New Delhi: The stage is set. And all eyes will be on the Union Budget that will be presented by Finance Minister Nirmala Sitharaman on February 1. The Budget comes at the fag end of a health crisis born out of the COVID-19 pandemic and at a time when the economy of the country is already at a critical juncture. According to the first advance estimates, India’s economy is projected to contract by 7.7 percent in 2020-21. The economy has slipped into a technical recession after posting two successive quarters of decline. But the contraction slowed down significantly in the second quarter of FY21 led by pent-up demand and a festive push. The Budget should be a key driver for the growth of the economy.
The COVID-19 pandemic and its spread have left a trail of destruction across the economic landscape. The lockdowns and the prolonged restrictions have forced many a company to shut or curtail operations, lowering the government’s tax collections.
However, despite the mayhem, 2021 is being looked upon as the year of revival, a year of hope, good health and buoyancy in the economy. The stock market recently touched the miraculous 50,000 mark. While various economic packages and relief measures have been announced by the government, the common man is expecting more reprieve from the Budget 2021. And here’s what can make them smile:
- The basic income tax exemption limit needs to be increased from Rs 2.5 lakh to Rs 5 lakh. The immediate expectation is to reduce the tax burden of taxpayers. The Covid-19 pandemic has affected everyone in some way or the other. Increasing the basic exemption limit will provide tax respite to individuals, increase liquidity, and give a boost to the economy by putting more money in their hands. Also the deduction limit under Section 80-C of Chapter VI-A for specified tax-saving investments, which is currently Rs 1.5 lakh, should be increased to at least Rs 2.5 lakh. Relief under Section 80 D should also be increased from Rs 25,000 to Rs 50,000 and from Rs 50,000 to Rs 75,000 for senior citizens, keeping the pandemic in view.
- Due to the pandemic, the government had notified exemption of certain days for determining residency for FY 2019-20 for individuals who were stranded in India on account of the lockdown and who could not travel outside India. For FY 2020-21 as well, the government should issue the necessary clarification providing relief for stranded individuals on account of the pandemic.
- Currently, long-term capital gains from sale of listed equity shares and equity mutual funds is tax-exempt up to Rs 1 lakh. Further, the gain above Rs 1 lakh is subjected to tax at 10 percent (plus applicable surcharge and cess) without benefit of indexation. The government should look at increasing the exemption limit from Rs 1 lakh to Rs 2 lakh for retail investors. The government should also think on the lines of reducing the tax rate in order to boost the market.
The government should incorporate these changes in the Budget to give some relief to the common so as to strengthen their situation post-pandemic.
The author is Managing Partner and CEO of an MNC advisory firm.
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