Budget 2021 Expectations: Should common taxpayer expect major rationalization in income tax slabs and rates?

Budget 2021 Income Tax: The common taxpayer is expected to be glued to the Finance Minister Nirmala Sitharaman’s Budget 2021 speech. After the dip in the growth rate of the economy in 2020, the government is expected to take some crucial steps to kick-start the economy and bring the demand back to the pre-Covid levels.

And, that means raising more revenue from the various available sources. As far as income tax is concerned, will there be any rationalization in income tax slabs and income tax rates? Or, should taxpayers expect a cut in the tax rates? “While such a move would bring cheer to the common man and also to the markets, one needs to keep in mind that the government’s finances are extremely stretched given the current economic environment. As a result, one should not expect any major rationalization in the income tax slabs or rates,” says Sameer Kaul, MD & CEO, TrustPlutus Wealth Managers (India).

The FM in Budget 2020 had already introduced the New Tax Regime as an alternative to the existing tax regime for the taxpayers to choose from. Some taxpayers will stand to gain by opting for the NTR but more than that it sends a signal that the government wants to reduce exemptions over the long term. “If the finance minister provides a roadmap for reduction of income tax rates over the next few years, that also may be taken positively. A similar roadmap was provided with regard to corporate tax rates during the previous regime (2014-2019) of the same government,” adds Kaul.

The Union Budget 2021 in itself is being looked upon as a once-in-a-lifetime budget exercise. “The Finance minister has described the upcoming budget as a ‘never before’ event given that it will be presented in the backdrop of the pandemic. The FY22 Budget may focus on government spending to aid economic recovery. It may focus on infrastructure buildup which is a growth multiplier,” says Kaul.

Retail investors and the common taxpayer will also have an eye on the new Budget 2021 announcements by the FM that can help them save tax and also grow their savings for their long term goals. “Given that the government finances are currently stretched, the FM could announce certain savings schemes or bond issuance like tax-free bonds to raise resources to fund such government expenditure. Such measures will also encourage investments from retail investors into such schemes or bond issuance. Any rationalization of capital gains taxes or STT will also boost sentiment with regards to investments,” informs Kaul.