A significant number of taxpayers have been working from home ever since the Covid-19 pandemic hit India.
To offer relief to taxpayers who’ve incurred additional costs while working from their homes, Deloitte India has suggested more deductions on the “work from home” expenses for employees.
“Considering the current situation, employees are working from home across businesses. Employees are likely to incur additional 'work from home-related expenditure', such as internet charges, rent, electricity, furniture, etc., and therefore, employers would need to provide allowances to meet these expenditures,” the accounting firm said while recommending an additional ₹50,000 “work from home” allowance for employees.
It cited the United Kingdom’s example where the government has provided a flat rate of GBP 6 per week of tax relief for additional household costs, if one has to work from home.
The consultancy firm also suggested an increase in the threshold limit for the highest tax rate from ₹10 lakh to ₹20 lakh. "To align individual tax rates with corporate tax rate, it is advisable to reduce the highest tax rate of 30% to 25%... Therefore, the proposed highest slab rate (including surcharge and cess) can be reduced to 35.6% from 42.7%," it said.
Its Big 4 peer, EY India, doesn’t expect any change in personal tax rates. It, however, said that disparity in surcharge rates on dividend income from shares and income from equity mutual funds may be addressed in the upcoming budget.
While finance minister Nirmala Sitharaman is unlikely to offer any relief on the personal income tax slab, Fortune India had earlier this month reported a number of tax saving avenues on which the government has received multiple representations.
The exemption limit under Section 80C of the Income Tax Act was increased from ₹1 lakh to ₹1.5 lakh in 2014. In its pre-budget memorandum, the Institute of Institute of Chartered Accountants of India (ICAI) said the limit may be increased to ₹3 lakh considering inflation and need for social security for people when they are aged.
“The only safe and tax efficient saving option available for self-employed assessees is PPF (public provident fund). Hence, the suggestion to increase the ceiling of PPF contribution to ₹3 lakh,” ICAI says, adding that this may also boost the domestic savings as a percentage of GDP and will have an anti-inflationary impact.
It also suggested the government allow tax exemption for premiums paid by policyholders on travel, home or personal accident insurance policies under section 80D of the Income Tax Act. Currently, deductions on health insurance premiums paid by taxpayers are covered under the Act.
The government may also enhance the standard deduction limit of ₹50,000 in the budget. A standard deduction of ₹40,000 was introduced in 2018 and it was later enhanced to ₹50,000 in the interim budget for 2019.
According to the Confederation of Indian Industry, the current capital gains provisions are highly complex due to inconsistency in the holding period and tax rates for different asset classes.
"The holding period for REIT/InviT units to turn long term is three years whereas holding period for listed shares and equity oriented mutual funds is one year and direct holding of immovable property is two years. Similarly, the tax rate for long term capital gains on unlisted shares for non-residents is 10% whereas it is 20% for resident investors. A simple and well-defined structure for taxation of capital gains is the need of the hour,” says the industry lobby.