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Budget 2021 : Date, expectations, latest news & updates from the Indian Budget 2021-22

Budget 2021 will be announced on 1st February 2021 addressed by FM Nirmala Sitharaman.

It’s that time of the year again. Everyone from large corporates to small businesses to the common man waits with bated breath to see the changes that the budget brings with it. This year will be no different, except that the hype and expectations are larger than ever before as it’s the first budget post the COVID-19 pandemic. The Indian economy had taken a hit but is now on the road to recovery. Let’s take a look at the expectations that people have from the Union Budget 2021.

1. Expectations of the common man from Union Budget 2021
a. ‘Work From Home’ Concessions
Most corporate employees and other employees for whom remote-working was a possible option have been working from home the past year. While certain major corporates have provided work from home allowances such as reimbursement of office furniture costs, telephone and internet expenses, other employees have borne the same out of pocket. A request has been put forward to the government to allow a standard ‘work from home’ deduction for salaried employees concerning the work from home expenses incurred.
b. A Raise in the Standard Deduction For Salaried Employees
The standard deduction for salaried employees was introduced in Budget 2018 and was capped at Rs.40,000. Since then, it has only seen an increase of Rs.10,000 in the last three years. Increasing this limit to a modest Rs.75,000 per annum will benefit millions of salaried employees, especially in a difficult year such as this.
c. Increase of the Deduction Limit Under Section 80C
At present, deductions under Sections 80C, 80CCC and 80CCD(1) are capped together at Rs.1.5 lakh per annum in total. The last time this deduction limit was revised was 2014, where it was raised from Rs.1 lakh per annum. In the seven years since this revision and 18 years since the first limit being instated in 2003, the percentage increase stands lower than the average annual cost of inflation. Hence, this year would be the best time to revise this limit to at least Rs.2 lakh per annum and provide taxpayers with some respite.
d. Keeping Preventive Healthcare Out of the Medical Insurance Deduction
Right now, medical insurance premiums paid on self, spouse, children and parents are allowed as a deduction under Section 80D of the Income Tax Act. The limits stand at Rs.25,000 or Rs.30,000 depending on the age of the insured. The government also allows for a deduction of expenses incurred with regard to preventive healthcare. However, it is recommended that this amount should be allowed as a deduction apart from, and in addition to the medical insurance premiums paid under Section 80D. It is also expected that the government will reduce the GST rate on medical insurance premiums from 18% to 5% to facilitate better market pe*******on through reduced costs.
e. Deduction For COVID-19 Hospitalisation Under Section 80DDB
Section 80DDB covers serious illnesses such as malignant cancers, chronic renal failure, AIDS, etc. It has been recommended that the government include hospitalisation expenses incurred for COVID-19 too under this section. The deduction limit is currently capped at Rs.40,000 for individuals, except senior and super senior citizens who are allowed a deduction of Rs.1,00,000 per annum.
f. Overhaul of Capital Gains Reporting
Capital gains are split into long-term and short-term capital gains and taxed on various types of capital assets under the Income Tax Act. It is expected that the government will simplify compliance for capital gains and reduce the number of tax rates charged for various types of capital gains income. It has also been recommended that the government extend the timelines for investment of capital gains income under Section 54 of the Income Tax Act.
g. Increase in the Deduction Limit of Interest Paid on House Property
The interest limit of Rs.2 lakh has been constant for a few years now. It is expected that this limit is increased to Rs.4 lakh to promote investment in house property and to indirectly boost the affordable housing segment as well. Eliminating tax on notional income from house property will be another good move to encourage the purchase of new house properties.
h. Deduction For Self-Occupied House Properties
Homeowners who do not rent out their property lose the repairs and maintenance deduction allowed under the Income Tax Act. Hence, it has been proposed to extend this benefit to even self-occupied house property for the various expenses they incur during the year on repairs and maintenance.
i. Revision of LTA Guidelines
To boost the tourism sector, the government may revise guidelines on claiming Leave Travel Allowance (LTA), by extending the deduction beyond domestic fares to tours and accommodation as well.

2. Expectations From Corporates and Various Industries from Budget 2021.

a. Relief for the MSME Sector.
India has over 60 million Micro, Small and Medium Enterprises. The Government of India has done a lot for this sector by way of reforms and schemes in the past, while propagating a ‘Make in India’ narrative. While MSMEs make up close to 50% of the total exports, easing foreign exchange norms is the real need of the hour. With stringent RBI norms in place, foreign investors worry about both compliances and the cash flows, both into and out of the country. Reducing the compliance burden and easing foreign exchange flows would give a real boost to the MSME sector.
b. Much-needed Boost for the Hospitality Industry
Travel and tourism took the worst hit during the pandemic both during and after the government-imposed lockdown. This budget, the hotel industry is looking at getting infrastructure status for hotel projects with above a Rs.25 crore investment as against an above Rs.200 crore investment, as was in the past. Besides this, the hospitality sector is looking at easier compliances, loan guarantees and lower direct tax rates. Also, an extension of the business loss carry forward period from eight to twelve years is the need at present. The Federation of Hotel and Restaurant Associations of India (FHRAI) has also requested for a MAT waiver for the next three years due to the business losses suffered by them.
c. Reduction in Taxes For the Automobile Sector
The automobile sector has seen its worst slump in years, and the onset of this decline was way before the COVID-19 pandemic. In this budget, the luxury car segment is pushing for a reduction in the tax rates, as they have been the hardest hit during the pandemic. The GST rate on luxury cars falls in the highest slab of 28%. Besides, a cess is further imposed on these cars ranging from 1% to 22%. Imported vehicles also have customs duty ranging from 60% to 100% value of the vehicle, insurance and freight.
d. Increased Spending on the Healthcare Sector
The pandemic has unveiled a situation of having more patients than hospital beds in our country. It is expected that the government will increase spending on medical infrastructure in the coming financial year. Further, allocation of funds to preventive medicine, medical research and healthcare startups is vital in the wake of the ongoing global pandemic.
e. Monetary Allocations for the Agriculture sector
The focus on agriculture is expected to continue this financial year. The agriculture sector will be looking at a large budget allocation in the form of subsidies and incentives. Farmers currently lack the infrastructure for effective market participation and in realising fair prices for their produce. This year’s budget allocation should focus on strengthening farmer producer organisations, and infrastructure for irrigation, food processing, etc. to improve the prices of produce sold and to effectively increase farmers’ incomes.

3. Expectations For the General Economy from Union Budget 2021.

a. Creation of Employment Opportunities
It is unfortunate that millions of people lost their jobs last year due to layoffs, a result of the pandemic. This year, the hope is that the Finance Ministry will help fuel employment opportunities by giving a boost to major employment-generating sectors such MSMEs, textiles, hospitality, housing, etc.
b. Simplification of Reporting Under GST
The government has eased GST compliance by a fair bit by reducing the number of returns to be filed by taxpayers, especially small taxpayers, under GST. However, it is not just the number of returns but the various compliances in the GST filing mechanism that is turning out to be an inconvenience for honest taxpayers and a disruption to the ease of doing business. The stringent laws with regard to claiming input tax credit, making monthly payments and even registering under GST need to be simplified to a great degree, and with immediate effect.
c. Healthcare and the Distribution of the COVID-19 Vaccine
The pandemic was an eye-opener for the healthcare sector in India. The number of active cases may have substantially reduced, but life has still not come back to normal. The priority right now is the effective distribution of the COVID-19 vaccine. The government may announce several concessions to domestic vaccine manufacturing companies under both income tax and GST, in the form of subsidies and exemptions. The Central Board of Indirect Taxes and Customs (CBIC) has relaxed the import and export norms for vaccines in December 2020, removing any value limits. A dedicated task force is expected to be set up to ensure proper clearances of vaccines.
d. A COVID-19 Cess
It is likely that the government may impose a COVID-19 or other similar cess of 2-4%, on high-income earners this budget. The past year has seen a big drop in revenue collections in some of the months, while the government had to increase assistance to the poorer sections of society, who were deprived of income during the lockdown period. This cess could be imposed to make good the amounts incurred on economic assistance provided. There is a possibility that this cess could also be imposed only on business entities.
e. Rate Changes in Customs Duties
Budget 2021 may see substantial rate reductions in import duties on gold and precious stones, newsprint, and imports on raw material components for electric vehicles. On the other hand, mobile phones and other electronic devices could see an increase in the rate of customs duties this budget.

Section 80EEA: Income Tax Benefit on Interest on Home Loan (First Time Buyers)

The interest deduction can be claimed under Section 80EEA as well which is over and above the deduction allowed to be claimed under Section 24 of Rs. 2 Lakhs and also above the deduction of Rs. 1.5 Lakhs allowed under Section 80C

This Deduction of Section 80EEA would be applicable only in the following cases:-

This deduction would be allowed only if the stamp duty value of the property purchased is less than Rs. 45 Lakhs.
The loan should be sanctioned between 1st April 2019 and 31st March 2021.

Income Tax treatment of Pre-Construction Interest

In many cases, amount is paid for the purchase of property even before the construction is completed. Some home buyers, purchase properties on loan before the completion of construction and start paying EMI to the Bank.

In such cases, Section 24 very specifically states that Tax Deduction for payment of Interest shall not be allowed before the construction is complete. In such cases,

If Loan is taken for purpose of Repair/ Renewal/ Reconstruction: No Tax Deduction allowed for Interest paid before Completion
If Loan is taken for the purpose of Purchase/ Construction: The Interest that has been paid before the completion of construction should be aggregated and the whole aggregated amount shall be allowed as tax deduction in 5 equal installments for 5 successive Financial Years starting from the year in which the construction has been completed.
For eg: Mr. A purchases a House in New Delhi in 2009 and took a loan of Rs. 10,00,000 from a Bank paying Interest @ 10% p.a. The Construction was completed in April 2011.

Now, As per Section 24 of the Income Tax Act, tax deduction for payment of Interest would only be allowed from financial year 2011-12 onwards. However, the Interest paid on Loan before the completion of Construction (i.e. Rs. 2,00,000) would be allowed as tax deduction for the next 5 Financial years @ 40,000 p.a. commencing from Financial Year 2011-12 onwards. (Easy amounts have been taken in this example for simplification purposes)

Important Points:-

Interest paid for outstanding amount is not allowed as Tax Deduction (Shew Kissan Bhatter v. CIT (1973) 89 ITR 61(SC)
This tax deduction shall be available only if the construction is completed within 5 years from the end of the financial year in which the capital is borrowed
Taxpayer cannot claim any deduction for Commission Paid for arranging the Loan
If the taxpayer is not earning any income from house property, but is paying Municipal Taxes and Int on Home Loan, this would lead to Loss under head Income from House Property. This loss arising under head Income from House Property is allowed to be set-off against income from various other heads in the same Financial Year.
In case the loss cannot be set-off against income from other sources in the same financial year, the loss can be carried forward to future years and set-off against income arising from House Property for the next 8 financial years.
Tax Benefits of Interest on Home Loan can be claimed only by the person who has acquired or constructed the property with the Borrowed Funds. It is not available to the Successor of the Property.

Interest on Home Loan

Section 80C: Tax benefit on Home Loan (Principal Amount)
The amount paid as Repayment of Principal Amount of Home Loan by an Individual/HUF is allowed as tax deduction under Section 80C of the Income Tax Act. The maximum tax deduction allowed under Section 80C is Rs. 1,50,000.

This tax deduction is the total of the deduction allowed under Section 80C and includes amount invested in PPF Account, Tax Saving Fixed Deposits, Equity Oriented Mutual funds, National Savings Certificate, Senior Citizens Saving Scheme etc.

This tax deduction under Section 80C is available on payment basis irrespective of the year for which the payment has been made. The Amount paid as Stamp Duty & Registration Fee is also allowed as tax deduction under Section 80C even if the Assessee has not taken Loan.

However, tax benefit of home loan under this section for repayment of principal part of the home loan is allowed only after the construction is complete and the completion certificate has been awarded. No deduction would be allowed under this section for repayment of principal for those years during which the property was under construction.

Moreover, in case you are planning to buy an under-construction property as it is priced at a lower price as compared to a fully completed property, you are here also requested to note that GST is also levied on under-construction Property. However, no Service Tax is levied on properties on which construction has been fully completed.

House Property should not be sold within 5 years

Section 80C(5) also states that in case the assessee transfers the house property on which he has claimed tax deduction under Section 80C before the expiry of 5 years from the end of the Financial Year in which the possession has been obtained by him, then no deduction and tax benefit on Home Loan shall be allowed under Section 80C. The aggregate amount of tax deduction already claimed in respect of previous years shall be deemed to be the Income of the Assessee of such year in which the property has been sold and the Assessee shall be liable to pay tax on such income.

Tax benefit on Home Loan (Interest Amount)
Tax Benefit on Home Loan for payment of Interest on Home Loan can be claimed as Deduction under Section 24 as well as under the newly inserted section 80EEA (Amended by Budget 2020)

Section 24: Income Tax Benefit on Interest on Loan for Purchase/Construction of Real Estate
Tax Benefit on Home Loan for payment of Interest is allowed as a deduction under Section 24 of the Income Tax Act. As per Section 24, the Income from House Property shall be reduced by the amount of Interest paid on Loan where the loan has been taken for the purpose of Purchase/ Construction/ Repair/ Renewal/ Reconstruction of Property.

The maximum tax deduction allowed under Section 24 of a self-occupied property is subject to a maximum limit of Rs. 2 Lakhs (increased in Budget 2014 from 1.5 Lakhs to Rs. 2 Lakhs).

In case the property for which the Home Loan has been taken is not self-occupied, no maximum limit has been prescribed in this case and the taxpayer can take tax deduction of the whole interest amount under Section 24.

Please Note: In case a property has not been self-occupied by the owner by reason of the fact owing to his employment, business or profession carried on at any other place, he has to reside at that other place not belonging to him, then the amount of tax deduction allowed under Section 24 shall be Rs. 2 Lakhs only.

It is also important to note that this tax deduction of Interest on Loan under Section 24 is deductible on payable basis, i.e. on accrual basis. Hence, deduction under Section 24 can be claimed on yearly basis even if no payment has been made during the year as compared to Section 80C which allows for deduction only on payment basis.

Moreover, if the property is not acquired/constructed completed within 5 years from the end of financial year in which the loan was taken, the interest benefit in this case would be reduced from 2 Lakhs to Rs 30 thousand only. (Limit increased from 3 years to 5 years from FY 2016-17 onwards).

Duty Scripts An Over View:

A Duty Credit Scrip is issued by the Director General of Foreign Trade (DGFT) and can be used to pay various duties/taxes to the Central Govt. These are issued to both Exporters of Goods as well as Exporters of Service.

These Duty Credit Scrips are issued under various schemes of the Foreign Trade Policy. The schemes under which the Duty Credit Scrips are issued have been mentioned below:-

SEIS Scheme for Service Exporters
MEIS Scheme for Merchandise Exporters
Export Promotion Capital Goods Scheme (EPCG Scheme)
The value of scrip varies from scheme to scheme, product to product and country to country. However, the scrip value in most of the cases is in the range of 2% to 5% of the realised FOB Value (in free foreign exchange).

These scrips are issued to exporters as an incentive for them as the export industry has huge potential for employment creation in India. By offering these incentives, the govt is indirectly encouraging people to export as it not only brings foreign currency into India but also leads to massive Job Creations.

Moreover, another reason why these duty credit scrips are issued is to offset the infrastructural inefficiencies and associated costs involved in the export of goods/products which are produced/ manufactured in India. This would also give a boost to the Make in India campaign of the Govt.

Benefits and uses of Duty Credit Scrip
The exporter to whom the Duty Credit Scrip has been issued can use the Duty Credit Scrip for the payment of:-

Basic Customs Duty
Safeguard Duty
Transitional Product specific safeguard duty
Anti-dumping Duty
Earlier these scrips could be used for the payment of all duties of Customs, Excise & Service Tax as well. However, with the implementation of GST – Excise Duty and Service Tax have been subsumed in GST. (These scrips cannot be used for the payment of GST.)

Although a majority of the goods & services are now covered under ambit of GST, there are still items on which GST is not levied. These items on which GST is not levied are specified in the Fourth Schedule to the Central Excise Act, 1944 covering specified petroleum products, to***co etc. The duty credit scrips can be also be used for the payment of duties of excise, CVD/SAD on these items.

Validity of Scrips

These Duty Credit Scrips have a validity period and can be used for any of the above mentioned purpose during the validity period. If the holder of the duty credit scrip is not able to use them for any of the above mentioned purpose during the validity period, these scrips will expire and therefore not usable.

Scrips issued under MEIS Scheme – 18 months from the Date of Issue
Scrips issued under SEIS Scheme – 18 months from the Date of Issue
Scrips issued under EPCG Scheme – 18 months from the Date of Issue
These scrips are freely transferable and there is no conditionality attached with these scrips. If the holder of the scrip does not intend to use these scrips for any of the above mentioned purpose or is not able to use the duty credit scrips during the validity period, he may sell them to any other person interested in using them for any of the above mentioned purpose.

Sale of duty Credit Scrips
If the holder of these Duty Credit Scrips does not intend to use them for any of the above mentioned purposes, he may sell them in the open market. These scrips usually sell at a discount to their face value and can be sold either directly to a buyer or through an agent who will help you find a buyer.

For eg: If you have a Duty Credit Scrip worth Rs. 1,00,000, it means that it can be used to pay duties/ taxes equivalent to Rs. 1,00,000. If the holder of the scrip does not intend to use them – he may sell them.

The buyer of these scrip will not pay full face value for these scrips but will buy them at a discount. He may buy these scrips for Rs. 95,000 instead of Rs. 1,00,000. Although, he has purchased them for Rs. 95,000 – these scrips still have a face value of Rs. 1,00,000 and can be used for payment of duties/taxes equivalent to Rs. 1,00,000.

Benefit of the Buyer – He saved Rs. 5,000 in the above mentioned transaction as instead of paying Rs. 1,00,000, he only had to pay Rs. 95,000.
Benefit to the Seller – He got a benefit of Rs. 95,000 because if he would not have sold these scrips – they would have expired and therefore useless.
Other Relevant Points

The holder of these scrips mainly use them either for payment of customs duty or sell them to an Importer in cash and the importer then uses these scrips for the payment of his own Customs Duty.
The Duty Credit Scrips are issued under various schemes declared in the Foreign Trade Policy. The names and benefits allowed under these schemes may change from time to time.
These Scrips are issued by the Regional Offices of the Directorate General of Foreign Trade (DGFT) which are in various cities in India.

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Who Need to File an Income Tax Return?

Filing income tax return (ITR) is a way of informing the government about the total income that you have earned during a particular financial year and that you have paid taxes on that income accordingly. As per current income tax laws, it is only mandatory for an individual to file ITR if his/her income/expenditure/investments meet certain defined criteria.

Mandatorily filing of income tax return
As per income tax laws, ITR must be mandatorily filed if a resident individual's total income during the financial year exceeds the basic exemption limit. Remember, the basic exemption limit for an individual depends on his/her age. For FY 2019-20, the basic exemption limit is as follows:

Basic exemption limit (Rs)

Below 60 years of age

2,50,000

Between 60 and 80 years of age (Senior citizen)

3,00,000

80 years and above (Super Citizen)

5,00,000

Thus, if your gross total income exceeds the amount mentioned in the table above (depending on your age), you will have to mandatorily file income tax return.

When your gross total income does not exceed basic exemption limit

In certain cases, even if the gross total income does not exceed the exemption limits as mentioned above, you have to mandatorily file income tax return. As per current income tax law, income tax return for FY 2019-20 must be mandatorily filed before January 10, 2021, if:

a)Individual has spent an amount or aggregate of amounts exceeding Rs 2 lakh for himself/herself or any other person for travel to a foreign country;
b)Individual has deposited an amount or aggregate of amounts exceeding Rs 1 crore in one or more current accounts maintained with a bank or co-operative bank;
c)Individual has paid electricity bill exceeding Rs 1 lakh in a single bill or on aggregate basis during the financial year;
d)Ordinarily resident individual having income from foreign countries and/or assets in foreign countries and/or having signing authority in any account outside India; and
e)If an individual's gross total income exceeds the exemption limit before claiming tax exemption on capital gains under section 54, 54B, 54D, 54EC, 54F, 54G, 54GA or 54GB.

The Income-tax Act, 1961 was amended via the Finance Act, 2019 to make ITR filing mandatory even if gross total income is below exemption limit if an individual has deposited Rs 1 crore or more in current account, spent Rs 2 lakh or more on foreign travel or paid electricity bill of Rs 1 lakh or more in a particular financial year.

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