Budget 2024: Tax Reforms, HRA Relief, and EV Incentives Seeked by Salaried Class

Payrollers are eagerly awaiting Finance Minister Nirmala Sitharaman’s presentation of the FY25 Budget, hoping for substantial tax changes to ease financial strains. The salaried class is pushing for changes to housing rent allowance (HRA) rates, incentives for buying electric vehicles (EVs), reorganization of tax slabs, and increased focus on affordable housing, per a Deloitte analysis.

Demands Parity in Tax Regimes

The Budget 2023 brought about modifications to the recently implemented personal tax system, including an increase in the base exemption level from Rs 2.5 lakh to Rs 3 lakh and a decrease in the surcharge from 37% to 25% on revenues above Rs 5 crore. These modifications attempted to increase the appeal of the new tax structure. But the previous tax system stayed the same, which led to requests for an upgrade to its slab structure. According to Deloitte experts, the government may decide to raise the current Rs 3 lakh income tax exemption limit to Rs 5 lakh under the new tax regime.

Examining HRA Deductions Again

For employees who prefer HRA exemptions and 80C deductions, extending the benefits of the new tax regime to the old tax system would be advantageous since it becomes the default option. More assistance would be provided by raising the standard deduction from the existing Rs 50,000. Due to the reopening of offices and the adoption of hybrid work methods, the leasing market has experienced considerable growth in major cities such as Bengaluru, Hyderabad, Pune, and Gurugram, with over a 30% year-over-year increase in 2023. This increase emphasizes how important it is to examine HRA deductions. HRA currently makes up 20–30% of a worker’s overall compensation. According to Deloitte, amending the exemption to permit more localities to receive 50% of the base pay would offer much-needed relief.

Promote the Adoption of EVs

The government has been encouraging EVs through a number of programs and incentives in an effort to lower carbon emissions. Incentives like those offered by the FAME II plan are essential, as the goal is for EV sales to account for 30% of all vehicle sales by 2030. The Income Tax Act’s section 80EEB, which was added in 2019, permitted an annual deduction of up to Rs 1.5 lakh for interest paid on electric vehicle (EV) loans; however, this deduction was not allowed to last past March 2023. Increasing the deduction to Rs 2 lakh per year and extending it would greatly promote the use of electric vehicles.

Relief from Home Loans for Affordable Housing

The reinstatement of section 80EEA, which permitted a deduction for interest paid on home loans for affordable housing, is eagerly awaited as it aligns with the government’s aim of “housing for all.” First-time homeowners benefited from this portion, which was not extended past March 2022. The salaried class is optimistic that these suggested improvements will be taken into consideration to lessen their financial responsibilities as the FY25 Budget draws near.

Taking Care of HRA Exemption Differences

As the Budget 2024 talks get underway, the emphasis is on calls for considerable tax relief. One of the main concerns is the proposal to increase the number of non-metropolitan communities covered by HRA exemptions, taking into account their increasing economic and demographic importance. At now, Bengaluru is included in the 40% category of cities that are exempt from HRA, whereas Delhi, Mumbai, Kolkata, and Chennai are the only ones that qualify for a 50% exemption. Experts contend that cities like Ahmedabad, Surat, and Kanpur ought to be classified as metros as well because of their substantial expansion. In comparison to urban areas, residents in these quickly growing areas frequently pay higher rents and receive fewer tax advantages. To lessen the financial load on taxpayers, experts advise the government to reconsider its rent exemption policies.