A lawyer’s wishlist from Budget 2021 includes these income tax rebates, deductions and holidays

• Numerous industry specific benefits and tax holidays are awaited in the upcoming budget announcements.
• The need of the hour is to increase the liquidity in the market.
• These minor changes in the form of deductions and exemptions will positively impact the consumer behavior in the market for the upcoming financial year.

Every year anticipations circle around the budget and the consequent announcements. however, given the unprecedented pandemic, major announcements and relaxations in form of some respite are expected from Budget 2021. The repeated lockdowns have caused disruption in day-to-day business activities and have postponed new ventures that were to be undertaken in the current financial year. In the light of such impediments posed by Covid-19, numerous industry specific benefits and tax holidays are awaited in the upcoming budget announcements.

The need of the hour is to increase the liquidity in the market. To effect the same, individual taxpayers will have to be bestowed with certain tax deductions relaxing their tax liability. For the salaried employee, an alteration in basic tax exemption limit from Rs. 2.5 lakhs to Rs. 5 lakhs will significantly affect the liquidity in the hands of the taxpayers, thereby, resulting in increase of consumption. The norm of social distancing adopted to avoid the spread of Covid-19 certainly brought convenience from being able to work from home, however, shifted the liability of office infrastructural expenses from organization’s hands to that of employees. An amendment to claim such one-time expense should be allowed as ‘work from home’ expenditure in calculating salary income for FY 2020-21. An increase in threshold amount to claim deduction towards payment of life insurance and health insurance premium will incentivize taxpayers to procure a higher medical insurance cover in turn benefitting them in this precarious pandemic. Certain changes with respect to ceiling for claiming interest on house loan as deduction is also expected from the Budget. To boost consumer demand, in line with an announcement made in earlier press release, it is expected there will be a leave travel concession voucher. Such voucher may be allowed to be utilized for goods and services bought from registered GST vendors, since spending money on travelling is unlikely because of the pandemic. These minor changes in the form of deductions and exemptions will positively impact the consumer behavior in the market for upcoming financial year.

Last year, the Government lowered tax rate for domestic companies involved in manufacturing activity on a condition that the manufacturing unit must be set up after 1 October 2019 and should commence production before 31 March 2023. Due to the consecutive nation-wide lockdowns imposed by the Central Government, projects came to a standstill for a few months. It is desirable from the Budget that these deadlines should be extended by 1-2 years to provide reasonable time to the manufacturing companies to set-up and commence operations. Similarly, a tax holiday of three years was provided to start-ups incorporated between 1 April 2016 to 1 April 2021. It is expected from the Budget that the deadline be extended by 1-2 years so as to encourage the start-up industry.

A surge in unemployment rate has been seen during the pandemic period which requires immediate attention and a plausible solution in Budget 2021. To promote employment generation activities, the Government in 2016 had introduced a provision to claim deduction upto 90% on additional employee cost over a period of three years for recruiting employees earning not more than Rs.25,000. This threshold of remuneration disbursed to employees should be increased to Rs. 50,000. This may advance the objective of employment generation on a larger scale covering a larger group of people eligible to be employed, acting as a boon in these tough times.

In the post Covid-19 era, businesses are expected to undergo corporate restructuring and reorganizing. A number of mergers, amalgamations and acquisitions may be expected in the coming financial year. In such a scenario, the provision of carry forward of losses of the amalgamating company being utilized by the amalgamated company should be available not only to industrial undertakings, but also to other sectors like real estate, e-commerce, retail, IT, start-ups, etc. Similarly, a clarificatory amendment extending benefit of carry forward of MAT credit to the amalgamated or resulting company through Budget 2021 will be a respite for the economy.

Considering the devastating effects of Covid-19 on the economy, certain countries have formulated a scheme of carry backward of losses for the FY 2020-21. In such a situation, the losses for the current financial year which cannot be claimed towards a positive income for the said year will be allowed to be carried backward to the preceding year(s) and will be set off against the positive income of those years. Subsequently, a refund can be claimed by setting the carried back loss. The idea behind such a scheme is to help the businesses invigorate. If such a radical change is introduced by the Budget, it will surely be a major booster shot from the Government to revitalize the economy.

Amidst all the benefits expected from the Budget 2021, there are talks of Government introducing a ‘Covid-19 cess’ to collect revenue for fighting against Covid-19 and deploying funds so collected in its vaccination drive to prevent the spread of the pandemic. Although the Covid-19 cess is said to be applicable only on high-income earners, imposition of a new cess in the middle of economic crisis may dampen the spirits further.

Only time will tell how many of the above wishes come true. One can always live with eternal hope!