Budget 2021: Here's what individual taxpayers expect from FM

On the income tax front, this year will be no different, except that the hype and expectations are larger than ever before as it’s the first budget post the COVID-19 pandemic. Various recommendations and expectations have been raised.

At present, deductions under Sections 80C are capped together at Rs.1.5 lakh per annum in total. The last time this deduction limit was revised in 2014, where it was raised from Rs.1 lakh per annum. This year would be the best time to revise this limit to at least Rs.2 lakh per annum and provide taxpayers with some respite. This will also help the government to get long-term funds at a fixed rate easily.

The expectations from the government are high to announce certain tax measures or incentives while dealing with the hospitalization arising out of coronavirus. The health insurance penetration in the country is not very high and even adequate to meet the entire cost of hospitalization.

Under the Income tax laws, expenses incurred on certain illnesses such as malignant cancers, chronic renal failure, AIDS, etc. qualifies for deduction under section 80DDB. The deduction limit is currently capped at Rs 40,000 for individuals, except senior and super senior citizens who are allowed a deduction of Rs 1,00,000 per annum.

It has been recommended that the government include hospitalization expenses incurred on treatment of Covid 19 under section 80DDB for the expenses which are done out of pocket apart from reimbursement from Insurance coverage. By including COVID-19 for the benefit, a big relief to the taxpayers especially those who are not covered by insurance can be expected.

The government’s finances are extremely stretched and the fiscal deficit is at a record high. There is also a large scale expenditure planned on Covid-19 vaccination. To raise resources to fund such expenditure, it has been expected that the finance minister could announce certain savings schemes or bond issuance like tax-free bonds. The introduction of tax-free bonds to boost investment is a usual way for raising funds. Tax-free bonds which the government issue are attractive to investors as they offer a fixed interest rate and low-risk investment avenue.

In the wake of coronavirus pandemic, work from home has become the new normal. Now, setting up a work station at home, needs certain investments. While certain major corporates have provided work from home allowances such as reimbursement of office furniture costs, telephone and internet expenses, other employees have borne the same out of pocket. A standard ‘work from home’ deduction for salaried employees concerning the work from home expenses incurred can be expected.

In the aftermath of COVID-19, many foreign companies and countries are willing to decrease reliance on China for their manufacturing concerns. India has been trying to take advantage of this and attract investors to the country. Budget 2021 can introduce tax breaks to further woo the investors.

There has been a significant rise in the cost inflation index. In the light of rising inflation, the standard deduction is expected to increase to Rs.1 lakh in India Budget 2021. Standard deduction allows for a predetermined amount to be subtracted from an individual’s salary income before their taxable income is calculated. It will ease the tax burden of individuals given higher inflation and the need to maintain the standard of living.

The Indian economy was hit and now it is on the road to recovery. However, The government’s finances are extremely stretched. Also, huge expenses have been incurred in healthcare and hospitalization. The investment in covid vaccination is also planned.

Amid such a financially stretched period, not many incentives or benefits could be expected. Instead, Government will resort the ways to raise resources to fund such expenditures which shall mostly non-tax revenues. This budget will require an acute balance between government revenue and expenditure to keep the economy on the path of growth while taking into account of woes of people.