NEW DELHI: The Union Budget for 2024-25 may announce a set of measures to placate the middle class, and the low-income population, which are hit by sticky food inflation and an income stagnation. While policymakers are working out the incentives, official sources said these could include personal income tax reliefs, higher retention level of Agniveers in the regular defence services, and more government support for urban housing to boost labour-intensive constriction sector.
The government will also likely announce steps including an assured pension option as part of the increasing pensionary benefits to the government staff under the National Pension System (NPS).
“Besides the poor, the budget will likely announce measures to soothe the middle class who are probably miffed,” an official said, asking not to be identified.
The recently-held general elections put the Narendra Modi government in a relatively uncomfortable position as the Bharatiya Janata Party (BJP) fell short of an outright majority, and will need to rely on its coalition partners for running the government. Given the key state elections in Maharashtra and Haryana in October, Budget is seen as a key vehicle to woo the electorate.
“Discussions are going on to make new personal income tax regime attractive to leave more money in the hands of people,” another official said. One of the options is to increase the standard deductions could be raised further by Rs 25,000-50,000 under the new tax regime, the official said.
Under the new income tax regime sans traditional deductions available in the old tax regime, a rebate is available for income up to Rs 7 lakh and a standard deduction of Rs 50,000 to make it attractive for individual taxpayers. If the standard deduction is raised by Rs 25,000-50,000, income up to Rs 8 lakh could be exempt from paying any income tax.
The new personal income tax regime is getting traction with around 60% adoption compared to the initial years after it was launched in 2019-20. But, it still has some distance to cover.
With the government not keen to force people to shift to the new tax regime and wants them to shift when they fund it attractive, it might expand the number of “metropolitan cities” for the purpose of claiming higher House Rent Allowance (HRA), by adding cities like Bangalore and Hyderabad to the current list of four.
“People are complaining of higher cost of living in other large cities. So, the government may expand the number of metropolitan cities to be covered for HRA purposes,” the second official said.
HRA is a component of salary paid by employers towards rent payment by the employee. The least of the following is exempted from salary under Section 10(13A) of the Income Tax Act and does not form part of the taxable income: Actual HRA received from the employer; 50% of salary if the rented property is in metro cities like Mumbai, New Delhi, Kolkata, and Chennai; 40% of salary for a non-metro city; and actual rent paid should be less than 10% of salary.
For the Centre’s staff under the National Pension System (NPS), the government may offer a guaranteed pension option, which could be 40% or more of the last basic pay as pension as against the current market-based returns. The previous Modi government had set up a panel headed by finance secretary TV Somanathan in March 2023 to suggest ways to increase pensionary benefits under NPS for government staff without reverting to the fiscally disastrous non-contributory old pension system (OPS).
To stem discontent among aspirant youth looking for a career in armed forces, the government may tweak the Agnipath scheme, which was launched on June 15, 2022. The plan is to more than double the absorption of the Agniveers in the regular service with full pay and pension after the four-year contractual service, sources said. Currently, the opportunity is given to one-fourth for absorption in the regular services.
The Agnipath Scheme was unveiled for the recruitment of servicemen in the Army, the Navy and the Air Force on a four-year contractual basis to contain ballooning salary and pension bills as India’s defence forces are manpower-heavy. The defence bill is pegged at Rs 1.41 trillion for FY25, up 22% compared with Rs 1.16 trillion in FY22. The increase in retentions may be directed towards technical and specialist forces, the growth area for future defence readiness.
Source: The Financial Express
