Budget 2021 Expectations of salaried: It is expected that the benefit of standard deduction should also be available to taxpayers opting for the new tax regime.
He said reducing the time bar on reopening of past assessments to 3 years from 6 years has removed a major irritant.
Union Budget 2021 Expectations for Salaried: Finance Minister Nirmala Sitharaman while presenting the Budget 2021 may make the salaried class in the country wait for some positive announcements. For the employees, 2020 has been a watershed year – From pay-cuts to job losses, the going has been tough for the 9 to 5 office goers. The expectations range from an increase in standard deduction limit, medical insurance benefit, tax exemptions, rebates to increase in the Section 80C limit.
The lockdown in the country almost coincided with the start of the new financial year 2020-21. This directly impacted the re-reimbursement that many employees receive from their employers. Such reimbursements become taxable unless backed with the bills as proof of spending. Restricted movements across the country thus made the food bills, entertainment and petrol bills etc out of reach for the most period. To add to the misery of the employees, there were pay-cuts witnessed in most companies.
“During the current year, salaried personal have faced significant challenges of a VRS or retrenchment and pay cuts. Further on account of the lockdown the possibility of claiming tax exemptions for HRA, LTA car fuel reimbursement were limited. Hence the incidence of taxes was high in many cases. Given these situations, the government can certainly look at enhancing the exemption for VRS and retrenchment to enable employees to get more in hand. Further enhancing the standard deduction could provide some respite to the tax weary salaried class. The special deduction for medical insurance premiums and medical expenses itself can be introduced,” says Aarti Raote, Partner, Deloitte India.
For the assessment year 2021-22, can the employees expect some relief on the tax front. “Government should make provision to provide temporary tax breaks to individual taxpayers who have experienced pay cut or job losses. These could be in the form of tax rebates or exemptions, especially for the impacted individual taxpayers, in order to help them weather the impact of income lost during this crisis,” says Col Sanjeev Govila (Retd), a SEBI Registered Investment Advisor (RIA), and CEO, Hum Fauji Initiatives, a financial planning firm which caters exclusively to armed forces officers and their families.
The real benefit may come up if the government increases the standard deduction limit. “Medical reimbursement and travel allowance exemption were done away with from FY 2018-19 in lieu of standard deduction. To keep pace with the ever-rising medical and fuel costs, the standard deduction is expected to be increased from Rs 50,000 to Rs 1,00,000. Further, it is expected that the benefit of standard deduction should also be available to taxpayers opting for taxation under the new regime as well,” says Raghunathan Parthasarathy, Associate Partner – Tax & Regulatory Services, BDO India.
In the new tax regime, taxpayers will have to forgo most of the income tax exemptions including Standard Deductions to avail the lower tax rates.
Further, with the outbreak of coronavirus, the medical expenses have seen an increase. “The pandemic has made everybody realise the importance of health insurance. Its popularity has increased in breadth and depth amongst people. There is a need to increase the tax deduction limit to Rs 50,000 so that still more people secure their health,” says Col Govila (Retd).
When it comes to personal finances and income tax relief, how much can be expected to come as a relief form the government? “Overall there are many expectations, but there could be a scenario where the government may continue with the status quo and do not make any major changes when it comes to personal finance and income tax as government’s revenues have taken a considerable hit during the current financial year,” says Harshad Chetanwala, Co-Founder, MyWealthGrowth.com
For the income earned in FY 2020-21, taxpayers will have the option to choose to file ITR as per existing tax regime and slabs or choose to opt for the new tax regime. After pay-cuts and job-market looking unstable for the private sector employees, more saving options that come with tax benefit can be of help.
“Increase in the income tax slab limit is long time due and something that salaried employees look forward to during every budget. Last years, new tax slabs with conditions are not working in favour of all kind of taxpayers. At the same time, inflation continues to be on the higher side and there is a high possibility that growth in income of salaried employees will be very limited in the coming year. This will have a major impact on their financial situation. There is a need for more disposable income at salaried employees end as their standard of living keeps improving and their cost of living keep increasing in most of the cities. Also, higher deduction under section 80C to avail tax rebate will also work for them as this will encourage more savings and long term investment,” adds Chetanwala.