The pandemic and the subsequent Work From Home policy has led to some employers offering allowances and reimbursement to employees. All eyes are on the upcoming budget for the next financial year as India looks to recover from the economic devastation caused by the coronavirus pandemic in 2020-21. It is widely expected that the government will prioritise spending in the next fiscal and ensure a smooth transition into growth territory in 2021-22.
Tax experts shared with Firstpost what they felt the government could announce by way of relief to employees.
Divakar Vijayasarathy, Founder and Managing Partner, DVS Advisors LLP
The salaried class could be disappointed if it’s expecting a reduction in tax rates. In fact, it should brace itself for a COVID cess. However, relief in terms of spending- based deductions, more in line with the alternate mechanisms provided for LTA during the Atmanirbhar Bharat package to improve domestic demand, can be expected. The deductions, unlike the investments based in the past, could be more available on spending. An increase in health insurance deduction and COVID-related hospitalisation can be anticipated. Considering the moratorium provided for 6 months during the pandemic, there could be a retrospective amendment on deductions available on housing loan interest and principal repayment.
Harsh Bhuta, Partner, Bhuta Shah and Co LLP
The finance minister should consider the reintroduction of single tax slab structure and increase the minimum taxable income threshold from Rs 5 lakhs to 7.5 lakhs. Further, work from Home (WFH) allowance/reimbursements made by employers to employees should be explicitly made non-taxable in the hands of the employee and allowed as a business expense in the hands of the employer. Research and Development (R and D)thrust – the weighted deduction under section 35(2AB) of the Income Tax Act should be reinstated at 1.5 to 2 times the expenditure.
Budget 2021 should fund data infrastructure and AI startups should be given specific tax breaks and grants. Holding Period for capital gains of debt-oriented growth mutual funds should be reduced to 12 months from existing 36 months for it to qualify as a long-term capital asset. Long Term Capital Gains rate on real estate assets should be reduced from 20 percent to 10 percent and holding period should be reduced from 24 months to 12 months.
Ashok Shah, Founding Partner, NA Shah Associates
Due to the adoption of Work from Home (WFH) norms, taxpayers have to incur additional expenses. There is no clarity regarding claiming these expenses as business expenses. Many expenses are also not reimbursed by employers such as increased electricity bills, internet charges etc. Many countries in the world have recognized this and come out with guidelines to the taxpayer for claiming such expenses. E.g. Australia has come out with following guidelines for claiming expenses for work from home:
Expenses which taxpayer can claim:
- Electricity expenses associated with heating, cooling and lighting the area from which you are working and running items you are using for work
- cleaning costs for a dedicated work area
- phone and internet expenses
- computer consumables (for example, printer paper and ink) and stationery
- home office equipment, including computers, printers, phones, furniture and furnishings – you can claim either the full cost of items up to $300
- decline in value (depreciation) for items over $300.
Expenses which tax payer cannot claim:
- the cost of coffee, tea, milk and other general household items your employer may have provided for you at work
- costs related to children and their education, including setting them up for online learning, teaching them at home or buying equipment such as iPads and desks
- items that are reimbursed for, paid directly by employer or the decline in value of items provided by employer – for example, a laptop or a phone
- time spent not working, such as time spent on home schooling children or lunch break
- occupancy expenses such as rent, mortgage interest, water and rates.
COVID expenses deduction: On account of COVID, there has been a significant increase in medical expenses (CT Scan, COVID testing etc.), expenses in connection with being quarantined/self-isolated at COVID centres/hotels. The current tax law does not provide the benefit of these expenses against taxable income. Hence, the government should allow a deduction for medical expenses while computing the income of the taxpayer.
Anuja Bhargava, Head of General Counsel Operations, Fidelity International
India is looking at 2021 to be a huge opportunity to attract interest from foreign investors. Foreign investors seek a stable tax regime with competitive tax rates. FM may consider switching to the erstwhile system of taxation whereby long term capital gains on the sale of listed shares, subjected to the STT, were exempted from the tax could be a big boost to attract the investors. In order to encourage long-term, patient capital flow into India, the period of holding to qualify as long term could be increased, from one year to say, two years. This change would be welcome by the FPI and could help in the disinvestment agenda of the government. A relook at the TDS provisions for FPIs on dividend needs clarification to permit application of tax treaty rate in line with other foreign investors.