Prominent consulting firm KPMG has shared its predictions for India's next Union Budget. A few things to look forward to from the Budget 2024–25, which is expected to be announced in Parliament on July 23rd, are the doubling of the standard deduction to Rs 1 lakh, an increase in the tax break on interest paid on home loans, and the optimization of the capital gains tax regime.
Below is a summary of the key points:
Individual Tax Relief: Doubling the Standard Deduction: KPMG suggests raising the tax-free amount known as the standard deduction from Rs. 50,000 to Rs. 1 lakh. This attempts to lessen the impact that growing health care costs, gasoline prices, and general inflation have on individual taxpayers. Raising the Basic Exemption Limit: They also recommend raising the Rs. 3 lakh to Rs. 5 lakh basic tax exemption threshold under the new tax system. People would have more money in their pockets to save or spend as a result.
Encouraging the Housing Market: Interest Deduction for Housing Loans: KPMG emphasizes the difficulties the real estate industry faces as a result of legislation and interest rate increases. They recommend that even with the new tax structure, the government take into account enabling deductions for interest paid on home loans. As an alternative, they suggest raising the previous regime's deduction cap to at least Rs 3 lakh. This would lower the cost of becoming a homeowner.
Simplifying the Capital Gains Tax:
Uniform Capital Gains Tax Structure: Currently, India's capital gains tax structure is complicated, with different rates for different assets and differing holding periods to qualify as "long-term" (and so pay lesser taxes). KPMG suggests a more standardized framework with comparable holding periods and tax rates across asset types. This would make tax computations simpler for investors.
Even the duration of holding for a capital asset to qualify as long-term (as opposed to short-term) varies greatly. For example, listed stock shares are held for 12 months, real estate for 24 months, and debt instruments for 36 months, according to the statement.
"While historically there may have been reasons for creating a complex structure in line with this government's stated objective of simplifying the tax system it may be worthwhile to provide a more uniform capital gains tax structure (both in terms of period of holding and rate of tax)," according to the report.
Focus on trade and manufacturing:
Tariff Alignment with Industrial Policy: KPMG expects the government to continue aligning customs tariff rates (import taxes) with its industrial policy objectives. This strategy seeks to foster greater value addition within India, which translates to more local manufacturing and processing of commodities.
Coordinated Trade Reforms: They also expect to continue coordinating adjustments in customs duties with the implementation of technological trade barriers. TBTs are rules that require imported goods to fulfill specific safety and quality criteria. This collaboration would simplify the import procedure for enterprises.
