Union finance minister Nirmala Sitharaman has started presenting the Budget for the financial year 2021-22. This Budget is expected to provide relief to the pandemic hit common man as well as focus more on driving the economic recovery.
On the income tax front, it is expected to put more money in the hands of the average taxpayer and ease rules to attract foreign investments.
Here’s a quick round-up of the major income tax expectations:
- Extension of Section 80EEA benefits to next financial year and beyond
The previous budget introduced section 80EEA to offer an additional tax deduction of up to Rs 1.5 lakh for home loan interest repaid by the first time home buyers for purchasing housing properties with a stamp duty value of equal to or below Rs 45 lakh. This deduction is available over and above the Section 24b deduction of up to Rs 2 lakh on home loan interest repayments.
Now, experts want Budget 2021 to make this deduction a permanent feature or at least extend it to the next financial year to stimulate demand in the affordable housing sector.
- Extension of investment option in NPS Tier-II taxsaver scheme to all individual investors
Budget 2020 had introduced NPS Tier-II Taxsaver Scheme, an exclusive tax saving instrument for Central Government employees. This scheme is optional for the Central Government employees and comes with a fixed asset allocation of 10 percent-25 percent in equities and the rest in debt instruments, along with a lock-in period of just 3 years.
According to experts, Budget 2021 should therefore allow employees of the private sector, state governments and self-employed individuals to invest in NPS Tier-II Taxsaver Scheme. This will allow such investors to benefit from the form of low-cost investment offered by NPS and avail deductions under section 80C through debt-oriented investments, especially during over-valued markets.
- Increase of the deduction limit under section 80C
Several experts have asked the government to increase the maximum limit for deduction under section 80C of the Income Tax (I-T) Act from the present Rs 1.5 lakh. The last time this deduction limit was revised in 2014, where it was raised from Rs 1 lakh per annum.
According to experts, this hike will boost investments further and increase tax savings for an individual by generating more disposable income in the hands of the taxpayer.
Currently, section 80C allows a deduction from gross total income (before arriving at taxable income) of up to Rs 1.5 lakh per annum on eligible investments and specified expenses.
- Deduction for Covid-19 hospitalization under section 80DDB
Experts want the government to announce certain tax measures or incentives while dealing with the hospitalization arising out of coronavirus.
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.
- Tax rebate for employees working from home
Income tax experts are expecting tax deductions for those working from home in this budget, considering that most of the salaried personnel are working from home for a year and it may get prolonged due to the ongoing COVID-19 pandemic.
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.
This new tax policy means that employees who spend some portions of their salaries on things like the internet and other office requirements while working from home can save some money in the form of a tax rebate.
- Introduction of a separate deduction for term insurance
The life insurance cover of any individual should ideally be at least 10-15 times of his/her annual income, say experts. As of now, purchasing term insurance policies is the most cost-effective way of purchasing such large life covers at low premiums.
Thus, Naveen Kukreja – CEO& Co-founder, Paisabazaar.com expects this year’s Budget to incentivize consumers to buy term insurance policies by introducing a separate tax deduction for term insurance plans.
- Tax parity between equity MFs and other equity-oriented investment products
According to Naveen Kukreja – CEO& Co-founder, Paisabazaar.com, the imposition of LTCG tax at 10 percent on long term capital gains realized from equities exceeding Rs 1 lakh in a financial year places the taxation of investment proceeds of mutual funds at a disadvantageous position vis a vis other equity oriented schemes offered by ULIPs and NPS.
Thus, he believes that Budget 2021 should restore a level playing ground for mutual funds by removing LTCG tax on all equity-oriented mutual funds or at least the tax saving mutual funds (ELSS).
Similarly, the actions of switching from regular plans to direct plans and from dividend option to growth option of the same fund are considered as sell transactions and are thereby, subjected to capital gains taxes. As this treatment increases the investment cost for investors seeking to migrate to direct plan or growth option of the same fund, this year’s Budget should amend the Income Tax Act to end the practice of treating intra-scheme switching in mutual funds as sell transactions, Kukreja expects.
- Ahead of Budget 2021, here’s a look at the existing income tax slabs:
According to the current rules, a slab system functions across the country, where different tax rates have been prescribed for different slabs. There are three categories of individual taxpayers: Individuals (below the age of 60 years) which include residents as well as non-residents, resident senior citizens (60 years and above but below 80 years of age) and resident super senior citizens (above 80 years of age). Read more
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