Finance Minister Arun Jaitley will present his third Budget on 29 February, 2016, amid growing concerns about the global slowdown, bank non-performing assets (NPAs), falling exports, reduced rural consumption, overcapacity the in manufacturing sector, falling domestic savings rate and stagnant private sector spending in infrastructure. While India needs increased spending in its social and physical infrastructure to achieve faster growth rate, the Central government's own finances will be constrained due to fiscal pressures from the 7th Pay Commission recommendations and fiscal deficit targets.
This year's Budget should introduce some changes in present tax exemptions and deductions to boost the domestic savings rate and encourage people to buy more long-term investment and insurance products. While the increased household savings rate and retail investment will help in boosting the financial well-being of individuals, increased investment by individuals will also help the government and private sector to finance their capital expenditure and cope with FII outflows.
Here's my 2016 Union Budget wishlist for increasing individual savings and investment:
1. Tax exemption limit to be maintained for delayed projects
At present, home loan interest of up to ₹2 lakh per year is deductible from your taxable income if you get possession of your home within three years of taking the home loan. The tax benefit comes down to ₹30,000 if the possession is received after three years. As developers often fail to deliver homes on time, borrowers are forced to settle for a lower tax benefit. Thus, the government should allow home loan borrowers to claim the entire ₹2 lakh deduction when the possession gets delayed because of the developer.
2. Increase tax deduction limit for housing loans
This year's budget should increase the tax deduction limit for housing loans. The current limit of ₹2 lakh is insufficient for most Indian cities, considering that even a 2BHK flat in most cities costs more than ₹25 lakh. For example, your interest outgo for even a ₹20 lakh home loan of a 20-year term with 10% interest rate would be around ₹2.5 lakh per annum.
3. Introduce tax concessions on house insurance premiums
Home insurance is often considered the most neglected form of insurance. This neglect leaves us vulnerable to possible financial damages from natural calamities, such as earthquakes and floods. Introducing tax exemptions for home insurance premiums would encourage homeowners to insure their homes against natural calamities and secure their financial well-being.
4. Increase tax exemption on health insurance
While the government increased tax exemption on health insurance from ₹15,000 to ₹25,000, and from ₹20,000 to ₹30,000 for senior citizens in the last budget, this amount continues to remain inadequate as far as meeting the actual requirements of policyholders. Rising cost of healthcare treatment has made it mandatory for people to buy higher health insurance coverage which may lead to higher premium outgo (a 45-year-old man may have to spend more than ₹25,000 every year for a family floater plan with ₹10 lakh sum insured). Hence, the government must consider increasing tax benefits on health insurance in favour of senior citizens and those seeking higher coverage.
5. Introduce Exempt-Exempt-Exempt (EEE) status for NPS
Although the National Pension Scheme (NPS) is aimed at retirement planning, it has failed to take off because of its unfavourable tax treatment. At present, NPS comes under the Exempt-Exempt-Taxable (EET) regime, which makes its maturity amount taxable. This puts NPS at a sharp disadvantage over its competitor retirement products, such as PPF, VPF and EPF, whose maturity proceeds are not taxable.
6. Bring pension products from insurance and mutual funds under Section 80CCD (1B)
Currently, Section 80CCD (1B) allows you to avail an additional deduction of ₹50,000, over and above the ₹1.5 lakh limit available under Section 80C. However, this deduction is only available for investments in NPS. Bringing pension products from insurance and mutual funds under this section will help increase their reach in India.
To sum it up, this year's budget should use tax-exemption limits to encourage people to increase long-term investments and buy essential insurance covers, and help raise funds for capital expenditure in the infrastructure sector.
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This year's Budget should introduce some changes in present tax exemptions and deductions to boost the domestic savings rate and encourage people to buy more long-term investment and insurance products. While the increased household savings rate and retail investment will help in boosting the financial well-being of individuals, increased investment by individuals will also help the government and private sector to finance their capital expenditure and cope with FII outflows.
The government should allow home loan borrowers to claim the entire ₹2 lakh deduction when the possession gets delayed because of the developer.
Here's my 2016 Union Budget wishlist for increasing individual savings and investment:
1. Tax exemption limit to be maintained for delayed projects
At present, home loan interest of up to ₹2 lakh per year is deductible from your taxable income if you get possession of your home within three years of taking the home loan. The tax benefit comes down to ₹30,000 if the possession is received after three years. As developers often fail to deliver homes on time, borrowers are forced to settle for a lower tax benefit. Thus, the government should allow home loan borrowers to claim the entire ₹2 lakh deduction when the possession gets delayed because of the developer.
2. Increase tax deduction limit for housing loans
This year's budget should increase the tax deduction limit for housing loans. The current limit of ₹2 lakh is insufficient for most Indian cities, considering that even a 2BHK flat in most cities costs more than ₹25 lakh. For example, your interest outgo for even a ₹20 lakh home loan of a 20-year term with 10% interest rate would be around ₹2.5 lakh per annum.
3. Introduce tax concessions on house insurance premiums
Home insurance is often considered the most neglected form of insurance. This neglect leaves us vulnerable to possible financial damages from natural calamities, such as earthquakes and floods. Introducing tax exemptions for home insurance premiums would encourage homeowners to insure their homes against natural calamities and secure their financial well-being.
4. Increase tax exemption on health insurance
While the government increased tax exemption on health insurance from ₹15,000 to ₹25,000, and from ₹20,000 to ₹30,000 for senior citizens in the last budget, this amount continues to remain inadequate as far as meeting the actual requirements of policyholders. Rising cost of healthcare treatment has made it mandatory for people to buy higher health insurance coverage which may lead to higher premium outgo (a 45-year-old man may have to spend more than ₹25,000 every year for a family floater plan with ₹10 lakh sum insured). Hence, the government must consider increasing tax benefits on health insurance in favour of senior citizens and those seeking higher coverage.
Bringing pension products from insurance and mutual funds under Section 80CC (1B) will help increase their reach in India.
5. Introduce Exempt-Exempt-Exempt (EEE) status for NPS
Although the National Pension Scheme (NPS) is aimed at retirement planning, it has failed to take off because of its unfavourable tax treatment. At present, NPS comes under the Exempt-Exempt-Taxable (EET) regime, which makes its maturity amount taxable. This puts NPS at a sharp disadvantage over its competitor retirement products, such as PPF, VPF and EPF, whose maturity proceeds are not taxable.
6. Bring pension products from insurance and mutual funds under Section 80CCD (1B)
Currently, Section 80CCD (1B) allows you to avail an additional deduction of ₹50,000, over and above the ₹1.5 lakh limit available under Section 80C. However, this deduction is only available for investments in NPS. Bringing pension products from insurance and mutual funds under this section will help increase their reach in India.
To sum it up, this year's budget should use tax-exemption limits to encourage people to increase long-term investments and buy essential insurance covers, and help raise funds for capital expenditure in the infrastructure sector.
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