Budget 2022: 'Raising standard deduction limit will help individuals save more'

NEW DELHI: Like every year there is a lot of hue and cry about the upcoming budget, to be presented by finance minister Nirmala Sitharaman on February 1.


Given the prevailing Covid situation, which has dented economic growth in the past, this time the government cannot afford to miss out on addressing the challenges that economy has faced in past 2 years.

Rising inflation pressure has become a big cause of concern globally, especially in the US. India's retail inflation rose to 5.59 per cent in December 2021, mainly due to an uptick in food prices. This is caused mainly due to supply side constraints. While, there has been no uptick in consumption as well.

Here are a few suggestions for Income Tax which can be incorporated in the

budget 2022

to address these challenges:
* Incentives for salaried class

Currently the salaried class is the one which has the maximum share in direct taxes kitty. It is important to incentivise the salaried class which in turn will lead to pick up in consumption cycle.

* Minor tweaks in tax structure
There is no need to further complicate the already complicated income tax structure.

Few simple tweaks in the tax structure can help a lot. The existing structure is already quite complicated so, minor changes can do the trick.

For example, the current standard deduction for the salaried class and for pensioners is Rs 50,000 per annum. Increasing the

standard deduction limit

to Rs 1 lakh will help save the tax.

Suppose, an individual falls under 20% income tax slab. An increase in standard deduction limit will help the individual save around Rs 10,000.

This saved tax will lead to increase in consumption expenditure of salaried individual.

* Raise section 80C limit

Another option may be increase in section 80C limit from Rs 1.5 lakh to Rs 3 lakh. Most Investments under section 80C always breach the limit of Rs 1.5 lakh.

Eligible deductions under 80C include principal repayment of housing loan, life insurance premium, contribution to public provident fund (PPF) and employee’s contribution to provident fund (PF).

It is therefore, suggested to increase the investment limit in PPF from Rs 1.5 lakh to Rs 3 lakh. In addition, amount of taxable contribution to employee’s provident fund may also be raised from Rs 2.5 lakh to Rs 5 lakh.

* Raise deduction limit on interest income
The senior citizens are the ones that are most affected by rising inflation. The major source of income for them is interest income from fixed deposits (FDs). However, in the last two years there have been negative real interest rates, making the senior citizens most vulnerable to this double whammy wherein inflation rose on one hand while, the real interest rates remained negative.

To address this issue, the budget may consider increasing the interest deduction for such senior citizens from Rs 50,000 to Rs 2,40,000. This will help senior citizens earning an interest of Rs 20,000 per month, without being taxed on this portion, thereby making FDs an attractive and safe investment option.

* Increase deduction on medical insurance premium
Over the years the cost of medical treatments have also risen and so have the premium paid on medical insurance policies.

The need and importance of medical insurance has never been felt more necessary as in the last 2 years. The I-T act does provide deduction on medical insurance premium to the extent of Rs 25000. However, considering the rise in medical insurance premium, this limit should be raised to Rs 50,000.


(The author Amit Bajaj is a Chartered Accountant)