India’s Budget 2021 is officially rounding the kerb and will be in the building very soon. The approaching monday, February 1, 2021 is Union Budget 2021-2022 day. We can expect all of India to be holding its breath as the finance minister is expected to announce changes in taxation and other impactful news that might emerge as part of budget 2021. The finance ministry is being tight-lipped – as is the norm – on what we can expect from Union Budget 2021 – 22. However, based on the expectations of the common man and the general socio-economic environment, we can make some informed guesses.
Let’s dive right in and have a look at what we can expect come February 1, 2021. We’ll start with some of the very commonly awaited news.
Relief for various headers under 80C and 80D is being much hoped for.
The common man is expecting – with good reason – relief to be provided by the government across salary, loans and health insurance premiums. These were three areas that have been drastically affected in the worst pay imaginable during the pandemic.
Budget 2021’s income tax – related expectations are sure to bring a smile to your face. There is widespread talk about the possibility of the government increasing the tax exemption for investments made under 80c of the income tax act, from Rs 150,000 to Rs 300,000. That would mean Rs 300,000 of tax free income – provided of course one invests in the prescribed tax-saving instruments. The common man has bled money during the lockdown and due to salary cuts and due to increased expenditure incurred to keep one’s job in the work-from-home environment. Budget 2021 – for salaried employees – is being looked forward to with much hope for income tax relief .
Many people have struggled to pay their monthly installments on their home loans; others have been unable to due to job loss or salary cuts and still others have borrowed from friends and family in order to avoid defaulting on their home loan EMI payments. It is possible that the government will respond to public demand for an increase in the tax exemption limit linked to EMIs paid for home loans. This could happen in the 80c section which gives a Rs 1.5 lakh exemption or in the 24B section which gives a Rs 2 lakh exemption. Increasing the exemption to Rs 4 lakh to Rs 5 lakh would really help the common man to pay his debts.
There is hope that the government will scale up the deduction limit for health insurance premiums, which currently stands at Rs 25,000 if you are insuring yourself and is up to Rs 100,000 in case paying for spouse, parents and dependent children. We might expect the government to increase this exemption limit given that people feel under pressure to opt in for insurance. This increasing demand emerged from either personal experiences or horror stories about lakhs and lakhs spent on hospital bills for covid-19 patients facing complications. After all, the government last year did allow for health insurance premiums to be paid in installments.
A tax to help covid 19 packages is being dreaded, but might come to pass
Many experts – and also a lot of the public – are expecting the government to introduce a temporary covid 19 tax. The reasoning is that the government is in dire need of funds in order to provide covid 19 free vaccination, to provide relief packages and to facilitate infrastructure and logistics linked to helping the country through covid 19. Moreover , the government has made many promises about how it will spend heavily to revive the economy. But where will the government get the funds required for such repair and relief? The government’s main source of income is taxation and therefore it is expected that the money for helping the country back to its feet, will come from taxation.
There are many theories out there. Some feel like a tax might be introduced at the highest tax slab; others feel like the amount will vary according to tax slabs. Some experts hint that wealth tax might be reintroduced, or that the new tax will be modelled around wealth tax.
On the bright side, this might mean stimulation to the economy and industry.
New tax regime might not be changed
Reactions after Budget 2020 would seem to suggest that for a large part, the common man was far from pleased about the new tax regime. However, overall sentiment seems to point to a very remote and almost negligible chance of the new tax regime being abolished the very year after it was introduced. Simultaneously there is hope and also a fairly good possibility that the old tax regime will not be abolished. At present, it is up to the tax-payer to choose which tax regime he wants to go with. One could choose pre-existing tax slabs and also retain the existing deductions. Alternatively a tax-payer could choose to opt for slab-linked lowered tax rates under the new tax regime and forgo deductions. It is unlikely that either option will be taken off the table in Union Budget 2021-2022.
Get yourself ready for the 2021 budget. Understand how budgets typically affect your financial choices and goals. Get insights into how this budget should affect your taxes, your investment choices and your spending in the coming year. Learn about the budget’s role as a force to reckon with on the stock market. And best of all, learn all of this free-of-cost, in simple, layman’s terms; no jargon allowed. Visit #BudgetKaMatlab and join us there as we sit to decode #budgetkamatlab!