Union Budget 2021: What Can You Expect

NEW DELHI: The Finance Minister will present the Union Budget 2021 on February 1, 2021. The Union Budget comes at a time when Covid-19 pandemic has unleashed chaos in the lives and financial security of the citizens of the country.

Since March of 2019, Indians, as well as citizens in countries around the world have faced job and salary cuts, increased inflation costs while trying to live and adapt to the challenges of what became the 'new normal.'

In view of the struggles that accompanied the pandemic, expectations from Budget 2021 are thus higher than before, with the common man hoping for tax cuts and relief from the pandemic and its subsequent burden.

While the government has had to deal with its own set of economic problems, with the fall in Gross Domestic Product (GDP), and fall in revenues of the government owing to the nation-wide lockdown, which stopped most of the economic activities.

In light of all that, and the economic condition of the government itself, there are some changes that an everyday person can hope for from the forthcoming Union Budget.

The primary and current focus of the government at this moment is to ensure that Covid vaccines are availed by all the citizens of the country. The government is also expected to take on the endeavour to improve the overall healthcare infrastructure of the country.

According to media reports, the government, in a bid to bring in revenue for increased spending in the health sector, is expected to levy a new Covid-19 cess tax. The government may increase the health and education cess from the existing 4% or introduce a new COVID-19 cess. The cess may be introduced for taxpayers in the highest tax bracket and will be applicable on all purchases, so this will definitely affect consumers.

Import duties on commodities like electronic goods, furniture, and electric vehicles, are likely to be increased.

The common man is expected to hope for tax deductions and exemptions, especially due to the fall in individual level and household level income, owing to decreased economic activities and rising unemployment rates. Individuals will expect relief measures like – increase in the income tax exemption limit from the current Rs 2.5 lakh to Rs 5 lakh, increase in the standard deduction from the existing Rs 50,000 to Rs 75,000 or hike in the popular 80C deduction limit.

The Finance (No 2) Act, 2019 had introduced a provision which allowed a deduction of interest paid on loans taken to buy a residential house whose stamp value did not exceed forty-five lakhs and the taxpayer did not own any other house as on the date of the sanctioning of the loan. The deduction is restricted to Rs 150,000 and on loans taken prior to 31 March 2021. It is expected that the period for taking the loan may be extended by at least 1 year to March 31, 2022, as the past year saw a fall in spending by taxpayers.

The government had also introduced the LTC Cash Voucher Scheme to provide tax relief to taxpayers who bought goods or availed services, which incur GST at a rate of 12% or more, during the period 12 October 2020 to 31 March 2021, instead of availing exemption on travel cost while on leave. The exemption is provided with a maximum exemption of Rs 36,000 per person. The proposal served the twin purpose of boosting demand in the economy as well as providing tax relief to the taxpayers. Citizens might look forward to the government formalizing the LTC Cash Voucher Scheme by making suitable amendments in the tax laws, which shall allow private sector employers to take up the scheme with more ease. It is also expected that the government may extend the LTC Voucher Scheme by one more year upto 31 March 2022.

There are also expectations that the government may provide some relief to taxpayers to compensate for the higher cost incurred while working from home; perhaps some deductions for expenses like electricity or some kind of fixed deduction.

Medi-care costs in India have gone up rapidly owing to the pandemic and the tax laws do not provide any significant tax break on such costs. The deduction available at the moment could range between INR 25,000 to INR 100,000 per annum, depending on various factors. There are expectations that the government may loosen the existing tax riders to include all medical expenditure as a deduction for all taxpayers as well as increase the limits for insurance premium which are eligible for deductions.

The Central Board of Direct Taxes was hands-on in issuing clarifications, for determination of residential status, on the exclusion of days spent in India by taxpayers who were on a visit but stranded due to the India wide lockdown. The clarification was however issued only for the fiscal year 2019-20 with expectations that some notifications would be issued for the fiscal year 2020-21 as well. It is expected that the Finance Minister may make legislative amendments for the fiscal year 2020-21 – which will be a relief to stranded taxpayers, as international flights are still not fully functional. Tax residency, in most cases, depends on physical stay.

The FM has hinted that Budget 2021 shall be unlike any other presented in the country as this one comes on the heels of an unprecedented pandemic. The focus will definitely be on growth and building of our economy and expectations of the common man might not materialise, but all that will be cleared up on February 1.

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