Common Man @ the Core

At a time when the global economy, including India, is set to recover from an acute turbulence, the Budget annual exercise assumed a higher level of hope this year than ever before. While the fine print is still under analysis, here we restrict to looking at the implications of a few proposals affecting a common citizen’s financial affairs.

There are six distinct matters in this regard.

One, recognising the difficulties experienced by citizens aged 75-plus, there is a provision for partial relief by exempting them from filing tax returns. However, to qualify for this exemption the income should be restricted to pension or interest or both. Additionally, both interest income and pension must be credited to the savings bank accounts belonging to specific banks that the government will notify.

While this positive gesture is welcome, it would have been more appropriate to extend the facility to other streams of income such as rent and dividend. There is also a strong opinion building up in favour of ceasing to tax the senior citizens as a step towards building a more dependable social security framework to support them in the evening of their life.

Two, Budget 2021 has given a further push to faceless assessment and aims to make it more robust. A faceless dispute resolution committee is proposed to be set up. Anyone with a taxable income of up to Rs 50 lakh and disputed income up to Rs 10 lakh can approach this committee.

This resonates with the idea of enhanced electronic medium of transactions. Also, in the wake of Covid-l9, physical interactions may be justified only on need basis. Good move.

Three, the Budget provides for faster tax resolutions. To achieve this objective, the timeline for reopening of assessment under income tax will go down to three years. Serious tax evasion cases, too, would only pertain to cases where there is evidence of income concealment of Rs 50 lakh or more in a year. The reassessment can be opened in 10 years in such cases. This will ease the burden on the tax authorities and taxpayers and pave the way for faster resolution of cases. It’s undoubtedly a wise step.

Four, a proposal for the detailed pre-filled tax forms is planned. This means, apart from TDS, details of capital gains and interests from banks and post offices would be pre-filled. Such pre-filling improves tax compliance and help taxpayers to file their returns quickly and efficiently.

Five, the Budget has proposed that contribution made in provident funds beyond Rs 2.5 lakh a year, will now attract tax on interest. The interest will be calculated on the excess amount. Additionally, ULIP will now attract long-term capital gains tax at maturity or redemption, if the annual premium exceeds Rs 2.5 lakh. Relevant to note is that both of these have been tax free.

This provision is retrograde and needs a serious reconsideration.

Finally, there is a change in double taxation on NRIs, especially those who return to India. Relief is also being looked at for those who face difficulty in getting credit for taxes paid in India. This is a good gesture given the overall sentiments attached to the contributions by the NRIs in terms of inflow of foreign exchange.

We have flagged five measures here.

Deposit insurance: As banks are frequently getting into trouble, the government plans to make the Deposit Insurance cover better structured. The idea is to ensure the depositor gets his claim if the bank falls. Only last year the deposit insurance cover for bank depositors was hiked from Rs 1 lakh to Rs 5 lakh. However, this is only available for banks when they go into liquidation. A better and a revised mechanism would now help depositors even before the bank goes into liquidation. This is a well-meaning move, and can protect bank customers from the kind of situations in the recent past when the RBI had imposed moratorium on banks.

Investment charter: To reduce mis-selling of financial products, there is a proposal for setting up of an investment charter. This charter would pertain to investors of all products across the financial sector. While details are awaited, this charter is expected to lay down rights of investors. Hopefully, it will make all current financial products’ grievance resolution mechanism more robust. The move is welcome.

Social Security: Several tax-paying citizens who lost their jobs due to Covid-19 and had to take up freelancing get some relief in Budget 2021. Social security benefits will be extended to gig and platform workers. E-commerce hires will now be brought under PF, ESI, and minimum wage rule. Women will be allowed to work in all categories in night shifts too. This is a spirited move and India needs more of such affirmative actions. However, women working in night shifts should be the exception, rather than the rule and extensive safety measures should be built.

Debt Bonds: To spur infrastructure growth, Budget 2021 announced that infrastructure debt funds could issue tax-efficient zero-coupon bonds. Further details are awaited on the taxability of these bonds. We can say there is a new investment on anvil.

Electricity distribution: Soon consumers can choose their electricity distribution firm. Given that these are monopolies it is fair to provide choice to consumers by promoting competition. Well done.

Circumstances expected the dimensions of this year’s Budget to be qualitatively distinct and not just optics. The jury is still out on this. At the end, more than observing too much on the tone of the Budget proposals, it would be interesting to see how it affects the common man.