Government should increase the tax exemption limit to five lakh, suggests EY
New Delhi| The government may consider increasing the tax exemption limit from Rs 3 lakh to Rs 5 lakh in the new tax regime in the 2025-26 budget. Tax rates can also be reduced to provide relief to taxpayers. Ernst & Young (EY) India said in its pre-budget suggestion report, the government should focus on providing tax relief to income taxpayers in the upcoming budget. Efforts should also be made to resolve the Rs 31 lakh crore (9.6 per cent of GDP) income tax dispute by 2023-24.
EY India said in its suggestion, tax deduction at source (TDS) should be postponed at PF interest rate (above 2.5 lakh) till the withdrawal phase to reduce the compliance burden. The TDS rate was rationalized to some extent in the last budget. The TDS rate structure can be divided into three-four categories with lower rates.
According to the report, a full review of the Direct Tax Code may take time. A reduction in personal income tax is also expected. The decision may be taken to provide relief and increase demand, especially to low-income groups. Employee Stock Option Plans (ESOPs) should extend tax deferral benefits to all employers and allow tax payments at the sales level.
EY said, simplifying the tax system and improving taxpayer services is very important to increase demand and consumption in the economy. Significant reforms are needed to reduce litigation and increase tax compliance. Measures should be taken on priority basis to reduce pending tax disputes and avoid further disputes. To that end there is an urgent need to strengthen alternative dispute resolution mechanisms. Other dispute prevention options, such as safe harbors, should be made more attractive.
The report suggested that 50 per cent rebate in House Rent Allowance (HRA) should be given in cities like Hyderabad, Pune, Bangalore and Ahmedabad. This will provide equality in tax. At present, 50% discount on HRA is available only in four metro cities. The budget is also expected to bring clarity for taxation of cryptocurrencies.
The budget may focus on increasing government spending, reducing fiscal deficit, encouraging private sector investment and targeted tax reforms. Bringing the fiscal deficit to 4.5 per cent will also be a priority.
