The COVID-19 pandemic has impacted lives across the world, changing the way people save and spend their income. Amongst the salaried middle class, many people have lost their jobs and taken cut in their salaries as the pandemic ravaged economies around the world. With Finance Minister Nirmala Sitharaman set to present the Union Budget 2021-22 on February 1, all eyes will be on her as to what relief she can provide to the salaried middle class.
The finance minister has an unenvious task of balancing government's revenues, which have been hit by the pandemic, and boosting consumption to build on the green shoots of recovery seen in the economy.
There have been demands from various quarters for change in tax slabs to allow more money in the hands of salaried middle class, especially those earning below Rs 10 lakh, so that they can spend more, which in turn can provide a boost to the economy. While the government is believed to be considering this proposal, it remains to be seen if the finance minister can find enough room to accommodate this.
There have also been calls to increase the tax exemption limit under Section 80C from Rs 1.5 lakh, and experts believe the government can deliver on this.
Under Section 80C, one can claim tax exemption up to Rs 1.5 lakh on investments in life insurance premium, public provident fund, employees provident fund, equity-linked saving schemes, home loan principal amount, stamp duty and registration charges for property purchase, Sukanya Samriddhi Yojana, National Saving Certificate, senior citizen savings scheme, ULIPs, tax saving FD for 5 years, infrastructure bonds.
While industry body FICCI has urged to increase the tax emption limit under Section 80C to Rs 3 lakh, the Institute of Chartered Accountants of India (ICAI) has asked to increase it to Rs 2.5 lakh.
The pandemic has also driven home the importance of health insurance and preventive medical check-ups. The government is likely to announce measures to increase the coverage of health insurance and encourage people to go for preventive check-ups. Currently, tax exemption up to Rs 25,000 (higher if paying for parents) is available under Section 80D for premium payments for health insurance and medical check-ups. The government is likely to hike this limit.
The real estate sector is also looking at the government for tax sops to boost demand and provide an impetus to the economic recovery. The government may consider additional measures for first-time homebuyers, including interest rebate for home loans, to benefit affordable home segment.
Realtors' body CREDAI has sought to remove principal repayment of housing loan from Section 80C and called for a separate exemption for the same. While it is unlikely that the government can deliver on this demand, an increase in exemption under Section 80C will provide some relief to homebuyers.