Will the Government Change the Income Tax Slab in Union Budget 2021?

As the Union Budget 2021 is round the corner in India, all are geared up to watch what it is bringing on the table after almost 10 months of sufferings due to Coronavirus or Covid-19 pandemic. Especially the common middle-class taxpayers of the nation are expecting reliefs after a long period of hardship.

Will there be any announcement to provide them some relief is yet to be seen on 1^st February. However, people are expecting some tax reliefs through higher deduction limit under Section 80C, of the Income Tax Act, deduction for their work from home expenses, and other such reliefs. People are also expecting a covid cess for HNIs.

According to Udit Garg, Founding Member, Goal Teller, last year’s financial health crisis has already pushed the government to initiate some measures to sustain the Indian economy, in the form of policies & packages. Now, the government may focus on, imposing covid-cess on HNIs/companies to bridge their estimated budget deficits in the upcoming budget.

However, he also feels that instead of introducing a covid cess for HNIs who are already suffering due to amended surcharge rates, the government may increase the existing applicable cess rates from 4% to 5% for all the taxpayers. This may enable an overall increase of tax inflow by 6000 to 7000 crores. Although, this increase in taxes can indirectly mean an increase in inflation as taxpayers will have to earn an additional 1%.

What to expect?

Work from Home Deduction (WFH)

As per financial experts as a result of adopting norms, Indian taxpayers will have to bear additional expenses. Currently, there is no clarity on claiming these expenses as business expenses and many expenses (such as enhanced electricity bills, internet charges, and so on) are also not reimbursed by employers.

Many countries have recognised this and have introduced guidelines for the taxpayers for claiming such expenses. For instance, Australia has introduced the following guidelines for taxpayers to claim a WFH deduction:

Expenses that can be claimed by taxpayers:

• Electricity expenses related to heating/cooling/lighting the area where you are working and running items used for work.
• Cleaning costs incurred for a dedicated work area.
• Expenses incurred on phone & internet.
• Printer paper, ink & other computer consumables, and stationery.
• House office equipment, such as computers, phones, printers, furniture, & furnishings. Taxpayers can claim either the entire cost of items up to $300 or decline in value (depreciation) for items over $300.

Expenses that cannot be claimed by taxpayers:

• Tea, coffee, milk, & other general household items that are provided by most employers at work.
• Costs related to children & their education, such as setting them up for online learning, teaching them at home, buying equipment for them such as iPads & desks, etc.
• Items that are reimbursed for or paid directly by the employer or the decline in their value (such as a laptop, phone, etc.).
• Time spent not working, including the time spent on homeschooling your children or lunch break, etc.
• Occupancy related expenses, such as mortgage interest, rent, water, and rates.

Many other countries have announced similar measures. The similar measures should be announced by the Indian Government to compensate taxpayers who have incurred such additional costs by working from home.

Change in tax slab

For reviving the economy damaged by COVID-19 and boosting growth, the Finance Minister of India, Nirmala Sitharaman has promised a “never before” like Union Budget this year. Sitharaman has assured help for those areas which are going to be the centre for newer demands and newer engines of growth.

The middle-class population of the country is also expecting the government to provide some tax benefits and reliefs for the badly hit sector during COVID-19 pandemic. Middle-class expects the government to extend an increased deduction for home loan interests from the taxable income. A reduction in EMI or rent is also being expected by people.

Higher deduction limit under Sections 80C and 80D, by increasing the mediclaim and medical health insurance limits will also strengthen people towards an insured medical treatment in the world that is still not corona free.

Also Read: Expectations of Tax Payers from Budget 2021

To know what the Union Budget 2021 will be bringing for you, keep following this space.