Union Budget 2023: Tax Relief and Financial Benefits for the Middle Class

Union Budget 2023: Tax Relief and Financial Benefits for the Middle Class

The Union Budget 2023 is highly anticipated by the Indian middle class as they expect the budget to provide measures to improve their personal finances, especially savings. The gross savings of Indian households have fallen to 10.8% in FY 2021-2022, a significant decrease from the 15.9% recorded in FY 2020-2021, due to the high cost of living and tax liabilities. The inflation and increasing fuel prices have also contributed to reduced savings and have had a significant impact on the purchasing power of the middle class and salaried taxpayers.

While there is no official confirmation on the changes, experts anticipate some beneficial measures for the salaried class, such as tax relief and increased exemptions or deductions. However, it is unlikely that there will be any major changes to the tax slabs. The middle class, with their consumption-driven culture, are considered to be the driving force behind India's economic growth. Therefore, it is fair to expect the government to provide measures that support and benefit this demographic.

Changes anticipated by the salaried class and middle income earners:

1. Increase in the income tax exemptions or deductions

Yes, one of the changes that the middle class may expect in the Union Budget 2023 is an increase in the personal income tax exemption limit. The current personal income tax exemption limit is Rs. 2.5 lakh per annum for individuals below the age of 60, and Rs. 3 lakh for individuals above the age of 60 but below the age of 80, and Rs. 5 lakh for individuals above the age of 80.

2. Increase in standard deduction limit

Currently, a deduction of 2 Lakhs can be availed for interest paid on housing loans under Section 24 of the Income Tax Act, 1961. This deduction is allowed for the self-occupied property. Many experts and analysts are expecting that this limit will be increased to 5 Lakhs in light of the increased interest rates on housing loans in the Union Budget 2023. This revision would provide a significant relief for the middle class as it would help them save on their tax outgoings and allow them to allocate more towards savings and other expenses.

3. Changes in HRA rules

 Another change that the middle class may expect is a revision of the definition of metro cities. Currently, the definition of metro cities is limited to four cities - Delhi, Kolkata, Chennai and Mumbai. However, many analysts believe that the definition should be expanded to include more cities such as Bangalore, Hyderabad, Pune, and others, which have comparable costs of living on par with the current cities.

4. Exemption for personal loan borrowers

Personal loans are an important source of financing for many individuals in India and comprise 35% of all borrowings. However, unlike other loans such as housing or education loans, there is currently no tax exemption for interest paid on personal loans under the Income Tax Act, 1961. Experts are suggesting that the Budget 2023 may introduce an exemption for personal loan borrowers similar to the one that can be availed for educational loans under Section 80E of the Income Tax Act, 1961. 

5. Increase in deduction under Section 80C:

Another change that the middle class may expect in the Upcoming Budget is an increase in the investment limit under Section 80C of the Income Tax Act. The current investment limit under Section 80C is Rs. 1.5 lakh per annum for individuals and Hindu Undivided Families (HUFs). This section provides a tax benefit for certain investments and expenditures, such as Public Provident Fund (PPF), Employee Provident Fund (EPF), National Savings Certificate (NSC), Equity-Linked Saving Scheme (ELSS), and more.