WFH tax cuts, home loan benefits and other budget expectations

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Will the Union budget be populist, ahead of the UP elections, or will it be pragmatic for a COVID-hit economy?

The agriculture sector has been through tough times due to the economic downturn, and the budget is expected to address some of the issues

The 2020 budget blissfully ignored the looming pandemic, and the 2021 budget assumed that India was done with the worst. The 2022 budget, which will be presented on February 1, comes as the nation is in the midst of a third wave while picking up pieces from previous ones, and there is little clarity on how, when and if COVID will go away.

This year’s budget also comes just before five assembly elections, which could force the ruling party to opt for populist proposals. In particular, winning Uttar Pradesh is essential for the BJP at this stage. The party is said to face considerable anti-incumbency within the UP, for which the budget could be the balm.

In presenting last year’s budget, Finance Minister Nirmala Sitharaman emphasized six pillars: health and well-being, physical and financial capital and infrastructure, inclusive development for Ambitious India, the revitalization of human capital, innovation and R&D, and “Minimum government, maximum governance”. The deadly second wave of COVID, however, put an end to many proposals and forced the Union government to roll out a ₹6.28 lakh-crore stimulus package in June 2021.

Less stressful time for salaried classes

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The average Indian earner has suffered many blows since the start of the pandemic, with job losses, wage cuts and stifling inflation. There have been many calls to increase the basic income tax exemption limit to ₹2.5 lakh. An increase in the upper income bracket of ₹10 lakh and above is also sought.

For nearly eight years now, the Section 80C deduction limit has been ₹1.5 lakh, with an additional deduction of ₹50,000 for NPS. There was a request to raise the limit to ₹3 lakh. This will not only help the common man save more, but also encourage him to invest in longer-term instruments. Additionally, in light of the rise in working from home (WFH), taxpayers want exemptions for home office expenses such as laptops, WiFi, and ergonomic furniture.

Home prices rose despite a drop in demand, and home buyers sought better home loan benefits. Whereas at present takers of home loans are entitled to a deduction of ₹1.5 lakh under Section 80C and ₹2 lakh under Section 24B, for interest and principal , there is a call for deductions up to ₹5 lakh with no sub-limits.

Additionally, the Federation of Indian Chambers of Commerce and Industry (FICCI) has suggested some relief to taxpayers if their total income slightly crosses the ₹5 lakh threshold, rather than putting them abruptly in the next slab.

A pivot Atmanirbhar Bharat for GST

The Goods and Services Tax (GST) is not expected to see rate changes in the budget as it is managed by the GST Board at its periodic meetings. However, industry experts expect the budget to introduce changes in central customs and excise tariffs to support indigenous manufacturing under the Atmanirbhar Bharat scheme.

The automotive sector has faced difficulties amid stagnant sales over the past two years. The two-wheeler segment, in particular, is calling for the abolition of the GST offset tax, which it says could improve sales. Calls are also made to streamline GST procedures, both in terms of compliance and deadlines. Additionally, the industry has called for rate rationalization and harmonization of GST thresholds between offline and online merchants.

Booster dose for health care

Deloitte listed the three main expectations for the healthcare sector: tax exemptions and funding for hospitals and skills development; GST reforms (including bringing more life-saving medicines at the lowest GST rate and zero GST for health services); and creating the innovation and research ecosystem.

At less than 2%, India’s allocation to health care as a percentage of GDP is far below that of most developing countries, and the Union government is proposing to raise it to 2.5% by 2025. COVID makes this imperative, and hence the budget is likely to grant a larger allocation than last year’s ₹74,602 crore.

Health actors have sought tax incentives for private sector investment to upgrade medical facilities and create new hospitals with intensive care beds in rural areas. The Center is also expected to announce increased support for preventive health care and improved diagnostic facilities. A budgetary allocation could also be provided for telemedicine and home care, particularly in level 2, 3 and 4 centres.

The right combination for the agricultural sector

The agricultural sector has gone through difficult times due to the economic downturn, and the budget should address some of the problems. According to experts, it is essential to intensify research and development in agricultural practices to foster innovation, develop better infrastructure and stimulate digitalisation. There is also a call for reforms to facilitate wider use of micro-irrigation, crop diversification to improve productivity and sustainable agriculture.

Experts have also highlighted the need for subsidized insurance premiums for the sector, including the aquaculture segment. Subsidies to incentivize farmers to adopt data-driven practices and technologies for automation and monitoring could have longer-term benefits. Also, an interest subsidy on long-term loans, rather than periodic election-related loan cancellations, would be prudent, experts say.

Essential support for MSMEs

Micro, small and medium-sized enterprises (MSMEs), among the sectors most affected by the pandemic and the lockdowns, need urgent measures to recover. Their survival is essential not only for their promoters and millions of jobs, but also to prevent millions of loans from deteriorating.

The sector has now sought support similar to the Emergency Line of Credit Guarantee (ECLGS) scheme, under which the National Credit Guarantee Trustee Company provides a 100% credit guarantee on loans from formal lenders. Experts also say the Center should roll out programs to increase financial inclusion so that underserved MSMEs can be brought under the formal lending umbrella.

“Surprise” announcements for the sectors of the new era

The finance minister is expected to make announcements for “new-age” sectors such as cleantech and cryptocurrencies.

Last year, India pledged at the COP26 climate summit to meet 50% of its energy needs from renewable sources by 2030. In line with this target, the budget could announce measures to support the clean energy and electric vehicle (EV) segments. FICCI suggested that the government offer a 15% concessional tax rate to companies investing in green energy, highlighting how countries like China, Taiwan and Malaysia have boosted their green energy sectors through tax measures.

Pure electric vehicle makers as well as automakers with electric vehicle operations have asked for tax breaks. Additionally, they sought government support to build EV infrastructure across the country, such as charging stations and battery swapping facilities.

Another highly anticipated announcement concerns cryptocurrencies. The Center recently said it would introduce legislation to regulate digital currencies. Outside of regulation, industry insiders expect the budget to further clarify the taxation of crypto income, which tends to fluctuate wildly.

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