The pandemic year has been tough on the salaried class. Many people have lost their jobs due to the economic disruption caused by lockdown and many witnessed pay cuts. The work from home for the past nine months is also taking an emotional toll on people.
While relief measures have been taken for the poor, impacted sectors, small and medium scale industries, no concrete steps have been announced for the salaried class, apart from the loan moratorium.
The salaried class expects tax cuts and/or relaxation in slab rates to get relief. However, given the constraints in a pandemic year, the vaccination funding requirement and impact on fiscal deficit, the government's hands are tied.
The salaried class has a lot of expectations from the budget, namely the following:
1. Increase ceiling on housing loan interest
There is currently a cap of Rs 2 lakh on deduction for interest on housing loan. Majority of the unsold flats in Mumbai cost above Rs 1 crore. A flat costing Rs 1 crore, with Rs 80 lakh of loan for a period of 20 years, results in an interest amount of Rs 5 lakh per annum.
There is a need to increase the cap on interest on housing loans, city wise caps could be introduced. The cap should be increased to Rs 5 lakh. This will also provide a much needed boost to the real estate sector which is currently facing a slowdown.
2. Increase ceiling on investments
There is a cap of Rs 1.5 lakh for investments under Sec. 80C. This cap on tax investments discourages further savings. This deduction limit should be doubled to Rs 3 lakh. The government could launch special infrastructure bonds and subscriptions up to Rs 1.5 lakh should be allowed as deduction.
At a time when government’s receipts have fallen below estimates due to lockdowns, it could provide much needed support to budget finances. Expenditure on infrastructure will also lead to creation of jobs and a multiplier effect on the economy.
3. Treat sale of house as sale of equity
Currently, selling a house within 3 years of purchase invites the same taxation rate as one’s current tax slab. If the property is owned for more than 3 years, no taxes are to be paid if and only if the seller reinvests the money in property again. In case of equity, long term capital gains tax for stocks held for more than one year is 10%.
The same rule should apply to a residential property. If this is done, the property market would become a much better traded market with a better price discovery.
4. Increase Standard Deduction
Standard Deduction was reintroduced to bring salaried persons on parity with professionals and corporates. Professionals and corporates can claim all expenses incurred while earning income as a deduction from it. Taxes are computed on this net income.
A salaried taxpayer also incurs expenditure while earning his salary – conveyance, salary of driver (if applicable), food and refreshments, clothing, stationery, etc. Currently standard deduction of up to Rs 50,000 per annum is allowed.
Given the pandemic, loss of jobs, decrease in pay, increase in expenses while working from home, this should be doubled to Rs 1 lakh per annum.
5. Introduce a corona rebate
A flat corona rebate of Rs 50,000 should be allowed to salaried persons for the next financial year. This rebate would be deductible from the total tax payable. This would reduce the tax liability and provide relief to people.
6. Special assistance for people who have lost jobs or suffered pay cuts
The finance ministry should instruct banks to increase the tenors of loans of salaried persons who have suffered pay cuts. The loans could be restructured keeping in mind the new salary and benefits of the person.
A loan and tax moratorium of one year should be declared for people who have lost their jobs during the pandemic and are not reemployed by 1st of April, 2021.
7. Make interest on vehicle loans tax deductible
Just like interest and principal payment on home loans is tax deductible with caps, vehicular loan servicing should be introduced. This will provide a boost to the sagging fortunes of the automotive sector as well as increase take home of salaried people.
To sum up, the salaried class who are honest taxpayers need the support of the government in these trying times. Hope the finance minister is listening.