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Zita is optimistic about riding the third wave without much challenge. She is very organised especially in money matters. She tracks every rupee she earns and spends. She is working for an MNC and getting used to the new normal of work from home culture. While 2021 was a story of adapting to the new norm, she believes that people are now accustomed and even welcome the new way of living. Nevertheless, the concern on cash flow troubles her despite these positives.

She sees her take home pay is reduced and her expenditure on communication and medication has become higher. While her employer has agreed to meet some of the additional costs of home office expenses through an allowance, she has also been told that these are taxable and will be subject to TDS (tax deducted at source). She does not understand why. Zita, like any common person, looks up to this Budget for some relief. So here are a few expectations from Budget 2022:

Work from home allowance and deemed leave travel concession: Given the continuing pandemic, most offices have moved to hybrid working model. For the individual, there is a recurring expenditure on internet, furniture rentals, electricity and even one time expenditure on housing renovation to manage workspaces among the family members. The expectation is for a fixed tax-free allowance that may be in the form of a standard deduction or an exempt allowance in addition to the existing 50,000 standard deduction which subsumed deductions applicable for conveyance and medical expenses.

Travel within India on vacation continues to have its risks and the relief for leave travel concession is not being availed. To boost consumption in the economy, urban and rural, the government may consider an extension of the deemed leave travel concession benefit for another year or till the crisis is resolved. Furthermore, what was eligible for deduction was three times spending of the leave travel amount on prescribed goods and services. Lowering the quantum of spend to one and half times would make the programme more successful.

Taxability around retirals: With this Budget, the government has an opportunity to provide additional relief for NPS subscribers. Currently, at the contribution stage, deduction is available to the extent of 14% of salary for central government contributions. However, deduction for others is only at 10% of salary. This deduction may be enhanced to 14% for private sector employees. Currently, annuity from NPS schemes is fully taxable.

House property related reliefs: Under the existing tax laws, deduction available on interest on housing loan on self-occupied property is restricted to 200,000. A few years back, set-off of loss from house property against other income was limited to 200,000. With no change in EMI but with the reduced rental receipts, any enhancement of these limits relieves the middle-class house owners from a high tax outflow. This increases their disposable income enabling individuals particularly in the lower income brackets meet their sustenance expenditure. Conditional enhancement may be provided to benefit only individuals having not more than one house.

Stranded employees: Many individuals who were on overseas assignments were stuck here due to lockdown and international travel restrictions. This situation may continue with more remote work. As Indian taxation depends on residential status, which is ultimately based on the physical presence, it is expected that some clarity is provided similar to the tax year 2019-20 where lockdown days were excluded from the calculation of stay duration for the purpose of determining India residential status.

Reduced tax rates: Presently, reduced tax rate is available only in case of individuals opting for simplified tax regime. This is applicable upon foregoing most of the deductions and exemptions. To beat the cash crunch, lowering tax rates (including the rate of surcharge) should be extended to all taxpayers.

Tapati Ghose is partner, Deloitte India.

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