Budget 2022: Income tax deductions and benefits that the salaried expect

• January 21, 2022
• CA Chandan Agarwal's Office

Taxpayers would be happy to see a dip in the tax rate from 30 percent to 25 percent for individuals having income over Rs 10,00,000

Budget 2022 is round the corner. As COVID cases unfortunately have seen a spike recently in the country, there are heightened expectations among taxpayers that reliefs and deductions should be provided to individuals. Some key expectations are mentioned below.

Decrease in the income tax rates

Currently, the highest tax slab rate for individuals is 30 percent. Moreover, due to the surcharge and education cess, the tax rates of individuals may be as high as 42.744 percent while the tax rates applicable for domestic companies is only 25 percent (plus applicable surcharge and education cess).

In light of the above, taxpayers would be happy to see a dip in the tax rate from 30 percent to 25 percent for individuals having income over Rs 10,00,000 (under the existing regime) and income over Rs 15,00,000 (under the new regime).

Increase in various deduction and exemption limits

The cost of living is increasing rapidly leading to increase in tuition fees of children, medical expenses, rental expenses, and the like. The following amendments will increase the disposal income available for middle-income households and will also give a boost to them for making investments:

-Increasing the limit of deduction available under section 80C of the Act to Rs 250,000 (from Rs 150,000).

-Increase the interest paid on housing loan deduction limit from Rs 200,000 to Rs 250,000 on self-occupied properties.

-To support property owners in these difficult times who have let out the properties, it is recommended that the current standard deduction of 30 percent be raised to 40 percent.

-With a view to ensure higher participation in medical schemes, an increase in the section 80D deduction limit for self (not being senior citizen) and family from Rs 25,000 to Rs 50,000 and from Rs 50,000 to Rs 75,000 for senior citizens, could be considered.

-Extending the relief of savings bank interest under section 80TTA to FD bank interest, post office schemes and other such schemes for general category and increasing the threshold from Rs 10,000 to Rs 50,000.

-Currently, at the contribution stage, deduction under section 80CCD(2) is available to the extent of 14 percent of salary where contribution is made by the Central Government (CG) and 10 percent of salary where contribution is made by any other employer. To bring parity in the deduction allowed between employees employed by CG and any other employer, a deduction to the extent of 15 percent of salary should be allowed to all employees.

Deduction for employees working from home

As many employees are now working from home, they incur additional expenses such as on internet charges, rent, electricity, furniture etc., and therefore many employers provide reimbursements / allowances to meet these expenditures.

The employees would appreciate if an additional deduction is provided by the tax authorities with respect to ‘Work from Home’ allowance of Rs 50,000.

Extension of due date for filing revised India tax returns

The due date to file the revised returns earlier was 12 months from the end of India tax year which is now reduced by 3 months. For instance, for filing revised India tax returns of FY 2021-22, where the due date earlier was March 31, 2023, it will now be December 31, 2022.

There are some individuals who claim credit for taxes paid in overseas countries based on their overseas tax returns. It would not be possible for these taxpayers to obtain the calendar year overseas tax returns for 2022. This will pose difficulty in accurately computing and claiming credit of taxes paid overseas for calendar year 2022.

Accordingly, the due date for filing the revised return of income should be continued to be 12 months from the end of India tax year.

Clarity on taxability of interest on employee’s PF contributions

In Budget 2021, a provision was introduced to consider the interest to an employee’s contributions exceeding Rs 250,000 to Provident Fund (PF), as taxable. The said limit of Rs 250,000 should be extended to Rs 500,000.

Also, a clarificatory provision on whether the interest on employee PF contributions should be considered as taxable at accrual stage or withdrawal stage is required.