Budget 2021 | Continuity with change: Three issues to look forward to

Once again, we have come to the budget season. There will be endless debates on what the Finance Minister should or should not do.

It might be more constructive to look at the trends we have seen over the last few years. Knowing the trend can give us more certainty over what is likely to occur. Here are three that are relevant:

Further rationalisation and simplification of the tax system

The tax code has been streamlined since 2016. A number of initiatives have been taken including pre-filled income tax returns, faceless e-assessment, a standardisation of deductions for salaried income and a rationalisation of deductions under section 80C. Last year, the government introduced a new tax regime which nudged people toward lower tax rates if they don’t claim exemptions.  I expect the government to double down on these initiatives and further nudge taxpayers to move to the new tax regime by rationalizing and removing exemptions in the old regime.

Focus on health

In Budget 2018, the government introduced their flagship scheme PM-JAY that gives health cover of Rs 5 lakh to the poor. In the same budget, the Finance Bill amended section 80D to increase the deduction for payments towards annual premium on health insurance policy for senior citizens from  Rs 30,000 to Rs 50,000. And the government also raised the limit of deduction for medical expenditure for specific critical illness to Rs 1 lakh for all senior citizens, under section 80DDB. It is likely that there would be a renewed focus and expansion of such initiatives. This could take the form of an increase in deduction under section 80D to help seniors. or in the form of an expansion of PM-JAY to cover the elderly.

Incentives and nudges for economic empowerment

The new tax slabs in Budget 2020 provided major relief for those individuals earning an income up to Rs 10 lakh. Given the financial distress that farmers and informal sector workers have seen during the last year, we could see the government focus on giving economic incentives to these groups. In particular, I believe that this would be the right time for the government to accelerate its adoption of the direct benefit transfer whilst plugging the existing leakages of the subsidy system.

Lat year  there was a lot of disruption and it seems like we are finally turning the corner this year. Whilst our country faces stiff fiscal constraints due to the economic disruption, I am certain that the finance minister will be able to continue the steady progress that has been made to the tax code over the last few years, provide a focus on healthcare and continue to incentivize economic empowerment for marginalised groups in 2021.

(The writer is founder and MD, Kairos Capital. Views are personal)