The pandemic is over, or so we thought. But it seems with the reemergence of the virus in neighbouring China another Covid wave here in India cannot be ruled out. The return of Covid would definitely have complicated the matter for Narendra Modi government, which is about to present the Union Budget on February 1.
Covid-induced job cuts and income losses ruined household budgets for two straight years in 2020 and 2021. The high inflation since then is further straining the common man’s budget. Higher fuel and service costs are further eroding their purchasing power.
Needless to say, there is a case for some relief to households. Here are some areas in which this is possible.
Basic exemption limit
The Modi government did not bite this bullet for the last seven years, despite a general election and a once-in-a-century pandemic. It was last revised in 2014-15. Needless to say, increasing this limit will provide relief as well as reduce the burden of income tax return filings on the system.
Income Tax Slabs
In India, the highest income tax rate is 30%, which applies to income as low as Rs 10 lakh (old regime) and Rs 15 lakh (new regime). After including the cess and surcharge, it can reach 42.77 per cent for income exceeding Rs 5 crore. This is significantly higher than in other countries – for instance, the highest tax rate is 17 per cent in Hong Kong, 22 per cent in Singapore, and 30 per cent in Malaysia. Many argue that the government should increase the threshold limit for the highest tax rate to Rs 20 lakh, while the highest tax rate of about 42 per cent can be reduced to about 35 per cent.
New tax regime
The Union Budget 2020 introduced the optional ‘exemptions-free tax regime’. With the new regime, the government tried to simplify the tax filing process by doing away with almost 70 types of deductions and exemptions, including deductions for housing rent allowance, leave travel allowance, housing loan interest, and the Standard Deduction, among others.
Reportedly, few have migrated to the new regime. Hence, experts have been asking the government to revise the new regime to make it more attractive.
Financial savings
The popular Section 80C limit has also not been revised for many years. Despite non-savings items such as tuition fees and housing loan principal repayments, Section 80 C provides a deduction of only Rs 1.5 lakh. With the savings rate at a 19 year low of 26.2 percent of gross domestic product in the first half of 2022–2023, there is a case for an increase in the limit of Section 80C.
Interest Rebate on Home Loans
With the hardening of mortgage rates, the real estate industry is asking the government to hike the current interest rebate on home loans from Rs 1.5 lakh. Interest rates on home loans have gone up by around 2 per cent in last seven months, pushing EMIs (Equated Monthly Instalments) through the roof and putting enormous pressure on household budgets.
Furthermore, the rebate has not been revised in many years, despite the fact that average house prices have increased by a factor of multiple over the years.
Standard Deduction
The government reinstated the standard deduction, which incorporated the transportation allowance and medical reimbursement. The government initially gave a deduction of Rs 40,000 under this in FY19, which was subsequently hiked to Rs 50,000 a year later.
Considering high fuel prices in the last two years and higher cost medicines, apart from increased expenses due to working from home, Finance Minister Nirmala Sitharaman can also increase the standard deduction limit to give more relief to the common man.
Deductions on health insurance
Under Section 80D of the Income Tax Act, a rebate of Rs 25,000 is given to taxpayers for purchasing health insurance. However, premiums have shot up with the introduction of Covid GST on insurance. A cut in the tax along with an increase in the rebate under Section 80D can further increase the penetration of health insurance.
