Finance Minister Nirmala Sitharaman is expected to make announcements to revive the economy adversely impacted by COVID-19 pandemic in her Budget speech today. Almost all sectors, be it agriculture, services, or manufacturing, bore the brunt of the coronavirus-induced lockdowns. Individual taxpayers too are eagerly awaiting FM Sitharaman to give them some respite, including tax benefits. Even small reliefs in Budget 2021 can go a long way in helping small taxpayers.
Here are key expectations of taxpayers from Union Budget 2021: -
Tax proposals
Experts are expecting tax relief under multiple heads in Budget 2021-22. This despite the Centre staring at a gaping hole on the revenue front in the current financial year due to the pandemic. These heads comprise relaxation in the Long-term Capital Gains (LTCG) threshold on sales of equity shares, further relaxation in the exemption for investments, and provision of tax deductions under the new tax regime for donations made towards a social cause.
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Relief to equity investors
Indian equity markets have seen a remarkable rise from the lows they hit in March last year due to coronavirus lockdown. Key indices have almost doubled. Tax experts have opined that the Centre may contemplate some relief to stock investors.
"It is expected that the government might provide some incentive on gains made on the sale of shares. LTCG up to Rs 1 lakh on sale of listed equity shares is not taxable at present. It is expected that the government could enhance the limit in the upcoming Budget," says Sudhakar Sethuraman, Partner, Deloitte India. LTCG on equity as well as equity-linked mutual funds was exempt from tax before 2018, but the government brought it under the tax ambit in 2018 by bringing in a provision of 10% tax on capital gains of over Rs 1 lakh.
Increase 80C threshold limit to boost savings
Besides LTCG, Sethuraman also expects the government to raise the Section 80C threshold limits for individual taxpayers in the Budget 2021.
Sources in the Income Tax Department told BusinessToday.In that FM Sitharaman may increase Section 80C limit to Rs 2 lakh from Rs 1.5 lakh in her budget announcement.
"Changes to the exemption limits in personal income tax have been discussed. The tax exemption limit of Rs 1.5 lakh on savings is likely to be reworked. It may go up to Rs 2 lakh," the source said.
Higher exemption on donations
Tax experts feel the government needs to look at exemption for donations under the new concessional rate for individuals and corporates. The demand assumes significance in view of huge donations made during the pandemic.
"Under the Finance Act 2020, the benefit of various deductions and exemptions that a taxpayer otherwise used to enjoy has been taken away. Deduction under Section 80G of the Act towards donation is one such deduction. Denial of such deduction under new lower tax regime will certainly be detrimental to the interest of the revenue and the nation," said Ved Jain, a Chartered Accountant and former president of the Institute of Chartered Accountants of India (ICAI).
Tax residency
Tax experts are also looking forward to a clarification on the tax residency. The present rules prescribe that a person of Indian origin will be taxed in India if he/she stays in the country for over 120 days. As a large number of expats are stuck due to pandemic-related curbs on flying out of the country, it is expected that the Finance Ministry may come out with a clarification on this in the Budget 2021.
"The government should be pragmatic in such cases as black swan events like these do not take place regularly and the extended stay was not intentional. While it is the government's prerogative to decide on taxation matters, an exemption, if possible, should be granted. At the heart of the matter should be single income should not be taxed in multiple countries," said Nish Bhatt, CEO, Millwood Kane International - a Cyprus based investment consultant.