In a little over a month, the Union Budget 2021 will be announced by Nirmala Sitharaman. It has been a tough year and the FM has hinted that it would be a “Never Before” kind of budget. While no details are available, one can assume that the budget will address segments like farmers, small scale units, women and of course the common man.
It is not clear how the government can help; considering its budgetary constraints. However, a healing touch for the common man is almost inevitable in this budget. That is especially after the stress caused by COVID-19 in terms of economic uncertainty, weak growth, falling incomes and job losses. Here are some key expectations of the common man from Union Budget 2021.
Make healthcare cheaper and health covers attractive
That challenge has become steeper after the COVID pandemic. There is already a trend of health consciousness in the form of organic foods, preventive treatments, insurance health etc. There are two things the budget could consider. Firstly, the current deduction Rs5,000 for health check-up is too low and must be enhanced meaningfully. Secondly, exemptions of health insurance premiums at Rs25,000 for families and Rs50,000 for senior citizens is not commensurate with rising healthcare costs. That can be enhanced for a limited period.
Get pragmatic about residential status
In India, taxable income is contingent on whether you are a resident, RNOR or NRI. Residential status is determined by the number of days of stay in India. That is OK when there were no restrictions on international travel; but not in a year when only bubble routes were permitted. There are two choices. One way is to take a case-by-case approach and approve differential residential status. The more practical approach is to carry forward the residential status of the previous fiscal to the current year, for simplicity.
Scrap charges for pre-closure of deposits and all bank charges
During 2020, people have been forced to either prematurely withdraw their PF or break their bank FDs. In such cases, banks continue to levy charges. In addition, banks are fleecing customers with hidden debits like ATM charges, minimum balance charges, IMPS charges, cash charges etc. In a difficult year, this is almost like adding insult to injury. The budget would do better to instruct banks to offer a one-time write-off against all such charges.
Enhance and broaden standard deduction as a special case
It is likely that Union Budget 2021 may impose a special COVID surcharge to partially defray the costs of COVID vaccinations, healthcare costs, sops given and distribution of vaccines. However, considering the strain that people are under, it would be better that the standard deduction is enhanced from Rs50,000 to Rs100,000 so that people in the entry level bracket can experience sharply lower taxes.
COVID has created a new workplace model called work-from-home or WFH. This entails higher communication and broadband charges. This can be partially compensated by the higher standard deduction limit above. Secondly, many people have lost their jobs and are working out of their homes. One way is to extent standard deduction to small businessmen and consultants; apart from employees and pensioners.
Scrap the tax on long term capital gains
Year 2020 has been a volatile year but for the patient investors the markets have played positively. However, equity as an asset class entails a double whammy. On the one hand, dividends are taxable in the hands of the investors at the peak applicable rate. But what really hurt small investors are the capital gains on equities and equity funds. Firstly, it pinches over the longer term since most of the value accretion happens through capital gains and you pay 10% of that. Secondly, this tax is flat; without the benefit of indexation. This budget can be used to exempt LTCG on equities or, at least, offer the benefit of indexation on LTCG.
How about a one-time cut in tax rates?
Considering that this has been a generally tough year, the government can offer a special one-time tax rebate of 2%. That means; 10% slab gets charged at 8%, the 20% slab at 18% and the 30% slab at 28%. It may not be substantial but it surely gives a feel-good factor for the common people; who are already hassled by falling incomes and rising uncertainty.
Get real on COVID palliative
COVID raises some very long term question about India’s healthcare system and its policy responses. But these are structural issues. What can the budget do in the short term on the COVID front, apart from increasing outlays? A special rebate to corporates for COVID related expenses or a higher tax rebate for COVID costs can be a good palliative in these market conditions. That would a big expectation from Union Budget 2021.