Hit hard by the rising inflation, Covid-induced lockdowns, job loss and salary cuts, individual taxpayers are hoping for a populist budget that will help reduce their tax burden and leave more money at their disposal.
In view of the unprecedented pandemic and its impact on the economy, this year’s budget proposals are likely to continue their focus on recovery and growth. However, hit hard by the rising inflation, Covid-induced lockdowns, job loss and salary cuts, individual taxpayers are hoping for a populist budget that will help reduce their tax burden and leave more money at their disposal, although this seems unlikely this time.
Whatever be the case, the wish list on the personal tax front emanating from COVID-19’s adverse impact and other circumstances is as under:
Taxability of ‘Work from Home’ expenses
The pandemic outbreak compelled organisations to implement Work from Home (WFH) policies for their employees. During such WFH situation, several companies endeavored to put in place necessary enabling infrastructure through provision of furniture (like tables, ergonomic chairs, etc.), high speed internet, printers, desktops, stationary, etc. for ease of working at their employee’s residences to ensure a conducive work environment.
Some companies decided to grant a fixed allowance to employees to meet the expenditure on such furniture/ other items, while others provided a reimbursement. Both the allowances and reimbursements are necessitated by the business requirement.
“As this situation has not been expressly dealt with in the Act or the Rules made thereunder coupled with a fact that WFH on a large scale appears to be a long-term norm now, some tax relief specific to work from home scenario may be provided to an individual taxpayer and their employers. Alternatively, a deduction of up to Rs 50,000 may be provided to employees from their total income for expenses incurred while working from home,” says Parizad Sirwalla, Partner and Head, Global Mobility Services-Tax, KPMG in India.
Realignment of income slabs/ tax rates
For individual taxpayers below 60 years of age, the income tax exemption limit is Rs 2.5 lakh per annum. This limit has remained unchanged from Financial Year 2014-15. With the objective of enhancing the net disposable income, it may be considered whether the basic exemption limit under the existing tax regime can be enhanced to Rs 5 lakh itself. This would also need to be assessed basis the potential number of taxpayers who may fall out of mandatory tax return filing requirement.
Subsequently, the other slab rates both under the existing and new concessional regime can be adjusted basis the revised limits in line with the progressive tax rate system India has always adopted.
Leave Travel Concession Cash Voucher Scheme
The LTC Cash voucher scheme was announced by the Finance Minister in October 2020 to boost consumer demand. It was announced with an intent to provide tax benefit to individuals who are unable to claim the usual LTC tax benefit due to COVID-19 travel restrictions. The same was later notified in the Finance Act 2021. Few conditions have been prescribed therein, which are required to be fulfilled in order to avail the above scheme.
On account of the recent spike in COVID-19 cases and the resultant restrictions imposed by various State Governments, it is likely that individuals may not be able to undertake travel. Therefore, the scheme should be extended for two more years, i.e., till 31 March 2023, to enable employees to avail the scheme.
Taxability of interest earned on excess employee PF contribution
The Finance Act 2021 made the interest earned on employee’s contributions to Provident Fund (PF) account in excess of INR 2.5 lakh per annum (INR 5 lakh per annum where employer contribution is not being made) taxable in the hands of an employee.
“As per this amendment, the government intended to tax interest income on provident fund contributions above specified threshold for high-income earners. A clarification is warranted to be issued on the taxability of the interest (already taxed as above), at the time of withdrawal. Suitable amendments should be made in the relevant schedule under the Act which deal with taxability of these PF fund to alleviate possible double taxation,” says Sirwalla.
Increase in standard deduction
For salaried individuals, medical reimbursement and travel allowance exemption were done away with from FY 2018-19 in lieu of standard deduction. To keep pace with the ever-rising medical cost (amplified due to the pandemic) and the fuel cost, the standard deduction should be increased from the existing Rs 50,000 to Rs 100,000 p.a. Further, the benefit of standard deduction should also be available to taxpayers opting for taxation under the new optional regime as well.
Increase in deduction limit u/s 80C
The limit of Rs 1.5 lakh in respect of deduction under Section 80C of the Income Tax Act, 1961 for various common tax-saving investments/ expenditure (such as Employee Provident Fund, Public Provident Fund, principal repayment of housing loan, children’s tuition fee, National Savings Certificate, etc.) has remained constant for almost half a decade now. Keeping in mind the current economic scenario – encouraging demand is one of the priorities of the government.
“With this in mind, to encourage individuals to spend on expenses like school fees, housing etc, the government may consider increasing this to Rs 3 lakh p.a. Alternatively, a separate deduction may be introduced (in addition to proposed enhanced limit) for certain high value transactions such as children’s tuition fee (keeping in mind the spiraling education cost over last few years), expenditure on specific items made in India, etc,” observes Sirwalla.
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