The annual Union Budget is one of the most awaited announcements from the central government. This year is no different as individual, corporate and business taxpayers look forward to the government announcing a favorable tax regime. Every taxpayer expects The Union budget to be filled with reforms, rebates, concessions, or breaks that are in sync with their financial goals. Budget 2022 is being anticipated to include all of this and much more.
The budget of 2021 targeted areas like healthcare, rural infrastructure, stimulus packages, etc. With the pandemic continuing this year too, the budget expectations hover around aid towards economic recovery through respite for taxpayers in all sectors.
Let’s have a look at some of the top expectations from the Union Budget 2022.
Budget expectations from individual taxpayers
Here are the top expectations of individual taxpayers from Budget 2022:
- Tax threshold reduction from 30 to 25% –
Most individual taxpayers are expecting the government to bring down the highest tax rate of 30% to 25% in this budget. Taxpayers also expect the threshold for applicability of maximum tax rate be increased from Rs. 10 lakhs to Rs. 20 lakhs.
- Increase in basic income tax exemption limit from Rs. 2.5L to Rs. 5L –
Taxpayers also expect the budget to announce an increase in the basic tax exemption limit from Rs. 2.5 lakhs to Rs. 5 lakhs. With this, individual taxpayers can benefit through additional tax relief and higher liquidity.
- Tax relief on COVID-specific health care –
Currently, there is no exclusive deduction being offered on the cost of Covid-19 treatment to affected patients. Therefore, an exclusive deduction can be introduced, especially targeting those who do not have health insurance.
- Rise in standard deduction from Rs. 50k to Rs.1L –
As a consideration towards inflation and the ever-increasing medical expenses fuelled by the ongoing pandemic, the budget can incorporate a rise in standard deduction. This one-time deduction from salary income can be increased from the current annual limit of Rs. 50,000 to Rs. 1 lakh. This can allow more liquidity in the hands of taxpayers and help them in covering higher expenses along with medical costs.
- Reduction in GST on insurance premium –
The current GST on insurance premium is 18% which is considered to be a significant number and discourages individual investors from availing insurance. Therefore, as a combined benefit for both individual taxpayers and insurance providers, the budget 2022 is expected to bring it down to 5%.
- Eliminate tax on annuity pension –
Currently, only 1/3rd of the pension corpus is tax free in the hands of investors. The remaining is taxable as per individual income tax slab rates. Since this forms part of every individual taxpayer’s retirement benefit, it should be made entirely tax-free in the upcoming budget.
What should investors expect
Some of the budget expectations among investors are:
- Introduction of clear tax norms on Cryptocurrency investments –
Along with investors, the crypto industry is expecting the Cryptocurrency Bill to form part of the Budget 2022. There is a need for detailed regulations and compliance norms surrounding cryptocurrency investments and its taxability. Investors want to gain clarity on direct and indirect taxation for this investment. Budget 2022 may come up with some key announcements on taxability of cryptocurrencies in the country.
- Reduction in existing LTCG tax rate applicable to startup investment –
Currently, long-term capital gains that are earned by foreign investments in private Indian companies enjoy a concessional tax rate of 10%. As against, the domestic venture capital or private equity investments in startups are being charged a tax rate of 20% on LTCG. There is also an enhanced surcharge of 37%. Reducing LTCG to bring it at par with the taxation on investments in listed securities is one of the expectations from Budget 2022.
- Minimize the holding period of REIT/InvIT for applicability of long-term capital gains –
At present, investments in REITs or real estate investment trusts and InvITs or infrastructure investment trust units are considered long-term only if the holding period is a minimum of 36 months. To make them more attractive for investors, the Confederation of Indian Industry (CII) has proposed that the minimum holding period be brought down to 12 months for applicability of LTCGs. This will also bring them at par with other listed security investments.
What do businesses expect from the budget?
Here are the list of expectations from Budget 2022 set by businesses:
- Modify tax norms on MSMEs to bring at par to corporates –
Micro, Small & Medium Enterprises (MSMEs) are expecting the government to extend financial support through tax benefits and reforms, specifically on import substitutes. This can encourage self-reliance through domestic manufacturing. The MSME sector expects the budget to announce subsidies to aid accelerated growth. Improving the accessibility of these businesses to funds and credit facilities can mobilize growth.
- Reduction in customs duty towards raw material –
Budget 2022 is expected to continue the legacy of previous budgets as far as offering impetus to the domestically manufactured goods is concerned. This can best be done by reducing import dependency and promoting the ‘Make in India’ initiative. Businesses expect the budget to emphasize on bringing cost-effectiveness and highlighting local value through custom duty reduction on raw materials.
- Tax concessions for electric vehicles –
The budget should also introduce provisions offering benefits to the electric vehicle manufacturing units. This can be either through tax deductions or tax holidays in the form of exemptions on profits generated by these units for the first few years of establishment.
- Tax relief for companies that adopt green technology –
The Union Budget 2022 should consider incentivising technological adoption, specifically in the renewable energy sector. This can be done via various tax concessions. Incorporating green energy within the policies that are designed for MSMEs can also help in creating a sustainable economy and reduce the country’s reliance on energy imports.
India’s current Finance Minister, Nirmala Sitharaman, is known to have launched various bold tax regimes during her tenure. One of them is bringing down corporate Income Tax to 25%. As we are now two years into the ongoing Covid-19 pandemic, the economy has become very fragile and all eyes are on the government to tide over difficult times. Since the government’s tax revenue has only been climbing up, individuals and the industry believe that there is more scope for tax relaxations in the upcoming budget.
The budget 2022 is planned to be announced on February 1.
The two different categories of Union Budget are revenue budget and capital budget. The revenue budget government’s receipts and expenses. Capital budget covers capital expenditure and receipts.
Some of the areas that are covered under the Union budget announcement every year include income tax, defense, GDP, sports, agriculture, education, health, finance, energy, infrastructure, etc.
The current income tax exemption limit is Rs. 2.5 lakhs for individuals and HUFs below 60 years of age.
The Union Budget is prepared by the Department of Economic Affairs (DEA), specifically the department’s budget division. It is announced by the country’s finance minister.