What are the taxpayers’ expectations from budget 2023?

The year is coming to an end and the plans for the new year have already begun. A lot of our plans depend on how our economy is moving, and our Union Budget is a reflection of that. Here, we list some expectations of taxpayers from the budget 2023.

Capital gains tax: At present, capital assets have different holding periods and tax rates. This needs to be simplified. For example, units of debt funds and gold need to be held for a minimum of three years to be classified as a long-term capital asset, units of equity funds and listed equity shares need to be held for one year and real estate and unlisted stocks need to be held for two years. Equity is a long term asset class. Very often, investors are seen booking profits on their stocks and mutual fund units beyond a one-year holding period as only 10% rate is applicable on long-term capital gains beyond the exemption limit of ₹1 lakh. There is a need to encourage long-term investing with suitable tax provisions. There should be no tax on capital gains if the investments in listed stocks, unlisted stocks or equity mutual funds are held for minimum 10 years.

Tax on share buybacks: With respect to equity there is a provision for share buybacks. There are two types of buyback - tender offer and open market offer. In tender offer, the company makes an offer to buy back its shares at a particular price (offer price) at which the shareholders can tender. In case of tender offer, the company pays tax at a rate of 20% plus surcharge plus cess i.e. 23.3%. The shareholders do not pay any tax on the capital gains. Whereas in open market offer the company buys back its shares by actively buying from sellers on the exchange. In this case also, the company pays tax at 23.3%. However, the shareholder also pays tax on capital gains. Hence, the same transaction is being taxed twice. It is suggested that in case of buyback, the tax treatment should be the same as dividend and it should be taxed in the hands of investor rather than the company.

Interest on EPF: Interest on EPF contribution above ₹2.5 lakh is taxable. However, it is not clarified that it should be taxed on accrual basis on withdrawal. It is suggested to tax interest income at the time of withdrawal.

Home loan interest: Interest on housing loan taken during construction period is allowed for deduction in five equal instalments from the year of completion of construction. Since, irrespective of the construction status, the buyer is paying the EMI, the interest deduction should be allowed in the year of payment.

Rationalization of threshold limits: Standard deduction under section 16 for salaried tax payers is ₹50,000. It is suggested that it should be made a percentage of the salary which may be capped to a maximum limit rather than a flat amount of ₹50,000.

The deduction under section 80C is available to those who opt for the old tax regime. It is suggested to increase the limit of section 80C. It was last hiked from ₹ 1lakh to ₹1.5 lakh in the financial year 2014-15 and hence an increase is long due.

Health insurance premium is tax deductible u/s 80D up to ₹25,000 and up to ₹50,000 for senior citizens. After covid, health insurance premiums have increased significantly. To encourage more people to buy health insurance, the limit for claiming deduction u/s 80D should be increased appropriately.

Some of these points have also been suggested by various committees to the finance ministry. It remains to be seen what the budget 2023 has in store.

Nitesh Buddhadev is a chartered accountant and founder of Nimit Consultancy.