Balancing Act

A lot has transpired over the past one year, especially the economic contraction in FY21 in the wake of the Covid-19 pandemic. Despite the fall in tax and revenue collections, Budget 2021 was nuanced with its share of positives. First, the income tax slabs were left unchanged. Next, senior citizen pensioners over 75 years old have something to cheer about with the proposal to exempt them from filing income tax if the full amount of tax payable was deducted by the paying bank. This exemption will also benefit those senior citizens who have only interest income apart from the pension income.

The budget focused on growth recovery, at the expense of widening the fiscal deficit, which is understandable for a pandemic year. Budget proposals were inclusive with something there for different segments of the economy, with greater focus on healthcare, higher education and infrastructure. These actions are in-line with expectations to increase spending, which will revive the economy. Steps towards monetizing through PSUs and their land holdings can add to revenues and bridge the deficit. The move is in-line with the Atmanirbhar plan.

The FDI increase in insurance from the current 49% to 74% is a positive move and will help in the growth of the sector. However, the tax rationalization of ULIPs, in case of maturity proceeds where annual premium are above Rs 2.5 lakh on policies sold after February 1, 2021 changes does impact life insurers. A similar limit has been introduced towards provident fund where tax exemption for the interest income earned on the employees’ contribution to various provident funds by limiting the annual contribution to Rs 2.5 lakh.

Income tax-related changes announced in recent budgets seem to have their genesis from data analysis. With the number of tax filers going up along with increased digitization of financial transactions; there is a lot of data available with policymakers who are using the same to introduce changes to tax rules for the benefit of taxpayers. This development will also benefit in framing future tax laws and policies. The fall in number of active Covid-19 cases and the availability of vaccine, I hope for FY22 to be one of recovery and growth, to make up for the disruption of FY21.