By Nitin Baijal and Sahil Bhasin: The countdown to the Union Budget 2021 has begun and it is only a matter of days before the hon’ble Finance Minister (FM) presents the same before Parliament, deciding the direction of the economy. Given that people have suffered under COVID-19 pandemic for the last 10 months, one of the critical aspect of the Budget would tend to focus on personal tax provisions.Also Read - Budget 2021 Live Streaming: Date, Time, When And Where to Watch Live Telecast Online Or on TV

The pandemic has led to lot of job cuts, reduction in salaries etc. leading to a fair bit of financial difficulty and cash flow issues for the common man. Hence, more money is required in the hands of people for revival of the economy. One such aspect that policy makers could focus is on bringing some parity between the new regime and old regime given that the new regime of taxation that was introduced in the previous Budget benefited only a limited population.

Also, owing to travel restrictions to mitigate the spread of the virus, many mobile employees are working from India for their overseas entities. This has amplified the need for insertion of amendments/clarifications to bring more clarity in relation to reliefs available to them. The current provisions in law do not provide for relief under the double taxation avoidance agreement (DTAA) between India and the country from where the income has been sourced, at withholding stage. This results in higher taxes being deposited leading to relief at the time of filing the tax return resulting in huge tax refunds. It also poses hardship to employers such as cash flow and administrative challenges in follow up of refunds. Hence, Section 192 should be amended to expressly provide that while calculating TDS at the time of payment of salary, benefit under DTAA should be provided for.

Another complication faced by such employees is that as per existing laws, stock options are subject to tax at the time of exercise of shares (only exception being start-ups), taxable value being excess of fair value of shares over the exercise price. In case of mobile employees qualifying as a Non Resident(NR) or Resident but not ordinarily resident (RNOR) who exercise stock options, only pro-rata value in respect of days spent in India during the period grant to vest is subject to tax in India based on judicial precedent. Since, the Act does not specifically provide for pro-rata taxation in respect of mobile employees, it leads to litigation with lower level authorities. It is pertinent to note that there was specific clarification on proportionate taxability of benefits under the previously abolished Fringe Benefit Tax regime. However, under the current laws there is no specific provision in this regard. Hence, the expectation is that the Act should be amended to specifically provide for pro-rata taxation in respect of mobile employees who qualify as NR or RNOR.

Authorities may also consider tweaking the provisions of Leave Travel allowance(LTA). In view of limited travel during the pandemic era, authorities have introduced the leave travel concession (LTC) scheme for private sector employees to provide a mode of claiming exemption in lieu of LTA. This needs to be inserted in the law.

Also given that travel plans have been on hold for sometime due to the pandemic and with mounting job pressures, people need to rejuvenate atleast once a year. Hence, another aspect that needs a serious look related to LTA is to increase the exemption to once a year as restricted to two times in a block of four years. With the vaccination drive in full steam, this amendment may boost the hard-hit travel hospitality sector.

Moving on to relief expectations for house property owners, as per the current laws, a house property owner can claim a sum equal to 30% of the annual value as standard deduction under section 24. Considering the Covid-19 pandemic and otherwise, an assessee is believed to be incurring additional expenses in maintaining the properties, which are in excess of 30% deduction that is allowed. Further, with people working from home and thereby moving back to their home cities, demand for rental property has diminished and there is a reduction in rental income. Hence, in order to support such property owners in these difficult times, the standard deduction of 30% may be increased appropriately at least for the next 2 years.

Similarly, deduction for interest in relation to self-occupied property should be increased to INR 300,000 from the current INR 200,000. This will result in higher disposable income, which will help meet their sustenance expenditure and potentially boost consumption.

Which among the expectations cited, will see the light and which one will have to wait till the next Budget, will remain a mystery.As always, we can only hope for the best. However, with pandemic days being limited and stock markets looking positive, now would be the right time for authorities to consider the change as it would be a step in the right direction.

Note: Nitin Baijal is a Director with Deloitte Haskins & Sells LLP and Sahil Bhasin is a Manager with Deloitte Haskins & Sells LLP

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