Union Budget 2021 : It’s that time of the year again. Everyone from large corporates to small businesses to the common man waits with bated breath to see the changes that the budget brings with it. This year will be no different, except that the hype and expectations are larger than ever before as it’s the first budget post the COVID-19 pandemic. The Indian economy had taken a hit but is now on the road to recovery. Let’s take a look at the expectations that people have from the Budget 2021.
|Union Budget 2021 Announced by||Nirmala Sitharaman (Minister of Finance)|
|Submitted to||Parliament of India|
|Budget 2021 date||1st Feb 2021|
|Parliament||17th (Lok Sabha)|
|Party||Bharatiya Janata Party|
|Finance minister||Nirmala Sitharaman|
Most corporate employees and other employees for whom remote-working was a/ possible option have been working from home the past year. 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. A request has been put forward to the government to allow a standard ‘work from home’ deduction for salaried employees concerning the work from home expenses incurred.
The standard deduction for salaried employees was introduced in Budget 2018 and was capped at Rs.40,000. Since then, it has only seen an increase of Rs.10,000 in the last three years. Increasing this limit to a modest Rs.75,000 per annum will benefit millions of salaried employees, especially in a difficult year such as this.
At present, deductions under Sections 80C, 80CCC and 80CCD(1) are capped together at Rs.1.5 lakh per annum in total. The last time this deduction limit was revised was 2014, where it was raised from Rs.1 lakh per annum. In the seven years since this revision and 18 years since the first limit being instated in 2003, the percentage increase stands lower than the average annual cost of inflation. Hence, this year would be the best time to revise this limit to at least Rs.2 lakh per annum and provide taxpayers with some respite.
Right now, medical insurance premiums paid on self, spouse, children and parents are allowed as a deduction under Section 80D of the Income Tax Act. The limits stand at Rs.25,000 or Rs.30,000 depending on the age of the insured. The government also allows for a deduction of expenses incurred with regard to preventive healthcare. However, it is recommended that this amount should be allowed as a deduction apart from, and in addition to the medical insurance premiums paid under Section 80D. It is also expected that the government will reduce the GST rate on medical insurance premiums from 18% to 5% to facilitate better market penetration through reduced costs.
Section 80DDB covers serious illnesses such as malignant cancers, chronic renal failure, AIDS, etc. It has been recommended that the government include hospitalisation expenses incurred for COVID-19 too under this section. 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.
Capital gains are split into long-term and short-term capital gains and taxed on various types of capital assets under the Income Tax Act. It is expected that the government will simplify compliance for capital gains and reduce the number of tax rates charged for various types of capital gains income. It has also been recommended that the government extend the timelines for investment of capital gains income under Section 54 of the Income Tax Act.
The interest limit of Rs.2 lakh has been constant for a few years now. It is expected that this limit is increased to Rs.4 lakh to promote investment in house property and to indirectly boost the affordable housing segment as well. Eliminating tax on notional income from house property will be another good move to encourage the purchase of new house properties.
Homeowners who do not rent out their property lose the repairs and maintenance deduction allowed under the Income Tax Act. Hence, it has been proposed to extend this benefit to even self-occupied house property for the various expenses they incur during the year on repairs and maintenance.
To boost the tourism sector, the government may revise guidelines on claiming Leave Travel Allowance (LTA), by extending the deduction beyond domestic fares to tours and accommodation as well.
India has over 60 million Micro, Small and Medium Enterprises. The Government of India has done a lot for this sector by way of reforms and schemes in the past, while propagating a ‘Make in India’ narrative. While MSMEs make up close to 50% of the total exports, easing foreign exchange norms is the real need of the hour. With stringent RBI norms in place, foreign investors worry about both compliances and the cash flows, both into and out of the country. Reducing the compliance burden and easing foreign exchange flows would give a real boost to the MSME sector.
Travel and tourism took the worst hit during the pandemic both during and after the government-imposed lockdown. This budget, the hotel industry is looking at getting infrastructure status for hotel projects with above a Rs.25 crore investment as against an above Rs.200 crore investment, as was in the past. Besides this, the hospitality sector is looking at easier compliances, loan guarantees and lower direct tax rates. Also, an extension of the business loss carry forward period from eight to twelve years is the need at present. The Federation of Hotel and Restaurant Associations of India (FHRAI) has also requested for a MAT waiver for the next three years due to the business losses suffered by them.
The automobile sector has seen its worst slump in years, and the onset of this decline was way before the COVID-19 pandemic. In this budget, the luxury car segment is pushing for a reduction in the tax rates, as they have been the hardest hit during the pandemic. The GST rate on luxury cars falls in the highest slab of 28%. Besides, a cess is further imposed on these cars ranging from 1% to 22%. Imported vehicles also have customs duty ranging from 60% to 100% value of the vehicle, insurance and freight.
The pandemic has unveiled a situation of having more patients than hospital beds in our country. It is expected that the government will increase spending on medical infrastructure in the coming financial year. Further, allocation of funds to preventive medicine, medical research and healthcare startups is vital in the wake of the ongoing global pandemic.
The focus on agriculture is expected to continue this financial year. The agriculture sector will be looking at a large budget allocation in the form of subsidies and incentives. Farmers currently lack the infrastructure for effective market participation and in realising fair prices for their produce. This year’s budget allocation should focus on strengthening farmer producer organisations, and infrastructure for irrigation, food processing, etc. to improve the prices of produce sold and to effectively increase farmers’ incomes.
It is unfortunate that millions of people lost their jobs last year due to layoffs, a result of the pandemic. This year, the hope is that the Finance Ministry will help fuel employment opportunities by giving a boost to major employment-generating sectors such MSMEs, textiles, hospitality, housing, etc.
The government has eased GST compliance by a fair bit by reducing the number of returns to be filed by taxpayers, especially small taxpayers, under GST. However, it is not just the number of returns but the various compliances in the GST filing mechanism that is turning out to be an inconvenience for honest taxpayers and a disruption to the ease of doing business. The stringent laws with regard to claiming input tax credit, making monthly payments and even registering under GST need to be simplified to a great degree, and with immediate effect.
The pandemic was an eye-opener for the healthcare sector in India. The number of active cases may have substantially reduced, but life has still not come back to normal. The priority right now is the effective distribution of the COVID-19 vaccine. The government may announce several concessions to domestic vaccine manufacturing companies under both income tax and GST, in the form of subsidies and exemptions.
The Central Board of Indirect Taxes and Customs (CBIC) has relaxed the import and export norms for vaccines in December 2020, removing any value limits. A dedicated task force is expected to be set up to ensure proper clearances of vaccines.
It is likely that the government may impose a COVID-19 or other similar cess of 2-4%, on high-income earners this budget. The past year has seen a big drop in revenue collections in some of the months, while the government had to increase assistance to the poorer sections of society, who were deprived of income during the lockdown period. This cess could be imposed to make good the amounts incurred on economic assistance provided. There is a possibility that this cess could also be imposed only on business entities.
Budget 2021 may see substantial rate reductions in import duties on gold and precious stones, newsprint, and imports on raw material components for electric vehicles. On the other hand, mobile phones and other electronic devices could see an increase in the rate of customs duties this budget.
Finance Minister Nirmala Sitharaman announced the launch of the Union Budget App in the ‘ Halwa ceremony’. Uptill last year, the Halwa ceremony marked the start of printing of Budget documents. As informed by the department already, the Union Budget 2021 will be announced in a paperless format and there will be no printing of the voluminous Budget documents for the first time since the starting of the history of Budget. Keeping the COVID 19 protocol in mind, this year the Budget will be distributed electronically to the MPs.