People await Budget with bated breath

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By Ashish Mitra --
Sunday, 31 Jan, 2021

Going by Finance Minister Nirmala Sitharaman’s say that this year’s Budget would be one of a kind that hasn’t been seen for years, expectations of the Budget has grown manifold.

And as we keep our fingers crossed in our expectations, we must keep in mind four important issues before we assess the impact of the Union Budget on growth.

This year will be no different, except that the hype and expectations are larger than ever before as it’s the first budget post the COVID-19 pandemic. Though the Indian economy had taken a hit last year, but it is now on the road to recovery.

Let’s take a look at the expectations that people have from Budget 2021.

1. ‘Work From Home’ concessions

Most corporate employees and other employees for whom remote-working was a possible option have been working from home last year. While certain major corporates did provide work from home allowances such as reimbursement of office furniture costs, telephone and internet expenses, other employees have borne the same out of their pockets.

A request has been forwarded to the government to allow a standard ‘work from home’ deduction for salaried employees concerning the work from home expenses incurred.

2. Raise in the standard deduction for salaried employees

The standard deduction for salaried employees was introduced in Budget 2018 and was capped at Rs.40,000. Since then, it has only seen an increase of Rs.10,000 in the last three years. Increasing this limit to a modest Rs.75,000 per annum will benefit millions of salaried employees, especially in a difficult year such as this.

3. Increase of the deduction limit under section 80C

At present, deductions under Sections 80C, 80CCC and 80CCD(1) are capped together at Rs.1.5 lakh per annum in total. The last time this deduction limit was revised was 2014, where it was raised from Rs.1 lakh per annum. In the seven years since this revision and 18 years since the first limit being instated in 2003, the percentage increase stands lower than the average annual cost of inflation. Hence, this year would be the best time to revise this limit to at least Rs.2 lakh per annum and provide taxpayers with some respite.

4. Keeping Preventive Healthcare Out of the Medical Insurance Deduction

Right now, medical insurance premiums paid on self, spouse, children and parents are allowed as a deduction under Section 80D of the Income Tax Act. The limits stand at Rs.25,000 or Rs.30,000 depending on the age of the insured. The government also allows for a deduction of expenses incurred with regard to preventive healthcare.

However, it is recommended that this amount should be allowed as a deduction apart from, and in addition to the medical insurance premiums paid under Section 80D. It is also expected that the government will reduce the GST rate on medical insurance premiums from 18 per cent to 5 per cent to facilitate better market penetration through reduced costs.

5. Deduction for COVID-19 hospitalisation under section 80DDB

Section 80DDB covers serious illnesses such as malignant cancers, chronic renal failure, AIDS, etc. It has been recommended that the government include hospitalisation expenses incurred for COVID-19 too under this section. The deduction limit is currently capped at Rs.40,000 for individuals, except senior and super senior citizens who are allowed a deduction of Rs.1,00,000 per annum.

6. Overhaul of capital gains reporting

Capital gains are split into long-term and short-term capital gains and taxed on various types of capital assets under the Income Tax Act. It is expected that the government will simplify compliance for capital gains and reduce the number of tax rates charged for various types of capital gains income. It has also been recommended that the government extend the timelines for investment of capital gains income under Section 54 of the Income Tax Act.

7. Increase in the deduction limit of interest paid on House property

The interest limit of Rs.2 lakh has been constant for a few years now. It is expected that this limit be increased to Rs.4 lakh to promote investment in house property and to indirectly boost the affordable housing segment as well. Eliminating tax on notional income from house property will be another good move to encourage the purchase of new house properties.

8. Deduction for self-occupied house properties

Home owners who do not rent out their property lose the repairs and maintenance deduction allowed under the Income Tax Act. Hence, it has been proposed to extend this benefit to even self-occupied house property for the various expenses they incur during the year on repairs and maintenance.

9. Revision of LTA guidelines

To boost the tourism sector, the government may revise guidelines on claiming Leave Travel Allowance (LTA), by extending the deduction beyond domestic fares to tours and accommodation as well.

Expectations for the general economy from this Budget

a. Creation of employment opportunities

It is unfortunate that millions of people lost their jobs last year due to layoffs, a result of the pandemic. This year, the hope is that the Finance Ministry will help fuel employment opportunities by giving a boost to major employment-generating sectors such MSMEs, textiles, hospitality, housing, etc.

b. Simplification of reporting under GST

The government has eased GST compliance by a fair bit by reducing the number of returns to be filed by taxpayers, especially small taxpayers, under GST. However, it is not just the number of returns but the various compliances in the GST filing mechanism that is turning out to be an inconvenience for honest taxpayers and a disruption to the ease of doing business. The stringent laws with regard to claiming input tax credit, making monthly payments and even registering under GST need to be simplified to a great degree, and with immediate effect.

c. Healthcare and the distribution of the COVID-19 vaccine

The pandemic was an eye-opener for the healthcare sector in India. The number of active cases may have substantially reduced, but life has still not come back to normal. The priority right now is the effective distribution of the COVID-19 vaccine. The government may announce several concessions to domestic vaccine manufacturing companies under both income tax and GST, in the form of subsidies and exemptions.

The Central Board of Indirect Taxes and Customs (CBIC) has relaxed the import and export norms for vaccines in December 2020, removing any value limits. A dedicated task force is expected to be set up to ensure proper clearances of vaccines.

d. A COVID-19 Cess

It is likely that the government could impose a COVID-19 or other similar cess of 2to 4 per cent on high-income earners this budget. The past year has seen a big drop in revenue collections in some of the months while the government had to increase assistance to the poorer sections of society who were deprived of income during the lockdown period. This cess could be imposed to make good the amounts incurred on economic assistance provided. There is a possibility that this cess could also be imposed only on business entities.

e. Rate changes in Customs duties

Budget 2021 may see substantial rate reductions in import duties on gold and precious stones, newsprint, and imports on raw material components for electric vehicles. On the other hand, mobile phones and other electronic devices could see an increase in the rate of customs duties this budget.

People await Budget with bated breath. Going by Finance Minister Nirmala Sitharaman’s say that this year’s Budget would be one of a kind that hasn’t been seen for years, expectations of the Budget has grown manifold.

And as we keep our fingers crossed in our expectations, we must keep in mind four important issues before we assess the impact of the Union Budget on growth.

This year will be no different, except that the hype and expectations are larger than ever before as it’s the first budget post the COVID-19 pandemic. Though the Indian economy had taken a hit last year, but it is now on the road to recovery.

Let’s take a look at the expectations that people have from Budget 2021.

1. ‘Work From Home’ concessions

Most corporate employees and other employees for whom remote-working was a possible option have been working from home last year. While certain major corporates did provide work from home allowances such as reimbursement of office furniture costs, telephone and internet expenses, other employees have borne the same out of their pockets.

A request has been forwarded to the government to allow a standard ‘work from home’ deduction for salaried employees concerning the work from home expenses incurred.

2. Raise in the standard deduction for salaried employees

The standard deduction for salaried employees was introduced in Budget 2018 and was capped at Rs.40,000. Since then, it has only seen an increase of Rs.10,000 in the last three years. Increasing this limit to a modest Rs.75,000 per annum will benefit millions of salaried employees, especially in a difficult year such as this.

3. Increase of the deduction limit under section 80C

At present, deductions under Sections 80C, 80CCC and 80CCD(1) are capped together at Rs.1.5 lakh per annum in total. The last time this deduction limit was revised was 2014, where it was raised from Rs.1 lakh per annum. In the seven years since this revision and 18 years since the first limit being instated in 2003, the percentage increase stands lower than the average annual cost of inflation. Hence, this year would be the best time to revise this limit to at least Rs.2 lakh per annum and provide taxpayers with some respite.

4. Keeping Preventive Healthcare Out of the Medical Insurance Deduction

Right now, medical insurance premiums paid on self, spouse, children and parents are allowed as a deduction under Section 80D of the Income Tax Act. The limits stand at Rs.25,000 or Rs.30,000 depending on the age of the insured. The government also allows for a deduction of expenses incurred with regard to preventive healthcare.

However, it is recommended that this amount should be allowed as a deduction apart from, and in addition to the medical insurance premiums paid under Section 80D. It is also expected that the government will reduce the GST rate on medical insurance premiums from 18 per cent to 5 per cent to facilitate better market penetration through reduced costs.

5. Deduction for COVID-19 hospitalisation under section 80DDB

Section 80DDB covers serious illnesses such as malignant cancers, chronic renal failure, AIDS, etc. It has been recommended that the government include hospitalisation expenses incurred for COVID-19 too under this section. The deduction limit is currently capped at Rs.40,000 for individuals, except senior and super senior citizens who are allowed a deduction of Rs.1,00,000 per annum.

6. Overhaul of capital gains reporting

Capital gains are split into long-term and short-term capital gains and taxed on various types of capital assets under the Income Tax Act. It is expected that the government will simplify compliance for capital gains and reduce the number of tax rates charged for various types of capital gains income. It has also been recommended that the government extend the timelines for investment of capital gains income under Section 54 of the Income Tax Act.

7. Increase in the deduction limit of interest paid on House property

The interest limit of Rs.2 lakh has been constant for a few years now. It is expected that this limit be increased to Rs.4 lakh to promote investment in house property and to indirectly boost the affordable housing segment as well. Eliminating tax on notional income from house property will be another good move to encourage the purchase of new house properties.

8. Deduction for self-occupied house properties

Home owners who do not rent out their property lose the repairs and maintenance deduction allowed under the Income Tax Act. Hence, it has been proposed to extend this benefit to even self-occupied house property for the various expenses they incur during the year on repairs and maintenance.

9. Revision of LTA guidelines

To boost the tourism sector, the government may revise guidelines on claiming Leave Travel Allowance (LTA), by extending the deduction beyond domestic fares to tours and accommodation as well.

Expectations for the general economy from this Budget

a. Creation of employment opportunities

It is unfortunate that millions of people lost their jobs last year due to layoffs, a result of the pandemic. This year, the hope is that the Finance Ministry will help fuel employment opportunities by giving a boost to major employment-generating sectors such MSMEs, textiles, hospitality, housing, etc.

b. Simplification of reporting under GST

The government has eased GST compliance by a fair bit by reducing the number of returns to be filed by taxpayers, especially small taxpayers, under GST. However, it is not just the number of returns but the various compliances in the GST filing mechanism that is turning out to be an inconvenience for honest taxpayers and a disruption to the ease of doing business. The stringent laws with regard to claiming input tax credit, making monthly payments and even registering under GST need to be simplified to a great degree, and with immediate effect.

c. Healthcare and the distribution of the COVID-19 vaccine

The pandemic was an eye-opener for the healthcare sector in India. The number of active cases may have substantially reduced, but life has still not come back to normal. The priority right now is the effective distribution of the COVID-19 vaccine. The government may announce several concessions to domestic vaccine manufacturing companies under both income tax and GST, in the form of subsidies and exemptions.

The Central Board of Indirect Taxes and Customs (CBIC) has relaxed the import and export norms for vaccines in December 2020, removing any value limits. A dedicated task force is expected to be set up to ensure proper clearances of vaccines.

d. A COVID-19 Cess

It is likely that the government could impose a COVID-19 or other similar cess of 2to 4 per cent on high-income earners this budget. The past year has seen a big drop in revenue collections in some of the months while the government had to increase assistance to the poorer sections of society who were deprived of income during the lockdown period. This cess could be imposed to make good the amounts incurred on economic assistance provided. There is a possibility that this cess could also be imposed only on business entities.

e. Rate changes in Customs duties

Budget 2021 may see substantial rate reductions in import duties on gold and precious stones, newsprint, and imports on raw material components for electric vehicles. On the other hand, mobile phones and other electronic devices could see an increase in the rate of customs duties this budget.