Union Budget 2024: After the Interim Budget 2024 made no big-bang announcements on taxes and middle class, there is a buzz that Finance Minister Nirmala Sitharaman may offer some significant relief to middle-class and salaried class for the first time in seven years. FM Sitharaman will table her seventh consecutive budget on July 23, 2024.
Not just for the middle class and salaried class, a significant tax relief can increase consumption. Marico Ltd MD & CEO Saugata Gupta said on Friday tax relief for middle-class and salaried class in the upcoming Union Budget will enhance purchasing power and serve as a catalyst in increasing consumption patterns.
He added that the main expectation from the full budget of 2024-25 include a continued emphasis on rural development through investments in infrastructure and employment, bolstering agricultural activities to enhance rural income.
“Tax relief for middle-class and salaried classes will not only enhance purchasing power but will also serve as a catalyst in increasing consumption patterns. The government’s support during the critical monsoon period is crucial for stabilising rural economies and ensuring farmers have access to essential resources,” Gupta said.
In the Budget for 2024-25, there are several measures aimed at benefiting the middle class. These measures include:
> Increase in standard deduction: It is anticipated that there will be a rise in the standard deduction amount, providing relief to the middle-class taxpayers.
> Potential restructuring of tax slabs: There may be a re-evaluation of the income tax slabs to ensure a fairer and more balanced tax structure for the middle-income group.
> Guaranteed pension benefits under the NPS regime: The budget is likely to introduce provisions to ensure a secure and guaranteed pension for individuals enrolled in the National Pension System (NPS).
> Incentives in the new tax regime: Additional incentives are expected to be incorporated into the new tax system to enhance its appeal and encourage compliance among taxpayers.
> Support for middle-class homebuyers: Schemes aimed at facilitating homeownership for the middle class are anticipated to receive a significant boost, promoting affordable housing options for this segment of the population.
Why the middle class needs tax relief
1. More cash in hand
The proposal for a substantial increase in standard deduction rates and deduction limits across different categories, along with an expansion of tax brackets, is not intended to hinder the government’s revenue generation, but rather to address the pressing need to ease the financial burden on the populace.
It is crucial to recognise that many of the current limits have remained unchanged for several years, if not longer. Enhancing these thresholds would offer essential assistance to the middle class, promoting savings and investments for their future and fostering greater economic stability in India.
It is imperative for the government to acknowledge that the existing income tax structure fails to keep pace with inflation and the escalating cost of living, and adjustments in the budget must reflect this reality.
2. Healthcare
Post-pandemic, individuals have exhibited heightened awareness towards their health, in tandem with a visible surge in treatment costs. This surge has, in turn, elevated the demand for health insurance. Medical expenses have reached a new high for people of all ages, and awareness about the necessity for insurance coverage is also on the rise. This ties in with the IRDAI’s mission to achieve ‘Insurance for all’ by 2047.
Notably, from the fiscal year 2019-20 to 2022-23, the health insurance premiums managed by both general and health insurers have experienced a compounded annual growth rate (CAGR) of 20.8 per cent, surpassing the 18.6 per cent recorded during the period from 2016-17 to 2019-20.
Premia for health insurance policies, particularly those covering critical illnesses, have remained notably steep. To alleviate this issue, several proposals have been put forth. These include:
(a) Reduction of Goods and Services Tax (GST) on health insurance premiums.
(b) Increase in the income tax exemption threshold for premiums paid.
(c) Introduction of a ‘no claim bonus’ system that rewards policyholders who do not file any claims within a given year.”
3. Senior citizens and taxation
A significant issue impacting senior citizens is the taxation of retirement funds and pensions. Currently, the State imposes taxes on the returns of retirement savings for seniors without a pension scheme. This poses a serious financial challenge for many elderly individuals whose only source of income is their self-managed retirement funds. It is imperative that the Budget consider exempting the returns on retirement funds from taxation to provide much-needed relief for senior citizens.
Moreover, the existing tax benefits for seniors are limited to two categories: those aged between 60 and 80 and super seniors above 80. To address the financial hardships faced by the elderly, the Budget could introduce a more nuanced approach, offering incremental tax benefits at ages 65, 70, and 75.