- Akash Saraf
Nirmala Sitharaman, the Union Minister of Finance of India is going to present her third Union Budget for FY 2021-22 on February 1st, 2021. As the nation hopes to recover from the COVID-19-induced economic crisis, all eyes are now on the upcoming Union Budget and Madam FM. In view of the economic devastation that has been caused by the COVID-19 pandemic and the resultant lockdowns and market disruptions, the budget is slated to be one of the most important and anticipated ones.
Since a lot of hopes are riding on Budget 2021 across the common citizens of India, we have listed them out with the rationale behind the expectations.
Making the New Regime of Personal Taxation more Attractive:
The Finance Minister, in its previous Union Budget, had announced the new simplified scheme of personal taxation in the year 2020. With the aim to reduce the tax burden of individuals and make the new regime attractive one, significantly reduced income tax rates were announced. The new tax regime is optional for the taxpayers and an individual who is currently availing more deductions & exemption under the Income Tax Act may choose to avail them and continue to pay tax in the old regime.
As per the finance ministry’s calculations, a person earning INR 15 lacs in a year and not availing of any deductions whatsoever, the benefit of the tax cut would be INR 78,000 a year under the new optional tax regime. INR 78,000 is a maximum limit, an individual may be benefitted from, by opting for the new regime.
However, it has been observed that, in the majority of cases, it is possible for an individual to end up paying more tax on shifting to the new regime where the deduction and exemptions foregone are more than the savings under the new regime, as the taxpayer has to give up on many income-tax deductions and exemptions that were part of the older regime.
Therefore, to make the new regime more lucrative among the public, the tax rates in new regime are being expected to be reduced further by the FM in the upcoming Union Budget.
Rationalisation of Tax rates for LLPs vis-à-vis Companies:
Since the formation of “Modi 2.0” Government, it has taken a few bold and historic decision of reducing the corporate tax rates for new companies in the manufacturing sector to an unprecedented level of 15%. Similarly, for all other domestic companies as well, the rate has also been brought down to just 22%. As a result of these steps, India’s corporate tax rates are now amongst the lowest in the world.
On the other hand, it is envisaged that the concept of Limited Liability Partnerships (LLPs) was introduced in India with an aim to promote a simplified form of Business entities in the organised sector. When the LLP Act was introduced in India, the LLPs were kept in same tax bracket vis-à-vis Companies i.e. the flat rate of tax @30%.
It is pertinent to mention here that both the forms of business entities, the Companies as well as the LLPs are regulated by the same authority in India i.e. Ministry of Corporate Affairs.
Now, when such historical steps have been taken by the Government for Companies in India and the tax rates for has been reduced to such unprecedented level, the same kind of initiatives are also being expected for LLPs this Finance Budget.
Rationalisation of Section-47, with reference to the Sovereign Gold Bonds (SGB) Scheme:
As per the current Section-47 of Income Tax Act, there is relaxation with respect to the transfer of SGBs by way of redemption.
It says the SGBs transferred by way of redemption shouldn't be considered as transfers for capital gain purposes. However, it applies only for SGB Scheme, 2015. Therefore, to make it more rational, Section-47 should be amended to remove any particular year's reference.
Increase in Monetary Thresholds:
It has been observed that there are a lot of monetary threshold limits, as prescribed under the Income Tax Act, were prescribed/amended a long back and has not been changed for many years. This is expected from the Finance Budget that, such limits may be increased to provide significant relief to the public at large considering the rate of inflation. Few of such limits are pointed out as below:
• Basic Tax Exemption Limit of INR 2,50,000 for Individuals/HUF;
• Section-80C deduction limit against the savings in notified schemes;
• Section-80D deduction limits for Medical/ Health Insurance Premium;
• Section-80T deduction limit for interest from saving bank accounts;
• Restriction on Partners remuneration in case of insufficient profits or loss to partnership firms/ LLPs as per Section-40(b).
• Restriction on allowability of Interest on Home Loan against self-occupied properties in accordance with Section-24.
Marginal relief to Resident Individuals earning more than INR 5 Lacs:
As per the Section-87A of Income Tax Act, a resident individual, who’s total Income doesn’t exceed INR 5 Lacs, need not to pay any tax in India, and a relief of amount equals to its total tax liability will be provided under Section-87A.
However, in cases where the total income if individual exceeds INR 5 Lacs, he needs to pay tax on his total Income, with out any such relief.
For e.g. where the taxable income of individual is computed at INR 5,00,001 only, his tax liability will be INR 12,500 plus applicable cess.
Therefore, to make the relief under Section-87A more rational, a concept of marginal relief needs to be introduced, where the individuals may pay the lower of his “actual tax liability” or “the net taxable income less Threshold under section-87A”