With the Indian economy looking forward to recovering from the devastating COVID-19 pandemic, the expectations from Budget 2021 in the form of direct tax reforms are the need of the hour.
Union Budget 2021 will be presented in Parliament on February 1 and is being presented at a difficult juncture for the economy amidst unprecedented circumstances. It is anticipated to be a budget like never before. The stakes, as well as expectations, are high.
Industries across the board fell prey to the impact of COVID-19 and the ensuing lockdown as well as restrictions. Expecting the economy to rebound sharply and continue speedy recovery requires the budget to be a key driver of growth. Businesses are hopeful of major relief in the upcoming budget. The year 2021 is expected to bring back stability.
Below are some key expectations from Budget 2021 in the field of direct taxes:-
o In order to provide more funds at the disposal of the taxpayer for dealing with the economic situation arising out of the COVID-19 pandemic, the TDS rates for domestic payments were reduced by 25%. It is expected that the reduced rates should be made applicable for the whole of the Financial Year 2021-22 to address the liquidity crunch in the market.
o Faceless appeal and assessment initiated by the government appears to be a step to ease compliance. The same needs to be encouraged. Besides, the number of cases being selected for limited scrutiny/detailed scrutiny needs to be very minimal. The questionnaire from the tax department is required to be scrutinised to ensure that it is specific and not voluminous.
o Various expenses were incurred by corporates for meeting the COVID-19 challenges. It is expected that the deduction for such expenditure should be allowed irrespective of whether it is for employees or for public at large.
o Section 80JJAA of the Income Tax Act allows a deduction of 30% on additional employee costs incurred by a taxpayer on new employees. Currently, this benefit is only available with respect to employees with emoluments up to Rs. 25,000 per month. It is expected that this limit should be increased to Rs. 50,000 per month.
o Considering the hardship faced by the industry due to COVID-19, the sunset date for SEZ benefits was extended from March 31, 2020, to June 30, 2020. In view of the various policies of the government viz. AatmaNirbhar Bharat, Make in India and also to improve employment, the aforesaid benefit is expected to be further extended for the units set up after June 30, 2020. This would encourage investment as well as manufacturing facilities in India.
o The Union Budget 2021 is also expected to promote research and development, thereby strengthening the manufacturing sector and incentivising new technologies.
o Vivaad Se Vishwas Scheme, the tax dispute resolution mechanism, will end on January 31, 2021. Considering the fact that the pandemic effect is still there, this should be extended till March 31, 2021, to allow for larger coverage of the scheme.
o One of the issues the taxpayers at large are struggling with today is getting credit for TDS. Getting TDS credit from the tax department is a tedious task with prolonged pendency with the tax department. There are innumerable instances of litigation due to erroneous short grant of TDS credit by the Income Tax Department/Centralised Processing Centre. One of the measures that could be considered is allowing credit for all TDS appearing in Form 26AS of the same year without matching such TDS with income offered towards tax. This may help streamline the process.
o Given the challenging economic circumstances in the aftermath of a pandemic, the common man expects an increase in the basic exemption limit from Rs 2.5 lakh to Rs 5 lakh.
o Given that inflation in medical costs has been quite high and Work From Home (WFH) has led to higher electricity and other utility bills for employees, and many have faced hardship amidst the pandemic, it is expected of the government to provide relief to salaried taxpayers by way of increase in the Standard Deduction limit from current Rs.50,000 per annum to at least Rs.75,000.
o Enhancing the deduction under section 80C from the current Rs 1.5 lakh per annum to Rs 3 lakh will provide relief to a wider section of the population and boost savings and investments in the country. Also, in order to encourage the spending on tuition fees of schools, colleges, and educational institutions providing quality education, it would be worthwhile to increase the deduction limit under section 80C.
o An increase in the limit of NPS investment including that for the employees of private sector is expected from Rs 50,000 to Rs 1,00,000.
o Annuity or pension received from NPS or any other pension scheme is currently fully taxable. Although the commuted amount is tax-exempt, one needs to pay tax on annuity received on a monthly or yearly basis. Considering the current challenges and also reduced interest rates, the government should consider providing exemption in respect of annuity received up to a limit.
(Ashesh Safi is Partner and, Afroz Galeria is Manager with Deloitte Haskins and Sells LLP.)