The 2022 budget could also introduce tax-free work-from-home allowances for employees. Higher deductions for these expenses would increase take home pay. In addition, direct tax collection was robust in FY22. This may allow for greater limits on tax deductions, said William O’Neil India, a company that provides financial services and information in a rating.
In Budget 2021, the Minister of Finance introduced a new tax regime. However, this diet did not offer major benefits. The consensus is that most taxpayers are continuing with the old regime and were unwilling to switch to the new one as they cannot receive any investment benefits under the new regime. In the 2021 budget, the income tax brackets remained intact.
This time, it is expected that the tax-free slab could be increased from the current Rs by 0 to 2.5 lakh. If personal income tax were reduced, there would be more disposable income, which in turn would encourage consumption. With increased GST compliance, the government can therefore certainly increase the share of indirect taxes collected, according to the report.
In the run-up to the elections, the rural economy could receive higher allocations. About 25% of the country’s rural population is in the five states that will go to the polls in February-March. Thus, the government is expected to maintain high rural and agricultural social spending. The government could focus on social spending such as food subsidies, MGNREGA, PM-Kisan and fertilizer subsidies. Employment was a key issue. Since MGNREGA is a labor market shock absorber, FM could increase wages and also the number of working days. Despite several efforts, farmers’ incomes have not increased as expected. Thus, the government could take further steps to improve farmers’ incomes, the report says.
In 2004, the Securities Transaction Tax (STT) replaced the Long-Term Capital Gains Tax (LTCG). The 2018 budget brought back the LTCG, again levied at a rate of 10% on annual earnings of more than Rs 1 lakh. However, STT has not been removed.
Many new investors have started their investing journey in the last 12-18 months. The removal of STT could encourage many of these investors to start trading. Although investors want the LTCG to be abolished, the government in the winter session of parliament said there were no plans to abolish the LTCG tax on shares and mutual funds. Thus, there are hopes that the 2022 budget would see the removal of the STT. However, it is estimated that with increasing investors and trading volumes in the market, STT could generate more than Rs 5,000 crore in revenue. The LTCG collection for AY 2019-20 and AY 2020-21 was Rs 3,460 crore and Rs 5,311 crore respectively. Given these figures, the government is unlikely to make a change here, according to the report.
The government must leave more money in the hands of taxpayers. Looking at the current figures, if the government resists a change in tax brackets, there is a chance that the Section 80C cap for tax saving schemes could be increased to Rs 2.0-2 .5 lakh from the current Rs 1.5 lakh. This would not only leave more money in the hands of the taxpayer, but also stimulate savings. This can also be positive for asset management companies.
The pandemic has highlighted the importance of medical insurance for families as they have incurred huge treatment expenses. Currently, the health insurance premium can be tax-exempt up to Rs 25,000 for people under 60 years old and up to Rs 50,000 for those over 60 years old. The pandemic increased the volume of these claims and subsequently insurance companies increased their premium charges. An increase in the medical coverage deduction would help increase insurance penetration and provide relief to the layman, according to the report.