Can the middle class expect a tax exemption from the Union Budget?

There are expectations that the middle class may get some respite in the Budget. There are rumors that the Union Budget FY21-22 is likely to take the sops announced earlier under the Atmanirbhar Bharat package to help people in their fight against the Covid-19 pandemic further, by raising the basic tax exemption limit for an individual income tax payee to Rs 5 lakh from Rs 2.50 lakh at present to enhance net disposable income in their hands. In the interim budget of 2019, the government had proposed a rebate on all payable taxes if an individual’s taxable income is upto Rs 5 lakh per annum. But it kept the basic exemption levels unchanged.

The Centre may also increase the level of standard deduction that is currently fixed at Rs 50,000. This is expected to provide relief to tax payers as medical reimbursement and travel allowance exemption were done away with from FY 2018-19 in lieu of the standard deduction. Higher levels of standard deduction will help individuals to keep with the ever-rising medical cost that has got amplified due to the pandemic and the rising fuel costs. The Finance Minister may also increase deduction under Section 80D against medical expenses, to increase the penetration. At present, Section 80D of the IT Act provides a deduction to the extent of ₹25,000 in respect of the premium paid towards an insurance on the health of self, spouse and dependent children. The section further allows a deduction for upto ₹25,000 for premium paid towards a health insurance policy of parents of the assessee. It does not matter whether parents are dependent or not.