Budget 2022: Expected deductions and benefits for salaried workers

Budget 2022: Expected deductions and benefits for salaried workers

Budget 2022 is rapidly approaching. As a result of the recent increase in COVID cases in the country, there is a greater anticipation among taxpayers that relief and deductions will be provided to individuals. The following are some significant expectations.

Income tax rates are being reduced.

Individuals are currently taxed at the highest rate of 30%. Furthermore, because of the surcharge and education cess, individual tax rates might be as high as 42.744 percent, whereas domestic company tax rates are just 25%. (plus applicable surcharge and education cess).

Given the foregoing, taxpayers would welcome a reduction in the tax rate from 30% to 25% for people earning more than Rs 10,00,000 (under the current regime) and more than Rs 15,00,000 (under the proposed regime) (under the new regime).

Limits on certain deductions and exemptions are being raised.

The cost of living is fast rising, resulting in increases in children’s tuition fees, medical bills, and rental expenses, among other things. The following adjustments will improve the amount of disposable income available to middle-income households and encourage them to invest:

Increasing the deduction limit under section 80C of the Act to Rs 250,000. (from Rs 150,000).

Increase the interest paid on housing loans deduction limit for self-occupied houses from Rs 200,000 to Rs 250,000.c

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The current standard deduction of 30% should be increased to 40% to help property owners who have rented out their houses during these challenging times.

An increase in the section 80D deduction limit for self (not a senior citizen) and family from Rs 25,000 to Rs 50,000, and from Rs 50,000 to Rs 75,000 for senior people, should be considered in order to boost participation in medical plans.

Extending section 80TTA relief to FD bank interest, post office schemes, and other similar schemes for the general category, and raising the threshold from Rs 10,000 to Rs 50,000.

Currently, during the contribution stage, a deduction under section 80CCD(2) is possible to the extent of 14 percent of pay if the Central Government (CG) contributes, and 10% of salary where any other employer contributes. A deduction of 15% of salary should be provided to all employees to bring parity in the deductions allowed between employees employed by CG and those employed by other employers.

Employees who work from home are eligible for a deduction.

Many firms provide reimbursements / allowances to pay these expenses because many workers now work from home, incurring additional expenses such as internet rates, rent, power, furniture, and so on.

Employees would enjoy it if the tax authorities granted an additional deduction for the Rs 50,000 ‘Work from Home’ allowance.

In GSTR-3B, GST Portal has added a new interest calculator feature.

The deadline for filing updated India tax returns has been extended.

Previously, the due date for filing updated returns was 12 months after the end of the Indian fiscal year, but this has been reduced to 3 months. For example, the due date for filing amended India tax returns for FY 2021-22, which was previously March 31, 2023, would now be December 31, 2022.

Some people claim credit for taxes paid in other countries on the basis of their overseas tax returns. These taxpayers would be unable to get calendar year overseas tax returns for the year 2022. This will make calculating and claiming credit for taxes paid overseas for the calendar year 2022 complicated.

Accordingly, the due date for filing the revised return of income should be continued to be 12 months from the end of India tax year.

Clarification on the taxability of interest on PF contributions made by employees

A provision was included in Budget 2022 to regard the interest on an employee’s contributions to Provident Fund (PF) exceeding Rs 250,000 as taxable. The Rs 250,000 ceiling should be increased to Rs 500,000.

A clarifying clause on whether interest on employee PF contributions is taxable at the accrual stage or at the withdrawal stage is also required.

If the aforementioned proposals are followed in Budget 2022, taxpayers will undoubtedly benefit.

Expectations for Budget 2022: Increased standard deductions and income tax relief for saving for children’s education.

  • 20 Jan 2022
  • Budget
  • Comments Off on Expectations for Budget 2022: Increased standard deductions and income tax relief for saving for children’s education.

Expectations for Budget 2022: Increased standard deductions and income tax relief for saving for children’s education.

The standard deduction for salaried taxpayers was reestablished at Rs 40,000 from FY2018-19 onwards, in lieu of the elimination of tax exemptions for transportation allowance of Rs 19,200 and medical reimbursement of Rs 15,000, which were repealed in fiscal year (FY) 2005-06. From FY2019-20, the deduction ceiling was increased to Rs 50,000.

Given the annual cost of inflation and current living expenses of paid individuals, the amount of deduction is relatively low. Since the start of the Covid-19 pandemic, household spending has been negatively impacted by rising medical costs and work-from-home expenses such as furniture, power, and the Internet, among other things. As a result, the present standard deduction limit of Rs 50,000 needs to be increased to at least Rs 75,000. Individuals will be able to ride out these exceptional times with some financial cushion.

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Furthermore, many nations, including the United States, the United Kingdom, Canada, and Ireland, have implemented tax exemptions for Covid-19-related medical expenses (such as medical supplies, testing kits, and so on) as well as work-from-home expenses, such as home office setup. In India, however, no comparable deduction or exemption has yet been implemented. As a result, raising the standard deduction limit would give individuals more financial flexibility in incurring the aforementioned expenses.

Furthermore, taxpayers who choose the concessional optional regime under section 115BAC of the Income-tax Act, 1961 may be eligible for the standard deduction. For paid individuals and pensioners, the standard deduction is a deduction allowed from gross salary income. This deduction lowers the individual’s taxable salary income, lowering his or her tax burden as well.

The govt has extended the deadline for filing corporate ITRs for FY21. 15th of March, tax audit report due by February 15th

The necessity for a tax deduction for children’s higher education savings. Saving for a child’s higher education is an important financial objective for everyone, and most people set aside a percentage of their salary for this purpose. Except for the Sukanya Samriddhi Yojana, which is specifically for a girl child, there is currently no express deduction or exemption for such funds. Because the deduction is combined within the section 80C limit of Rs 1.5 lakh per year, the tax benefits are likewise minimal. Other tax-saving investments/expenditures (such as Employees’ Provident Fund, Public Provident Fund, principal repayment of a home loan, children’s tuition fee, National Funds Certificate, etc.) are covered by this deduction, leaving little room for higher education savings to be claimed.

A separate deduction of at least Rs 1.5 lakh for education funds would be a welcome gesture in this direction. To ensure that such money are not misappropriated, the account proceeds (including any interest earned) may be paid directly to educational institutes as soon as the child is accepted for higher study. Alternatively, the education expense deduction (including tuition expenses) might be separated from the section 80C deduction and recognised as a distinct item.

In a nutshell, an increase in the standard deduction and additional deduction for college expenses will encourage more long-term savings while also incentivizing individuals through tax benefits.

Why may the cap on tax-saving deductions under section 80C be increased in Budget 2022?

  • 19 Jan 2022
  • Budget
  • Comments Off on Why may the cap on tax-saving deductions under section 80C be increased in Budget 2022?

Why may the cap on tax-saving deductions under section 80C be increased in Budget 2022?

Many people rely on the section 80C advantage to save money on taxes. The highest deduction allowable under section 80C of the Income-tax Act of 1961 was Rs 1 lakh per year until FY2013-14.

The ceiling was thereafter raised to Rs 1.5 lakh per year in FY2014-15. The limit has stayed unchanged since then, i.e. for the past seven years. Many people’s expenses have increased, and their earnings have climbed, but the section 80C benefit has not.

As a result, many people quickly reach their limit. As a result, raising the limit under section 80C is nearly always on the wish list of taxpayers prior to the annual budget.

With the pandemic and rising inflation in view, the government should raise the section 80C ceiling to at least Rs 2.5 lakh per year in the Union Budget of 2022. Here’s how doing so will benefit not only the regular taxpayer, but also the government.

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What is the section 80C benefit?

Individuals and Hindu Undivided Families are the only ones eligible for the deduction under section 80C. (HUFs). It is the most commonly used part for tax savings. A person can claim a deduction under section 80C only if they invest in certain savings plans or suffer certain expenses that are stated there. The taxpayer is permitted to invest in one or more savings products up to a limit of Rs 1.5 lakh in total deductions. The threshold limit is calculated by taking into account all qualifying investments made before the end of the financial year for which a deduction is sought.

The following are the main tax-saving options available when claiming a deduction under section 80C:
  • Payment of a life insurance premium
  • Public Provident Fund Contributions
  • Employee Provident Fund and Voluntary Provident Fund contributions
  • Repayment of the principal on a home loan
  • For the purchase of a home, stamp duty and registration fees were paid.
  • ELSS or tax-advantaged mutual funds investments
  • Sukanya Samriddhi Account Scheme Investments
  • Children’s tuition fees
  • 5-year tax-saving bank or postal fixed deposit investments
  • Investing in the Senior Citizen Savings Plan

Why should the Section 80C cap be raised?

After subtracting the allowable section 80C deduction amount from an individual’s gross total income, the taxable income is calculated. As a result, any increase or decrease in the section 80C deduction limit has a direct impact on taxable income and, as a result, on an individual’s tax burden.

The increase in the section 80C deduction limit serves a number of purposes:

Individual taxpayers should consider the following:

  • It lowers the tax burden on individuals.
  • It assists individuals in saving for financial objectives such as retirement, children’s education, and so on.
  • Aids in the purchasing of a home
  • It gives them a feeling of security.

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In terms of the government:

  • It encourages households to save more and keeps inflation under control.
  • It aids in the channelling of long-term money to specialised areas such as infrastructure, among other things.
  • It offers the government with low-cost funds.
  • It stimulates particular businesses, like as housing, which is a key source of employment.
  • Aids in the achievement of social objectives (Sukanya Samriddhi Scheme), such as girl child education and marriage.

As previously stated, the deduction under section 80C was last increased to Rs 1.5 lakh in FY 2014-15. Meanwhile, the cost of living has risen significantly, which has been exacerbated by the pandemic’s negative impact. As a result, the current cap of Rs 1.5 lakh needs to be reconsidered, with a minimum increase to Rs 2.5 lakh in Budget 2022. This will also assist the government in achieving its ‘Ease of Living’ aim and will assist individual taxpayers in reducing their tax burden.