Budget 2022: Deciphering ICAI Budget Recommendations

Introduction

Recently I had an interesting conversation with one of my NRI CA friends whose daughter who was a Rank holder in CA Nov 2020 Exams has been gainfully employed in one of the Big E-Commerce sellers as a financial analyst in Bengaluru who was asking me what are the avenues for saving taxes for the salary earned by his daughter? Who according to my friend is paying a good amount of income tax on the salary earned, she easily falls in the 30 % slab rate. This same scenario echoes in my home with my son who got gainfully employed soon after passing out from a Premier Engineering College and easily is eligible for paying taxes, the usual Gen-next generation. I am always of the opinion that by taxing less and by widening the tax bracket we will easily reach the intending target of achieving the Direct Taxes Budgeted Collections which is an important component of our Annual Budget which leads to the Growth of our Indian Economy which is good for all of us, one person’s needs is business for another person and that’s the way the economy runs.

Reality Check

The Net Direct Tax collection of Rs. 9,45,276.6 crore (as on 16.12.2021) include Corporate Tax (CIT) at Rs. 5,15,870.5 crore (net of refund) and Personal Income Tax (PIT) including Security Transaction Tax (STT) at Rs. 4,29,406.1 crore (net of refund). The figures of Direct Tax collections for the Financial Year 2021-22, as on 16.12.2021 show that net collections are at Rs. 9,45,276.6 crore compared to Rs. 5,87,702.9 crore over the corresponding period of the preceding financial year i.e FY 2020-21, representing an increase of 60.8%. The net collection (as on 16.12.2021) in FY 2021-22 has registered a growth of 40% over the corresponding period of FY 2019-20 when the net collection was Rs. 6,75,409.5 crore.

The Apex body ICAI, my Alma mater has suggested some measures and changes in the limits keeping in mind the overall economic scenario, and let me briefly summarize the same which looks to me Quite reasonable and practical.

Standard Deductions: To Be Raised from RS 50 K > 100 K

Salaried employees are currently allowed standard deduction u/s 16 @ Rs 50,000 or the amount of salary whichever is less. This is to cover any expenses incurred during the course of the employment other than professional tax on employment. There are various expenses that the employees incur during the course of employment which they cannot claim as a deduction. At the same time, the few exemptions that are available to them u/s 10 are subject to upper limits which have been fixed several years back and virtually serve no purpose on account of inflation. Employees during the course of their employment incur various expenses, including upgrading skills, for rendering their services as employees, the deduction for such expenses needs to be enhanced every year. For avoiding the possible leakage of revenue, such deduction may be linked to the cost inflation index just like as it happens for income under the head capital gains and maximum may be restricted up to say Rs. 100,000.

During the 2014 Budget, the then Finance Minister late Sri Arun Jaitley had enhanced the limits of section 80 C contributions from Rs 100,000 to Rs 150,000 corresponding to the financial years 2014-2015 with the Relevant Assessment year 2015-2016. Now the time has come to relook at the earlier ceilings / Limits to be raised and our Institute has come up with the following proposals which are in tune with the current trends & Needs of the salaried class.

PPF is used as a means of savings by entrepreneurs and professionals. While the assesses in employment have the compulsion of saving 12% of their salary (with matching contribution from employers), the only safe and tax-efficient saving option available for self-employed assesses is PPF. Hence, the suggestion to increase the ceiling of PPF contribution to Rs 3 lakhs. This may also boost the domestic savings as a percentage of GDP and will have an anti-inflationary impact.

It is suggested that

• The Annual limit for contribution to PPF is increased to Rs. 3 lakhs from the present ceiling of Rs. 1.5 lakhs.

Further, the present limit of INR. 150,000 has not been increased for several years and requires reconsideration. The revised monetary limit will help in increasing the savings of individuals and is necessary to keep in view the rate of inflation. Deduction under section 80CCF may be increased from Rs.1.5 lakhs to Rs.3 lakhs.

• Full deduction for Health Insurance premium paid u/s.80 D may be allowed and not tag it with a deduction for medical expense. Apart from the deduction for health insurance premiums, a separate deduction for medical expenses incurred should be made available. The justification for such separate deduction is the lack of social security cover and the inability of the public health sector to cater to the needs of the taxpayers by providing efficient hygienic and timely medical treatment.
• The limit for deduction under section 80 DDB for expenses incurred on the treatment of certain chronic diseases may be increased.
• As per section 80 CCC, if any contribution is made by the assesses to a pension fund and deduction is claimed under that section, all withdrawals from the scheme by the assess (including the principal amount) ARE SUBJECTED TO TAX. This is causing hardship in respect of those assesses who have simply made contributions to this scheme and have not claimed any deductions. Hence, the suggestion to amend this section to the effect that in cases where the deduction is not claimed under this section, only the appreciation component of the investment will be subjected to tax. Even if a deduction is claimed, only the amount of deduction claimed should be added to the income at the time of withdrawal from the scheme and not the entire maturity proceeds. Of course, any appreciation over the principal invested can also be taxed as a capital gain.
• The quantum of deduction under section 80 C be increased from Rs 150,000 to Rs 250,000 to provide savings opportunities to the public at large
• Section 80DDB - Insert COVID-19 as eligible disease, In current times, it may be considered to allow medical expenditure incurred on treatment COVID-19 as expenditure incurred for treatment of specified disease for the purpose of claiming deduction under section 80DDB.

So let us wait for the Budget Day announcements on 01-02-2022 with anticipation that the youthful population and salaried class will get a breather.