Among small measures, the FM may provide relief on covid-19-related expenses, according to experts
The government may tinker with tax slabs in the old regime, and may increase the standard deduction limit
Due to the impact of the covid-19 pandemic on the economy, the finance minister has little room to provide any big relief for individuals in the Union Budget but there could be a small change in the tax slabs and rationalization, according to tax experts. Mint spoke to seven tax experts for a poll on the relief they expect the budget would provide to individuals. We present some of the measures that at least three experts thought could be announced in the Budget.
“Even though the pandemic has impacted the economy, the International Monetary Fund has said that the country will be the fastest growing economy in the world in 2021 and projected the growth at 11.5%. It would translate in better tax collection going ahead. The government could, therefore, may not be too conservative with relief measures," said Suresh Surana, founder, RSM India, an audit, tax and consulting services firm.
All tax experts were of the view that there some deductions that would be available for medical expenses that many families had to bear due to covid-19. This could be done under Section 80D.
Section 80D of the Income-Tax Act allows a deduction for medical insurance premium, preventive health check-up and medical expenditure incurred for senior citizens. A person can claim ₹25,000 deduction for medical insurance premium for self and family and ₹50,000 for senior citizen parents. Many insurance companies raised health premiums in FY21. Many seniors, saw the premiums rise by 50-100%. The FM may enhance the limit.
A taxpayer gets a deduction for parents aged 60 and above for medical expenditure if they do not have health insurance. “Due to covid-19, the government may also offer this for taxpayers who are below 60," said Naveen Wadhwa, deputy general manager, Taxmann, a research and advisory firm.
CHANGES TO SLAB RATES
The government has not made any changes to the income tax slab rates since 2014, according to experts. Though a new tax regime was introduced last year with lower slabs, the rates in the old tax regime have remained the same.
However, the government brought in the tax rebate to lower the tax outgo some years ago; the limit was raised in 2019. Individuals who earn up to ₹2.5 lakh don’t have to pay any tax at present. Those earning between ₹2.5 lakh and ₹5 lakh, too, don’t pay any tax due to the rebate.
As the government has to provide some relief to the citizens, it may increase the basic exemption limit as many have faced salary cuts. Raising the basic exemption limit will lower the tax outgo slightly for individuals across tax slabs. At least three experts said that the basic exemption limit will be increased to ₹3 lakh from the existing ₹2.5 lakh.
The FM may increase the standard deduction if other reliefs are not provided, said experts.
If there’s no relief under Section 80D, the standard deduction of ₹50,000 could be raised. It will also help those who have seen a reduction in salary and who spent money on setting up workstations and buying new devices to be able to work from home.
“It will also leave more money in the hands of the taxpayers. The government needs to boost consumption, and this move would help," said a partner with a leading tax firm, on the condition of anonymity, as he is not the authorized spokesperson.
In October 2020, the government brought in leave travel concession (LTC) cash voucher scheme for private sector employees. Under the scheme, employees can claim a tax deduction on LTC by spending the money on buying goods and services instead of submitting travel bills.
“It is not yet part of the Income-tax Act. The finance minister may make the necessary changes to incorporate it," said Preeti Khurana, tax expert and spokesperson of tax filing website Cleartax.in.
Many non-resident Indians (NRIs) were stuck in the country due to the pandemic. They couldn’t travel back to their places of residence due to travel restrictions. For taxation purpose, an individual is considered as a resident Indian if he stays in the country for specified days. Being a resident, the person needs to file returns and pay tax.
The Central Board of Direct Taxes (CBDT) had given relaxation to NRIs who were stuck in the country for FY20. But the same has not been done for FY21.
All tax experts are of the view that the finance minister is likely to give relaxation to NRIs, who were stuck in India. It would increase the number of days for a person to be considered as resident Indian for taxation purpose.
The government may also introduce a one-time covid-19 cess to make up for the reliefs it is providing to individuals.
With the government not having much scope to provide relief, a good budget will be one that doesn’t increase the tax burden.