Budget 2021: Increase in tax slab limit can improve consumption

Increase in the income tax slab limit is long overdue and it is something that salaried individuals look forward to during every budget. The new tax slabs are not working for many taxpayers. At the same time, inflation continues to be on the higher side. And it is likely that growth in income of salaried individuals will be limited.

This will have a major impact on their financial situation. The increase in tax slab limit can improve consumption as there will be more disposable income at salaried individuals end.

On the tax rebate front, a higher deduction under section 80C will be effective and work for them as this will encourage more savings and long term investment. Providing additional tax benefit for new home buyers in the form of higher rebate on interest repayment will encourage a segment of buyers to buy their home. The additional tax saving benefit can act as a good incentive. It will also increase the demand in real estate sector.

The government should consider increasing the deduction towards NPS payments to Rs 1 lakh or even Rs 1.5 lakh.  Today, section 80C limit of Rs 1.5 lakh for many taxpayers is not enough to save tax. Increasing NPS limit for additional deduction will help people to save tax and encourage long term investing. Also, the government should look at making it EEE (Exempt Exempt Exempt) from taxation perspective. At present NPS account holder can withdraw 60% at vesting age which is tax free and remaining 40% is to be invested compulsorily in annuities.

The medical expenses are surging every year in India and need for higher health insurance cover is very crucial. Higher exemption limit under Sec 80D for health insurance premium will bring relief on tax as well as encourage people to opt for adequate health cover.

On the government spending front, more allocation to improve infrastructure on healthcare and education sector is important. The need for more organised healthcare and education sector is evident from our experience during Covid-19 crisis. Undoubtedly, the authorities have done a commendable job to ensure the safety of people during those tough times; but this event also highlight the need for well organised healthcare and better equipped education sector.