Union Budget 2021: What's in the wish list of a common man

The wish of the common man (read tax payer) is that the govt will be very kind at a time when millions of lives and livelihoods have been lost due to pandemic

The Union Budget, which will be presented on February 1, 2021 by Finance Minister Nirmala Sitharaman, is going to be a historic budget in as much as it is going to be a paperless budget. It will be the first time since independence that the budget papers will not be printed due to the Covid-19 protocol. The finance ministry had sought suggestions from public in November 2020 through an online portal to make the budget more participatory and democratic.

The wish of the common man (read tax payer) is that the government will be very kind at a time when millions of lives and livelihoods have been lost due to the pandemic and so expects relief in the form of higher deductions and exemptions. The government, on the other hand, will try to squeeze out maximum revenues from a tax base consisting of three crore honest taxpayers! It is an irony that a miniscule percentage of the population pays taxes in a country having a population of 1.3 billion.

There are reports that the government is mulling levying of a covid cess on incomes of high taxpayers and also on petroleum and diesel products. The government feels that levying a cess is better than raising taxes as the same need not be shared with
states. What are the expectations of the taxpayers?

The following is the wish list of the common man:

Income Tax Exemption Limit

Year after year, this continues to be on the top of the wish list of the common man. Just to recall, the FM had introduced the new personal Income tax regime during Budget 2020 and had given the option to individual taxpayers to either stay with the old regime or switch over to the new regime by foregoing all deductions and exemptions. The tax exemption limit under both is Rs 2,50,000 and the taxpayer hopes that this is increased to Rs 5 lakh. While an increase in exemption limit means revenue loss to the government, this being the pandemic year, the taxpayer feels this may not be a tall order.

Reduction of interest on delayed payment of Advance tax

Taxpayers having a total tax liability of Rs 10,000 or more in a financial year have to pay advance tax, which is the practice of “pay as you earn" instead of paying taxes in one go at the end of the financial year. If the advance tax is not paid every quarter by 15th of June, September, December and March of the financial year then the taxpayer has to pay a penalty of 12% per annum on any default in payment of advance tax under Section 234B of IT Act.

The expectation of the taxpayer is that the penal interest is either waived or at least reduced by half to 6%.

Deduction under Section 80C

Individuals can claim a maximum deduction of Rs 1.50 lakh under section 80C by making investments in schemes like PPF, ELSS, Sukanya Samriddhi Yojana, NPS, five-year tax saver deposit, etc. The deduction also includes payment of life insurance premium, repayment of principal amount on home loans and tuition fees. The ceiling of Rs 1.50 lakh was last revised in FY 2014-15 and an upward revision is long overdue. This is a long pending demand of the common man and he hopes that the limit is
increased to at least Rs 2.50 lakh.

Deduction under Section 80CCD (1B)

Individuals can claim deduction up to Rs 50,000 on the amount contributed to the National Pension Scheme (NPS) under Section 80CCD (1B). The deduction under Section 80CCD(1B) is over and above the deduction availed under Section 80C. The expectation is that the amount is increased to Rs 1 lakh to encourage the common man to build a retirement corpus.

Clarity on Bitcoins

The cryptocurrency had a remarkable year having crossed $34000 during the last week of 2020. Bitcoins have caught the fancy of retail as well as institutional investors as a store of value and source of investment. What investors are asking is the clarity on capital gains in Bitcoins. There is also no word from the government to make bitcoins legal tender.

The individual taxpayers hope that the government clears the confusion on cryptocurrencies in the budget.

Other Concerns and expectations

There are others on the wish list too like reducing tax on long-term capital gains in equity from 10% to 5% as millions of first-time retail investors have flocked to stock markets. Alternatively, the exemption on long-term gains be increased to Rs 2 lakh from the existing Rs 1 lakh.

Let us keep our fingers crossed and hope for a big bang budget.

(The writer is a CFA and a former banker and is currently with Manipal Academy of Banking, Bangalore)