As Budget 2024 approaches, discussions arise regarding potential adjustments to income tax thresholds. The current threshold of Rs 15 lakh, while seemingly adequate, may not effectively cater to the evolving economic landscape marked by inflationary pressures. This article delves into the rationale behind proposing a new tax limit of Rs 20 lakh for the 30% bracket and its implications.
Understanding the Current Tax Regime
Under the Finance Act of 2020, taxpayers were given the option to choose a new tax regime. By forgoing certain deductions and exemptions, like those for medical insurance and housing, individuals and Hindu Undivided Families (HUF) could enjoy lower tax rates. This move was meant to simplify the tax process and put more money back into taxpayers’ pockets. However, with the current threshold set at Rs 15 lakh, many are still feeling the pinch.
Proposal for Adjustment: Enhancing the Threshold
Considering the consistent inflationary trends with India’s CPI hovering between four to eight percent annually, there’s a compelling argument for raising the threshold. Increasing it to Rs 20 lakh under the new tax regime could alleviate the burden on taxpayers, ensuring their real income remains intact amidst rising living costs.
Importance of Periodic Adjustments
Just as adjustments are made in the capital gains tax regime to offset the impact of inflation, a similar approach is warranted in income tax policies. Periodically enhancing the tax threshold reflects a pragmatic and taxpayer-friendly stance by the authorities, encouraging wider adoption of the new regime.
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