Budget 2021: Individual taxpayers look for tax relief

By: |
February 01, 2021 12:30 AM

Union Budget 2021 India: An increase in standard deduction for the salaried, higher deduction for health insurance premium and tax-free annuity are among the top reliefs sought

Annuity or regular pension is received from schemes such as NPS, Pradhan Mantri Vaya Vandana Yojana, National Pension Scheme and even pension received after superannuation.Budget 2021-22: Annuity or regular pension is received from schemes such as NPS, Pradhan Mantri Vaya Vandana Yojana, National Pension Scheme and even pension received after superannuation.

Indian Union Budget 2021-22: As finance minister Nirmala Sitharaman presents the Union Budget for 2021-22 today, individuals would expect some relief such as an increase in standard deduction, higher deduction for health insurance premium, home loan payments and tax rebates on spending to boost consumption. With the Covid-19 pandemic affecting incomes of many, some relief through changes in income tax slabs will not only help cushion impact of income loss but also encourage them to spend.

Standard deduction
In the Budget of 2018-19, the government re-introduced standard deduction of Rs 40,000 for salaried employees in lieu of transport allowance and medical reimbursement. It is deducted from the gross salary and claimed as an exemption. In the Interim Budget of 2019, it was increased to Rs 50,000. Even one receiving pension which is taxable under the head ‘Salaries’ can claim standard deduction. Experts suggest that the government should look at a one-time hike in standard deduction to give relief to taxpayers affected by the pandemic and income loss.

Neha Malhotra, director, Nangia Andersen LLP, says the Budget should substantially increase the standard deduction from salary income. “The standard deduction which allows for a predetermined amount to be subtracted from an individual’s salary income before taxable income is calculated must be increased from the present limit of Rs 50,000 to counter higher inflation and maintain purchasing power of the salaried class,” she says.

Health insurance
The Covid-19 pandemic has underlined the fact that health insurance is now a necessity. To encourage individuals to buy a comprehensive health cover, the government should increase tax deduction under Section 80D from the current limit of Rs 25,000 for self, spouse and children. Krishnan Ramachandran, managing director & chief executive officer, Max Bupa Health Insurance, says enhancement in tax concessions has been helpful in many parts of the world to increase health insurance uptake.

“Individuals currently can claim a deduction of up to Rs 25,000 when they purchase health insurance for their parents who are below 60 years of age and Rs 50,000 if the parents are over 60. The government can consider allowing a deduction of Rs 50,000 for parents below 60 and Rs 1 lakh for parents above 60. This will encourage people to opt for health insurance for their elderly parents,” he says.

Annuity income
At a time when interest rates are at a multi-year low and inflation is rising, risk-averse investors are getting negative real returns. This has aggravated the financial problems of senior citizens who are dependent on income from their investments. The government should ideally give some tax benefits on annuity income.

Rajiv Bajaj, chairman and managing director, Bajaj Capital suggests making ake pension tax-free in the hands of senior citizens in the year of receipt. “All through the earning period spanning over two-three decades, they have paid tax on their income, and so it is fair that their annuity income gets relief from taxation during the retired years. The government may also introduce a new tax-free pension scheme for senior citizens. That will help retired people enjoy the annuity stream without worrying about the taxation. The government may also provide a cut-off limit up to which the pension received from existing schemes could be tax-exempt,” he says.

Annuity or regular pension is received from schemes such as NPS, Pradhan Mantri Vaya Vandana Yojana, National Pension Scheme and even pension received after superannuation. At present, the amount of pension received is added to one’s income and is taxed as per the taxpayer’s income tax slab.

Tax exemption in new tax regime
The government introduced a new tax regime in last year’s budget under Section 115BAC of the Income Tax Act. The new tax regime is for individuals and HUFs with lower tax rates and no deductions or exemptions.Experts suggest that tax deduction for life and health insurance premium, provident funds, superannuation funds should be extended to the new tax regime, too. Prashant Tripathy, MD & CEO, Max Life Insurance, says till such time there is a certain level of financial awareness amongst all strata of the population, it is important to retain tax incentive on life insurance products. “The income tax benefit of life insurance has traditionally played a big role in increasing the coverage of life insurance plans,” he says.

Do you know What is Finance Bill, Short Term Capital Gains Tax, Fiscal Policy in India, Section 80C of Income Tax Act 1961, Expenditure Budget? FE Knowledge Desk explains each of these and more in detail at Financial Express Explained. Also get Live BSE/NSE Stock Prices, latest NAV of Mutual Funds, Best equity funds, Top Gainers, Top Losers on Financial Express. Don’t forget to try our free Income Tax Calculator tool.

Financial Express is now on Telegram. Click here to join our channel and stay updated with the latest Biz news and updates.