1. Taxability of Covid-19 vaccination and treatment related expenditure borne by employer
There is lack of clarity on the tax treatment of cost of vaccinations as borne by the employer or medical supplies provided by the employer to employees and family members. While the press release dated 25 June 2021 (issued by the Ministry of Finance) provided relief in terms of amount received by a taxpayer for medical treatment from employer, there is no clarity on benefits in kind provided by the employer. Therefore, for abundant clarity, the tax treatment may also be specified as non-taxable in the hands of employees.
2. Separate deduction for Covid-19 treatment
Cost of medical expenditure incurred on the treatment of Covid-19 patients is significantly high in both government or private hospitals and no specific deduction has been prescribed under the Income-tax Act, 1961 which covers such treatment cost for patients who are not covered under any health insurance or where expenses are not covered under/higher than specific health insurance.
In order to provide relief to the taxpayers, a separate deduction capped at INR1 lakh or actual treatment cost incurred by the taxpayer for self or family, whichever is lower, may be contemplated to be introduced.
3. Realignment of income slabs/tax rates
With the objective of enhancing the net disposable income it may be considered whether the basic exemption limit under the existing tax regime can be enhanced from INR2.5 lakh to INR5 lakh itself.
Subsequently, the other slab rates both under the existing and new concessional regime can be adjusted basis the revised limits in line with the progressive tax rate system India has generally adopted.
4. Deemed leave travel concession (LTC) Cash Voucher Scheme
The resurgence in Covid-cases during FY 2021-22 (during the second wave period) further hampered the travel within the country due to the restrictions imposed by various state governments. Further, the recent surge due to Omicron variant has put the travel on hold again which may continue in FY 2022-23 as well. Therefore, the deemed LTC Cash voucher scheme, which was announced by the Ministry of Finance in October 2020 (and notified by the Finance Act, 2021) to boost the consumer demand and provide tax benefit to individuals, who are unable to claim the usual LTC tax benefit due to Covid-19 travel restrictions, should be considered to be extended for two more years i.e., till 31 March 2023.
5. Separate tax break for children’s education
Currently, there is no express deduction/exemption for children’s higher education expenses except the Sukanya Samriddhi Yojana which is specifically for a girl child and the tax benefits therefrom are not substantial as the deduction is clubbed within the Section 80C of the Act limit of INR1.5 lakh annually. A separate deduction for the education savings would be a welcome move in this regard.
Alternatively, a deduction for education expenses can be carved out of Section 80C of the Act and a separate deduction of INR1.5 lakh p.a. at the minimum may be considered.
6. Increase in standard deduction
Currently, the standard deduction allowed to the salaried individuals is INR 50,000 per annum which is significantly low given the cost of inflation over the years and the living expenditure of salaried individuals in current times. It has been further accentuated by the Covid-19 pandemic on account of increased medical cost and work from home expenses like cost of furniture, electricity, Internet, etc. Hence, there is a need to consider increasing the current standard deduction limit of Rs 50,000 to at least Rs 1 lakh p.a. This will provide some financial cushion to individuals to sail through these unprecedented times.
7. Increase in deduction limit u/s 80C of the Act
The populous deduction under Section 80C of the Act covering common tax saving investments has a higher cap limit of INR 1.5 lakh which has remained static over the years now. With an intent to encourage long term savings and flow of funds to important sectors like schooling, housing etc. the government may consider increasing this limit to INR3 lakh p.a.
8. Relief for senior citizens
Generally, senior citizens depend on fixed income investments to meet their regular income needs and bank fixed deposits are amongst one of the preferred options, however, the currently available tax breaks for them are limited like deduction for interest earned on saving and fixed deposit with banks or post office or co-operative banks for an amount up to INR 50,000 is available under Section 80TTB under the Act. To provide some relief to the senior citizens, the Government could consider enhancing some tax breaks including increased limit for aforesaid deduction to at least INR 1 lakh p.a.