Great expectations of common man
After the economic downturn due to COVID-19, Finance Minister- Nirmala Sitharaman has raised many hopes for everyone before presenting the 2021 Budget, on February 1. This time, the Union Budget will be crucial for everyone because of the COVID-19 pandemic chaos which took place in the life of everyone. During this pandemic, many people not in India but around the world went through financial crisis due to salary cuts, job losses, loss in businesses which led them to carry the burden of the financial crisis. This is the reason everyone is expecting something big from the Finance Minister with a hope to lowering tax cuts along with reducing other pandemic burdens. It is likely that FM may announce some big changes in the tax slab rates but the Wish list of a common man comprises great expectations.
Personal Tax and Deductions Under Income Tax Section 80C:
To reduce the personal tax burden, tax experts suggest raising the tax exemption limit from 2.5 lakh to 5 lakh for normal individual, for senior citizen the tax exemption should be from Rs. 3 to 6 lakh and for super senior citizen it should be Rs.5 to 8 lakh. The tax exemption limit revisions are much needed, as raising tax exemption limit will no doubt boost the income in hands of any common man.
It is expected that to reduce the burden of tax, FM may raise the tax slab rates both for the new slab and the old slab regime. Also, standard deduction under 80C may increase from 1.5 lakh to 3 lakh.
According to Sanjiv Bajaj, Joint Chairman & MD, Bajaj Capital- “On the contrary, the common man expects the increase in the Section 80 C limit from Rs 1.5 lakh to at least Rs 3 lakh to save for long term goals and save tax. A separate limit for life insurance should also be considered by the government to ensure individuals have their protection needs met adequately. This is very important given the fact that importance of having good insurance protection and government needs to encourage that”.
Financial experts expect the 80C limit of the income tax is a highly used deduction limit for taxpayers, which they think is inadequate and it is the right time for the finance ministry to raise the 80C limit. This will give a boost to the taxpayers to save more and more indifferent investment options like PPF, NSC, NPS, ELSS, Bank FDs etc…
According to Adhil Shetty, CEO, Bankbazaar.com: “A higher 80C limit, combined with new tax deductions for life insurance and home loan payments, would not only encourage more people to take home loans and term insurance, but also motivate them to invest more in government schemes such as Employees Provident Fund and Public Provident Fund. This would put much more money in government coffers while also providing conservative investors viable options during economic turmoil caused by the pandemic.”
New Section for Home Loan Tax Deductions:
The Government must consider a single new section under the Income Tax Act that provides a total deduction of Rs. 5 lakh per annum for home loan principal and interest payments.
Taxpayers with home loan also foresee something big from this 2021 Budget. Common man awaits from the government to consider a single new section for home loan tax deductions of Rs. 5 Lakh (principal and interest payment). The tax deductions on home loan would encourage the new homebuyers and home ownership.
"Costs of homeownership are extremely high in urban areas, requiring the purchasers to take large home loans which strain their incomes, limit their savings, and reduce disposable incomes. Higher tax benefits will help homeowners enjoy higher disposable income through lower taxation" adds Shetty.
Apart from, Section 80C tax standard deduction (1.5Lakh), a separate section for home loan payments would at the very least help taxpayers to get higher deductions for expenses they cannot avert due to the high costs of homeownership.
Tax deductions need to be simplified to benefit all home-owning taxpayers. Currently, homeowners get deductions under 80C, 24b, 80EE and 80EEA. These should be clubbed into a single tax section focused only on home loan payments–both interest and principal.
Health and Term Insurance premium:
Due to the global pandemic, people all over the world are undergoing through financial and medical crisis. Also, due to COVID-19, Medical expenses in India soared up along with the need of health insurance. People have started securing their health by taking good health insurance plans, which has suddenly increased the number of insurance policyholders in India. With help of Income Tax Section 80D an individual can claim upto Rs. 1 Lakh on the health insurance premium (when procured for family). Which for an individual with dependents is not enough?
It is very important for persons with dependents to own term insurance.
To encourage more people to own term insurance, it would be advisable to introduce a new section providing deductions for term insurance premiums. Individuals are wishing from the Budget 2021 to do a separate deduction for term insurance premiums of Rs. 25000.
"It's important to provide taxpayers full value for their various essential expenses such as insurance premiums. The limit of Rs. 1.5 lakh under 80C is inadequate, especially for people with complex expenses, dependents, and financial liabilities. Therefore, it would be a good start to remove life insurance premiums from 80C to a new section" opines Shetty.
Naveen Kukreja, CEO & Co-founder, Paisabazaar.com says: "Budget 2021 should also announce a separate deduction for term insurance premiums to incentivize consumers to buy adequate life insurance covers. Term insurance policies allow consumers to buy large life covers at much lower premiums than other insurance products.”
"The government should consider offering an innovative solution to the common man by incentivizing first-time buyers of health insurance, term insurance, and NPS to avail additional tax benefits of up to Rs 1 lakh. The modalities of such a scheme may be worked out by the government that will ensure social security measures of the population in a cost-effective way" adds, Bajaj.
Term insurance is both a basic need in financial planning and relatively cheap. If separate tax deductions are being provided for term insurance, more people will consider it over traditional forms of life insurance which are costlier but offer inadequate life cover.
Some More Budget Expectations:
- Although, the financial health crisis of 2020 has pushed the government to initiate a slew of measures to sustain the economy, in the form of policies and packages. Further, the government in the upcoming budget may focus on, inter-alia, imposing COVID-cess on HNIs or companies to bridge the estimated budget deficits.
- To improve, post-retirement security among the salaried class, the tax deduction available through Section 80CCD(1B) should also be extended to investments made in pension plans offered by life insurance companies and mutual fund houses.
- The NPS Tier-II Tax Saver Scheme announced in Budget 2020 for central government employees has a lock-in period of just 3 years and a fixed asset allocation of 10-25% for equities and the rest in debt instruments. This year's Budget should open this tax saving scheme to self-employed and salaried individuals working with State Governments and private sector.
- ESOPs are the great source for an employee to generate wealth, so better tax treatment for Employee Stock Option Plans (ESOPs) is needed. "The taxation on ESOPs during the point of exercise should be done away with and tax should be levied only on the sale proceeds. This would ensure tax is levied only when the employee makes a profit when selling the allotted shares and not as a perquisite" adds Shetty.
- Budget 2021 should boost demand in the affordable housing segment by making Section 80EEA a permanent feature or at least extending it to the next financial year. Section 80EEA offers an additional deduction of Rs 1.5 lakhs on home loan interest repayment to first time home buyers for purchasing housing units of stamp duty value of up to Rs 45 lakhs. This deduction is over and above the Rs 2 lakhs deduction on home loan interest repayment under Section 24b.
- Increase 80TTA limit to Rs.30,000: The current tax deduction limit of Rs. 10,000 on the interest income from savings account in banks, co-operative banks, and post offices under Section 80TTA of the I-T Act needs to be increased to Rs. 30,000. This would encourage more people to keep their savings with banks instead of keeping cash at their homes bringing in more transparency, accountability, and security of savings.
- Work from home (WFH) is also a new normal after COVID-19 and so many firms have started the WFH policy from the last one year. Experts suggest the government to introduce some aid for salary drawing employees to support their extra allowances while doing work from home.
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