Surcharge rates under both tax regimes should be brought at par in Budget 2024, says Deepashree Shetty of BDO India

In Budget 2024-25, Finance Minister Nirmala Sitharaman is likely to raise the basic exemption limit under the old tax regime after a hiatus of 10 years, says Deepashree Shetty, Partner, Global Employer Services, Tax & Regulatory Services, BDO India, in an interview with MintGenie.

Other changes in Budget 2024 that come in her ‘should happen’ category include rationalisation of capital gains tax and increase in deductions/ exemptions. She also speaks about the sectors which are likely to get special stimulus or allocation in the Budget. She mentions that the FM should try to streamline the rate of surcharge in both the tax regimes i.e., old tax regime and new tax regime.

Edited Excerpts:

Do you think there should be a change in the tax slab in the old tax regime?

The Government’s recent measures indicate a focus to move taxpayers eventually to the New Tax Regime (NTR). However, if they would still want to continue with the Old Tax Regime (OTR), they may want to take certain measures to keep it useful.

The basic exemption limit under the OTR has been at INR 2.5lacs since the last 10 years and needs an urgent uplift considering the enduring inflation and increased cost of living of individual taxpayers.

What reforms, according to you, should take place in the capital gains tax?

The capital gains tax regime in India is complicated where in the capital gains income and rate of tax depends on category of assets, period of holding (long-term or short-term), the residential status of the taxpayer, the rates of tax (flat rate or progressive income-slab rate), etc.

This leads to a lot of confusion among taxpayers thereby leading to compliance costs and also sometimes subject to litigation.

Therefore, rationalisation of the entire scheme of capital gains tax regime such as simplified asset classes, parity in tax rates, etc. should be expected in the upcoming Budget.

Do you expect any increase in the tax deductions and exemptions for individual taxpayers?

Some of the deductions/exemptions under the current tax laws for expenditure relating to child education/hostel allowance, standard deduction, medical premium, etc. needs a rejig to be in tandem with the current inflated costs.

Also, the middle-class taxpayers, which largely includes the salaried taxpayers, would have to get some relief from the resultant lower tax outflow.

What are the sectors which are likely to get special stimulus or allocation in the Budget?

Sectors such as infrastructure, manufacturing, defence may get higher allocation in the Budget keeping in line with the Government’s focus on providing more impetus to manufacturing in India and thereby creating more employment opportunities and promoting rapid growth.

Further, given the Government's push for clean energy, the renewable energy sector may also get higher/special allocation in the Budget.

Do you think there should be a change in the rate of surcharge for those in the higher income bracket?

While the maximum surcharge rate applicable under OTR is 37 per cent (for income over ₹5 crore), it is capped at 25 per cent (for income over ₹2 crore) under NTR. This gives an impression of another tax slab rate of 12 per cent (37 per cent less 25 per cent) for taxpayers opting OTR.

It is a huge tax hit at such higher income levels and the differential tax benefit from deductions/exemptions allowed under OTR compared to NTR does not yield much. Therefore, the surcharge rates under both regimes should be at par.