Ernst and Young (EY), a global consultancy firm, has submitted its pre-Budget 2024 recommendations to Finance Minister Nirmala Sitharaman. One of the key suggestions is to expand the list of metro cities for calculating the House Rent Allowance (HRA) exemption in Income Tax filings. Currently, only Delhi, Mumbai, Chennai, and Kolkata are considered as metros for this purpose, which entitles the residents of these cities to a higher HRA exemption than the non-metro residents.
EY has proposed to include tier-2 cities like Hyderabad, Gurgaon, Pune, Bengaluru, and Ahmedabad in the metro category, citing the rising cost of living and rent in these cities, Times of India reported. The HRA exemption is based on the lowest of the following three factors: the actual HRA received, 50 per cent of the salary for metro residents or 40 per cent for non-metro residents, or the excess of annual rent paid over 10 per cent of the annual ‘salary’. Special allowances are not considered in the HRA exemption calculation.
EY has also recommended several changes in the capital gains tax regime, such as standardising the holding period and tax rates for different assets, increasing the tax-free limit for long-term capital gains from equity shares and mutual funds to Rs 2 lakh, and introducing a tolerance limit for tax purposes on unlisted share transfers, similar to immovable property.
Other suggestions from EY include raising the tax-free threshold for gifts from Rs 50,000 to Rs 1 lakh, speeding up the resolution of pending appeals, and providing clarity on the taxation of employer contributions to specified funds exceeding Rs 7.5 lakh and the calculation of ‘accretions’.
The Interim Budget 2024 will be presented by Finance Minister Sitharaman on February 1, followed by a full budget for the fiscal year 2024-25 after the Lok Sabha elections in mid-2024.
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