The year 2020 was tough and all of us hope that the economic situation will revive and things would gradually return to normalcy in 2021. It is expected that Budget 2021 would seek to augment economic activity, and at the same time provide relief to the common man. Some key expectations of the common man are listed below.
Increase the threshold for income not liable to tax
Given the pandemic, it is anticipated that the government could increase the basic exemption limit for income not liable to tax from Rs 2.5 lakh to Rs 3.5 lakh. This will provide more disposable income to people, and increase their spending capacity, which would augur well for the economy.
Raise the deduction threshold under section 80C
The current threshold for deduction under section 80C of Rs 150,000 has remained the same since FY 2014-15, for various investments made in tax saving schemes/specified expenditure. Considering the inflation over the years, the Finance Minister must consider increasing the limit to Rs 250,000 in various tax-saving schemes.
Continue with scheme for claiming leave travel concession
In 2020, the government had come out with a scheme whereby people who were unable to travel because of the pandemic, could still claim benefit of leave travel concession. This benefit is available on buying goods or services liable for GST of at least 12 percent, and payment is made by digital means, worth three times the deemed LTC fare, subject to fulfilling specified conditions. The government could extend the aforesaid scheme to FY 2021-22, which would increase spending / consumption and provide a shot in the arm to the economy.
Permit higher loss from house property for set-off
In the last financial year, the government introduced a simplified tax regime to provide relief to taxpayers who wanted a simplistic approach of not availing the tax deductions/exemptions. It is expected that if the loss from house property is allowed to be set-off with other income, it would encourage more individuals to opt for the simplified tax regime.
Alternatively, for people availing the normal tax regime, the limit for loss under the head house property for setting-off with other income, could be increased to Rs 3 lacs.
Increase limit for health insurance/expenses
The cost of medical checkups has increased in the light of the pandemic, and it is expected that the threshold of Rs 25,000 for non-senior citizens for health insurance, would be increased to Rs 50,000, covering cost of medical expenditure, too, within the aforesaid threshold.
Make pension schemes more attractive
While the National Pension Scheme is a good retirement savings scheme offering many advantages, it is still not the preferred choice for many. It is expected that if the ceiling of separate deduction available under section 80CCD(1B) is increased from Rs 50,000 to Rs 100,000 per tax year, then it would encourage many people to join the scheme. Further, the tax-free employer contribution to the National Pension Scheme for the private sector employees, could also be raised to 14 percent, similar to that for Central-government employees.
Relief in long-term gains
Currently, long-term capital gains arising from sale of listed securities over Rs 1 lakh are taxable at a flat rate of 10 percent, without indexation. This causes hardship to long-term investors as they are taxed on gains without considering inflation. It is expected that the rate of long-term capital gains would be reduced to 5 percent, and the threshold would be increased to Rs 2 lakh, to promote further capital infusion into the equity market from ordinary investors.
If the above expectations are met by the government, they would go a long way in benefitting the common man.(Homi Mistry is a Partner with Deloitte India. With inputs from Ajay Nahata, Senior Manager and Hiral Tanna, Manager with Deloitte Haskins & Sells LLP)