Budget 2020: Govt could consider incentives to promote investment and savings

Tapati Ghose and Sumit Jain

The focus of the government is on developing infrastructure and real estate as these sectors provide immense opportunities for generating employment. The Sagarmala Programme is one such initiative by the Government of India to improve transport infrastructure. The government is also considering various incentives for salaried individuals for promoting investment and savings. Some of the asks from the industry are provided below:

A. Financial Markets

Simplification:

Currently, the holding period to qualify as long term capital gains in case of investment in equity shares, mutual funds, debt oriented funds, properties, equity shares etc. varies. One of the objective of the government is to bring simplification in tax laws and to make it easy to implement and be less litigative.

Below is the table providing the holding period of various securities with the corresponding tax rates:

There is a strong case to rationalise the holding period with reasonable tax rates and bring in uniformity across various investments to make the provisions comprehensible and reduce inadvertent evasion.

B. Investment avenues:

Infra bonds - Re-introduction of the deduction in respect of subscription to infrastructure bonds by individuals. This will also help the government to mobilise funds for investment in infra sector and thereby boost the economy.

Additional investment in the real estate sector - The government’s motto is to provide housing for all. To boost the real estate sector, the government should consider enhancing the limit for deduction of interest paid on housing loan to Rs 3,00,000 in case of a self-occupied property.

Additional deduction of Rs 1,50,000 was provided to first time home buyers in the Finance Act 2019. One of the conditions to avail this benefit is that the stamp duty value of such property should not exceed Rs 45 lakh – this denies full usage of the benefit of additional deduction of Rs 1.5 lakh for all the years. As such, the ceiling on the cost of the house needs to be significantly enhanced to derive the full potential of the benefit.

Additional saving through increase in 80C limit - The deduction under Section 80C has remained static since Finance Act, 2014. The section is meant to provide relief to individuals for specified investments and expenditure, while at the same time channelise investments into areas that support the economy. At this juncture, it is expected that there will be an increase in these limits. With the economic slowdown, the government could consider enhancing the existing limit of INR 150,000 to INR 200,000.

Increase in limit for NPS - NPS comes under an EET (exempt, exempt, tax) regime. Withdrawals from the NPS are taxable to the extent of 40 percent. However, EPF and PPF are on EEE (exempt, exempt, exempt) regime. For the scheme to be successful, it has to be brought at par with other retirement schemes by making withdrawals tax exempt.

The contribution by employer to NPS up to 10 percent of basic pay of the individual, is deductible. NPS for the government sector was increased from 12-14 percent last year - a similar increase is expected for the private sector as well.

C. Abolish dividend distribution tax (DDT)

Dividends paid by a domestic company are subject to dividend distribution tax at 15 percent. The rate is further increased by surcharge and cess. The government is considering removal of DDT based on industry representations. The revenue loss is likely to be compensated by introducing tax on dividends in the hands of shareholders. Caution needs to be exercised by adopting a reasonable tax rate.

(Ghose is Partner with Deloitte India; and Jain is a Manager with Deloitte Haskins and Sells LLP.)

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