Budget should double standard deduction, raise basic exemption to Rs 3.5 lakh under new tax regime: EY

The government should double standard deduction under the new concessional tax regime to Rs 1 lakh or increase the basic exemption limit to Rs 3.5 lakh in the upcoming Budget, tax and consultancy firm EY said.

Listing out the priorities on taxation reforms in the upcoming Budget, EY said the government should prioritise streamlining tax structures, enhancing policy frameworks to promote economic growth, and fostering a conducive environment for investment and development.

EY also suggested that stability in corporate tax rates be maintained, TDS provision rationalised as well as streamlining dispute resolution as possible areas for consideration in the Budget to be tabled in Parliament next month.

On the personal tax front, the concessional tax regime without exemptions/ deductions should continue, it said.

To make it more attractive, the standard deduction under concessional tax regime may be increased to Rs 1 lakh instead of existing deduction of Rs 50,000 or the basic exemption limit may be increased from Rs 3 lakh to Rs 3.5 lakh, EY said, listing out the policy priorities before the new government.

Under the current tax system, taxpayers can choose between the old regime, which offers various exemptions and deductions, and the new concessional regime, providing lower rates and Rs 50,000 standard deduction but no exemptions.

EY said the government has taken many welcome initiatives to improve the technology and data-driven tax compliance processes like pre-filled returns, Annual Information Statement, ease of tax payments, faster processing of returns and refunds, etc, resulting in higher voluntary tax compliance.

However, there is a need to improve interface with Central Processing Centre (CPC) as taxpayers are facing persistent challenges in processing income returns.

EY also said priorities should include rationalisation of tax deducted at source (TDS). Currently, there are 33 sections under TDS dealing with different types of payments to residents where the rates vary from 0.1 per cent to 30 per cent.EY said the complex structure of Tax Deducted at Source (TDS) rates across different categories of payments has created confusion and compliance burdens.

Simplifying these rates by consolidating categories and creating a small "negative list" of non-liable payments for TDS could streamline processes and reduce disputes.

Additionally, eliminating TDS/TCS on transactions already subject to GST filings would enhance efficiency and reduce redundant compliance, said EY India National Tax Leader Sameer Gupta.

With regard to dispute resolution, EY said priority should be given to expediting faceless appeals at the first appellate authority level, where submissions are already filed, enhancing the Advance Pricing Agreement (APA) process would streamline compliance and promote fairness.

"These strategic reforms and enhancements in tax policies and dispute resolution mechanisms are essential for fostering a conducive business environment and will improvise ease of doing business, thereby promoting economic resilience in the country," Gupta added.