Every year people wish that budget brought some good news for them. Most of the retail investors / individuals eye upon taxes and the deductions, which help them to save some amount of tax.
Ronak Morjaria- CFPCM, Research Analyst, Apnapaisa.com
Every year people wish that budget brought some good news for them. Most of the retail investors / individuals eye upon taxes and the deductions, which help them to save some amount of tax. Over the years, we have seen the amount available for deduction has remained the same. My recommendations for this year’s budget would be:
Deductions under Chapter VI-A
The present deduction available under Section 80C is upto Rs.1 lakh only. This limit is in force since 5-6 years. Considering the increasing inflation over the period, the limit should be revised and increased. The expenses allowed for deductions available under the section have also increased.
Principal amount of home loan and Stamp Duty charges:
We have seen real-estate prices have risen. Since the prices of residential houses have increased, so has the amount of home loans people are taking. So eventually, the principal amount, which is being repaid, has also increased. Also the increasing stamp duty and registration cost due to increase in real estate prices can be availed for deduction.
The education cost is also increasing day-by-day. The people must benefit from the deduction as the education expenses (school fees) for their children is very high. So the available deduction under 80C must increase.
Public Provident Fund:
Also, after increase in the limit in maximum amount of deposit in Public Provident Fund (PPF) has increased to Rs.1 lakh and so has the current rate of rate of interest to 8.80% p.a., conservative investors are willing to invest more in PPF for taking the benefit by investing in PPF.
Equity Linked Savings Scheme (ELSS):
With increasing financial literacy, investors have started investing in mutual funds. ELSS was one of the routes and the reason people started investing in mutual fund. Also the Nifty and Sensex gave annual return of around 26% in calendar year 2012. So, this can attract investors to invest in equity market. I feel instead of continuing RGESS, if the deduction under 80C is increased, people may invest more in ELSS funds, since ELSS is the only scheme u/s 80C which has shortest lock-in period and can provide highest return in the long term.
This section was introduced in the year 2001, which allowed a deduction upto Rs.20, 000. The deduction was available for investment under infrastructure bonds. The deduction was not available in the last financial budget. Most of the retail investors used to invest in these bonds for availing the deduction and as a fixed income investment. Also, it was a great source for Infrastructure Company to raise funds, which would help them to build better infrastructure of the country and which would eventually benefit the growth of the country.
This section was introduced in the last financial budget, which allowed a deduction upto Rs.25,000 for investments upto Rs.50,000 in specified schemes or shares under the Rajiv Gandhi Equity Scheme. The motto of the scheme was to pool investors to invest in equity market. This was not very much successful due to the complication and eligibility criteria of the scheme. So, instead of continuing this scheme and the deduction amount under this scheme, it would be better to increase the deductible amount under section 80C or bringing back section 80CCF.
So, if the tax deduction amount will increase, should increase looking at the increasing expenses due to inflation. Lot of retail individual taxpayers will wish to avail a higher deduction and save tax.