About a little over a month back, the finance minister had promised a ‘never before’ kind of budget this year. The idea I am sure is to address the concerns of the pandemic-hit economy and to boost the financial morale of all us Indians.
I am no expert in all things Budget, but given that I work on financial plans of a lot of common investors, I wanted to share some of the desires that people have from this annual exercise.
More deductions and exemptions
-The tax structure was tweaked a bit last year by introducing a new system (without exemptions) and keeping the old one too. To put some money back in the hands of tax-payers, increasing the basic income tax exemption limit to Rs 5 lakh (which is currently at Rs 2.5 lakh) would be a good move.
-It’s time to increase the limit of Section 80C. Currently, this stands at Rs 1.5 lakh per year. And since this was last revised several years ago, a revision now is long overdue. The problem is that there are several available options within this section and, hence, the limit easily gets exhausted for most salaried individuals. Increasing the limit to, say, Rs 2.5 to Rs 3 lakh will be a good start. Or, maybe, just link the Section 80C limit to an individual’s income levels. That way, those who earn more will have higher 80C limits.
-Everybody wants to buy a house. And most need a loan for that. Now some tax benefits are already available via Section 80C and Section 24B. But given the rise in housing costs and to incentivize people to buy homes (and boost the real estate sector), the government can consider having a separate deduction for home loan principal repayment of up to Rs 1.5 to Rs 2.5 lakh.
-In addition to the above, an increase in the limit for interest payment via Section 24B to about Rs 5 lakh should be considered as the average ticket size of property purchases is increasing in all mid-to-large cities. So it will allow for further benefits at the hands of the common man.
-This one is important. I would suggest that the government increase the exemption limit of interest income for senior citizens at the earliest. Currently, up to Rs 50,000 interest is tax-free for senior citizens under Sec 80TTB. This should be increased to at least Rs 1-1.5 lakh to provide relief to those retirees who depend solely on interest income.
-Indians are still underinsured. And one reason for this is the popularity of traditional insurance plans such as endowment and moneyback policies. As you already know, term plans are far better. So to incentivize people to buy large insurance covers in a cost-effective manner, having a tax incentive for the purchase of term insurance can be considered independently from the Section 80C.
-Health has come back to the focus of everyone’s life due to the pandemic. So this might be a good time to further incentivize people to insure their health. The government should consider increasing the upper limit on health insurance premiums under Section 80D to about Rs 1 lakh (combined limit for self, family and parent’s health insurance premiums).
-This one is a more of a personal demand. But I am sure I am not the only one. The government should consider the removal of long-term capital gains tax on equity investments. Currently, the LTCG is taxed of 10 percent without indexation on gains above Rs 1 lakh. A removal of this tax will boost the market sentiments substantially in a sustained manner.
-The switch from regular to direct plans of mutual funds shouldn’t be considered a sale-purchase transaction and, hence, shouldn’t be considered for taxes or exit loads. The same should be the case for the switch from growth to dividend plans or vice versa. If this is done, then it will be a booster for the aggressive on-going mutual fund campaign that is trying to increase the penetration of MFs across India.
-NPS is gradually turning out to be a useful product for long-term investments. So an increase in the existing additional Rs 50,000 benefit can be considered to make the pension-specific product more mainstream such as PPF. A thought should also be given to whether the mandatory requirement to purchase an annuity should be done away with or some alternatives be introduced to make the post-retirement NPS utilization more flexible.
I know, some of these might seem too far-fetched or maybe are financially imprudent from the government’s perspective. But nevertheless, these are few things that common people will benefit from the new budget. It will be interesting to see how the finance ministry goes about with its intent of making this a ‘never before’ kind of budget. More so for the common man whose morale is low in the aftermath of the pandemic.