Expectations Of Taxpayers From Budget 2021
The year 2020 proved to be an out of the blue year with the coronavirus pandemic impacting lives and businesses across the globe in unparalleled ways. Work from home became the 'new normal' and buying a health insurance seemed a necessity. Businesses witnessed several extensions throughout the year and thousands of people witnessed financial setbacks in India during the pandemic with a major decline in the business revenues during the first few months of 2020. There was still a comeback in last few months. Finance Minister has promised a budget not seen in the past 100 years. So, naturally, the common man, still reeling under the pandemic and subsequent economic contraction expects a lot. In this article, we will anticipate what one can expect from the union budget 2021.
Direct Tax
On the direct tax front, it is being anticipated that In order to boost the income in hands of the common man, the tax exemption limit, below which income tax is not levied, would see a jump from ₹2.5 lakh to anywhere between ₹3.5 lakh to ₹5 lakh.
Also, presently Under Section 80C, an individual is eligible to claim tax deductions of up to ₹1.5 lakh on various payments including life insurance premiums, principal payment of home loan, fixed deposits, provident funds etc. Considering the inflation in the recent past, the government may increase this upper limit to up to ₹2 lakh to ₹2.5 lakh. The rise in the exemption limit will encourage people to spend more on tax-saving instruments backed by the government. The increase in the deduction limit under Section 80C was last increased in 2014 and an upward revision is long overdue.
The current tax slabs in the old regime needs shall be given more relaxation. A taxable income of upto ₹5 lakhs has zero taxation while even a rupee higher than ₹5 lakh the tax is computed to ₹12,500. Further, a tax rate jump of 5% to 20% at the barrier of ₹5 lakh is a big leap affecting the mind-set of taxpayers. The taxation at the barrier point of ₹5 lakh needs to be revisited in the old regime.
Simultaneously, the new regime needs an overhaul. Removing all deductions from the new regime doesn’t make it a go to scheme for most of the taxpayers. The experts in the office of the Finance minister seriously needs to rethink the scheme and make it more lucrative to taxpayers.
The Cost of vaccinating 130 crore Indians is being estimated to be Rs 50,000-60,000 crore. The Finance Minister has to find this money from sources other than borrowing owing to an already stretched fiscal deficit situation. So, the bill for the vaccine is most likely to be borne by the people in the form of a cess. A Covid cess for a limited period may be introduced just like the Swach Bharat Cess.
Also with the pandemic, the need for an insurance has significantly increased. Several companies have made a health insurance cover mandatory for their employees. In the view of this situation, the government may increase the upper limit on health insurance premiums under Section 80D. As per the provisions of section 80D, an individual can claim an exemption of up to ₹25,000 on the premiums paid for the medical insurance of self and family. After witnessing the skyrocketing price of medical treatment owing to the coronavirus, a lot of people have availed themselves higher medical insurance coverage for their parents, spouse and children. Therefore the people could expect the government to increase the deduction threshold for medical insurance.
On similar lines, covid-19 shall be given the status of specific disease so that the expenditure spent on hospitalization can be claimed as a deduction. This will give relief to the already reeling families of the covid affected.
Import Duty
Economists are largely divided on the issue of import duties which are largely seen as detrimental even for local manufacturers. According to a latest Reuters report, the government is mulling to hike import duties on at least 50 items including smartphones, electronic components and appliances in the upcoming budget. This is done to boost local manufacturing and reduce dependence on imports. However, in year when employment and income remain distressed, this might hit discretionary spending capabilities by the consumer. This should also be seen in the light of increasing raw material prices globally which is pressuring consumer companies across categories to rethink prices to save margins. An import duty hike in such as a scenario will not bode well for the spending power of the common man.
Good and Service Tax
Changes in GST are often made periodically through the powers vested in the GST council. Many changes are not expected in the budget when it comes to GST but only rationalising the act wherever necessary post approval of the GST council.
Considering the current scenario, Budget 2021 should bring reforms to leave more money in the hands of the people adversely affected by the covid-19 pandemic. But, at the same time fiscal deficits needs to be maintained at an acceptable level. A well balanced budget is the need of the time. As the pandemic has taught everyone the healthcare is as important as the defence for any country. The government spending and reforms in the healthcare sector should be the major focus of the budget. Now, all eyes are on 1st February 2021 when the respected finance minister will present the first budget in the new normal
