The one area in the Budget which any individual closely focuses on is how much tax savings one can make in the forthcoming year based on the announcements pertaining to tax exemptions and deductions. During 2020, the entire economy was roiled by the COVID-19 pandemic and the common was hit the hardest on account of the same. One was expecting some taxation relief measures to be announced in this Budget with an objective to save tax and increase one’s disposable income. However, this Budget has been more in terms of easing tax compliance for individuals (including senior citizens and non-resident Indians) and businesses rather than providing taxation based relief measures.
Firstly and the most important thing which all individuals focus on are the tax slabs and deductions – there has been no change in the tax slabs and neither have there been any enhancement in popular deductions. The government has continued to allow the taxpayer to choose between the old tax and the new tax regime (which was introduced in last year’s Budget).
Secondly, the senior citizens (75 years and above) earning only pension and interest income are exempted from filing their income tax returns and the bank will deduct the necessary tax on their income. This is a major relief to the senior citizens and will considerably reduce the hassle of filing income tax returns.
Thirdly, additional deduction of Rs 1.5 lakh has been extended by 1 year till March 31, 2022 for loans taken for affordable housing and this is a good move which will provide support to the real estate industry. There has also been an extension in case of tax holidays for Start-ups by the same period.
Fourthly, there have been a number of easing tax compliance measures also announced by the government in terms of constitution of dispute resolution committee for small taxpayers and making income tax appellate tribunal electronic. There has been a constant thrust by the government to make income tax filing and dispute resolutions mechanism simpler for the taxpayers and measures announced today are steps towards that same direction. Lastly, from the small businesses’ perspective and to relieve them from the tax audit procedure, the turnover limit has been enhanced from Rs 5 crore to Rs 10 crore, subject to the business undertaking 95% of the transactions digitally.
The Government has been constrained on the revenue side in FY21 owing to the pandemic induced lockdowns and limited economic activities. Subsequent to the normalisation of economic activities, the focus of the government has been on recouping the loss in revenue during FY21. Therefore, the Government has restrained from announcing tax relief measures (for both individuals and corporates) in terms of exemptions and deductions. This means that one can be happy that there are no fresh tax levies as was broadly expected in terms of a COVID-cess. But one will have to wait for another year for any tax breaks and deductions.
The author of the article is Associate Economist with CARE Ratings Limited