Budget 2024: Higher standard deduction, tax bracket adjustment on cards for salaried class? Experts weigh in

  • Budget 2024: While tax relief for the salaried class through increased standard deductions or adjusted tax brackets is on the table, some experts propose a more radical shift: giving employees control over their salary structure to maximise tax benefits.

Shivangini
First Published10 Jul 2024, 04:42 PM IST
Union Budget 2024: Will the salaried class get control over their pay structure to maximise tax benefits?
Union Budget 2024: Will the salaried class get control over their pay structure to maximise tax benefits?

Union Budget 2024: As the Union Budget for FY2024-2025 is set to be tabled by Finance Minister Nirmala Sitharaman on July 23, various industry leaders and experts have shared their expectations, particularly concerning the salaried class. Experts expect measures to increase disposable income, especially for lower-income groups. This could involve raising the standard deduction or tax brackets. Some believed employees should have more control over how their salaries are structured to take advantage of tax benefits. Most experts, in a concerted voice, recommend increasing contribution limits for tax-saving schemes like Section 80C and NPS to promote savings and investment. Tax experts share their expectations from the upcoming budget that can offer some relief for the salaried class.

Vijay Kumar Gupta, Member NIRC-ICAI, outlined several broader tax reforms to incentivise growth and investment.

“Implementing a simplified tax filing system can reduce the burden on salaried individuals. This can include pre-filled tax returns based on employer-provided information. Raising the standard deduction can leave more money in the hands of salaried individuals, encouraging spending and investment. Adjusting tax brackets annually based on inflation would prevent bracket creep, ensuring that salary increases are not unduly taxed,” Gupta noted. 

Gupta pointed out that offering tax credits for expenses related to further education and skills training can encourage the salaried class to invest in professional growth.

According to Gupta, providing higher tax deductions for contributions to retirement savings plans can promote long-term financial stability and increase disposable income for investment. Expanding deductions for healthcare expenses, including insurance premiums and out-of-pocket costs, can reduce the financial burden on salaried individuals.

He emphasised that an increase in the standard deduction or adjusting tax brackets would lead to higher disposable income and spending, savings, and investments, ultimately boosting economic growth.

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Pankaj Dhingra, CA&CPA, said, "Beyond individual tax relief, I would recommend increasing the standard deduction from 50K to 100K and adjusting tax brackets for inflation. Also, incentivising savings and investments, such as increasing the deduction u/s 80C from 1.5 lakh to 2 lakh, would encourage growth and financial stability within the salaried class."

He believed that these changes would boost disposable income, providing more financial flexibility, leading to higher spending on essential and discretionary items, increased savings, and investments.

Anita Basrur, Partner-Direct Tax, Sudit K Parekh & Co LLP, highlighted the need for increased deductions to incentivise large salary earners. “Considering the fact that for the last many years, the cap on deductions has remained unchanged and are very meagre amounts, the amount of deductions need to be increased,” Basrur said.

On how an increase in the standard deduction or tax brackets would impact disposable income, she said, "Increase in the standard deduction would have an impact on the disposable income in the case of small taxpayers, though it would not have any major impact for the others. An increase in tax brackets would surely increase disposable income at all levels and could better the spending patterns."

Basrur's expectations from the upcoming Budget included an increase in the standard deduction from 50,000 to 1-1.25 lakh, and an increase in the deduction of interest on housing loans from 200,000 to 500,000, or at least based on income slabs. Additionally, an increase in deduction under 80C based on income slabs would be helpful.

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Avinash Godkhindi, MD & CEO of Zaggle, said employees should have the freedom to structure their salaries in accordance with income tax laws, advocating for the removal of restrictions imposed by employers. Currently, several tax benefits such as employer NPS, LTA, and various tax-efficient perquisites like meal coupons, car leases, driver salaries, fuel and maintenance, books and periodicals, uniform allowances, and gifts up to 5,000 are available under income tax laws. "However, many corporations do not fully provide these benefits to their employees," Godkhindi noted.

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Ameet Venkeshwar, CBO, LoanTap, said, “In the upcoming Union Budget FY25, we expect the government's commitment to be more towards economic growth and social development.” The fiscal deficit numbers are expected to be aligned with the numbers set around 4.9 per cent to 5.1 per cent of the GDP without compromising on capital spending. "We expect some measures to be taken to make more liquidity available in the system. Tax relief measures, especially for the low-income group, may be implemented to increase their spending power and stimulate the economy. Moreover, there may be an increase in standard deduction slabs for salaried taxpayers who are key to driving India's economic progress and achieving long-term prosperity," Venkeshwar stated.

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First Published:10 Jul 2024, 04:42 PM IST
HomeMoneyPersonal FinanceBudget 2024: Higher standard deduction, tax bracket adjustment on cards for salaried class? Experts weigh in

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