Moneycontrol
Last Updated : Feb 23, 2016 06:06 PM IST | Source: Moneycontrol.com

Budget 2016: More tax exemptions can achieve inclusive economic development

Tax exemptions can be aimed at promoting health insurance. Also government can offer tax incentives to channelize savings, which in turn work for individuals in their retirement planning.

Dilshad Billimoria

29th February and many are looking forward to what the finance minister has to present, especially in a time when the markets are in a downturn, there is so much uncertainty in global markets and change seems to be the only constant.

Prime Minister Narendra Modi was open to opinions from the ordinary citizens in respect to Union Budget 2016 and said it should not be restricted to round table discussions with industry specialists.

The wish list for any investor is for growth, economic development and appreciation in value of their savings and assets. This can only happen with proper governance, implementation of policy initiatives, a healthy balance sheet, helping the common man, and this is what the Modi Government started off with on being elected to the Lok Sabha.

Economic development and health and sanitation

Infrastructure is the backbone to economic growth. For any economy to grow and GDP numbers to reach 8-10% in the future, basic roads, railways and infrastructure should be given priority and proper plans for short, medium and long term projects laid out and enacted on time. Lack of funding, high level of debt and slow regulatory clearances are some of the major hindrances the infrastructure space has been facing for decades.

Road projects from NHAI has to meet stiff targets of road building, but are already in huge legal disputes with infrastructure companies and are facing disputes between contractors and land owners. If these disputes are addressed, debt burden comes down, focus on moving resources back into the system for development can happen. This would create more employment opportunities and increase basic development needed in our country.

India is a diverse country, with people from diverse socio economic backgrounds. Basic health, sanitation, better toilet facilities at all villages and highways should be built and a clear budget should be provided by state governments to improve basic cleanliness and sanitation. We have heard and seen many initiatives in this regard from the government in advertisements, trying to create awareness on health, and basic sanitation. Economic development starts with proper education among the masses.

Many of us are aware at the rate at which expenses on healthcare, health costs, hospitalisation and costs towards basic surgeries are moving up. In the light of this, social security measures especially for the elderly, whose budgets on health care far exceed the savings planned in their retirement years, should be provided.

Since the cost for healthcare has risen abnormally, to combat rising costs of healthcare, many financial planners, including us, are recommending increasing health cover for our clients, independent of health cover provided by the company. It would be good if Rs 25000 deduction under Sec 80D could be increased, considering galloping rate of medical inflation.

Since senior citizens are anyway grappling with high inflation, increased costs of medical expenses. It would be good, if the standard deduction limit could be increased to Rs 5 lakh for senior citizens and reduction in tax rate by 5% is also extended to them. This would enable them to manage their cash flows better.
Mass financial savings sector- Increase in PPF allocation limit to Rs 1.90 lakh from Rs 1.5 lakh, will fuel more savings towards retirement and long term savings and encourage participation in this excellent tax free savings tool, that provides for Sec 80C tax benefit at the time of investment and tax free returns of 8.70% on maturity. This would enable prudent savings for the long term, and fuel more savings among the masses due to its reach.

Salaried individuals hands are tied for options to reduce tax. Increased Sec 80C tax benefit from Rs 2 lakh to Rs 3 lakh will increase the savings base and reduce tax evasion. The salaried class is looking at increased exemption limits that have been the same for many years now, towards medical expense reimbursement, and transport allowance. These figures should be revised with due respect to Inflation.

Sec 24 (1) provides tax deduction on interest paid towards home loan repayment. Considering the high cost of living in cities like Mumbai, Delhi, Bangalore, such low exemption limits need to be revisited to encourage investment in real estate sector and create more development in housing and create employment opportunities.

Salaried individuals can claim HRA deduction to reduce their tax liability. There should be an extension given to self employed people also, where the exemption limit is only Rs 2000 per month as of now under Sec 80GG. The budget should address this anomaly, since many of the self employed individuals would also stand to benefit.

Primary reason for REITs not taking off is Dividend Distribution Tax (DDT) problem. While the builders are struggling with return on investment, they need to make payment of DDT on income earned through rentals. This reduces net return to the investor, after covering costs of builders. In order to encourage savings in different asset classes and provide a wider range of diversification to our clients, it would be good to look at the tax exemptions on REITs.

Focus on start ups to help in innovative ideas, should be given. Tax benefits should be rationalised for such firms whose income and growth is uncertain in the initial years. Last year growth in technology start ups was over 40%. To encourage start up participation, Government is planning to give exemption on capital gains tax for start ups and create a corpus of Rs 10,000 crore to fund innovation.

For investments and savings avenues, the investment community along with Association of Mutual funds for India (AMFI) has a plea to include savings instruments on par with NPS which is given additional tax benefit under Sec 80CCD. Specific retirement saving mutual fund schemes should be given the same tax benefit as NPS to widen the pool of savings.

Sec 54EC benefit given for capital gains exemption, should be extended in specific infrastructure based MFs also.

Looking forward to a good budget with incentives extended to the investing community and other cross sections of our society to promote infrastructure, growth and economic development.

Dilshad is a member of The Financial Planners’ Guild , India (FPGI). FPGI is an association of Practicing Certified Financial Planners to create awareness about Financial Planning among the public, promote professional excellence and ensure high quality practice standards.
First Published on Feb 23, 2016 06:01 pm
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