Budget 2022: Income Tax Slabs And Other Personal Tax Expectations

Like every year, the Union Finance Minister has a tough task at hand to balance public expectations and deliver a budget that would put India back on a growth track, especially after the long disruption caused by the ongoing Covid-19 pandemic which has impacted the entire nation in more ways than one.

Although significant relief measures have been taken by the government to keep the situation under control, the Union Budget for 2022-23 offers hope to citizens and taxpayers for additional relief measures to continue fighting the pandemic battle.

Direct tax proposals are an important part of the budget since the revenue from those direct tax collections contributes a significant amount to the total government’s revenue. In turn, both corporate and non-corporate taxpayers eagerly await the proposals put forth in the budget with the hope of lower taxes and more liquidity.

Owing to the unprecedented circumstances and salaried-class expectations; the upcoming budget could soften the continued blow delivered by the pandemic by way of an increased threshold for deductions, the introduction of a deduction for a work-from-home setup, and several other relief measures.

While the introduction of a new taxation regime seems to be a welcome move, the taxpayers need to forgo certain deductions and exemptions for availing of the reduced rates of taxation. However, a large section of taxpayers is more inclined towards investment in tax-deductible schemes due to dual benefits, i.e., savings for the future and reduction in the present tax liability. Therefore, opting for the new tax regime does not seem particularly beneficial for the said category of taxpayers.

Hence, the tax slabs are expected to be further rationalised so that benefit of the new tax regime can be availed more effectively.

Also, the highest rate of taxes in both regimes (i.e., old and new) ranges from 31% to 43% after inclusion of education cess and surcharge which is burdensome for taxpayers. The government should reduce the tax rates to provide more liquidity to the taxpayers.

As we get closer to the unveiling of Union Budget 2022 by the Finance Minister, let’s take a look at some of the salaried taxpayer’s expectations.

Increase In Standard Deduction

Considering the cost of inflation over the years and the rise in living expenses, the amount of standard deduction of Rs 50,000 is quite low. With respect to a salaried class individual, one of the much-awaited expectations is the increase in standard deduction limit to Rs 1 lakh, to claim the higher deduction for expenses incurred while performing a job. This would also help to bring uniformity with professionals who are entitled to claim deductions for rent, travel, mobile expenses, etc., from their professional income.

Increase In Limit Of Deduction Under Section 80C

Increasing the limit of various investment-linked deductions under section 80C of the Income Tax Act from Rs 1.5 lakh to Rs 2.5 lakh is expected in the budget which would help in mitigating taxes. Apart from equity-linked savings schemes, debt and hybrid funds can also be included under section 80C, which would allow flexibility to invest in diversified funds or separate limits can be defined for them that would encourage the investment in mutual funds.

Increase Limits Of Deduction On Health Insurance Premium

In view of the increase in health expenditure conjoined with the effect of the coronavirus pandemic, the current limit of deduction for taxpayers should be increased from Rs 25,000 to Rs 50,000, and from Rs 50,000 to Rs 1 lakh for senior citizens. This would also boost the growth of the insurance sector.

Work From Home Allowance Deduction

Over the last two years of the ongoing pandemic, most companies have had their staff work from home. We expect the introduction of a tax-free ‘work-from-home allowance’ for salaried individuals to meet expenses incurred for the performance of duties such as buying furniture for office setup, rent, electricity, etc.

Increase In Limit Of Deduction From Loss On House Property

Presently, a house property loss of up to Rs 2 lakh can be set off from other sources of income. The balance loss is carried forward to future years and can be set off against the house property income only. This leads to a lapse of such carried forward losses due to higher interest payments in the previous years. To mitigate such hardship, the government should increase the limit of loss to be set off in the current year and the carried forward loss should be set off with other incomes in the future years as well.

Simplified Return Forms And Relaxation In Presumptive Income For NRIs

As per the current provisions, only resident individuals can opt for the presumptive scheme (44AD, 44ADA) of taxation. It is expected that the government can extend such benefits to non-resident Indians as well.

Also, to provide ease of compliance, the government may reintroduce the simplified tax return forms like ITR 1 or ITR 4 for NRIs as well, who have no capital gains or business/professional income in India or have income within specified threshold limits.

Crypto-Asset Taxation

While crypto assets are fast-growing in popularity, there are yet no provisions for taxing them in the Income Tax Act. Along with the much-awaited Cryptocurrency and Regulation of Official Digital Currency Bill that was expected to be tabled in Parliament late last year, it is expected that the budget too can offer some clarity on crypto assets, which would clear the ambiguities around the taxation and disclosure requirements on crypto assets for taxpayers.

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