Several robust tax measures and following tax arrangements are expected from this Budget.
Harjot Singh Narula
It is that time of the year when we all have our own expectations from the Budget. Finance Minister Arun Jaitley will unveil the Budget 2018 on February 1, 2018. Some audacious financial reforms taken by the government such as demonetisation and the rollout of GST have affected the common man and the economy as a whole.
Several robust tax measures and following tax arrangements are expected from this budget, which would be the last budget opportunity for the existing government to offer relief to the common taxpayers.
Amplifying the tax slabs for the individual tax payers
Widening of the tax base for the individual taxpayers, offering tax relief is one of the major expectations from FM Jaitley. Under existing slabs, the tax exemption is limited to the annual income of Rs 2.5 Lakh. Amplifying the tax exemption limit from Rs 2.5 Lakh to 3 Lakh is much needed, giving tax relief to the small individual tax payers. Also, the subsequent income groups falling beyond the income tax exemption slab are looking for a moderate cut in tax rates. However, the reduction in tax rates will certainly enhance the disposable income in the hands of the taxpayers and reduce the tax revenue figures for the government. But the depletion in government’s revenue can be routed through an increase in the cumulative tax deduction limits under section 80 C of the IT Act,1961, which is another substantial anticipation.
Increasing the tax deduction limits under Section 80 C
Currently, the cumulative tax deduction for investing in the specified investment avenues and expenses stands at Rs 1.5 Lakh under Section 80C of the Income Tax Act, 1961 for individual taxpayers and HUFs. This limit was last raised from Rs 1 Lakh to Rs 1.5 Lakh in Budget 2014-15. This budget is expected to make another amplification in the tax deduction limits from Rs 1.5 Lakh to Rs 2 Lakh. Enhancing the limit for tax free investments and expenses under Section 80 C will benefit the middle class segment and the tax payers falling in lower income slabs. The higher tax saving limits under section 80C will enable the taxpayers to save more and lower their tax liability under investment schemes like PPF, life insurance policy, NSC, Fixed Deposits, ELSS, NPS, etc, out of their disposable income. Incentivising domestic savings will help in boosting the economy as more money from the taxpayers will pour in towards the investment schemes (with the specified lock in periods) and enhancing the overall savings in the economy. Reduction in the tax rates and increment in the tax saving limits under section 80 C are the fundamental expectations from this budget.
Separate tax saving clause for term insurance
Term insurance plans symbolise the literal meaning of life insurance. With term insurance, a common man can adequately insure his life and loved ones at low premium costs. A separate tax saving clause and detached exemption limit for the term insurance premiums paid will be a great step to pull people towards this essential product. Offering a special tax saving limit (apart from the cumulative 1.5 Lakh limit available under section 80 C) to avail tax deduction will encourage people to buy a term plan and reduce their tax liability further.
Hike in Section 80 D limits
Healthcare expenditures form a substantial part of expenses for majority of the people in India. As per data, 70% of the healthcare expenses are met as “out of the pocket expenses”. This is because of the lack of possession of a health insurance plan or schemes by their side. Health insurance plans offer tax deduction up to Rs 25,000 for the individual taxpayer for the payment of health insurance premium for self,spouse and dependent children. For senior citizens, the tax deduction limits offered under Section 80 D are Rs 30,000. People can be encouraged to invest in health insurance plans by widening the tax benefit limit under section 80 D. Higher exemption limits under Section 80 D is certain to entice taxpayers to secure themselves from out of the pocket healthcare expenses along with lowering their tax incidence under section 80 D of the Income Tax Act.
Reduction in GST rates on insurance premium
Since the introduction of GST, the insurance cost has risen up significantly. Tax rates on life insurance and health insurance premium is currently fixed at 18%. This budget should focus on the reduction on GST rates on insurance premium to make it more affordable for the common man. Life insurance plan aids the financial protection for the family of the bread earner. Similarly, health insurance is also imperative considering the medical inflation rate and lack of other health insurance schemes. Health premiums for senior citizen health insurance plans are quite expensive as far as affordability is concerned. Topping it up with a 18% GST makes it more expensive as a proposition.
Health & Life insurance premiums should fall in the lower GST slab attracting tax rate of 5% to make the premiums more affordable for the lower and middle income group segment.
Make insurance pension plans tax friendly
A large proportion of the taxpayer segment focuses on other attractive investment avenues which keep the priority for the investment in the pension plans at the bottom. Finding government-backed pensionable jobs are no more a reality. Thus, an adequate retirement fund is important to have a worry free post retirement life. Pension plans are taxable and thus look unattractive in comparison to other investment options available for an individual. The accumulated corpus is taxable if an investor does not buy an annuity on maturity. The pension income coming from pension plans is also treated as an income and is taxable as per the income tax rules. There should be some relaxation on the current taxation rules for the pension plans offered by insurers to encourage people towards such plans. Also, the tax treatment for insurance, pension plans deserves parity as compared to NPS as both the avenues offer same objectives of retirement plan.
Measures and changes in favour of the taxpayer would certainly result in augmented disposable income in the hands of the taxpayers resulting in increased domestic savings. Focussing on special tax reforms for encouraging people to invest in essential insurance products such as term and health insurance is imperative. Measures like enhancement in tax deduction limits under section 80 C and 80 D are key expectations from this budget as it will reduce the tax incidence on the citizen.(The writer is founder & CEO of ComparePolicy.com)
India Union Budget 2018: What does Finance Minister Arun Jaitley have up his sleeve? Click here for live Budget 2018 news, views and analyses.