UPDATED: January 29, 2021 10:55 IST
With just a little more than two weeks left before the Union Budget 2021, citizens in the country are hoping for some form of tax relief from the government. Their expectation is based on reports that indicate that the government will spend more to support the ailing economic amid the ongoing Covid-19 pandemic.
Finance Minister Nirmala Sitharaman, who will announce the country’s budget for a third time on February 1, faces her toughest test till date as the pandemic left the Indian economy battered in 2020. However, she has promised that this year budget will be like “never before”.
While the upcoming budget is expected to focus primarily on fixing Covid-hit sectors besides boosting key areas of growth, there are chances that some tax benefits may be introduced in order to boost demand and help increase the net disposable income of citizens.
What tax changes can you expect?
There are reports which indicate that the government will raise basic tax exemption to Rs 5 lakh from Rs 2.5 lakh for people below 60 years of age. The basic tax exemption limit was last raised in 2014. Though it has been quite some time since the last increase in basic exemption limit, the government has not given any indication that it intends to announce such a move.
There are rumors that the standard deduction of Rs 50,000 may also be increased to put more disposable net income in the hands of middle-class taxpayers. But tax experts are not too optimistic and feel that the government is unlikely to announce such massive changes in income tax in a post-contraction budget.
It may be noted that the government’s borrowing saw a sharp rise as it announced multiple stimulus packages to get the ailing economy back on track. Its revenue collections have also taken a major hit.
Relief on healthcare taxes
Therefore, the government may only announce small tweaks in taxation instead of any major structural changes. Some of these changes will be related to higher deduction limits under various sections of the Income Tax Act.
Higher tax breaks towards medical expenses could be considered by the government in the wake of the higher healthcare expenses amid the ongoing pandemic.
There are chances that the deduction under Section 80D will be expanded to include expenses incurred toward Covid-19. The deduction limit under Section 80D — (Rs 25,000-Rs1,00,000) — depending on age can also be increased as healthcare costs have increased sharply in the wake of the pandemic.
Many other incremental tax benefits may also be announced by the government to boost demand. For instance, it may extend the LTC cash voucher scheme for government employees further as travel plans remain hazy amid the ongoing pandemic.
A report had earlier indicated that the government is planning to levy a Covid-19 cess of surcharge from high-income earners in the country to make up for additional costs it incurred during the Covid-19 pandemic and mass vaccination drive against the virus.
A final decision on the ‘Covid-19 cess’ is expected to be taken closer to the budget announcement date. The preliminary talks revolved around introducing a small cess on taxpayers who fall under the high-income bracket alongside some additional indirect taxes.