With the budget less than two weeks away, citizens are eagerly looking forward to Finance Minister Nirmala Sitharaman announcing measures that will help put more money in their hands in these testing times.
Although not expected to be as devastating as the second wave in March last year, the onset of the third wave of the pandemic continues to keep several people edgy.
During the second wave, for instance, one crore jobs were lost, says data compiled by the economic think tank Centre for Monitoring Indian Economy (CMIE).
In such a scenario, it is imperative for the government to support people through confidence-building measures, feel experts.
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"To spur demand, there is a need to increase the purchasing power, by putting in more money in the hands of the people, especially at the middle and lower levels. The forthcoming budget is expected to focus more on the demand side with measures to help increase the take-home cash," says Neeru Ahuja, Partner, Deloitte India,
According to Ahuja, this can be done by enhancing the deduction limit in respect of certain payments under section 80C of the Income Tax Act, 1961, from Rs 1.5 to Rs 2.5 lakh and increasing the deduction limit under section 80D towards medical insurance premium from Rs 25,000 to Rs 50,000 for non-senior citizens. Introducing a special deduction of Rs 25,000 for increased expenditure on illnesses due to the pandemic is also recommended.
"Hiking the limits for standard deduction would be one of the best ways to put more money into people's hands," declares managing director at the New Delhi-based financial and digital solutions provider Alankit Group, Ankit Agarwal, in agreement. "And then probably increasing the exemption limit in health insurance. That might help in providing partial relief to taxpayers," Agarwal adds.
"A good way of doing that is by revising the limits available under Section 80C that hasn't happened in a while," he adds.
Section 80C is the most popular deduction among taxpayers for reducing their tax liability through investments in tax saving instruments or incurring eligible expenses on their consolidated income. It was last revised to Rs 1.5 lakh from Rs 1 lakh in 2014.
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Consider new measures to expand relief
The experts also recommend relief to be provided on house rent allowance (HRA) under Section 11BAC.
"New tax regime for individual and Hindu Undivided Families (HUF) can be reconsidered to ensure that people get the benefit of lower tax rate along with increased cash in hand," suggests Ahuja.
Similarly, at a time when the government is keen to give a massive boost to the infrastructure sector, people can be encouraged to participate there through investments in relevant instruments.
"Deduction can be extended under section 80CCF through the reintroduction of investments in long-term infrastructure bonds, with an increased limit of Rs 50,000 from the existing limit of Rs 20,000. This will encourage more investments in government-approved bonds and thereby, have a two-fold impact," maintains Ahuja.
Another recommendation is related to reducing provident fund contribution percentage, which is presently 24 per cent to 12 per cent each for the employer and employee - of the cost to company (CTC), which considerably reduces the take-home salary.
Experts feel these efforts must form part of the larger goal to rationalise India's taxation structure which is often described as regressive.
"As individuals, we end up paying 30 per cent tax on our income. But there's a lot more that we pay by way of indirect taxes, which takes the outgo to 50-60 per cent," claims Ankit.
Any relief in terms of direct taxes at this juncture would be widely hailed by the country's 60 crore-strong middle class.
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