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Budget Expectation 2021

As the Covid -19 is now under control, all eyes are now set on the upcoming Budget. Covid has hit everyone’s life and the government did announce various stimulus packages to give relief to the citizens and to boost the economy. However, there is an immediate need to give a greater push to the economy and to uplift the sentiments of the people who are still recovering from the side effects of the unprecedented situation. The acceleration of the industry would majorly depend on the new Budget and the reforms that would be introduced. Let us look at some crucial expectations that the taxpayers have from the upcoming Budget: 
  • To keep up with the pace of inflation,  the Government may increase maximum limit for making various investment/ payment for claiming deduction under Chapter-VIA-B of the IT Act which includes section 80C (LIC, PPF, NSC etc.), 80D (Mediclaim), 80G (Donations) etc. Also, an increase in standard deduction for salaried individuals and standard deduction on account of Interest on home loans for income earned from house property should be revised.
  • The surcharge on High Net-worth Individuals may be reduced.
  • The Section 80JJAA of the Income-tax act allows deduction of 30% on additional employee cost incurred by a taxpayer on new employees. At present, this benefit is only available with respect to employees drawing wages up to Rs 25,000. This limit should be re-looked.
  • The expenses incurred by the employees due the policy of work from home set up, may be allowed as a deduction in the hands of the employees.
  • For the new domestic companies engaged in the manufacturing activities, the Government has introduced the tax rate of 15% last year. To avail of the 15% tax rate for new domestic manufacturing companies, there is a condition that the manufacturing company must be set up after 1 October 2019 and should commence production before 31 March 2023 which is not possible to start off with the entire full-fledged set up as COVID has severely disrupted almost the entire FY 2020-2021. It can be expected that the date for commencement of production is extended at least by one or two years.  Similar provisions should be brought for partnerships and LLPs.
  • For startups, the annual turnover limit for availing tax holiday exemption u/s 80IAC of the Act should be increased so that it can provide a useful incentive for startups and aid their growth for businesses scuffling to survive. 
  • Further, we may also expect some changes in taxability of ESOPs and changes in current restrictions on investments related to angel taxation.
  • As far as International taxation is concerned, we may foresee some major resolution regarding interpretational issues of provisions that exists in EL 2.0 (“Equilisation Levy”). It is the most controversial and debatable issue especially when, upon investigation by United states trade representative it has already held EL 2.0 as discriminatory in nature. 
  • In transfer pricing provisions, safe harbour rates should be rationalized and more and more intra group transactions like royalty should get covered there. Further, the threshold for Secondary Adjustment u/s 92CE of the Act may be upward revised.
  • Reduction of Long term capital gain from 10% to 5%.
  • Corporate Social Responsibility (#CSR)should be allowed to include as a business expense.