Finance Minister Ms. Nirmala Sitharaman presented the Union Budget 2021-2022 on 1st Feb, many analysis, news reports have been published since then. So, what is new here, here I have noted down points which nobody will tell you otherwise ‘for individual tax payers’.
This union budget has been special in many ways, especially after Covid-19 pandemic which saw unprecedented economic shocks and health hazards across the globe. India suffered big blow with negative growth in the first half of the budget included many announcements to push economic recovery.
But in this post, I would like to bring forth the points which matters to all the salaried citizens of India. The blog post would cover the salient points of the budget, brief analysis – which is not covered in news reports, key take away of the budget or as we prefer calling it – ‘Call to action. ’
Key points for Indian Tax payers –
1. There is no change in the income tax slab from the past year (Last year Government introduced a category for individuals which is for people who do not want to claim tax benefits under Section 80C -)
2. Introduction of taxation on interest earned on EPF for a contribution more than 2.5 lakh in a financial year.
3. Introduction of tax on maturity for life insurance policies at 10% (like mutual funds) with premium more than Rs. 2.5 lakh premium
4. Simplification in tax return filing for senior citizen
So what is the issue with these announcements?
The issue is not with the individual announcement itself, but the trend which is being set for past few years. While government is taking a lot of initiatives of financial inclusion and social security to protect the poor, and various tax benefits to accommodate the entrepreneurs and industries, it is the salaried section which is getting excluded from benefits gradually but surely.
– The budget gradually have bucketed the individuals in three categories – low income, mid income and high income. The more you grow up the ladder in the income through salary segment, the more tax you need to pay.
Will government lower the taxes?
Well, I don’t know. However, looking at the trend, it will only be done to adjust to inflation or major economic disasters.
Is government Cruel to taxpayers?
Union Budget is about strengthening balance sheet of government, identifying the loopholes and opportunities to keep-up the income for government to create a balance, growth and inclusion in the society. People with a steady, secured job and growing salary is not on government’s priority list. Government needs to keep a focus on feeding the under-privileged, creating enough job opportunities, securing the borders, so on and so forth. So, tax payers are much better placed with employer benefits and steady monthly income compared to larger society and on the least on priority for government welfare.
Why Government is unlikely to increase the tax benefits under section 80C and 80D?
There is no incremental tax incentives for FY 2021-2022. we may consider as one off year, where government encourage to spend the money to speed up economic recovery. But these tax incentives will be less and less significant in future, with time and growing salary, 80C and 80D will make up for a very small portion of our overall financial planning. Government introduced various small savings schemes and investment avenues to build a savings habit and self-sustaining financial positions for citizens with such schemes. These tax incentives on equity investments, PPF, life insurance has forced many tax payers to get into a financial discipline.
Over decades, the income has improved to average $2000 per capita annually in India, government is focusing its efforts towards individuals belonging to lower income bracket. Government over the decades with tax incentives has created markets for Indian equity, insurance and mutual funds and insurance industry. Now the market is maturing and government will take its share of the revenue with taxes.
Now, capital gain tax of 10% introduced for all long-term capital gain tax on equity mutual funds over 1 Lakh, GST on health and life insurance premiums too in recent past. ULIP income coming out of Insurance premium over 2.5 lakh will be taxed at 10% like equity mutual funds.
For deposit schemes, by introducing small savings schemes, government borrowed money from the individual citizens offering marginally higher interest than Bank deposits. However, with lowering interest rates and various avenues to raise funds for its expenses, PPF, EPF, Sukanya Yojana are high cost loans for government, presently only avenues which offer triple tax exemption. So, government will limit this exposure too.
In the process, we have also accumulated wealth. But, tax incentives will not and should not last forever.
So, do we not have a solution to the issues of increasing tax burden? And how?
We should learn these from the rich people. Taxes are first created for the rich, then it trickled down to the middle class. Lower income group, thanks to the new initiatives will be protected by various social security schemes. Rich don’t pay as much tax as middle class in percentage term of their income. Rich learns the methods and ways to reduce the tax payout by choosing the assets their income coming from.
Food for thought – What to learn from the rich?
Here I am not talking about the highly paid salaried individuals with low financial skills.
– We need to use all the avenues of tax savings under section 80C, extra 50 thousand rupees for NPS over and above Rs. 1.5 lakh, health insurance for self, parents
– Buying adequate life and health insurance even if we don’t get tax benefits on it.
– We need to remember long term capital gain on equity over 1 Lakh is still only 10% and short-term at 15%, much lower than highest tax slab of 35%, so equity based investment is still lucrative
– Fixed deposit is paying lesser interest but above 10 thousand, still taxes at salary tax slab
– One should avail home loan when the interest rate is low and yet the home loan has all tax deduction benefits
– Our financial health should depend on the tax incentives provided by the government
– Most important lesson we need to remind ourselves, “A Business pays taxes after deducting all its expenses and Employee pays tax first and buys everything with their highly taxed income”
Last but not the least, you may not get any tax benefits by up skilling yourself and reading good books, but you will accumulate enough information and get educated about how to make the tax laws work in your favor and live a rich life!
Education offers exponential and infinite returns.
