As the Indian economy looks forward to recovering from the devastating COVID-19 pandemic, expectations for the 2021 budget in the form of direct tax reforms are the order of the day.
The Union’s 2021 budget will be presented to Parliament on February 1st and presented at a difficult time for the economy in unprecedented circumstances. A budget like never before is expected. Both the stakes and the expectations are high.
Industries across the board have been exposed to the effects of COVID-19 and the resulting lockdown and restrictions. To expect the economy to recover strongly and recover quickly, the budget must be a major growth driver. Businesses hope for a great relief of the upcoming budget. The year 2021 is expected to bring stability again.
Below are some key direct tax expectations for the 2021 budget:
o To give taxpayers more resources to deal with the economic situation resulting from the COVID-19 pandemic, TDS rates for domestic payments have been reduced by 25%. It is expected that the reduced interest rates will apply for the entire 2021-22 fiscal year in order to cope with the liquidity crisis in the market.
o Government initiated faceless appeal and evaluation appear to be a step to facilitate compliance. The same must be encouraged. Also, the number of cases selected for limited review / detailed review must be very few. The tax department questionnaire must be checked to ensure that it is specific and not extensive.
o Companies have spent various costs addressing the COVID-19 challenges. It is expected that the deduction will be acceptable for such expenses regardless of whether they are employees or the general public.
o Section 80JJAA of the Income Tax Act allows a deduction of 30% on additional personnel costs that a taxpayer incurs for new employees. Currently, this benefit is only available to employees with earnings up to Rs. 25,000 per month. It is expected that this limit will be increased to Rs. 50,000 per month.
o In light of the difficulties the industry is facing due to COVID-19, the expiration date for the SEZ benefits has been extended from March 31, 2020 to June 30, 2020. Given the various government policies i.e. AatmaNirbhar Bharat, Make in India and also to improve employment, the above benefit is expected to be further expanded for units established after June 30, 2020. This would encourage investment as well as manufacturing facilities in India.
o The 2021 Union budget is also intended to support research and development, which will strengthen manufacturing and promote new technologies.
o The Vivaad Se Vishwas system, the mechanism for resolving tax disputes, ends on January 31, 2021. Given that the pandemic effect is still in place, it should be extended to March 31, 2021 to provide greater coverage of the system to enable.
o One of the problems taxpayers face today is the recognition of TDS. Obtaining TDS credits from the tax department is a tedious task with prolonged dependence on the tax department. There are countless cases of litigation resulting from the Income Tax / Centralized Processing Center’s incorrect brief granting of TDS credits. One of the measures that could be considered is to give credit to all TDS that appear in Form 26AS of the same year without matching that TDS against the taxable income. This can help streamline the process.
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o In view of the difficult economic circumstances after a pandemic, the common man expects an increase in the basic exemption limit from 2.5 lakh to 5 lakh.
o Given that medical cost inflation has been quite high and Work From Home (WFH) has resulted in higher electricity and other utility bills for employees, and many of them have gotten into trouble amid the pandemic, is by the government expects it to relieve taxpayers’ salaries by increasing the standard deduction limit from the current Rs 50,000 per year to at least Rs 75,000.
o Increasing the Section 80C deduction from the current 1.5 billion rupees per year to 3 billion rupees will ease the burden on a larger part of the population and promote savings and investment in the country. To encourage spending on tuition fees by schools, colleges and educational institutions that provide quality education, it would also make sense to increase the deduction limit under Section 80C.
o An increase in the limit of NPS investment, including that for private sector employees, is expected from Rs 50,000 to Rs 1,00,000.
o Pensions, or pensions drawn from NPS or another pension scheme, are currently fully taxable. Although the converted amount is tax-free, the monthly or annually received pension must be taxed. Given the current challenges and lower interest rates, the government should consider providing an exemption for the pension received up to a certain limit.
Also read: Budget 2021: Common Man’s Wish List in Pandemic Times
(Ashesh Safi is a partner and Afroz Galeria is a manager at Deloitte Haskins and Sells LLP.)