Tax changes that could be a part of Union Budget 2021

Although changes in income tax returns (ITR) are not expected in the Budget 2021, hopes of the common man were raised when finance minister Sitharaman announced that this budget would be one “like never before”.

As the Union Budget 2021 is set to be presented by finance minister Nirmala Sitharaman on February 1, one of the most discussed parts of the budget is the tax reforms and structure that the budget proposes. In Budget 2020, Sitharaman introduced a new income tax regime which had zero tax for income up to ₹2.5 lakh; 5% for income between ₹2.5 lakh and up to ₹5 lakh; 10% for income between ₹5 lakh and up to ₹7.5 lakh; 15% for income between ₹7.5 lakh and up to ₹10 lakh; 20% for income between ₹10 lakh and up to ₹12.5 lakh; 25% for income between ₹12.5 lakh and up to ₹15 lakh and 30% for income above ₹15 lakh.

Changes in ITR slabs would help the common man whose income has been hit by the coronavirus pandemic to save money. (Reuters)

Here are some expected changes that the government could bring in the union budget 2021:

1. Tax return slabs: Although changes in income tax returns (ITR) are not expected in the Budget 2021, hopes of the common man were raised when finance minister Sitharaman announced that this budget would be one “like never before”. Changes in ITR slabs would help the common man whose income has been hit by the coronavirus pandemic to save money.

2. Income tax exemption limits under section 80C: It is also expected that the government could increase deductions under section 80 C. Currently, the deduction limit under section 80C of the Income-tax Act, 1961 (Act) for specified tax-saving investments is ₹1.5 lakh. It is expected that the government might increase this limit up to ₹2.5 lakh.

3. Long-term capital gains on equity and mutual funds: Currently, long term capital gains from the sale of listed equity shares and mutual funds gets tax-exemption up to ₹1 lakh. Above ₹1 lakh, it is subjected to 10% tax and other cesses. Positive changes in this limit will promote investment, especially in the stock market. It is expected that the government would look to increase the exemption limit from ₹1 lakh to ₹2 lakh for retail investors.

4. LTC cash voucher scheme: Under the Leave Travel Concession (LTC) cash voucher scheme, the employees are given full payment on leave encashment and tax-free payment of LTC fare in 3 flat-rate slabs depending on the class of entitlement. The government could extend this scheme beyond March 2021 in the Union Budget.