Budget expectations 2022

Current environment 

• With the Indian economy looking forward to recovering from the pandemic, the coming year is expected to bring back stability for which, the budget is considered to be a key growth driver
• Expecting the economy to rebound sharply and continue on a speedy recovery will require major reforms in the economy
• The government, in its journey to enhance the ease of doing business, had taken up the task to consolidate various labour regulations. Twenty-nine labour-related regulations have been consolidated into four labour codes, viz., the code on wages, the code on social security, the code on industrial relations, and the code on occupational safety, health, and working conditions.
• Consolidation of various central labour regulations will aid in ensuring that the following objectives are met -
  - Realignment to reflect current business requirements and technology  changes being adopted;
  - Minimisation of litigation; and
  - Simplification of varied statutes prevalent today to help companies comply better and enable its enforcement in a more simplified and transparent manner

Expectations -

Top four asks:

Expectation #1: Revision of tax slab rates

• Per the current income-tax provisions, an individual is required to pay taxes based on the slab rates. The highest slab rate (after including surcharge and cess) for income exceeding INR 5 crore in India is currently at 42.744 percent
• There has been reduction in corporate tax rates over the past few years. Hence, to align individual tax rates with corporate tax rate, it is advisable to reduce the highest tax rate of 30 percent to 25 percent and also increase the threshold limit for the highest tax rate from INR 10 lakh to INR 20 lakh. Therefore, the proposed highest slab rate (including surcharge and cess) can be reduced to 35.62 percent from 42.744 percent

Expectation #2 - Introduction of additional deduction towards “work from home”

• Considering the current situation, employees are working from home across businesses
• Employees are likely to incur additional “work from home”-related expenditure, such as internet charges, rent, electricity, furniture, etc., and therefore, employers would need to provide allowances to meet these expenditures
• In the UK, the government has provided a flat rate of GBP 6 per week of tax relief for additional household costs, if one has to work from home
• It is recommended that an additional deduction of “work from home” allowance of INR 50,000 be given to employees who are working from home

Expectation #3 – Exemption with respect to taxed PF contribution

• Budget 2020 provided that employer contribution to Recognised Provident Fund (RPF), superannuation, and National Pension System (NPS) exceeding INR 750,000 will be taxable in the year of the contribution
• Section 17(3) of the Income-tax Act, 1961 (the Act) provides for taxability of funds received from Provident Fund, if certain conditions outlined in the Fourth Schedule (i.e., not rendering continuous service of five years etc.) are not complied with
• In case of contributions by employer in excess of limits specified, the excess contribution and the accretions thereon is taxable in the hands of the employee
• The same PF balance, when withdrawn, would be subject to tax withholding, if the conditions for exemption (for e.g., five years of continuous service) are not complied with and there is no specific exemption provided for excluding the income already taxed mentioned above. Hence, there could be double taxation, at the withdrawal stage to the extent the contribution/accretion has already been taxed
• It is recommended that there should be a specific provision in the Act, providing exemption with respect to contributions/accretions that are already taxed under section 17(2)(vii) at the time of PF withdrawal