BackWhat should a common man's Budget look like?
Anticipations from Budget 2021 will be several notches higher given the state of turmoil that the economy has been due to the COVID-19 pandemic.
PremiumBy Rahul Jain
A significant financial event that always draws keen attention from all and sundry is the Union Budget. Having said that, anticipations from Budget 2021 will be several notches higher given the state of turmoil that the economy has been due to the COVID-19 pandemic.
The past year saw heightened volatility in markets that went down by 40% within a matter of weeks to recover lost grounds in a spectacular fashion surging nearly 87%. To combat the pandemic’s effect, the Government came up with a series of fiscal stimulus packages to inject liquidity in the system, revive consumer sentiments and resurrect a faltering economy.
With dipping revenues, these fiscal packages did put pressure on the exchequer and given that India is technically into recession, this year’s Budget will hold the key to economic prosperity in the coming days. So, what should be Union Budget 2021 be like? Let’s find out.
Increase disposable surplus in the hands of the middle-class taxpayer
The primary growth drivers of the Indian economy, the middle-class had to bear a significant burnt of the pandemic. With job losses and curtail in income, this section had to cut corners.
To bring the economy back on its feet and fuel its growth, it’s vital to boost consumption, and this is where there’s a need to increase disposable income, especially in the hands of the middle-class taxpayers. A possible way to do is to lower the income tax rate from 20% to 10% for individuals below 60 earning between ₹5-7.5 lakhs.
With an increase in disposable income, there’s every chance of people saving more and fuel consumption, essential for economic revival. It will also be a good idea to increase the income tax threshold limit from the existing ₹2 lakhs for individuals below 60 to at least ₹ 2.5-3 lakhs to allow them to save more.
Enhance Section 80C Limit
Undoubtedly, the most popular section that outlines tax-savings investments made it, the limit under section 80C was last enhanced in 2014. Currently, taxpayers can claim exemption up to ₹ 1.5 lakhs under this section for investments made in public provident fund (PPF), equity-linked savings scheme (ELSS), insurance premium, payment of home loan principal and children’s tuition fee among others.
It's noteworthy that education costs and housing loan repayment form a significant part of an individual's financial commitment. The current limit leaves a little room for savings, and therefore Budget 2021 should enhance this ceiling. It also demands a hike given a rise in inflation that's likely to remain at elevated levels.
Also, section 80C seems too cluttered at the moment and it doesn’t provide enough berth for incentivising savings. Decluttering it and moving some instruments into other baskets can be prudent move.
Restoration of medical exemption limit
Among the several key announcements made in Budget 2018 was the withdrawal of exemption on medical allowance reimbursements. However, increasing health care costs, coupled with rise in medical inflation,calls for restoration of this limit. With health care being the primary focus in 2020, the Government could also contemplate a one-time exemption on expenses incurred on a major medical expenditure, specifically for those who have suffered due to COVID-19.
Also, with COVID-19 bringing the importance of health insurance to the fore, increasing the exemption threshold of premium paid towards a health plan can boost adoption and penetration of health insurance in the country.
As of now, individuals below 60 can claim a deduction of ₹25,000 under section 80D on insurance premium paid towards a health plan for self, spouse and dependent children.
Re-evaluating LTCG tax on equity shares
Ever since the introduction of long-term capital gains tax of 10% without indexation on income above ₹1lakh from the sale of equity shares held more than a year, the same has acted as a dampener for investors and markets. There have been demands from several quarters to repeal this tax, perceived as a roadblock for equity investments.
Given the quantum of volatility existing in markets, especially in the past year, it’s time for the Government to consider withdrawal of this tax to boost overall market sentiments and lift investors’ confidence.
In Conclusion
With the gradual opening up of the economy and approval of two vaccines for restricted emergency use, we are slowly but surely heading towards normalcy. Given the turmoil that we all went through because of the pandemic, Budget 2021 will be one of defining moments in the history of independent India that will play a crucial role in keeping the nation’s target of becoming a USD 5 trillion economy by 2024 alive.
(The writer is the Head- Edelweiss Wealth Management. Views expressed are his own.)
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