Budget 2023 expectations: Change in tax slabs, increase in Section 80C deduction limit

Changing the tax slabs, raising the Section 80C deduction limit, rationalisation of holding period for long-term capital gain, etc., are some of the key Budget 2023 expectations listed by financial advisors for small investors.

Every year, a few days before the union budget is presented, everybody comes out with their wish list for the government. The year 2023 is no different. This year also, various associations and representatives have come out with their list containing the key expectations from budget 2023. On 1st February 2023, the Finance Minister, Nirmala Sitharaman, will present the last full-fledged union budget for the year 2023-24 before the Lok Sabha elections in 2024-25. Let us look at what financial advisors expect the government to do for small investors.

Key expectations from Union Budget 2023

1. Change in tax slabs
   The existing income tax slabs for an individual less than 60 years are as follows:

   Financial advisors expect the government to increase the income tax slabs. For example, currently, income up to Rs. 2,50,000 is exempt. Financial advisors expect income up to Rs. 5,00,000 to be exempt. Similarly, there is an expectation that the income tax slabs be increased for the 5%, 20%, and 30% income tax rates.

   Also Read: Facts You Should Know About The Union Budget 2023-24

2. Increase in Section 80C deduction limit
   Section 80C of the Income Tax Act allows an individual to avail of a deduction from their taxable income. The deduction can be availed for investment in specified financial products such as the Public Provident Fund (PPF), National Savings Certificate (NSC), tax-saving fixed deposits, life insurance, equity-linked savings scheme (ELSS), etc. The Section also allows a deduction for specified expenses such as tuition fees for kids, home loan principal repayment, etc.
   
   The maximum deduction allowed in a financial year is the amount invested or Rs. 1,50,000, whichever is lower. The limit of Rs. 1,50,000 was last revised in 2015 from the earlier limit of Rs. 1,00,000. As per budget 2023 expectations, financial advisors are expecting the Finance Minister to increase the limit further to Rs. 2,00,000 or even higher.
    
3. Rationalisation of holding period for long-term capital gains tax
   Currently, the holding period for long-term capital gains tax for different asset classes is different. For example:
   
   a) If equities are held for more than a year, the capital gain is classified as long-term capital gain
   
   b) If a real estate property is held for more than 2 years, the capital gain is classified as long-term capital gain
   
   c) If debt mutual funds and gold are held for more than 3 years, the capital gain is classified as long-term capital gain
   
   Different holding periods for different asset classes are quite confusing and complicated to understand for small investors. Financial advisors expect the government to rationalise the holding period for different asset classes and bring it to the same level. The same holding period for long-term capital gain for all asset classes will make it easy to understand and increase compliance.
   
   Some financial advisors expect the government to remove the existing 10% long-term capital gains tax equities. They suggest, the government does that by increasing the long-term capital gain holding period for equities from the existing 1 year to 2-3 years.
   
   Also Read: 5 Ways Budget 2023 Can Benefit Homebuyers: Expectations To Look Out For
    
4. Other expectations from small investors
   Some other expectations from the budget include:
   
   a) Having a separate deduction for life insurance premium to encourage more people to buy life insurance. The current penetration of life insurance in India is less than 5% which is quite low compared to many other countries.
   
   b) Increase the deduction limit for health insurance premium under Section 80D to encourage more people to buy health insurance. The hospitalisation expenses related to the Covid pandemic pushed lakhs of people into poverty due to lack of health insurance.
   
   Union budget: A fine-balancing task of managing revenues and expenses
   Now that we understand what do investors expect from the budget, it is over to the Finance Minister to deliver. We have to wait till 1^st February to see what all expectations budget 2023 can fulfil. While government revenues are limited, the expenses are ever-increasing. Also, 2023 being the last full fledge budget before the 2024 Lok Sabha election, there will be a temptation to declare populist measures to please the vote bank. The Finance Minister has to do a fine balancing task of managing government revenues, expenses, and people’s high expectations.