By Divya Baweja, Nitin Baijal and Sahil Bhasin
The Honorable Finance Minister will present the Union Budget 2022 next month. During one of the recent meetings of the Finance Minister Nirmala Sitharaman with state finance ministers, recommendations were made to provide relief to individuals in line with tax cuts announced for corporates in September 2019. Hence, in that case, the common man’s expectations from the upcoming budget would surely be riding high.
The government had introduced the simplified regime vide Finance Act (FA) 2020 for people. Under the said regime, people could benefit from lower tax slab rates, provided they gave up most of the exemptions available under the existing tax regime. This was in line with what the government offered to corporates in 2019 wherein the rate was lowered from 30 percent to 25 percent for those not claiming tax exemptions. It was expected that numerous taxpayers would shift to the simplified regime. However, we understood that individuals are still finding the old regime beneficial.
Hence, one of the key expectations is that the highest tax slab rate may come down from 30 per cent to 25 per cent, with a corresponding increase in the limit from Rs 10 lakh to Rs 20 lakh. This should also rationalize the highest slab rate applicable to individuals with a tax rate of 25 per cent applicable to corporates (having a turnover of less than Rs 400 crore). Therefore, the proposed highest slab rate (including surcharge and cess) can be reduced to 35.62 percent from 42.74 per cent.
At present, employees are working from home across businesses and may incur additional “work from home” related expenditure, such as internet charges, rent, electricity, and furniture. It is recommended that an additional deduction of “work from home” allowance of Rs 50,000 should be given to employees working from home.
Deduction under section 80C of the Income-tax Act, 1961 (the Act) provides for various types of payments made by taxpayers who are eligible for relief such as PPF, fixed deposits, housing loan repayment (principal portion), insurance, and expenditure made towards tuition fees. However, the limit under this section is quite low and was last increased in Finance Act, 2014. To boost such investments, expanding the limits for the purpose of 80C is the need of the hour. The exemption limit should be enhanced to Rs 300,000 from the current limit of Rs 150,000.
Inflation is continuously rising and the pandemic has still not vanished. In view of these, to ensure affordability and accessibility to medical treatment for patients of all income groups, the deduction towards medical expenditure under section 80D of the Act should be increased from the current Rs 25,000 to Rs 35,000.
The exemption on long-term capital gains from the sale of equity and equity-oriented mutual funds also needs a relook. The expectations are that the current limit of exemption should be increased from Rs 100,000 to Rs 200,000.
In view of the pandemic and related travel restrictions, the government introduced the Leave Travel Concession (LTC) scheme last year. In the scheme, the travel condition required for claiming Leave Travel Allowance (LTA) was replaced with consumption-based exemption. However, the same was limited to FY 2020-21. With travel now again being restricted (due to the third wave of the pandemic), the government may further extend the benefit of the said scheme to FY 2021-22. Separately, restricting the benefit of LTA to two years should be done away with. This benefit should be available annually.
Good infrastructure is key to the economy’s growth. Therefore, the authorities should re-look at reintroducing the deduction for investment in infrastructure bonds. This was earlier introduced in April 2011 with a maximum deduction of Rs 100,000 and discontinued a year later. Therefore, such deduction should not only be reintroduced, but the limit of Rs 100,000 should be enhanced to Rs 150,000, if not Rs 200,000.
Aspirations of the common man are high from the upcoming budget and additional relief is expected due to the current pandemic. However, we will soon know whether the common man’ expectations will be met or not in the upcoming budget.
Divya Baweja is Partner, Deloitte India; Nitin Baijal is Director, Deloitte India; and Sahil Bhasin is Manager with Deloitte Haskins & Sells LL
