WFH tax sops, home loan benefits and other Budget expectations

Budget 2020 was blissfully incognizant of the pandemic that was just looming, and Budget 2021 assumed India was done with the worst of it. Budget 2022, to be presented on February 1, comes as the nation is in the midst of a third wave while still picking up the pieces from the previous ones, and there is little clarity on how, when, and if COVID will go away.

This year’s Budget also comes just ahead of five Assembly elections, which may require the ruling party to go for populist proposals. In particular, winning Uttar Pradesh is critical for the BJP at this juncture. The party is said to facing considerable anti-incumbency in UP, for which the Budget may be the salve.

Presenting last year’s Budget, Finance Minister Nirmala Sitharaman laid emphasis on six pillars — health and well-being, physical and financial capital and infrastructure, inclusive development for aspirational India, reinvigorating human capital, innovation and R&D, and ‘Minimum Government, Maximum Governance’. The deadly second wave of COVID, however, put paid to many of the proposals and forced the Union government to roll out a ₹6.28 lakh-crore stimulus package in June 2021.

Less taxing time for salaried classes

The average salaried Indian has faced many a blow since the pandemic began, what with job losses, pay cuts and stifling inflation. There has been many a call to raise the basic income tax exemption limit of ₹2.5 lakh. Also sought is a raising of the top income slab of ₹10 lakh and above.

For nearly eight years now, the Section 80C deduction limit has been ₹1.5 lakh, with an additional ₹50,000 deduction for NPS. There has been a demand to increase the limit to ₹3 lakh. This will not only help the common man save more, but also induce him to invest in longer-term instruments. Also, in the light of increased work-from-home (WFH), taxpayers want exemptions for home office expenses such as laptop, WiFi and ergonomic furniture.

Real estate prices have risen despite a tapering of demand, and home buyers have been seeking better benefits linked to home loans. While at present home loan takers are allowed ₹1.5 lakh deduction under Section 80C and ₹2 lakh under 24B, for interest and principal, there is a call for deductions up to ₹5 lakh sans sub-limits.

Additionally, the Federation of Indian Chambers of Commerce and Industry (FICCI) has suggested some relief to taxpayers if their total income marginally crosses the ₹5 lakh threshold, rather than abruptly placing them in the next slab.

An Atmanirbhar Bharat pivot for GST

The Goods and Services Tax (GST) is not expected to see changes in terms of rates in the Budget, since it is handled by the GST Council at its periodic meetings. However, industry experts expect the Budget to introduce changes in customs and central excise tariffs to support indigenous manufacturing under the Atmanirbhar Bharat scheme.

The automobile sector has been facing hardships amid flat sales over the past two years. The two-wheeler segment, in particular, has been seeking the abolition of GST compensation cess, which it feels could improve sales. There are also calls to ease the GST procedures, both in terms of compliance and deadlines. Further, the industry has called for rate rationalisation and harmonising of GST thresholds between offline and online merchants.

Booster dose for healthcare

Deloitte listed the top three expectations for the healthcare sector thus: tax holidays and funding for hospitals and skill development; GST reforms (including bringing more life-saving drugs at the lowest rate of GST and zero GST for healthcare services); and creating the ecosystem for innovation and research.

At less than 2%, India’s allocation to healthcare as a percentage of GDP is well below that of most developing nations, and the Union government proposes to make it 2.5% by 2025. COVID makes this imperative, and the Budget is hence likely to grant a bigger allocation than last year’s ₹74,602 crore.

Healthcare players have sought tax incentives for private sector investments to modernise medical facilities and establish new hospitals with ICU beds in rural areas. The Centre is also expected to announce greater support for preventive healthcare and to enhance diagnostic facilities. Budget allocation could also be given for telemedicine and home-based healthcare, particularly in tier 2, 3 and 4 centres.

The right mix for the farm sector

The agriculture sector has faced tough times amid the economic downturn, and the Budget is expected to address some of the issues. It’s critical to step up research and development in farming practices to foster innovation, develop better infrastructure and boost digitisation, say experts. There is also a call for reforms to facilitate wider use of micro-irrigation, crop diversification to enhance productivity, and sustainable farming.

Experts have also pointed to the need for subsidised insurance premiums for the sector, including the aquaculture segment. Subsidies to induce farmers to adopt data-driven practices and automation and monitoring technology could have longer-term benefits. Further, interest subsidy on long-term loans, rather than periodic, election-linked loan write-offs, would be prudent, say experts.

Critical support for MSMEs

Micro, small and medium enterprises (MSMEs), among the sectors hit the most by the pandemic and lockdowns, needs urgent steps to recover. Their survival is critical not only for their promoters and millions of jobs, but also to prevent crores of loans from going bad.

The sector has now sought support akin to the Emergency Credit Line Guarantee Scheme (ECLGS), under which the National Credit Guarantee Trustee Company offers 100% credit guarantee on loans from formal lenders. Experts also say the Centre should roll out schemes to increase financial inclusion so that under-served MSMEs can come under the formal lending umbrella.

‘Surprise’ announcements for new-age sectors

It is expected that the Finance Minister will have announcements for ‘new-age’ sectors such as cleantech and cryptocurrencies.

India last year made a commitment at the COP26 climate summit to meet 50% of its energy needs from renewable sources by 2030. In line with this target, the Budget may announce measures to support the clean energy and electric vehicle (EV) segments. FICCI has suggested that the government offer a concessional tax rate of 15% to companies investing in green energy, pointing to how nations such as China, Taiwan and Malaysia have boosted their green energy sectors through tax sops.

Pure-play EV makers as well as automobile manufacturers with EV operations have been seeking tax breaks. Additionally, they have sought government support to build EV infrastructure across the country, such as charging stations and battery-swap facilities.

Another widely awaited announcement is one on cryptocurrencies. The Centre recently said it would introduce legislation to regulate digital currencies. Regulation apart, industry insiders expect the Budget to shed greater clarity on the taxation of crypto earnings, which tend to fluctuate wildly.