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Budget 2021: Will middle class get bigger take-home salary?

Budget 2021: With increase in standard deduction levels, people will have more money in their hands to meet medical bills and high fuel costs. Certain reports suggest that the standard deduction limit could be enhanced to Rs 75,000 to Rs 1 lakh

twitter-logoBusinessToday.In | February 1, 2021 | Updated 07:27 IST
Budget 2021: Will middle class get bigger take-home salary?
Budget 2021

The coronavirus pandemic led to financial problems for many. As disruptions upturned sector-after-sector, people lost jobs and uncertainty deepened. Health impact of the COVID-19 pandemic introduced unexpected expenses to personal budgets. Middle class would be expecting sops in the Union Budget 2020-21 to help overcome these problems. If anything, middle class taxpayers would expect certain tax reliefs so that they have more money in their hands out of their paychecks.

In the Atmanirbhar Bharat package announced last year to fight the economic impact of COVID-19 pandemic, the basic tax exemption limit was raised from Rs 2.5 lakh per annum to Rs 5 lakh per annum to increase the amount of money in people's hands. This decision could feature among the Budget announcements this year.

In the interim Budget of 2019, the Centre had proposed to increase the basic income tax exemption limit to Rs 5 lakh per annum. The exemption limit was not raised though. Last year, the government had kept the exemption limit unchanged but allowed taxpayers to choose between the existing tax regime and an optional tax regime with lower tax rates but without any exemptions or deductions.

There is another demand to increase the level of standard deduction from the current Rs 50,000. This would help taxpayers as medical reimbursement and travel allowance exemption were done away with from FY 2018-19 in lieu of the standard deduction. Standard deduction ensures that taxpayers have some part of the salary that is not subject to income tax.

With increase in standard deduction levels, people will have more money in their hands to meet medical bills and high fuel costs. Certain reports suggest that the standard deduction limit could be enhanced to Rs 75,000 to Rs 1 lakh, depending on the assessment by Finance Ministry.

In the real estate sector, there are demands to increase the benefits under Section 80C and Section 24B of the Income-tax Act for homebuyers. While this will allow more disposable income in the hands of taxpayers, it will also bring back much-needed demand in the residential real estate sector.

The salaried class will also expect tax relief against allowances handed out by employers to set-up a workspace in homes. As work from home became the norm, some companies paid their employees to buy required furniture and equipment. But in the hands of employees, this amount is taxable. The taxpayers want some relief on this front in the Union Budget.

Any and every move to put more disposable income would be welcome this year, considering the difficulties that have manifested due to the coronavirus pandemic, as well as the new wage code. Some estimates suggest that take home part of the salaries may reduce from April this year when the Code on Wages, 2019 comes into effect.

The new salary rules under the Code mandate that the allowance component cannot exceed 50 per cent of the total salary, which means basic salary has to be 50 per cent. This means companies would have to raise the basic salary component, which will increase gratuity payments and employees' contribution to provident fund. While this will help their retirement corpus to grow, it will also reduce their take-home salary.

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