 8: If your email ID has not been authenticated, click Validate email ID, enter your credentials, and click the Continue button.

Step 9: After you submit your Aadhaar details for validation, you will be granted an acknowledgment number. Entering your Aadhaar number will allow you to check the status of your PAN allotment.

Step 10: To download the e-PAN, complete the first two steps, then click the ‘Check Status/Download PAN’ option, enter your Aadhaar number and captcha code, touch the Submit icon, validate by entering the OTP, and finish the process.

Step 11: If the PAN allocation was successful, a PDF file link will be sent to you within 10 minutes.

The government has decided to levy a tax on ULIP investments over Rs 2.50 lakh.

 The government has decided to levy a tax on ULIP investments over Rs 2.50 lakh

The Central Board of Direct Taxes (CBDT) has issued a notice that explains how to track ULIP charge exception status. It was planned in Budget 2021 to remove the expenditure exempt status on the pay of ULIPs if the annual premium exceeds Rs 2.5 lakh. Nonetheless, there were many questions about how the system would work, notably because of a few ULIPs, which included both pre-Budget recommendations and those secured afterward.

It’s worth noting that old ULIPs purchased before February 1, 2021 were considered entirely free of charge; nevertheless, this doesn’t mean you can’t buy new ULIPs with a premium of up to Rs 2.5 lakh and profit charge exemption. According to the most recent CBDT warning, both new and existing ULIPs’ absolute premiums would be assessed for exclusion, and if the sum is greater than Rs 2.5 lakh, this exemption will not be available for new ULIPs exceeding Rs 2.5 lakh.

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Calculation of the assessment for additional withdrawals

According to the letter, the policyholder’s incentives and withdrawals will be recognised as capital additions. In light of this, evaluation will be based on it. Because ULIPs are financial exchange-linked, withdrawals made before one year will result in a 15 percent transient capital increase tax. Withdrawal of speculation after one year will result in a ten percent increase in long-term capital accumulation.

Others took advantage of low-wage workers.

The government stated in its fiscal plan for 2021 that persons with major league incomes take use of the benefits available to small investors. The purpose of the charge exception on modest reserve funds is to assist small investors. In this vein, the government has decided to levy a penalty on ULIP interests over Rs 2.50 lakh in order to prevent major league paid workers from abusing the system.

Why may the cap on tax-saving deductions under section 80C be increased in Budget 2022?

PF regulations have also been altered.

The government has also decided to levy a fee on excess interest in the Provident Fund (PF) and Employees Provident Fund (EPF) (EPF). There is no organisation commitment in this, and assessment should be paid on ventures of more than Rs 2.50 lakh yearly in PF and Rs 2.50 lakh in EPF. Individuals with greater wages were allegedly abusing tax-free higher premiums, according to the government.

Keep an eye on your profit.

The government is keeping an eye on all speculation-related investments, including ULIPs. Since the previous year, the Personal Tax Department has been issuing Annual Information Statements (AIS). It details the intricacies of each of your ventures, as well as the income and expenses that are relevant in the future.