Reduction in tax rates, relief for senior citizens top the common man’s Budget 2022 wish list

For the past two years that have now come to be known for the surprises and lessons they unleashed, the common man would undoubtedly look up to Finance Minister Nirmala Sitharaman for incentives, subsidies, tax cuts and other benefits to grapple with the woes of the Covid-19 pandemic. Further, the gap in affordability strengthens the expectations of a common man from the government.

Here are some of the key expectations of the common man from the Union Budget 2022.

Reduce Tax Rates for Individuals

India is broadly seen as a country with high individual tax rates. With a 37% surcharge over a 30% tax rate, the maximum marginal rate for individuals is as high as 42.74%. With the introduction of the simplified tax regime, the expectation was that there would be an overall decrease in tax rates. However, the changes in tax rates under the simplified tax regime are perceived to be minimal.

Therefore, the common man is looking for a reductin in the maximum marginal tax rate for individuals in the upcoming budget.

“From a corporate tax perspective, while the deduction and exemptions have been minimized, the government has been able to stabilize the tax rates to 25% over a period of time. (with 12% of surcharge the rate comes to 29.12%). There is an expectation for similar tax rates being applicable to individual tax payers as well. The Budget 2022 is expected to provide a clear message on where the individual tax rates are heading, and steps that would be adopted to reduce the maximum marginal rate to more reasonable levels,” says Saraswathi Kasturirangan, Partner, Deloitte India.

Deduction for home office allowance

With the pandemic spiking again, and companies already looking at hybrid models of working, the WFH (Work From Home) is expected to be more or less a permanent affair. While there is a standard deduction of Rs 50000 available, this was in existence prior to the pandemic, and exemptions for medical reimbursement, conveyance etc were done away when this was introduced.

“The expectation is that a deduction for home office allowance will be provided for employees who are working from home. This is to off-set the additional costs and inconvenience that employees who are working from home incur and the expectation is that this would be a deduction provided over and above the standard deduction,” says Kasturirangan.

Increase in home loan deduction limit

Currently there is limit on deduction for interest payment for self-occupied properties to 2 lakh. Further, if construction is not completed within 5 years, then the limit is restricted to 30,000 only. There is, thus, need for the Rs 2 lakh tax rebate on housing loan interest rates u/s 24 of the I-T Act to be hiked to at least Rs 5 lakh.

“Under Section 24(b), interest on borrowed capital for the purpose of acquiring house for rental purposes is allowed in full. However, in case of self-occupied houses, this is restricted to Rs 2 lakh. This limit is too less and should be increased to at least Rs 5 lakh to promote the ownership concept. The completion of construction is not in the hands of the assessee and hence he shall not be subjected to uncertainty just because the developer /builder delays the completion,” says Rajan Bandelkar, National President, NAREDCO.

Moreover, a separate provision allowing deduction of principal repayment (currently forming part of 80C deduction) up to Rs 2 lakh would provide homebuyers higher tax benefits towards the latter stage of the loan tenure. This could be a timely relief in the current scenario where several homebuyers are grappling with honoring financial commitments.

Separate tax break for children’s education

Saving for children’s higher education is an important financial goal for individuals and a portion of income is earmarked for such savings. However, currently, there is no express deduction/exemption for such savings except the Sukanya Samriddhi Yojana which is specifically for a girl child and the tax benefits therefrom are not substantial as the deduction is clubbed within the Section 80C limit of Rs 1.5 lakh annually.

“A separate deduction for the education savings would be a welcome move in this regard. To ensure that there is no misuse of such funds, the account proceeds (including the interest accrued thereon) may be directly remitted to the educational institutes. Alternatively, if the deduction for education expenses can be carved out of Section 80C deduction and a separate deduction of Rs 150,000 p.a. at the minimum may be considered,” says Parizad Sirwalla, Partner and Head, Global Mobility Services-Tax, KPMG in India.

Relief for Senior Citizens

For income tax purpose, a senior citizen is an individual resident between the age group of 60 and 80 years. A super senior citizen is an individual resident who is above 80 years. Most senior citizens depend on fixed income investments to meet their regular income needs and bank fixed deposits are amongst one of the preferred options.

Currently, the interest earned on saving and fixed deposit with banks or post office or co-operative banks for an amount up to Rs 50,000 by a senior citizen is eligible for deduction under Section 80TTB under the Act. The government could consider enhancing some of the tax breaks available to senior citizens, including increasing the exemption limit on such interest income to at least Rs 1 lakh p.a.

Separate deduction for COVID-19 treatment

Currently, a few deductions have been prescribed under the I-T Act, 1961 for medical treatment for self or dependent suffering from disability/severe disability, medical treatment of prescribed diseases and ailments. However, there is no specific deduction under the Act which covers treatment cost for COVID-19 patients who are not covered under any health insurance.

Donation made to PM CARES fund designed specifically for providing COVID-19 relief is eligible for 100% deduction u/s 80G of the I-T Act, but no corresponding deduction has been notified for expenses incurred on treatment of disease itself.

Given the substantial cost involved in COVID-19 treatment in Govt or private hospitals, a separate deduction capped upto Rs 1,00,000 or actual treatment cost incurred by the taxpayer for self or family, whichever is lower, may be considered to be introduced to provide much-needed relief to the taxpayers specially when such costs are not covered under a health insurance policy/ reimbursed by the employer.