The government needs more revenue to meet the cost of various relief measures to revive the economy hit by the COVID-19 pandemic, drive growth and invest in essential infrastructure. However, many taxpayers have also been adversely impacted by the pandemic due to loss of jobs, shutdown of businesses, reduction in salary, increased medical costs etc. Given this, it becomes necessary for the government to look at ways to increase its revenue without further adversely impacting the common taxpayer.
In order to increase its tax collection from individuals, the government may consider introduction of higher rates of income-tax or additional tax for owners of high-end properties or high valued assets. The tax rate applicable at present on Long Term Capital Gains(LTCG) arising from sale of property is 20 percent. Such LTCG may be subject to tax at higher rates or at normal slab rates for individuals who own more than a specified number of properties. The government may also consider imposition of a COVID cess on taxpayers who are in the 30 percent slab rate.
Tax incentives for individuals to push consumption and growth
Changes that provide for additional deductions for individuals while stimulating consumption and growth in various sectors may also be considered.
Section 80EEA of the Income-tax Act provides for deduction up to Rs. 1,50,000 in relation to interest on loan taken to purchase residential house property subject to specified conditions being met. The conditions include the sanction of loan between 1 April 2019 and 31 March 2020, stamp duty value of the house property not exceeding Rs. 45 lakh and the individual not owning any residential property on the date of sanctioning of the loan. To incentivise purchase of residential house property, relaxation may be provided in the conditions to be satisfied to claim this deduction, for example, extend the time limit in relation to sanctioning of loan or extend the deduction to two properties.
Similarly, Section 80EEB provides for deduction up to Rs. 1,50,000 in relation to interest on loan taken for purchase of electric vehicles subject to conditions. The government may consider providing such a deduction even where no loan is taken. This would incentivise purchase of electric vehicles and will also be a step towards encouraging sustainable living practices.
Section 80D provides for deduction in relation to health insurance premium paid for self and family subject to limits specified. In case of senior citizens, such deduction is also available for medical expenditure incurred, where there is no health insurance. The deduction available for medical expenditure, where there is no health insurance may be extended to all.
Extension of LTC cash voucher scheme
The government through press releases has introduced the Leave Travel Concession (LTC) Cash Voucher Scheme, first for the Central government employees, which was later extended to the non-Central government employees as well. Legislative amendments to adopt the scheme are expected to be introduced in the budget. The government could extend this Scheme beyond 31 March 2021.
Extension of relief for stranded NRIs
Further, the government may also introduce legislative amendments to adopt or extend some of the measures already introduced to provide relief during the pandemic.
The government had announced relaxation in relation to stay in India for determining residential status for financial year 2019-20 for individuals based in India who had come on a visit to India but had to prolong their stay in India due to travel restrictions owing to the pandemic. Considering that the travel restrictions and suspension of international flights extended into financial year 2020-21, the government could announce similar relaxation for financial year 2020-21 as well.
In every budget, the government is faced with the task of introducing measures to meet its revenue needs and at the same time cater to the taxpayers’ expectations for relief from taxes. Given the unprecedented times, the need to balance these requirements is much more than ever in this budget.
(Shalini Jain, Partner – People Advisory Services, EY India. Meena Narayanan, Senior Tax Professional with EY India has also contributed to this article. The views expressed are personal.)