Anticipation is high for Union Budget 2024 under Modi 3.0, with Finance Minister Nirmala Sitharaman expected to introduce significant tax reliefs and incentives. Learn about the potential changes in tax deductions, the new tax regime, and measures aimed at boosting economic growth and consumption.

With Modi 3.0 having rolled out, all expectations now are on what the Union Budget 2024 in July will bring. Union finance minister Nirmala Sitharaman would quite likely present the budget, focusing mainly on great tax reliefs and boosts for taxpayers, middle-class people, industries, and farmers.

Revisiting a new tax regime:

In the Union Budget 2020, a new regime with reduced tax slabs excluding traditional deductions was introduced. The regime has not been widely adopted by taxpayers because these new rates are not extremely lucrative. The government is likely to bring more incentives to this regime to make it more attractive.

One such change is likely to be the extension of Section 80C benefits to the new regime. Currently, these are applicable only under the old tax regime. Suresh Surana, founder of RSM India, said that extended provisions for the 80C deduction would encourage more taxpayers to switch to the new regime. There are also speculations regarding an increase in the 80C deduction limit from ₹1.5 lakh to ₹2 lakh. This limit includes investments in instruments such as LIC, PPF, and housing loan principal and was last hiked in 2014 by then-Finance Minister Arun Jaitley.

Improvements under the old tax regime:

Under Section 80C of the Income-tax Act, 1961, taxpayers can currently claim deductions for various savings and investments with an annual limit of ₹1.5 lakh. However, stakeholders are of the view that this limit is a bit too constraining for the various eligible instruments. There is more than a feeling that this limit will now be enhanced to ₹2 lakh per annum to suit the vast investment options available to a taxpayer.

Possible Enabling Tax Reliefs for Consumption:

Budget 2024 will undertake reforms that will center on reducing taxes for lower-income groups, thereby stimulating consumption. The income tax, as it stands today, starts at 5% for earnings exceeding ₹3 lakh and goes up to 30% for income over ₹15 lakh. The irrationality in these tax slabs could be rationalized in a big way to increase disposable incomes, spur economic activity, and increase GST collections.

According to The Indian Express, there is a bias toward holding tax cuts above increased welfare spending in the coming budget. It will most likely be a trade-off strategy that balances speeding up growth with containing inflation while financing coalition commitments.

Pre-Budget Consultations and Economic Goals:

Accordingly, as planned, the pre-budget consultation with industry associations would begin on June 20. This would be immediately after Sitharaman’s discussions with Revenue Secretary Sanjay Malhotra on June 18. This would be one of the exercises to get input and recommendations for ensuring that the budget is in fine spirit and syntax with various stakeholder requirements.

Ambitious targets have been set by India, both on economic parameters—to become a USD 5-trillion economy—and to achieve ‘Developed India’ status by 2047. The Reserve Bank of India has pegged economic growth at 7.2 percent this fiscal year on resilient rural demand and easing inflation as the backdrop. Global agencies have also responded positively to India’s economic policies, with S&P upgrading the outlook on sovereign rating to ‘positive’, subject to the fulfillment of fiscal targets.

But for the strategic disinvestment in Air India, the challenge is still there on the non-tax revenue front. This needs to be addressed to ensure fiscal health and funding for developmental programs by the government.

With the Union Budget 2024, all eyes of taxpayers and other stakeholders are waiting to gauge what Finance Minister Nirmala Sitharaman will roll out—the possible tax reliefs coupled with increased deductions and an impetus to consumption. This should give due distinction to the budget for meeting key economic challenges and sustaining the growth trajectory for India under Modi 3.0.