It has been quite a ride for everyone in the past 10 months. The pandemic spelt out a new paradigm of life in the future. Last year showed various kinds of hardships that corporates and individuals have faced and what this coming year would likely mean.
The economy is slowly and gradually returning to normal. With the upcoming Union Budget, whilst Finance Minister Nirmala Sitharaman will be laying down measures to bolster the economy, factors that impact the common man will certainly be on top of her agenda. It is the purchasing power in the hands of the common man that contributes to how the economy shapes up.
In the last Budget, FM Sitharaman had introduced a new simplified income tax system for salaried individuals, wherein most exemptions and deductions that had been incorporated into the income tax legislation over the past several decades were removed and replaced by a wider progressive mechanism.
As a result, individuals were given the option to pick and choose from the old regime vs the new regime. The finance minister further highlighted that the government would continue to review and rationalise the remaining exemptions and deductions in the coming years to further simplify the tax system.
What, however, came out was not one that many individual taxpayers could benefit from, due to disallowance of deductions and exemptions in the new regime. The FM's intention was to lay down a roadmap wherein tax provisions could be streamlined in terms of the new regime taking over the old regime in a gradual manner. However, the past year may have just made this goal more far-fetched. In the current pandemic scenario, wherein individuals are facing a financial burden, it is necessary to put more money in the hands of the common man for revival of the economy. Hence, policymakers may want to tinker and lower slab rates under the new regime.
The 80C deduction, which a large part of the population claims both from a deduction and investment perspective, certainly needs a relook given that the benefit has not been revised for long, from the current Rs 1.5 lakh.
Since the pandemic seems to be slowing down but is not over at all, families want to see their loved ones hale and hearty.
With medical bills running into lakhs, the current pandemic has made medical insurance policy a necessity. Without adequate cover, an individual may have to shell out a major portion of his life savings. To encourage adequate cover, the government should look at increasing the limit under 80D from the current Rs 25,000 to Rs 50,000, with the limit for senior citizens also needing a further re-look.
More and more corporates seem to be disinvesting into infrastructure with the intention of encouraging "Work from Home" culture. Whilst the transportation costs may reduce, employees would be incurring additional expenditure such as internet charges, electricity, furniture, creating a virtual office at home etc.
Therefore, regulators may further look at enhancing the standard deduction by Rs 50,000 for employees specifically working from home.
Another tweak that the government may contemplate, is the increase of the exemption on equity and equity-oriented mutual funds from Rs 1lakh to Rs 2 lakh.
More clarity on implementation of the provisions relating to Leave Travel Concession (LTC) by the private sector is expected.
In order to boost the demand in the economy, the government had introduced the LTC scheme wherein government employees could substitute their travel fare with an allowance payable to them on fulfilment of certain specified conditions, like spending three times the fare amount on goods and services.
The scheme was further extended to the private sector via a press release and FAQs; however, a legal amendment to the Act is still awaited.
This has made many companies shy away from the scheme. It is expected that the scheme may get introduced as part of the Union Budget, to enable companies to offer the scheme to their employees with more clarity.
The idea should be to bring about more clarity on the implementation of the scheme and shall provide much-needed consumption boost to the economy.
The FM had mentioned in a recent interview that this Budget will be a "never before". This surely has raised the hopes of the common man. Watch out for this space and see if the above wish list has come true or not.
(Nitin Baijal is a Director, Sahil Bhasin is a Manager and Bharti Jain is a Deputy Manager with Deloitte Haskins and Sells LLP.)