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Budget 2021 Expectations: What FM may do on direct tax front

Budget 2021 Expectations for Direct Taxes: Expectations are high as Finance Minister Nirmala Sitharaman is going to present the Union Budget amid Covid-19 pandemic.

Due to the economic slowdown and loss of revenue due to nationwide lockdown, the government has limited scope to dole out much incentives.

Union Budget 2021-22 Expectations for Direct Taxes: Expectations are high as Finance Minister Nirmala Sitharaman is going to present the Union Budget for 2021-22 on February 1, 2021 amid Covid-19 pandemic.

However, due to the economic slowdown and loss of revenue due to nationwide lockdown, the government has limited scope to dole out much incentives.

“Given the fiscal constraints, the scope for reduction of tax is very limited. On the other hand, Covid cess could be a reality,” said Divakar Vijayasarathy, Founder & Managing Partner, DVS Advisors LLP.

“On the whole, tax rates would mostly remain intact,” he added.

On the income tax front, Vijayasarathy expects the following measures:

Increase in tax-saving investment limits: The government will be able get long-term funds at a fixed rate easily by increasing the limits of tax-saving investments under various sections – like 80C, 80CCD(1B) etc.

“Further investment based deductions and expenditure based relief can be anticipated,” said Vijayasarathy.

Budget 2021 Expectations: Taxpayers want the old income tax regime to continue

Deductions on Covid-related expenses: To help people struggling financially after getting infected by Covid-19, Covid-related hospitalisation expenses could be allowed as tax deduction.

Introduction of a new category of tax-saving bonds: To shore up its resources, the government may launch a new category of bonds eligible for tax deduction – like Covid bonds.

Tax incentives for non-resident investors: To attract foreign capital in various sectors, the government may reduce compliance and provide lucrative tax incentives for non-resident investors.

However, Harsh Bhuta, partner of Bhuta Shah & Co LLP expects that the Finance Minister (FM) would make some changes in the tax slabs.

Bhuta expects that the FM may take following steps:

Increase in income tax threshold limit: FM would consider reintroduction of single tax slab structure and increase the minimum taxable income threshold to Rs 7.5 lakh.

Tax incentives on work from home expenses: Work from Home (WFH) allowance / reimbursements made by employers to employees would be explicitly made non-taxable in the hands of the employee and allowed as a business expense in the hands of the employer.

Reduction in LTCG holding period of debt funds: The government would consider reduction in holding Period for capital gains of debt-oriented growth mutual funds to 12 months from existing 36 months for it to qualify as a long-term capital asset.

LTCG incentives on real estate: Long Term Capital Gains rate on real estate assets should be reduced from 20 per cent to 10 per cent and holding period should be reduced from 24 months to 12 months.

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