Many are touting Union Budget, 2021 as a seminal one that will hold the key to several of the problems that India’s economy currently faces. But, a more discerning perspective of the nation’s present economic state suggests that the government is more likely to adopt a balanced approach that marries fiscal discipline with some measures to boost consumption. In fact, one shouldn’t be too surprised if the government tilts in favour of fiscal discipline given that this has been an equally difficult year for the government too.
The ‘aam admi’ expects tax sops on the personal income tax front to increase liquidity. To this end, while there may not be further changes to tax slabs, measures such as increasing threshold of deductions under section 80C, investment in national pension schemes under section 80CCD, and health insurance premium under section 80D could encourage savings and wider insurance protection. With the increasing treatment costs, raising the deduction for preventive health check-ups, tests and treatment from a meagre INR 5000 should also be considered. Additional relief in the form of special deductions for COVID related health expenses would be a welcome step too. Employers and employees expect tax-exempt perquisites to cover additional expenses related to work from home, vaccination of employees and their family, etc.
Further, the reduction of TDS rates by 25% was a good move to increase liquidity in the hands of individuals and small businesses and should be continued for at least another fiscal year.
The Industry, especially MSME’s have borne major brunt of economic slowdown due to nationwide lockdowns with many small businesses finding it difficult to survive. In this regard, allowing losses to be set-off for an additional period beyond 8 years could help in reviving businesses. Indian start-up space has been the harbinger of innovation and has boosted employment, raising the INR 100 crore threshold for claiming tax benefits and easing up on the much debated angel tax provisions could help raise funds from resident investors and boost growth.
While the earlier budgets have seen an overall reduction is sectoral reforms, this Budget could see a comeback of weighted deductions, especially in the pharmaceutical and healthcare sector, which has become increasingly important for R&D and capacity building to fight against the current pandemic and prepare for handling future outbreaks. Tax deductions for capital expenditure incurred towards developing infrastructure and supply chain for storage, dissemination, and application of vaccines and other essential medical products will be welcome. The current deduction for capital expenditure incurred towards building and operating a hospital with at least 100 beds should be allowed to smaller facilities as well, to help build medical infrastructure.
To address the growing rate of unemployment due to loss of jobs during the economic slowdown, the Government could consider increasing the current deductions for hiring new employees under section 80JJA from 30% to 50% along with raising the threshold of total emoluments of such additional employees. Further, special deductions for expenditure incurred towards training and hiring skilled healthcare professionals would be a welcome step.
This article was originally published in Mint on 31 January 2021 Co-written by: Amit Singhania, Partner and Suyash Sinha, Senior Associate. Click here for original article
Contributed by: Amit Singhania, Partner and Suyash Sinha, Senior Associate
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