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Budget 2021: Will FM Sitharaman announce relief for salaried class, rationalise income tax?

It is widely expected that the government will leave the personal income tax slabs untouched since a new (tax) regime was already introduced in the financial year 2020-21

twitter-logoBusinessToday.In | February 1, 2021 | Updated 10:11 IST
Budget 2021: Will FM Sitharaman announce relief for salaried class, rationalise income tax?
The government is likely to increase the income tax exemption limit under Section 80C to Rs 2 lakh from Rs 1.5 lakh in the Budget 2021

Finance Minister Nirmala Sitharaman, who is slated to present the Union Budget 2021 on Monday, February 1, has to walk the tightrope of trying to strike a balance between fiscal prudence and growth.

With the aim of reviving the coronavirus pandemic-hit economy, the industry expects her to announce relief for the salaried class by putting more money in taxpayers' hands in order to boost economic revival.

This, many experts feel, will help spur the economy and reinvigorate household consumption demand. However, it is widely expected that the government will leave the personal income tax slabs untouched since a new (tax) regime was already introduced in the financial year 2020-21. "The fact that a new tax regime has been introduced last year means that not many changes can be expected now," HDFC Securities said in a note.

Also Read: Budget 2021

Religare Broking also stated in a note that in the wake of the government running "a high deficit owing to lower tax collections" it may not announce any large cuts. However, it added that "some relief to certain distressed sectors and tinkering in personal income tax could be on the cards."

Presently, individuals earning Rs 5 lakh or less are exempt from paying taxes. Meanwhile, the government is likely to increase the income tax exemption limit under Section 80C to Rs 2 lakh from Rs 1.5 lakh in the Budget 2021. A source in the Income Tax Department told BusinessToday.In that some discussions were held on exemption limits, which have remained the same for over four to five years.

Also Read: Budget 2021: Date, speech time, sector-wise expectations; everything you need to know

"Changes to the exemption limits in the personal income tax have been discussed. Tax exemption limit of Rs 1.5 lakh on savings is likely to be reworked. It may go up to Rs 2 lakh," the source said, adding that in the wake of skewed finances of the Centre due to the coronavirus pandemic, there is no elbow room to grant any relief to the common taxpayer.

Meanwhile, other exemptions to personal income tax may also be altered to give a boost to household savings as well as the real estate sector.

"The mix of the savings instrument for availing tax benefit on income is also being examined," said the source. Interest on home loans came up prominently as a significant tax exemption during budget deliberations. The government is likely to enhance the deduction limit for both interest and principal paid on home loans.

Also Read: Budget 2021 Live Updates: Nirmala Sitharaman ditches 'Bahi Khata' for 'Made in India' tab

"Deliberations have taken place on enhancing the current deduction limit of up to Rs 2 lakh for interest on home loan for a self-occupied property and home loan principal repayment limit of Rs 1.5 lakh," the source said without giving out details on the amount by which the limits would be enhanced.

The official also pointed out that only affordable housing may be eligible for higher deduction on housing loan principal and interest.

The source further stated that health insurance premiums under section 80D are also likely to be reworked to enable people to claim higher deductions. The current limit for health insurance premiums is Rs 25,000.

"The move, aimed at incentivising the people to purchase home, will serve as a fillip to the real estate sector. Other exemptions will also be significant in enhancing the household savings and kick-starting consumption in the economy. This is essentially the idea behind the proposed tax tweaks that have been deliberated upon," the source said.

Also Read: Budget 2021 Highlights: Tax exemption limit under section 80C may be raised to Rs 2 lakh

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