Taxpayers' Budget 2021 wishlist: COVID exemptions, standard capital gains rates and more

Optimistic over a Budget like never before - as Finance Minister Nirmala Sitharaman has promised to deliver it on February 1 - taxpayers are hoping for never-seen-before tax relief. Apart from long pending demands of hike in limits under Sections 80-C and 80-D of Income-tax Act, they also expect COVID-linked tax concessions, more attractive new tax regime and simplified capital gains structure. We have listed key expectations that deserve FM Sitharaman's attention:

Tax-free COVID expenses

The lockdown-induced work-from-home made employees set up workstations at home. They incurred costs such as electricity, WiFi, office furniture, etc. Some employers paid allowances to the employees to make such purchases. But, this amount is taxable in the hands of employees. "The government should make sure that such allowances and work-from-home facilities are not taxable in the hands of individuals. So, a certain kind of work-from-home linked benefits or a hike in Standard Deduction of Rs 50,000 is advisable," says Saraswathi Kasturirangan, Partner, Deloitte India.

Further, expenses incurred in treatment of COVID-19 should qualify for one-time tax exemption, suggest tax experts.

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Tax slab revision or 87-A relief

Amit Singhania roots for an increase in basic exemption limit from Rs 2.5 lakh to Rs 5 lakh since Section 80-C rebate mechanism only helps a small set of taxpayers.

The income tax rebate under Section 87-A offers relief to the taxpayers whose taxable income does not exceed Rs 5 lakh after reducing the relevant deductions. The rebate is limited to Rs 12,500. So, if your total tax liability is less than Rs 12,500, you will not have to pay any taxes.

"If a taxpayer crosses the threshold of Rs 5 lakh, she straightaway goes into 20 per cent tax bracket. So, although a revision of tax slabs is expected, hiking the 87-A relief looks to be a more practical approach," says Kasturirangan.  

COVID cess under discussion

There are murmurs of the revenue-strapped government to impose a COVID cess over above the 4 per cent health and education cess. Is additional tax in offing? "God forbid. I don't think it would be a good idea considering the surcharge that was introduced last year. The highest tax rate in India is a whopping 42.74 per cent, which is quite high compared to neighbouring countries like Singapore. We shouldn't push people to migrate resources to other countries to save taxes," says Kasturirangan.

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Hike in Section 80-C limit

Enhancing the Section 80-C limit, a long pending demand, is something the government must consider. The ceiling was last revised in 2014 to Rs 1.5 lakh from Rs 1 lakh. The industry demands a ceiling of at least Rs 2 lakh, if not more.

A revision in Section 80-D limit is also needed. Currently, individuals below 60 can claim a deduction of Rs 25,000 on insurance premium paid towards a health plan for self, spouse and dependent children. There are demands of reducing the Goods and Services Tax currently payable on insurance premiums.

Relief for homebuyers

Government should consider providing additional tax benefit for new home buyers in the coming financial year. "This can be in the form of higher tax rebate for interest payment on home loan. This will not just benefit the taxpayer but will also lead to growth in real estate and BFSI sector," says Harshad Chetanwala, Co-Founder, MyWealthGrowth.com.

Currently, principal repaid on home loan is eligible for tax deductions under Section 80-C, while interest on home loan of up to Rs 2 lakh is eligible for deduction under Section 24-B. Section 80-C limit being already too crowded, homebuyers fail to avail maximum tax benefit. Similarly, interest component of Rs 2 lakh is not enough especially for new home buyers in the initial stage of home loan tenure.

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Make new tax regime attractive

The government introduced new tax regime in Budget 2020 with lower slab rates against taxable income. However, the new regime doesn't offer any tax deductions or exemptions. "The government's intent is definitely to phase out the old tax regime and make it simplified, but so long as both go hand in hand, taxpayers will be reluctant to give up any deductions or exemptions that are available. There is a mindset that savings and investment decisions are driven by tax benefits. So, doing away with those entirely does not make sense. The government should consider making the new regime more attractive," says Kasturirangan.

Simplify capital gains norms

There is a demand for simplifying the capital gains tax regime. "The current capital gains tax regime is too complicated from a common man's point of view. Why to have multitude of timeframes and tax rates for short-term and long term. If these could be rationalised into one standard rate for all long-term or short-term, that would be welcome from an operational perspective," says Kasturirangan.