Budget 2021: 4 key changes Indian salaried middle class taxpayers expect this year

The coronavirus pandemic has severely impacted lives across the world in unprecedented ways. Thousands of people have witnessed financial setbacks in India during the pandemic. The way people spend or save their money has changed due to economic uncertainties. Work from home has become a 'new normal' for salaried employees. Buying an insurance product, especially health insurances, has gained prominence. Amid a global pandemic, the salaried Indian middle class expects growth stimulus from Union Budget 2021.

Finance minister Nirmala Sitharaman is going to present the Union Budget on 1 February, 2021. To boost the pandemic-battered economy, the Budget must focus on pushing consumption — which translates to putting more money in the hands of people, believe experts.

"We expect the Union Budget 2021-22 to focus on boosting growth through a combination of higher spending along with targeted tax breaks which will help boost consumption," said Jyoti Roy, equities strategist (DVP), Angel Broking.

From tax relief to more exemptions for those who are working from home, here's what Indian salaried middle class expects from Budget 2021.

Increase the upper limit of Section 80C

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 ₹2.5-3 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.

"With citizens’ incomes being drastically affected, tax relief would be a welcome move this year. An increase in the limit for tax deductions under section 80C would be good. Considering inflation in recent past, the previous limits are no longer relevant. This will boost spending or ability to invest, which the economy needs right now," said Kunal Varma, chief business officer and co-founder, MoneyTap.

Tax deductions for those working from home

In the wake of coronavirus pandemic, remote working facility has become the 'new normal'. From information technology giants to banks, companies across the globe, have shifted to 'work from home' policy in last one year. The salaried individuals have to incur additional expenses due to remote working. The allowance received by the employees, such as conveyance allowance, has become taxable in its entirety for those who are working from home.

The government could look at providing deductions for expenses incurred by salaried employees while working from home in the upcoming Budget.

"Many companies have reimbursed the additional expenses; however, the employees are required to pay taxes on such reimbursements also. Therefore the people could expect the government to allow some form of rebate or deductions on taxes for such additional expenses," said Pranjal Kamra, chief executive officer, Finology.

Hike tax rebate on housing loans

The government has taken several steps in last few months to boost affordable housing for common man. To boost spending and revive the ailing real estate industry, the Union Budget 2021 should introduce more tax exemptions for the homebuyers. At present, an individual gets ₹1.5 lakh exemptions under Section 80C and ₹2 lakh under 24B for home loan. "The tax rebate on housing loan interest rates under Section 24 should be increased to at least ₹5 lakh to generate healthier housing demand, most notably in affordable and mid-segment housing," said Anuj Puri, chairman, ANAROCK Property Consultants.

Increase the upper cap on health insurance premium

The global pandemic has showed us that a health insurance product is a necessity, not an option anymore. In order to protect lives, 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 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 ( ₹50,000 or ₹75,000 or ₹1 lakh if bought for parents) 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," said Pranjal Kamra, Finology.

"Whilst the insurance premium payments constitute admissible deductions from income for tax payers, enhancing the extent of eligible deduction by at least 50% vis-à-vis the current levels, would go a long way in further improving the penetration of health insurance in the country," Gopal Balachandran, chief financial officer and chief risk officer, ICICI Lombard General Insurance said.

The government may also look at increasing the tax on long term capital gains from equity and property. In the view of the recent sharp rise in the stock market, the finance ministry may consider this option.