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Budget 2021 Impact Analysis

 

At Tax2win we have been following The Budget 2021 very closely. Our team of expert CA's, CS, Advocates and Lawyers have done an in-depth analysis of various budget pronouncements.

Pre-Budget Expected Amendments 2022

Budget 2022 session is down the pike. Budget 2022 will be presented by the Hon’ble Finance Minister Nirmala Sitharaman. The expectations from the budget are high due to COVID-19 pandemic. Here is the few expectations related to the Income Tax Changes:

  • Include COVID-19 Hospitalisation expenditure under section 80DDB:
    Under section 80DDB, medical expenses incurred on medical treatment of specified diseases are allowed for tax deduction upto Rs. 40,000 (Rs. 1 lakh in case of senior citizens). It is highly expected from this year's budget to include COVID-19 hospitalization expenses under section 80DDB upto Rs. 1,00,000/- to all taxpayers to provide relief to taxpayers.

  • COVID Cess:
    In the last few days, we must have heard about COVID cess which is likely to be introduced in Budget 2022 to bear the cost of COVID-19 vaccination programme. It is expected from the Govt that COVID cess may be levied only on higher income groups.

  • Increase the limit of Medical Insurance Premium under section 80D:
    To safeguard yourself & your family from unexpected medical costs, medical insurance plays a very important role. During the pandemic, we all have realised the importance of medical insurance, still most people are not covered under medical insurance. To encourage more people, it is expected to increase the threshold allowed under section 80D from Rs. 25,000 for self & family ( Rs. 50,000 in case of senior citizens) and Rs. 25,000 for parents (Rs. 50,000 in case of senior citizens) to Rs. 50,000 in all cases.

  • Introduction of Marginal Relief in cases where Taxable Income is slightly higher than Rs. 5 lakh:
    The purpose of marginal relief is to ensure that the increase in tax liability of an individual is not in excess of the income above the prescribed limit. Individuals whose taxable income is Rs. 5,00,000 have zero tax liability & individuals having taxable income of Rs. 5,00,200 will end up paying Rs.13,000 approx tax just due to additional Rs. 200 income. Introduction of marginal relief just like available in the case of surcharge will remove this gap.

  • Increase Home Loan deduction:
    There is a compelling reason for raising the deduction under Sec 24. In the past five years, property prices across the country have risen. Even a modest 2-BHK house in a metro now costs upwards of Rs 70-80 lakh. Assuming a loan to cover 75% of the value of the property, the buyer requires a loan of Rs 50-60 lakh. The deduction of Rs 2 lakh, will not be able to fully cover the interest paid on such a loan and therefore the limit needs to be hiked to at least Rs 3 lakh, regardless of the price of the property.

  • Increase the deduction limit of NPS Investment and make it completely tax free withdrawal:
    The Union government should consider increasing the additional deduction limit for individuals from ₹ 50,000 to ₹100,000 when it comes to NPS. Today, Section 80C limit of ₹150,000 is not enough for many taxpayers to save tax. Increasing the NPS limit for additional deductions will help people to save tax and encourage long-term investing. Also, the government should look at making it EEE (Exempt Exempt Exempt) from a taxation perspective. At present NPS account holders can withdraw 60 per cent at vesting age which is tax free and remaining 40 per cent is to be invested compulsorily in annuities. Akin to PPF, NPS withdrawal must be completely tax free.

  • Increase the threshold of Section 80C:
    Simply, we can say deduction u/s 80C is a general deduction which most of the taxpayers avail. The existing maximum deduction available is Rs. 1.5 lakh which was set in 2014. Section 80C covers so many tax saving investments that the benefit of all tax saving investments cannot be availed because of the threshold. It is really expected from the budget to increase the limit to Rs. 2 lakh.

  • LTCG tax on Equities:
    The reintroduction of LTCG tax had caused a massive dent in the investors’ confidence. The government should exempt long-term capital gains on the sale of Indian-listed equity shares. Alternatively, it should grant the aforesaid tax exemption to investors who have held the securities for more than two years. Major economies do not have LTCG tax. The government could consider eliminating this levy to boost investment through the stock exchange.

  • Standard deduction can be increased:
    Standard deduction for salaried individuals was introduced as a straight deduction of Rs. 40,000/- which has been increased to Rs. 50,000/- for FY 2019-20 without any declarations & proofs. Standard deduction was introduced to salaried taxpayers to take care of the expenses which are generally not covered under income tax provisions. Salaried class taxpayers are expecting a rise upto Rs. 1,00,000/- in standard deduction. Also, this limit for army personnels must be high.

  • Standard deduction under the house property can be increased:
    To reignite the momentum in the real estate sector, the Government may assess enhancing the standard deduction of 30 percent of Net Annual Value to 40 percent.

  • Meal allowance can be increased:
    Taking into consideration rising food inflation over the last decade, the current exemption of Rs 50 per meal per employee if the employer is providing food to be increased to Rs 100.

  • Basic exemption limit for senior citizens should be Rs. 5 lakh:
    At present, senior citizens are not required to pay tax on income upto Rs. 3 lakh. It is expected that even if basic exemption is not increased for normal citizens, the limit should be increased for senior citizens. The limit should be increased to Rs. 5 lakh to bring them on par with super senior citizens.

  • Introduce tax relief for investment in education fund:
    There is a very famous slogan “Padhega India, Tabhi Toh Badhega India '' which means we can grow only if people of our country are well educated. Education is a basic necessity of every individual. To encourage people to save for the education of their children rather than for their marriage. The government should make an education fund in which people can contribute and which should be eligible for tax deduction of Rs. 25,000/- to Rs.50,000/- under a new section.Simultaneously, deduction for tuition fees may be removed from section 80C.

  • Children Education Allowance:
    Education expenses are touching the sky but the limit of children education allowance exemption has not increased since ages. Currently, exemption of Rs. 100 p.m. per child is available for maximum 2 children which is equal to giving no exemption. It is expected from the upcoming budget to increase the amount of exemption upto Rs. 5,000/- per month per child.

  • Children Hostel Allowance:
    Currently, exemption for children hostel allowance is Rs. 300 per month per child which is very less compared to actual scenarios. It is also expected from the budget 2020 to increase the limit to Rs. 10,000/- per month per child.

  • Increase in no. of years under section 80E for education loan:
    An education loan helps you with higher studies and also offer tax saving deduction on interest payment of loan. It is expected to increase the present time limit of 8 years to 12-15 years since education loans are generally not repaid within 8 years and taxpayers lose tax benefit on the same.

  • Cut down tax rate for professionals u/s 44ADA:
    Presumptive taxation scheme was introduced to offer a simplified taxation scheme and reduce compliance burden on small professionals. Under section 44ADA, the minimum income that professionals are required to show is 50% of Gross Receipts which is somewhere increasing the tax burden on small professionals. Professionals are expecting to reduce this rate to 40% to avoid genuine hardship to professionals.

  • Reduce TDS rate for professionals:
    Currently, the rate of TDS is 10% on professional fees if the amount of payment exceeds Rs. 30,000/-. At the time of return filing, generally tax liability is less than the amount of TDS deducted and eventually the amount of TDS gets refunded which just blocks the money of professionals. It is expected to lower the rate of TDS from 10% to 5% to avoid such issues.

  • Hike Family pension exemption limit:
    If any uncommuted family pension is received then it is exempt upto certain extent. The current exemption limit is Rs. 15,000/- or ⅓ rd of amount received, whichever is lower. The said limit of Rs. 15,000 should be increased to Rs. 100,000/- considering the actual amount of Pension nowadays and to provide the benefit genuinely to the receiver of the Pension. The family pension is taxable under the head of income from other source due to which the benefit of standard deduction of Rs. 50,000 is also not available for Family Pension which is available for the salary class persons.

  • Increase the limit under section 80TTA and make deduction eligible for FD interest also:
    In case of normal citizens, presently deduction of Rs. 10,000/- is available on interest earned on savings account only. It is expected to hike the limit of Rs. 10,000/- to Rs. 20,000/- and also make this deduction eligible for time deposits. Generally people save less of their hard earned money in savings accounts due to a very less interest rate and prefer to keep in fixed deposits.

  • Increase rent limit under section 80GG:
    Deduction u/s 80GG in respect of rent payment was introduced to provide the benefit to individuals whose CTC does not contain HRA component and for self-employed individuals.The maximum deduction of rent payment is Rs. 5,000/- per month in the era of such high rent expenses not only in tier-1 cities but tier-2 cities are also giving equal competition. It is expected to increase the said limit to Rs. 10,000/- per month.

  • Preventive Health checkup upto Rs. 10,000/- :
    A big amount of expenses are incurred by a common man on regular health check ups for self, spouse, children & parents. But the maximum amount of deduction for preventive health check up in total is Rs. 5,000/- which is expected to increase upto Rs. 10,000/-

  • HRA exemption: Add more cities to metro cities
    When you receive HRA as a part of your salary, it is not fully taxable. It is exempt upto certain extent. However, the limit of exemption is different for metro and non-metro cities. Only four cities are considered as Metro cities which are Delhi, Mumbai, Chennai and Kolkata considering high rent expenses in these cities. But in the past few decades, some cities have seen a steep rise in infrastructure & development which results in increase of rent expenses in such cities like Bengaluru, Hyderabad, Pune, Ahmedabad, Jaipur, Noida, Gurgaon which is expected to include metro cities.

  • Allowance & standard deduction to Indian Armed forces:
    Armed forces are very important people of a country. They sacrifice their whole life for the sake of the nation. So this is the responsibility of the government to provide them some special benefits. Some allowances are exempt for armed forces subject to some conditions. It would be great if the budget come up with allowance exemptions to armed forces without any conditions along with an increased amount of standard deduction up to Rs. 1,00,000/-.

  • Reduction in tax rates for partnership firms and LLPs:
    the rate of corporate tax was reduced for companies from 30% to 25%. However this reduction was not done for partnership firms, AOPs and LLPs. The budget is, therefore, expected to reduce the tax rate to 25% for these businesses entities as well.

  • New addition:
    - Don’t tax principal portion of annuity pension
    - Income tax exemption limit should be revised (last revised in 2017-18)
    - Children education investment fund

The Annual limit for contribution to PPF is increased to Rs. 3 lakhs from the present ceiling of Rs. 1.5 lakhs. Further, the present limit of INR. 150,000 has not been increased for several years and requires reconsideration. The revised monetary limit will help in increasing the savings of individuals and is necessary to keep in view the rate of inflation.

FAQs on Budget 2022

Q- What is the date of Budget 2022?

The Union Budget 2022 will be presented on Monday, 1st Feb 2022.


Q- From which date the Budget proposals will come into effect?

The Budget pronounced in the month of February becomes effective from the 1st April till 31st March of the next year.


Q- Who prepares the Union budget?

The budget is a detailed planning allocation of economic resources of the country for the upcoming fiscal year. Since it has a major impact on all the sectors, the budget is prepared in harmony with different ministries. Recommendations from all the ministries are submitted to the finance ministry for their demands, which is further analyzed by the budget division.


Q- Who will introduce Budget 2022-23?

Budget 2022 will be introduced by the Hon’ble Finance Minister Nirmala Sitharaman before the Parliament of India on 1st Feb 2022.


Q- What is the Interim Budget?

The interim Budget is presented by the ruling government when elections are due in the fiscal year. Hence, the ruling government cannot make strategic decisions for the complete fiscal year in which it might or might not have the ruling powers. The last Interim Budget was presented in 2019 by Finance Minister Piyush Goyal.