With the new government in place and the continuation of Nirmala Sitharaman as the Finance Minister, the Union Budget is expected to be presented in July 2024. Expectations from the Finance Minister are running high from all sections of taxpayers. In this article, we will explore what a common man can anticipate from the upcoming budget.

Budget 2024 Expectations

The Finance Minister faces the challenging task of balancing the expectations of various stakeholders. She must navigate between investing in infrastructure and boosting consumption, managing the demands of individuals and corporations, and balancing tax revenues with tax reliefs. Given the current high inflation levels, there is a significant expectation that the government might consider income tax relief for those in the lowest tax brackets in the 2024-25 budget.

1) Increase in Basic Exemption Limit and Tax Slabs

Under the new tax regime, the basic exemption limit is set for taxable income up to Rs. 3,00,000 for the Financial Year (FY) 2024-25. The common man hopes for this limit to be increased to Rs. 5,00,000. Additionally, there is a desire for the 5% tax slab to cover income from Rs. 5 to Rs. 10 lakhs, with similar adjustments expected for the 10%, 15%, 20%, and 30% tax slabs.

2) Increase in the Standard Deduction

The current standard deduction allowed is Rs. 50,000, a figure that has remained unchanged since 2019. Given the significant rise in the cost of living since then, the common man expects this deduction to be increased to Rs. 1,00,000.

3) Increase in Section 80C Limit

Section 80C of the Income Tax Act allows individuals to claim deductions for specified investments and payments. The current maximum deduction is Rs. 1,50,000, a limit last raised in 2014 from Rs. 1,00,000. Over the past decade, the Cost Inflation Index (CII) has increased from 240 to 363, a more than 50% rise. Consequently, the common man expects the Section 80C limit to be raised to Rs. 2,50,000. Additionally, this deduction should be extended to the new tax regime, even if partially.

4) Separate Deduction for Term Insurance Premium

Life insurance penetration in India remains in single digits. Given the critical role of life insurance in financial planning, especially in covering liabilities and responsibilities in the event of an early death, the common man hopes for a separate deduction for term insurance premiums under both the old and new tax regimes. A deduction limit of Rs. 50,000 to Rs. 1,00,000 would be a significant incentive.

5) Increase in Section 80D Limit

Currently, individuals can claim a deduction for health insurance premiums under Section 80D, up to Rs. 25,000 for themselves, their spouse, and dependent children. For senior citizens, this limit is Rs. 50,000. Given the rapid increase in health insurance premiums, there is an expectation that these limits will be raised to Rs. 50,000 and Rs. 75,000 or Rs. 1,00,000 respectively. Health insurance deductions should also be available under the new tax regime, given its necessity.

6) Provide Deductions for Retirement Planning

With no formal social security benefits from the government, individuals need to plan for their own retirement. Current employer benefits like the Employee Provident Fund (EPF), gratuity, and leave encashment may not suffice. Therefore, the Finance Minister should consider providing higher deductions for contributions to the National Pension Scheme (NPS) under the new tax regime, beyond the existing limits of Rs. 1,50,000 under Section 80CCD(1) and Rs. 50,000 under Section 80CCD(1B).

Will the Finance Minister Provide Tax Benefits to Boost Consumption?

In recent years, high inflation and interest rates have reduced savings and impacted spending. Tax benefits in the form of increased basic exemption limits, wider tax slabs, and higher standard and other deductions would leave more money in consumers' pockets. This, in turn, could boost consumption, increase demand for goods and services, and lead to higher order inflows for companies, thereby spurring overall economic growth.

However, providing these tax benefits would mean the government has to forego revenue. Balancing the fiscal deficit while increasing social spending will be a significant challenge for the Finance Minister.

What Does the Budget Mean for Long-Term Investors?

The Union Budget is an annual exercise that outlines the government's revenue and expenditure for the new fiscal year, creating a path for capital and social outlays. For individuals, the critical aspects of the budget affecting household finances include personal tax provisions, income tax rates, deductions, capital gains rules, and new investment avenues for social security and tax savings.

For long-term investors, the budget is merely a single event in their journey towards achieving financial goals. While it may cause short-term market fluctuations, maintaining a disciplined approach and adhering to a well-planned investment strategy ensures they navigate budget volatility without deviating from their objectives. The impact of the budget is fleeting, but a sound investment plan guarantees lasting success.

In conclusion, the common man has high hopes for Budget 2024. Whether it’s through tax reliefs, increased deductions, or incentives for savings and insurance, the Finance Minister’s decisions will significantly impact the financial well-being of individuals and the broader economy. While the government must balance various priorities, thoughtful tax reforms could foster greater consumption, savings, and long-term economic growth.