Most taxpayers will be hoping for some relief in tax this year, but given the prevailing circumstances, it seems unlikely that the budget will reduce tax. In fact, high-income earners should brace for higher tax as there could be an increase in the surcharge on tax.
If a surcharge is indeed in the pipeline, there is a case for increasing the basic exemption limit for regular taxpayers from Rs 2.5 lakh to Rs 5 lakh per annum. It is not as if this move will push a huge number of taxpayers out of the tax net. Under Sec 87A, anybody with an income of up to Rs 5 lakh is already eligible for full tax rebate.
So raising the basic exemption to Rs 5 lakh will only affect taxpayers in the middle and upper income groups. Since upper income taxpayers are already paying a surcharge on tax, the higher basic exemption will give relief to middle income taxpayers.
Accordingly, the basic exemption for senior citizens (above 60) should be raised from Rs 3 lakh to Rs 6 lakh and very senior citizens (above 80) to Rs 7 lakh.
Tax benefits for work from home
COVID-19 has changed the way we work. But thanks to technological advances, one can work from anywhere without physically going to office. However, this requires the individual to invest in equipment, gadgets and pushes up his usage of tech services. Many companies provide laptops, computers and furniture to employees to work from home. Others give a fixed allowance to employees to bear the cost of remote working. The budget should clarify how these costs are to be accounted for by companies as well as provide some relief for such allowances to employees. Such payments should be exempt from tax in the hands of employees if supported by actual bills.
Budget expectations for salaried middle class
The NPS is a good option and encourages retirement savings by offering several tax breaks to investors. But there is no such investment option for education savings, even though saving for children's education is a key financial goal for Indian parents. If the Budget introduces a new instrument for education savings along the lines of the NPS, it will boost investments for this goal. Just like NPS, contributions to this Child Education Savings Scheme should be eligible for tax deduction. Switching between funds should also be exempt from capital gains tax. To ensure that the funds are not misused or channelised for non-education needs, the maturity and redemption proceeds should be sent directly to education institutes.
Home loan deduction and standard deduction for rental income
The real estate sector is in the dumps and needs to be revived. One way to do this is by hiking the tax benefits for self occupied houses as well as rental income. In 2019, a new section 80 EEA gave first-time buyers an additional deduction of up to Rs 1.5 lakh for interest on loans for affordable houses valued at less than Rs 45 lakh and on loans up to Rs 50 lakh. This additional deduction is only till 31 March. Not only should this last date be extended but the house value limit should be raised to Rs 75 lakh so that more people will benefit from the change.
Apart from this, rental housing should also be encouraged. Tenants are at an advantage because they can claim full tax exemption for HRA received. But landlords have to pay tax on rent after a 30% standard deduction. This standard deduction needs to be revisited. People don't invest in real estate for renting because they fear tenants will not vacate and because rentals are low. While the Model Tenancy Act 2021 has taken care of the first concern, the second can be addressed by reducing the taxability of rental income. Even a marginal increase in standard deduction to 35-40% will make a big difference and encourage more people to invest in real estate.
About the author
Raj Khosla, is the Founder and MD MyMoneyMantra.com. The opinions mentioned above are that of the author and do not reflect the opinion of Greynium Information Technologies Pvt Ltd.