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January 22, 2021

Top 10 Budget Expectation by Common man in Budget 2021

by CA Shivam Jaiswal in Budget

Top 10 Budget Expectation by Common man in Budget 2021

The Union Budget of India, also referred to as the Annual Financial Statement in the Article 112 of the Constitution of India, is the annual budget of the Republic of India. The Government presents it on the first day of February so that it could be materialised before the beginning of new financial year in April. India’s Finance Minister Nirmala Sitharaman is set to announce the annual budget on February 1, 2021 – paperless for the first time in the history of India. With budget day approaching let us look into 10 expectations of the common man regarding the same.

1. Rate cuts

  • The Budget 2020 introduced a simplified tax regime with decreased slab rates, but came with conditions.
  • Individuals would have to forego exemptions and deductions to enjoy this benefit.
  • In order to extend the benefit of lower tax rates to a larger section of individuals, to improve the cash flow issues, it is hoped that the government could consider allowing some of the exemptions and deductions under the new tax regime.
  • The increase in tax slab limit can improve consumption as there will be more disposable income at salaried individual’s end.

2. Revision in the monetary limit of deduction available under Section 80C, 80CCC and 80CCD

  • Presently as per Section 80CCE the aggregate deductions available under Section 80C, 80CCC and 80CCD(1) is capped at Rs 1.50 lakh per year.
  • This limit of Rs 1.50 lakh was revised from Rs 1 lakh in 2014. The earlier limit of Rs 1 lakh was fixed way back in 2003.
  • This annual average increase is not even on par with average inflation during the same period. So, taxpayers are hoping that the limit is directly raised minimum to Rs 2.50 lakh.
  • A higher deduction under Section 80C to avail tax deduction will be a welcome relief because this will encourage more salaried taxpayers to save and make long-term investment. 

3. Separate limit or Principal repayment of Housing Loan

  • As per present provisions of Section 80C, taxpayers are allowed to claim a deduction of up to Rs 1.5 lakh from your taxable income, for the repayment of the principal amount of a housing loan taken for a residential house.
  • Over the years the amount of housing loan that is needed to buy a property, has gone up significantly due to significant increase in the prices to residential houses.
  • So, the principal repayment on a housing loan itself generally exceeds the limit of Rs 1.5 lakh set under Section 80CCE leaving other items getting crowded out.
  • In view of the overcrowding of Section 80C, 80CCC and 80CCD(1) and need for larger home loans, the finance minister should provide a separate deduction for repayment of home loans, in the ensuing budget.

4. Enhancing the NPS Limit

  • An initiative undertaken by the Government of India, the National Pension System or the NPS seeks to provide retirement benefits to all citizens of India.
  • The present tax law exempts only up to 60% of withdrawals from NPS account at the time of closure of the account.
  • For the balance, the NPS subscriber is required to purchase annuity.
  • Only 60% of the corpus is tax-free and the balance becomes taxable if not immediately then in future.
  • In contrast to the NPS withdrawals, the accumulated balance in employee provident fund (EPF), comes fully tax free at the time or retirement.
  • It is expected that the government would at least attempt to bring in parity by working other way round and make the entire accumulated balance in NPS at the time of withdrawal tax free.
  • The Government could also do away with requirement to buy annuity with 40% of the corpus and leave the decision with the subscriber where to invest the money
  • The Union government should consider increasing the additional deduction limit for individuals from Rs 50,000 to Rs 100,000 or Rs 150,000 when it comes to NPS.
  • Section 80C limit of Rs 150,000 is not enough for many taxpayers to save tax.
  • Increasing NPS limit for additional deduction will help people to save tax and encourage long-term investing.
  • Also, the government should look at making it EEE (Exempt Exempt Exempt) from taxation perspective.

5. Enhanced standard deduction for income from house property

  • On account of the pandemic, there is diminished demand for real estate and reduction in rent income.
  • Further, a house owner with house property income would also be incurring higher maintenance, in excess of the 30% standard deduction allowed.
  • In order to support the property owners in these difficult times, the standard deduction may be increased appropriately at least for the next two years.

6. Interest deduction for house property

  • Income tax law allows the benefit of interest on money borrowed for purchase, construction, repairs renovation of any house property.
  • However, the amount of such claim is restricted to Rs 2 lakh in aggregate case of up to total of two self-occupied houses.
  • In respect of a let-out property there is no such restriction and full interest is allowable as deduction though there is restriction on set off of the loss under the head “Income from house property” against other sources of income to the extent of Rs 2 lakh in current year.
  • Rationally tax benefits for full interest should be made available to the genuine home buyers who need the house for their own residence and not for the people who use the same as investment and do tax arbitrage.
  • In case of loan for an under-construction house where the construction is delayed beyond a period of five years, the interest deduction gets reduced to Rs 30,000 for no fault of the tax payers.
  • This unjust provision of reduced deduction should also be removed altogether from the statute book to grant relief to the home buyers.

7. Enhanced limits to catch up increasing medical costs

  • The current COVID-19 pandemic has made the entire world sit up and realise that medical exigencies are unpredictable and can cause a financial upheaval that is tough to handle.
  • In today’s time, the cost of healthcare in the country has risen significantly thanks to the ever-growing demand for medical services.
  • Many individuals often have to use funds from their savings in case of a medical emergency, which not only impacts their financial health but also jeopardises personal goals such as education and marriage.
  • With the rising cost of medical expenses, access to good medical facility and hospitalisation costs can be financially strenuous.
  • An enhanced deduction from the present limit of Rs 5,000 for health check-up, deductions for expenditure on medical tests and treatment is hence a valid and genuine ask of the common man.

8. Relaxation in residential status norms

  • The scope of income taxable in India is based on the residential status which is determined based on the number of days of stay in India.
  • Due to restrictions on international air travel, an individual may have been stranded in India and it would be unfair if that stay is also considered to determine their residential status for financial 2020-21, or even beyond if such travel restrictions continue.
  • The legislation may be amended to ignore those days of stay in India on account of travel restrictions.

9. Withdrawal or pre-closure of provident fund account

  • Withdrawals from provident fund attracts tax liability in the absence of continuous service period of five years.
  • One cannot deny a higher workforce layover during this year. Hence, the condition of five years may be relaxed in cases of job loss during the pandemic.

10. Standard deduction for work from home

Work-from-home is the new normal these days and the salaried class will have to incur additional expenditure to meet communication and infrastructure requirements. Introduction of standard deduction for such expenditure would also be a welcome relief.

It may be noted that despite the numerous reliefs that have been provided during the year on account of the pandemic, most of these do not directly benefit the common man. The common man is hence looking forward to this year’s Budget to improve cash flows and enable more consumption and savings for better sentiment.

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