The government could look at introducing a coronavirus cess or surcharge on individual tax payers – possibly only on the higher income groups – in the coming budget, says Sonu Iyer, Tax Partner and National Leader – People Advisory Services, EY India. Ms Iyer was talking to ET online about what the coming budget may bring.
Asked as to what she expected from Budget 2021, she said that she didn’t have many expectations due to the huge fiscal deficit of the government this year. “We have to stop expecting doles/deductions in every budget”, she said. However, due to the need to garner more revenue, the government could look at imposing a Covid cess probably graded by income groups as people are already impacted by inflation. “I do not expect estate duty or wealth tax but an additional surcharge or cess for Covid 19 at higher income levels is possible,” she added.
“I don’t foresee any change in the personal tax rates per se because the government has already introduced an alternative tax slab structure last year offering lower tax rates sans exemptions”, she said.
Hike in LTCG tax on equity, issue of infrastructure bonds
The government may also look at increasing the tax on long term capital gains from equity and property, to push up revenue, said Iyer. Given the recent sharp rise in the stock market this idea could be one among those under consideration. Another revenue raiser could be introduction of infrastructure bonds offering tax breaks, she added. Infrastructure bonds offering a tax break beyond that available under section 80C, have been issued in earlier years with the government’s permission. However, these were discontinued some years ago.
Tax incentives to increase consumption expenditure
At the same time, the government could look at steps to increase consumption expenditure to boost the economy, she said. These steps could include extension of the current LTC cash voucher scheme, or introduction of a variant of the same, incentives for the purchase of new vehicles among others. The Rs 2 lakh cap on deduction that can be claimed on housing loan interest could also be increased to indirectly help the economy, she said.
Higher tax break for health insurance
The government may also look at providing further tax incentives to people to enable them to buy adequate health insurance which has gained importance following the current pandemic, she said. At present, section 80D of the Income Tax Act allows individual tax payers to claim premium paid for health insurance as a deduction from their gross income to reduce their taxable income. This helps the tax payer reduce his/her total tax payable. The limit on the premium amount that can be claimed varies from Rs 25,000 to Rs 1 lakh depending on whether the premium is being paid for self and family (non-senior citizens), for senior citizen or for self and parents where both are senior citizens.