With the Union Budget 2021-22 on the anvil, akin to past years, a common man hinges his hopes of having more money at his disposal to spend/save as he desires. Especially, considering the present hardships and challenges caused by COVID-19 pandemic on taxpayers’ livelihood and overall economy, the government may evaluate how they can enhance the common man’s purchasing power.
The wish list on the personal tax front are as under:
Separate deduction for COVID-19 treatment
Currently, few deductions have been prescribed under Chapter VI-A of the Income-tax Act, 1961 (the Act) for medical treatment for self or dependent suffering from disability/severe disability (Section 80DD, 80U of the Act), medical treatment of prescribed diseases and ailments (Section 80DDB of the Act). However, for those not covered under any health insurance, no particular deduction has been prescribed under the Act covering the treatment cost for COVID-19.
Donation made to PM CARES fund designed specifically for providing COVID-19 relief is eligible for 100 percent deduction u/s 80G of the Act, but no corresponding deduction has been notified for expenses incurred on treatment of the disease itself.
In order to provide much-needed relief to the taxpayers, especially the ones not covered under a health insurance policy, a separate deduction capped up to Rs 1,00,000 or actual treatment cost incurred by the taxpayer for self or family, whichever is lower may be introduced under the Act given the substantial cost involved in COVID-19 treatment in government or private hospitals.
Provision for furniture by employer
The outbreak of COVID-19 pandemic in March 2020 in many ways compelled organisations to implement work from home (WFH) policy for their employees during the lockdown period and post thereto. During such WFH situation, several companies endeavoured to put in place necessary enabling infrastructure through provision of furniture (like tables, ergonomic chairs, etc.), high-speed internet, printers, desktops, stationery, etc. for ease of working at their employees’ residences to ensure conducive work environment.
Some companies decided to grant a fixed allowance to employees to meet the expenditure on such furniture/other items, while others decided to provide reimbursement. While both the allowances and reimbursements are necessitated by the business requirement, these benefits have the potential of being taxed in the hands of the employees as a prerequisite.
As this situation has not been expressly dealt with in the Act or the Rules made thereunder coupled with a fact that WFH on a large scale appears to be a long-term norm now, some tax relief specific to work from home scenario may be provided to individual taxpayers and their employers.
Realignment of income slabs/tax rates
The exemption limit for individual taxpayers below 60 years of age amounting to Rs 2.5 lakh per annum has remained constant from Financial Year (FY) 2014-15. Some relief was provided to taxpayers by Union Budget 2020-21 wherein alternative optional new tax regime was introduced which allowed the taxpayers to choose between the existing tax regime and new tax regime whichever is more beneficial given their tax situation. By opting for such new tax regime, a host of exemptions/deductions were to be foregone by the taxpayer.
While the new tax regime had lower tax rates, the ultimate benefit to the taxpayer was the basis of the deductions/ exemptions otherwise he/she was eligible to. Hence, with the objective of simplifying this further and enhancing the net disposable income, it may be considered whether the basic exemption limit under the existing tax regime can be enhanced to Rs 5 lakh itself. This would also need to be assessed basis the potential number of taxpayers who may fall out of mandatory tax return filing requirement. Subsequently, the other slab rates both under the existing and new regime can be adjusted basis the revised limits in line with the progressive tax rate system India has always adopted.
Housing tax breaks
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 50 percent and/or enhancing the current limit of deduction for interest payable on housing loan on self-occupied properties to Rs 4 lakh per annum.
Increase in deduction u/s 80C
The limit of Rs 1.5 lakh in respect of deduction under Section 80C of the Act for various common tax-saving investments/expenditure (such as employee provident fund, public provident fund, principal repayment of housing loan, children tuition fee, national savings certificate, etc.) has remained constant for almost half a decade now. Given the current economic scenario, the government would like to provide impetus to demand and consumption. With this in mind, if individuals are encouraged to spend on expenses like school fees, housing etc. the government may hence consider increasing this to Rs 3 lakh per annum. Alternatively, a separate deduction may be introduced (in addition to the proposed enhanced limit) for certain high-value transactions such as children’s tuition fee (keeping in mind the spiralling education cost over last few years), expenditure on specific items made in India, etc.
Though expectations of a common man on personal taxes can be widespread, maintaining fiscal discipline while providing impetus to higher economic growth will be an unenviable task for the finance minister to perform especially in these unprecedented times. Thus, it would be interesting to see what personal tax reforms are introduced in the Budget 2021 on this front.
The writer is Partner and Head, Global Mobility Services-Tax, KPMG in India
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