Budget 2021 Expectations: Increase in Section 80C limit to rationalisation of tax slab rates, here’s what taxpayers want

Union Budget 2021-22 Expectations for Taxpayers: The Union Budget 2021 is to be presented by Finance Minister Nirmala Sitharaman on February 1, which is just two days away. With the cost of living on the rise and disposable income taking a hit on account of the pandemic, the ‘aam aadmi’ is eagerly looking forward to the Budget in the hope of their collective voices being heard.

Below is a wish list that the Indian middle class and taxpayers hope to see in the Union Budget 2021:

Rationalising tax slab rates

The Budget 2020 adopted a carrot and stick approach where lower slab rates were available only to those taxpayers who opted to forego (almost) all tax deductions and benefits.

At present, only those individuals earning Rs 5 lakh or less are exempt from paying taxes. However, the convoluted rebate structure is such that a person earning Rs 5.10 lakh will have lower after tax disposable income than a person earning Rs 500,000!

“This is because the moment your income exceeds Rs 500,000, you are required to pay tax on the entire income in excess of Rs 2.5 lakh which is the basic exemption limit for most individual taxpayers. This complex rebate structure should be done away with and the basic exemption limit of Rs 250,000 should be increased to Rs 500,000. Also, there exists a strong case to reduce the tax rate to 5% for incomes up to Rs 8 lakh,” says Amit Singhania, Partner, Shardul Amarchand Mangaldas & Co.

Increase in Section 80C limit

For quite some time the deduction limit under Section 80C of the Income Tax Act has been capped at Rs 1.5 lakh. Many budgets have passed and the common man is still in the hope that the limit will finally be increased. It is about time that the same is increased to Rs 3 lakh as the same will incentivise savings and investments for the common man.

Work from home deduction

The current pandemic has resulted in promoting a culture of “Work from Home” which will be encouraged by employers in times to come as it reduces transportation cost, travelling time and improves work life balance. “As employees would be incurring additional expenditure such as internet charges, rent, electricity, furniture etc to create a home office, it is recommended that an additional standard deduction of Rs 50,000 should be introduced for expenditure incurred while working from home,” says Divya Baweja, Partner, Deloitte India.

Widening the safe harbour limit for Section 50C

By way of a recent notification, the safe harbour limit for Section 43CA and Section 56(2)(x) has been temporarily increased from 10% to 20%, in order to boost demand in the real estate sector and to enable the real estate developers to liquidate their unsold inventory at a rate substantially lower than the circle rate and giving benefit to the home buyers. Therefore, for these transactions, circle rate shall be deemed as sale/purchase consideration only if the variation between the agreement value and the circle rate is more than 20%.

However, “this benefit is not available to secondary sale of immoveable properties by the existing home owners (Section 50C), which seems prejudicial. In light of the pandemic, real estate prices have taken a hit and many home owners may be forced to take a big haircut on the sale price of their properties. Accordingly, it will only be fair to increase the safe harbour limit from 10% to 20% for Section 50C purposes as well,” says Singhania.

With the Budget 2021 being extremely crucial in light of the financial impact that the pandemic has resulted in, it will be interesting to see how the Finance Minister balances public expectations with the agenda to stimulate demand a revive the economy.