The finance minister is expected to present a paperless Union budget on February 1, 2021. Her job has been canceled as the 2020-21 fiscal year has been challenging and unprecedented for both government and the common man. While the government has made several efforts to remedy the situation through stimulus packages, this year is a bigger test as it struggles to balance the balancing act between addressing the burgeoning budget deficit and meeting taxpayers’ expectations.
Some expected focus areas and changes are listed below:
1. Tax incentives to increase spending
Given that travel had almost completely stalled in 2020 and there were some historical tax breaks on actual travel (usually referred to as a vacation travel concession or LTC), the government had put in place a system to give tax breaks when an individual does not travel, purchase goods, or use services during the period October 12, 2020 through March 31, 2021. These goods and services should be subject to a GST of 12% or more and payment should be made through digital modes. The assumed LTC rate (as this tax break is called) is up to Rs 36,000 per person for employees outside the central government. To qualify for a tax exemption, the person must spend three times the assumed tariff.
In order to stimulate consumer demand in the economy, the Treasury Secretary is expected to extend the LTC cash voucher system from March 2021 through fiscal year 2021-22. This is all the more so as it would take time for actual trips to return to their thriving avtaar.
2. Extension of the scope of Section 80D – Deduction for Health Insurance Premiums / Expenses
Existing tax laws allow individual taxpayers to claim a tax break on the health insurance premium paid for themselves and for the family.
Given the current situation, the common man expects the Treasury Secretary to liberalize the provisions of Section 80D and expand its scope to include medical expenses incurred by taxpayers for COVID-19 or other illnesses without reducing age or availability of health insurance . In addition, the limits currently mandated in Section 80D (Rs 25,000 to Rs 100,000, depending primarily on the age of the person and coverage of family members) do not reflect the likely costs that an individual may incur. It is asked to increase the overall limit to reflect the reality on site.
3. Long-term capital gains tax
Equity markets are at all-time highs and have rebounded since the decline at the start of the COVID-19 outbreak. There is a strong case for not optimizing the tax rate on long-term capital gains (those obtained from selling stocks on an exchange platform or equity funds). However, in order to generate additional revenue, the government could seek to increase the tax rate on such capital gains from the existing 10%. In addition, the tax rate on gains on home sales may be increased for taxpayers who own more than two properties.
A longstanding question that may have become more topical over the past year is a change in the taxation of stock option income for employees – that is, shifting taxation to the case of the sale of stocks instead of taxation at the time of allocation of stocks. This will keep more liquidity in the hands of individuals, especially through salary cuts that will be replaced by stock options.
4. Reintroduction of tax-deductible infrastructure bonds
There is also a debate that the government could reintroduce tax-deductible infrastructure bonds, with taxpayers who subscribe to bonds being entitled to require the deduction of such investments (subject to certain limits) from their gross income. This will serve the dual purpose of providing taxpayers with a tax advantage as well as the much-needed inflow for the government to stimulate the infrastructure sector.
5. Inheritance tax / inheritance tax
Another much discussed topic is the introduction of the inheritance tax or inheritance tax. Since 1985, when the inheritance tax was abolished, there has been an occasional debate about reintroduction. However, it is unlikely that such a charge will be included in the current Union budget due to the severe impact of COVID 19 on individuals / businesses. There is also talk of levying a tax or duty on top of the range luxury goods, but since that is the case, the surcharge rates were not increased until 2019 (the highest tax rate was 42.7 percent). Again, this would require a lot of thought in terms of perception versus actual earnings.
The FM has cut its job – this year is tougher than most, and besides debates or other issues that affect an individual’s personal finance, there are several debates – e.g. B. the proposed labor laws which are likely to have an impact on the network. take home. What we may be able to say is that given the budget deficit, the expectation of eases, cuts and soops isn’t entirely reasonable, but one can only predict – February 1st will be the day to watch out for.
(Surabhi Marwah, Partner – People Advisory Services and Co-Leader – Private Client Services, EY India. Aditya Modani, Senior Tax Professional at EY India, also contributed to this article. The views expressed are personal.)