The Modi administration’s second term will end with this budget. Given that the nation will hold general elections in 2024, it is anticipated that the Modi administration would be able to provide tax relief in its final full budget. On February 1st, the budget for the fiscal year 2023–24 will be unveiled. Prior to this, the most recent revision to the personal tax exemption level occurred in 2014. Arun Jaitley, the finance minister at the time, made the announcement to raise it from ₹ 2 Lakh to ₹ 2.5 Lakh when he presented the first budget of the first term of the Modi administration.

According to official sources cited in the media report, the administration is thinking about raising the cap on personal tax exemption under the two-year-old tax system. The Alternative Tax Regime was introduced by the government two years ago, but it did not gain much popularity. As a result, the government is getting ready to make adjustments to it to increase its appeal. According to officials, this will relieve tax burdens and increase available funds for investment. In the previous tax code, sections 80C and 80D allowed taxpayers to reduce their tax obligations; however, the current tax system has eliminated many of these exemptions. According to sources, the relevant agencies have requested recommendations for enhancing the new tax system.

Key Changes Expectations in Tax Treatments in FY 2023-24

• Income tax is not now levied on income up to ₹ 2.5 Lakh per year. The administration is thinking about raising this cap to ₹ 5 Lakh. You will not be required to pay income tax if your yearly income is less than ₹ 5 Lakh. The forthcoming budget may include an announcement. According to experts, the new tax system does not help those who get a salary since they are eligible for the HRA, LTA, and Standard Deduction under Section 80C and will not be able to take advantage of the exemption provided by Section 80D.
• The maximum tax rate of 30% can be lowered to 25%, and the threshold for the highest tax rate can be raised from ₹ 15 Lakh to ₹ 20 Lakh, in order to offer individuals greater buying power and some relief for the employed taxpayers.
• Government can standardize the various holding periods of assets such as equity, mutual funds, non-equity MFs, listed bonds, and real estate by taking capital gain into account. Additionally, the government can reduce the 15% tax rate on short-term equity and equity mutual funds to a single flat rate.
• The income of traders can be treated as passive income. The expectation is, this passive income earned from the capital market can be treated as the income earned from doing business. In the same way, the tax treatment would be done.
• Taking Banks FD’s tax rates into consideration, Banks are requesting to Union Finance Ministry that, in budget 2023 FD schemes of up to ₹ 5 Lakh should be made tax-free in order to compete with Mutual funds and insurance products.
• The quantum of deduction under Section 80 C can be raised which is capped at ₹ 1.5 Lakh. So that, deduction under 80C can be revised.
• ULIPs are tax-free if the yearly premium is less than 2.5 Lakh There is an expectation from budget 2023 that it can bring parity between the tax treatments on gains of equity mutual funds and Unit-linked Insurance Plans (ULIPs).

The taxpayers would be receiving excellent news. An official stated that the prospect of adjustments to the new tax system is being discussed as part of the ongoing tax budget discussion. We must also determine how it will affect revenue. There has been some preliminary analysis done on this, and further ideas may be generated. Both new and old systems can take into account changes to personal income taxes. The FY 2020 budget promised a different system, where tax rates would remain low but there would be fewer exemptions. Hoping for better relief in the upcoming budget session of 2023-24 for salaried people as well as investors.