Budget 2021 Expectations: One massive expectation of the popular man, in particular the taxpayers, from the Budget 2021 announcements to be produced by Finance Minister Nirmala Sitharaman will be no introduction of any new tax. However, the speak of a Covid tax in the kind of Covid Cess is producing the rounds, which if introduced will raise the tax outgo for the taxpayers.
“Considering the government’s proposal for a free vaccination, there is a likelihood that it will introduce 1 per cent Covid cess in the Budget 2021, in addition to the existing education cess. Covid cess is likely to be applicable to all taxpayers equally,” says Nikhil Thakkar, Senior Vice President, IIFL Wealth.
Currently, ‘Health and Education Cess’ is levied at the price of 4 per cent of revenue tax, such as surcharge wherever applicable. The quantity of tax as enhanced by the surcharge if applicable so arrived at shall be enhanced by Health and Education Cess at the price of 4 per cent to arrive at the total tax payable.
But, how most likely is it that the government may possibly announce the Covid Cess? “There was a big revenue loss for the government because of the Covid and the world’s largest vaccination drive is on. Many sectors are looking for relief in the budget and even individual tax-payers are not too well off. The government is in dire need of funds. Buoyancy in tax collections, disinvestment, and borrowings are expected to be the major sources from where the government may raise funds. In such a scenario, the possibility of the government introducing the Covid cess as also an additional levy on fuel cannot be neglected,” says Col Sanjeev Govila (Retd), a SEBI Registered Investment Advisor (RIA), and CEO, Hum Fauji Initiatives, a monetary organizing firm which caters exclusively to armed forces officers and their households.
If a Covid Cess is introduced, there will be an added tax outgo based on one’s net taxable revenue. For instance, for a person with a taxable revenue of Rs 7 lakh and Rs 15 lakh and opting for the new simplified tax regime, the added tax outgo will be roughly Rs 325 and Rs 1875 respectively.
“To strike a balance, in case the government introduces Covid cess for a year to finance deficits etc. the below table reflects the impact for individuals with a taxable income of Rs 7 lakh and Rs 15 lakh. The impact may vary basis the level of income, senior citizen status and option availed under alternate tax regime under section 115BAC,” says Tapati Ghose, Partner, Deloitte India
The paying added tax may possibly effect the spending budget of popular taxpayers. “It will not be appropriate to introduce COVID CESS in the budget as it will affect the masses and people at the ground are still struggling to come out of the woes of COVID impact,” feels Rajesh Bansal, Managing Director, Midas FinServe Pvt. Ltd, a monetary services firm.
According to Thakkar, the added tax outgo for these in many other revenue slabs will be as beneath:
Could taxpayers see a Covid-19 cess or surcharge this Budget? Jiger Saiya, Partner and Leader – Tax & Regulatory Services, BDO India says, “The answer would hinge on how the government plans to fund the fiscal deficit created by the stimulus and the budgeted spend on vaccination drive. However, between a cess and a surcharge, a progressive surcharge could be a better option, as it will not put an equal burden on small taxpayers.”
Col Govila (Retd) also feels the exact same, “It is widely expected that such a cess would be levied only on super-rich taxpayers or at the most, on high-income earners. The chances of it being levied on all the taxpayers seem very low considering that the lower-income taxpayers have been more affected by the pandemic than others.”