While various economic packages and reforms announced by the government in 2020 have no doubt kept the economy afloat, Budget 2021 is also being looked upon as a watershed event which is expected to lift and give an impetus to the economy.
Some of the expectations of the common man from the Budget 2021 are as under:
1. Increase in basic income tax exemption limit and investment limit under section 80C
The basic income tax exemption limit needs to be increased from Rs 2.5 lakh to Rs 5 lakh. The immediate expectation is to reduce the tax burden of taxpayers. The Covid-19 pandemic has affected everyone in some way or the other. Increasing the basic exemption limit will provide tax respite to individuals, increase liquidity, and give a boost to the economy.
The deduction limit under section 80C of the Income-tax Act, 1961 (Act) for specified tax-saving investments which is currently Rs 1.5 lakh should be increased to at least Rs 2.5 lakh.
2. Increasing section 80D limit for individuals
With the Covid-19 pandemic hitting hard and medical insurance coverage found to be inadequate for families, deduction for mediclaim coverage for non-senior citizens should be increased from Rs 25,000 to Rs 50,000 and for senior citizens from Rs 50,000 to Rs 75,000.
3. Residential status for FY 2020-21
Due to the pandemic, the government had notified exemption of certain days for determining residency for FY 2019-20 for individuals who were stranded in India on account of the lockdown and who could not travel outside India. For FY 2020-21 also, the government should issue the necessary clarification providing relief for stranded individuals on account of the pandemic.
4. Deduction for remote working set-up
Covid-19 pandemic brought about a paradigm shift in work culture. Work-from-home (WFH) has become a necessity. Budget 2021 should introduce measures which would provide certain tax benefits for employees. For example, a standard deduction of Rs 50,000 from gross income could be provided (over and above the existing standard deduction from salary) to allow for expenditure by employees who are working from home on ergonomic chairs/furniture, computer equipment, data cards, etc.
5. Long-term capital gains on equity shares and equity mutual funds
Long term capital gains from sale of listed equity shares and equity mutual funds is tax-exempt up to Rs 1 lakh. Further, the gain above Rs 1 lakh is subjected to tax at 10% (plus applicable surcharge and cess) without benefit of indexation. The government should look at increasing the exemption limit from Rs 1 lakh to Rs 2 lakhs for retail investors.
Alternatively, the government may also look at reducing the tax rate to 5%. This will give a big boost to the capital market.
6. Deduction for conserving environment
With climate change being inevitable and a hot topic, incentivising use of environment-friendly products such as solar heaters, solar lamps, wind energy, bio-toilets, solar mobile chargers, etc. by individuals and households has also become necessary. Just as the government incentivised purchase of electric vehicles by providing a deduction under section 80EEB of the Act for interest paid up to Rs 1.5 lakh on loans taken, the GOI may consider incentivising the purchase of the above-mentioned environment-friendly products by providing a deduction for interest paid up to Rs 1 lakh on loans taken. This will give a boost to the clean technology industry and encourage innovations.
7. Leave Travel Concession (LTC) Cash Voucher Scheme
Due to the travel restrictions, employees have not been able to avail LTC in the current block period of 2018-2021. Hence, the government introduced the LTC Cash Voucher Scheme as an alternative. The scheme allows cash equivalent to LTC fare and leave encashment to be paid by way of tax-free reimbursement, if the employee opts for this in lieu of one LTC during the block period of 2018 -2021 subject to the below conditions:
- An expenditure is incurred during the period October 12, 2020, to March 31, 2021, for the purchase of goods/services (with GST rate of 12% or more) through digital mode
- The expenditure incurred should be equal to value of leave encashment and thrice the value of the LTC fare
In case the taxpayer spends less than the required amount, the tax exemption will stand reduced proportionately.
The above measures are expected to stimulate consumption and subsequently boost the economy. However, spending three times the value of LTC fare seems high. Therefore, the government may consider reducing the spending required to twice the value of LTC fare. Also, an extension of the scheme for an additional nine months, i.e., up to December 31, 2021 (till the end of the block period of 2018-2021) may be considered.
If some of the above suggestions are implemented in Budget 2021, it will definitely benefit the common man.
(The writer is Partner with Deloitte India. With inputs from Niji Arora, Senior Manager, Vivek Mistry, Manager, Zalak Shah, Deputy Manager with Deloitte India.)