(AP Photo/Manish Swarup)
Budget 2021 would be unique in the sense that it will be placed in the aftermath of the global disruption caused by COVID-19. Finance Minister Nirmala Sitharaman was recently quoted saying, “100 years of India wouldn't have seen a Budget being made post-pandemic like this”.
The government’s prompt actions, and fiscal stimulus provided in response to COVID-19, are a testimony to the fact that it is keen to neutralise the impact of the disruption in the economy and also provide liquidity to the taxpayers. One of the means to neutralise the impact of disruption is to boost consumption in the economy by creating demand and increasing disposable surplus income in the hands of individuals and businesses. This could be achieved by reducing personal taxes and incentivising consumption.
The government has taken several measures in the last few months to provide relief to individual taxpayers, such as reduction of TDS rates, reduction of interest rates on delayed payment of taxes, issuance of pending refunds, introduction of the Leave Travel Cash (LTC) voucher scheme, etc. Some of these measures are quite like the reliefs provided by many countries during the pandemic.
As we all wait for a ‘Budget like never before’, let us look at some of the tax incentives that may provide relief to individuals, address the problem of liquidity and increase consumption in the economy, if introduced:
Clarity on Leave Travel Concession Cash (LTC) voucher scheme: The government recently introduced the LTC scheme which is an innovative and effective way to boost consumption and provide tax relief to salaried individuals, who could not travel due to the pandemic and avail of their Leave Travel Allowance (LTA) exemption. The scheme provides tax exemption for expenses incurred on purchase of goods and services (subject to conditions). Adequate clarity through amendments should be brought in the law. Also, this scheme could be extended to the financial year 2021-22.
Deduction for medical expenditure incurred on health of self/ family members: There is no deduction currently available (except for senior citizens up to an amount of Rs 50,000) for hospitalisation/medical expenses for someone who is not covered under a medical insurance policy. However, there would be many taxpayers who incur medical expenses on their own as they may not have a medical insurance policy. The budget should introduce a specific deduction (up to a specified limit) for medical expenses for all those who do not have medical insurance coverage.
Deduction for investments in Infrastructure bonds: Long term investments in infrastructure bonds provide liquidity to the government and financial institutions which is routed to various infrastructure projects. Also, these projects have the potential to generate employment and spurt overall growth. The government may consider introducing such infrastructure bonds and allow deduction from taxable income for purchase of such bonds (up to a specified limit).
Tax benefits on purchase of affordable housing/electric vehicle: Currently, for first-time home buyers, an additional deduction of up to Rs 150,000 is allowed, in respect of interest paid on loan to purchase a residential house property, if certain conditions are met. This is in addition to the deduction of Rs 200,000 which is available for interest paid on housing loan. Also, first-time buyers of electric vehicles (EV) can benefit from a deduction of up to Rs 150,000 for interest paid on car loans, subject to certain conditions.
The FM may consider modification of the exiting provisions to encourage purchase of such residential house property or an EV, even where loan is not availed. This would incentivise consumption-linked expenditure.
Reduced rate of tax deducted at source (TDS) for FY2021-22: The government has reduced the rate of TDS by 25 percent of the specified rates for the period May 14 2020 to March 31 2021, for specified payments made to resident taxpayers. This was done in order to provide more liquidity in the hands of taxpayers. The reduced TDS rates could be continued for FY2021-22.
While Budget 2021 will be presented in uncertain times, it provides an excellent opportunity to the government to leave a mark on the lives of taxpayers (by providing them with more disposable income amidst a pandemic) and achieve the objective of boosting consumption to accelerate revival of the economy.
(Ankur Agrawal, Senior Tax Professional, EY India, contributed to the article.)"consumption" - Google News
January 18, 2021 at 04:43PM
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