Budget 2016: Should offer tax sops to boost savings and investments

Naveen KukrejaPaisaBazaarFinance Minister Arun Jaitley will present his third Union Budget on February 29, 2016, amid increasing concerns about global slowdown, falling exports, reduced rural consumption, bank NPAs and stagnant private sector investment and earnings. The government should aim at increasing domestic savings rate and encourage people to buy more long-term investment and insurance products for their own financial well-being. While increased savings rate will increase demand for goods and services, increased retail investment will help the government and private sector to raise long-term capital and cope with FII outflows. Here is my wishlist for Union Budget 2016 to boost individual savings and investment:Tax exemptions for interest paid on home loans during pre-possession stage: At present, interest of up to Rs.2 lakh per year paid on a home loan is deductible if you receive the possession of your property within three years of taking the home loan. However, if the possession is received after three years, the benefit gets reduced to Rs 30,000. As developers often fail to complete the housing projects on time, the borrowers end up in having reduced tax benefit for no fault of theirs. The government should allow the home loan borrowers to avail the entire Rs.2 lakh deduction, even if the possession gets delayed at the developer’s end.Increase tax deduction limit for housing loans: The government should increase the tax deduction limit for housing loans. The current limit of Rs.2 lakh is insignificant in metro cities where most houses are priced at Rs.50 lakh and above. Just to give you an example, your interest outgo would typically be around Rs.5lakh per annum for Rs.50lakh loan spread over a period of 25yrs, with 10% rate of interest. Introduce tax concessions on house insurance premiums: We often rule out home insurance as the least important form of insurance. This makes us susceptible to huge financial damages during natural calamities such as earthquake and flood. Introducing tax exemptions on home insurance premiums would encourage home buyers to insure their home or even property against natural calamities such as earthquake and flood. EEE status for NPS: Although NPS is aimed at retirement planning, its tax treatment is not favourable for retirees. At present, NPS comes under Exempt Exempt Taxable (EET) regime, thereby making its maturity amount taxable. This puts NPS at a sharp disadvantage over other retirement products, such as public provident fund and employee provident fund, whose maturity proceeds are not taxable.Extend Section 80CCD (1B) benefits to pension products from mutual funds: At present, additional deduction of Rs 50,000 is available under Section 80CCD (1B) over and above Rs.1.5 lakh limit available under Sec 80C. However, only investments in NPS have been approved for deduction under this section. Extending this limit to pension products from mutual funds will help expand the pension coverage in India. To sum it up, the government should proactively use tax-exemption limits as a tool to boost the industry and nudge people to make long-term investments and buy essential insurance covers.