Budget 2021 Expectation

Increase in basic income tax exemption limit

We are expecting the tax reliefs in this a Budget 2021 of India that hasn't been seen in a hundred years. The obvious basic income tax exemption limit needs to be increased from Rs 2.5 lakh to Rs 5 lakh. The expectation is to reduce the tax burden of general taxpayers that are impacted by economic slowdown. The Covid-19 pandemic has affected all of us in some way or the other. Increasing the basic exemption limit will provide tax relief to individuals, increase liquidity, and give a boost to the economy.

Treatment of LIP (life insurance policies) as a capital asset

Issue- Whether LIP (life insurance policies) can be regarded as a capital asset?
Any sum received under life insurance policies (‘LIPs’) not exempt under section 10(10D) are taxable currently. Deduction of only premium while computing the net income / loss after surrender / withdrawal of policy doesn’t take care of inflation resulting in higher taxability.

Suggestion- It is recommended that LIP be treated as a capital resource falling inside the definition of “property” beneath segment 2(14) of the Act. Indexation advantage (for premiums paid) will beware of inflationary effect - coming about inequality with other capital resources.

Income of minors - to increase exemption limits

Issue- At a present income of minors included in the hands of parents is exempt to the extent of Rs.1,500/- for each minor. The average expenditure to meet the cost of a minor's education/health/living expenses which has gone up considerably in recent years, the limit of Rs.1,500/- fixed is woefully inadequate.

Suggestion- It is proposed that this ought to be raised to at slightest Rs. 5,000/- for each minor child.

Tax exemption for Alternative Investment Funds – Venture Capital Funds

Issue- Earlier under Section 10(23FB) of the Income-tax Act, any income of a Venture Capital Company (VCC) or Venture Capital Fund (VCF) set up to raise funds for investment was exempt from taxation. However, in 2007, this was amended and the scope of VCC / VCF was narrowed down to select sectors, and the exemption from income tax was limited to “any income of a VC company or VC fund from investment in a venture capital undertaking”. The sectoral restriction stands removed in Union Budget, 2012 which was a welcome move. However, the tax exemption still remains limited to “any income of a VC company or VC fund from investment in a venture capital undertaking”. Keeping in mind the growing importance of VC funds in infrastructure and also in other important sectors of our economy, the previous wording of “set up to raise funds for investment” needs to be restored in place of “from investment” under Section 10(23FB). A change in the wording from “any income of a VC company or VC fund from investment” to “any income of a VC company or VC fund set up to raise funds for investment” will enable the VCC / VCF to undertake analysis/study necessary to evaluate the project viability as well as to render other services for the projects in which investments are made. Restricting the wording to “any income of a VC company or VC fund from investment” severely restricts the tax exemption thus affecting the commercial viability of the VCC / VCF.

Suggestion- It is recommended that segment 10(23FB) be rephrased as follows: “Any wage of a wander capital company or wander capital support from speculation set up to raise reserves for the venture in a wander capital undertaking.”

Capital gain on sale of property used for residence

Issue- Currently, a capital gain arises from the transfer of a capital asset, being buildings or land appurtenant thereto, and being a residential house, is exempt from tax if the assessee invests in one residential property as prescribed u/s 54.

Suggestion- In arrange to empower the lodging segment and meet the deficiency of lodging, it is recommended that the limitation on the venture in one private house in India u/s 54 may be broadened to more than one house.

Certain Issues

Issue- Exemptions to Life Insurance Policy

Suggestion- It is recommended that assess exclusion ought to not be connected based on the premium to entirety guaranteed proportion. Or maybe, all LIPs with an approach term of 10 a long time or more ought to be absolved. Charge exclusion based on approach term makes a difference in medium to long term ventures.

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Data sourced from ICAI pre-budget 2021 memorandum proposal.