Union Budget 2021-22 Expectations for Taxpayers: One of the most eagerly-awaited annual policy announcements by the government in the final quarter of the fiscal year – Union Budget – is about the corner. With a couple of weeks to go, equivalent to each and every year, person taxpayers are truly hoping for a Budget which leaves more income at their disposal. This is specifically thinking of the hardships and challenges brought on by the COVID-19 pandemic on their livelihood and on all round economy.
From the government’s point of view, in addition to the reforms currently announced, many measures especially to increase domestic consumption of goods and services and to revive the economy at a quicker pace should really be evaluated from a holistic point of view.
The want list on the individual tax front emanating from COVID-19’s adverse effect and other situations is as below:
Separate deduction for COVID-19 therapy
Currently, a couple of deductions have been prescribed below Chapter VI-A of the Income-tax Act, 1961 (the Act) for health-related therapy for self or dependent suffering from disability/extreme disability (Section 80DD, 80U of the Act), health-related therapy of prescribed ailments and ailments (Section 80DDB of the Act). However, there is no precise deduction below the Act which covers therapy price for COVID-19 patients who are not covered below any wellness insurance coverage.
Donation produced to the PM CARES Fund made especially for supplying COVID-19 relief is eligible for one hundred per cent deduction u/s 80G of the Act, but no corresponding deduction has been notified for expenditures incurred on therapy of illness itself.
Given the substantial price involved in COVID-19 therapy in government or private hospitals, a separate deduction capped up to INR 1,00,000 or actual therapy price incurred by the taxpayer for self or family members, whichever is decrease, may possibly be regarded as to be introduced below the Act to provide a lot-required relief to the taxpayers specially when such expenses are not covered below a wellness insurance coverage policy.
Provision for furnishings by employer
Outbreak of the COVID-19 pandemic in March 2020 in a lot of methods compelled organisations to implement Work from Home (‘WFH’) policy for their staff for the duration of the lockdown period and post thereto. During such WFH predicament, many businesses endeavored to place in location important enabling infrastructure via provision of furnishings (like tables, ergonomic chairs, and so on.), higher speed world-wide-web, printers, desktops, stationery, and so on. for ease of working at their employee’s residences to make sure conducive work atmosphere.
Some businesses decided to grant a fixed allowance to staff to meet the expenditure on such furnishings/ other products, although other folks decided to provide a reimbursement. While each the allowances and reimbursements are necessitated by the small business requirement, these rewards have the possible of becoming taxed in the hands of the staff as a perquisite.
As this predicament has not been expressly dealt with in the Act or the Rules produced thereunder coupled with a truth that WFH on a huge scale seems to be a extended-term norm now, some tax relief precise to work from household situation may possibly be supplied to an person taxpayer and their employers.
Realignment of earnings slabs/ tax prices
For person taxpayers under 60 years of age the earnings tax exemption limit is INR 2.5 lakh p.a. This limit has remained unchanged from Financial Year (‘FY’) 2014-15.
Last year the Budget 2020 supplied some relief to taxpayers by enabling them to pick out in between the current tax regime and an option optional new tax regime. Needless to state that for taxpayers to take benefit of the new tax regime, a host of exemptions/ deductions had been to be foregone.
While the new tax regime had decrease tax prices, the ultimate advantage to taxpayer was basis the deductions/ exemptions otherwise he/ she was eligible to.
Hence, with the objective of simplifying this additional and enhancing the net disposable earnings it may possibly be regarded as no matter whether the standard exemption limit below the current tax regime can be enhanced to INR 5 lakh itself. This would also want to be assessed basis the possible quantity of taxpayers (estimated at 3.5 crore) who may possibly fall out of mandatory tax return filing requirement.
Subsequently, the other slab prices each below the current and new regime can be adjusted basis the revised limits in line with the progressive tax price program India has generally adopted.
Housing tax breaks
To reignite the momentum in the true estate sector, the government may possibly assess enhancing the common deduction of 30 per cent of Net Annual Value to 50 per cent and/or enhancing the existing limit of deduction for interest payable on housing loan on self-occupied properties to INR 4 lakh p.a.
Taxability of employer contribution to retirals
Section 17(2)(vii) of the Act was amended by Finance Act, 2020 to cap the employer contribution to Recognised Provident Fund (RPF), Superannuation Fund and National Pension System (NPS) up to INR 7,50,000 per annum. Accordingly, the aggregate of such employer contributions exceeding INR 750,000 was produced taxable as perquisite.
There is a dearth of clarify in respect of no matter whether this new limit shall be superimposed more than the person current limits for each and every such contribution.
It is anticipated that a clarification is issued on no matter whether the current person limit for each and every of the employer’s contribution to RPF/ NPS (viz. 12 per cent of salary and 10 per cent of salary respectively) should really be regarded as prior to applying the monetary cap of INR 7,50,000. Further, a clarification is required on the taxability of the contributions (currently taxed as per such above), regarded as as perquisite in the year of contribution and at the time of withdrawal. Suitable amendments should really be produced in the provisions which deal with taxability of these specified funds to stay away from doable productive double taxation.
Increase in deduction u/s 80C
The limit of INR 1.5 lakh in respect of deduction below Section 80C of the Income-tax Act, 1961 (‘the Act’) for numerous widespread tax saving investments/ expenditure (such as employee provident fund, public provident fund, principal repayment of housing loan, youngsters tuition charge, national savings certificate, and so on.) has remained continuous for nearly half a decade now. Keeping in thoughts the existing financial situation – encouraging demand is 1 of the priorities of the government. With this in thoughts if folks are encouraged to devote on expenditures like college charges, housing and so on., the government may possibly therefore take into consideration escalating this to INR 3 lakh p.a. Alternatively, a separate deduction may possibly be introduced (in addition to proposed enhanced limit) for specific higher worth transactions such as youngsters tuition charge (maintaining in thoughts the spiraling education price more than final couple of years), expenditure on precise products produced in India, and so on.
Expectations of a widespread man on individual taxes from the Budget 2021 are in summary to provide the household with further disposable earnings accentuated due to COVID-19. The government has numerous aspects like effect of the very same in the financial activity and fiscal discipline to weigh just before creating a final selection.
(By Parizad Sirwalla, Partner and Head, Global Mobility Services-Tax, KPMG in India)