Simpler taxes, more savings, housing boost: KPMG's 2024 budget wish list

Leading consultancy firm, KPMG, has released its expectations for the upcoming Union Budget in India. Doubling standard deduction to Rs 1 lakh, increasing tax break on interest paid on housing loan and rationalisation of capital gains tax regime are some of the expectations that it has from the Budget 2024-25 to be unveiled on July 23 in Parliament.

Here's a breakdown of the key points:

Tax Relief for Individuals:

Doubling the Standard Deduction: KPMG proposes increasing the standard deduction (tax-free amount) from Rs. 50,000 to Rs. 1 lakh. This aims to ease the burden of rising medical expenses, fuel costs, and overall inflation on individual taxpayers.

 

Raising the Basic Exemption Limit: They also suggest increasing the basic tax exemption limit under the new tax regime from Rs. 3 lakh to Rs. 5 lakh. This would leave more money in people's pockets to spend or save.

Boosting the Housing Market:

Interest Deduction for Housing Loans: KPMG highlights the challenges faced by the real estate sector due to interest rate hikes and regulations. They suggest the government consider allowing deductions for interest paid on housing loans even under the new tax regime. Alternatively, they propose increasing the deduction limit in the old regime to at least Rs 3 lakh. This would make homeownership more affordable.

Simplifying Capital Gains Tax:

Uniform Capital Gains Tax Structure: Currently, the capital gains tax system in India is complex with different rates for various assets and varying holding periods to qualify as "long-term" (and receive lower tax rates). KPMG recommends a more uniform structure with consistent holding periods and tax rates across different asset classes. This would simplify tax calculations for investors.

Even the period of holding for a capital asset to qualify as long-term (vis-a-vis short term) varies significantly e.g., for listed equity shares it is 12 months whereas for real estate it is 24 months and for debt instruments, it is 36 months, it said.

"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)," it said.

Focus on Trade and Manufacturing:

Tariff Alignment with Industrial Policy: KPMG expects the government to continue aligning customs tariff rates (taxes on imported goods) with its industrial policy goals. This policy aims to encourage deeper value addition within India, meaning more manufacturing and processing of goods domestically.

Coordinated Trade Reforms: They also anticipate continued coordination between changes in customs tariffs and the rollout of technical barriers to trade (TBTs). TBTs are regulations that ensure imported goods meet certain safety and quality standards. This coordination would streamline the import process for businesses.