The Union Budget for the financial year 2022-23 (FY23) will be presented on February 1, 2022. This budget should aim to come up with policies that put more money in the hands of the common man. While we discuss the expected sops, let us not forget the challenging backdrop of Covid-19 and its shadow over the budget for the last two years.
However, the government must bring in relief for people through budget announcements during these tough times. Job creation, reduction in prices of essential commodities and improving standards of living will of course have to be a priority.
Some of the expectations of taxpayers from the Budget 2022 are as under:
(1) Increasing Sec 80C Limit To Rs 3 Lakh From Rs 1.5 Lakh
Section 80C is widely used by salaried individuals to claim tax benefits. The government should consider raising the tax-exemption benefit to Rs. 3 lakh from Rs. 1.5 lakh in the upcoming budget to provide more space for saving and investing amid rising inflation. The last revision in the deduction limit was announced in 2014. The limit of Rs. 1.5 lakh under 80C may help people with complex expenses, dependents, and financial liabilities. An increase in the exemption limit will also encourage people to invest more.
Besides these, the government can also look at increasing the ambit of Section 80C by bringing in more instruments that can qualify for tax deductions. For instance, it can bring hybrid funds under the 80C benefit fold. Hybrid funds help people in structuring their investment portfolio with exposure in a mix of debt and equity.
Additionally, the government may consider allowing separate deductions for term insurance premiums of Rs 50,000. Term insurance is one of the most affordable and cost-effective ways to protect your family financially in the event of your unfortunate death. Term insurance still seems to be a less preferred choice for many individuals. The government may take steps to change this notion by providing a tax incentive for buying term insurance products.
(2) Home loan tax deductions
Despite the pandemic, property prices in India have gone upwards. The government can consider providing more relief to the homebuyers and enable spending through tax sops. The government should announce measures that can provide more tax benefits to home loan borrowers while increasing their disposable income. The current tax benefits provide home loan borrowers Rs 1.5 lakh deduction under Section 80C and Rs. 2 lakh under 24B. The government may consider adding a new section to the Income Tax law for home loan deductions of up to Rs. 5 lakh with no sub-limits for principal or interest. This Rs. 5 lakh will equal the total of deductions under 80C, 24B, and 80EEA.
(3) Tax deduction benefits under Section 80D should be hiked
Medical expenses are getting expensive day by day, especially after the Covid-19 pandemic. Health insurance policies premium rates have also gone up due to an increase in insurance claims amid the pandemic. The government may take a look at increasing the deduction limit for the premium paid by non-senior citizens to Rs. 50,000. Till now, premium payment for health insurance is eligible for a deduction for an amount up to Rs. 25000 for non-senior citizens and up to Rs. 50000 for senior citizens. If a family goes for a higher insurance cover, the premium easily crosses the threshold deduction limit. Increasing the deduction limit can help people get a higher cover under health insurance.
(4) Increase deductions limit under Sec. 80TTA
Bank fixed deposits are an immensely popular saving and investment option for many, especially for risk-averse investors. Interest earned on bank fixed deposits (FDS) up to Rs. 50,000 in a financial year by senior citizens are allowed to be claimed as a deduction under Section 80TTB. However, interest on bank fixed deposits for non-senior citizen investors are taxed as per the applicable slab rate.
The government should consider increasing the 80TTA limit (applicable to people below 60 years) to Rs. 30,000. Increasing the tax deduction limit on the interest income from savings accounts in banks, co-operative banks, and post offices under Section 80TTA will encourage more people to park their savings with banks instead of stashing cash at their homes. This could bolster the bank’s cash reserves which, in turn, could boost lending and spur demand to revive our economy.
Currently, most banks are offering interest rates of around 5% to 5.5% per annum on deposits up to 3 years. It means if the investor falls into the highest tax bracket, the effective return after tax would be around 3.85% (5.5% minus 30% tax) and if we assume the prevailing inflation rate to be at a 4% level, the investor will earn a negative return of -.15% (3.85%-4%). The govt should allow the benefit of calculating the inflation-adjusted return on FDs to calculate the tax, i.e., tax to be charged after reducing the inflation from the interest earned.
Taxpayers are expecting more relief and rebates to sail through these tough times when the pandemic has tightened the liquidity flow in the market.
(5) Reduce GST on health insurance
GST on health insurance is currently 18%. As health insurance is purchased by direct retail customers, GST contribution increases their cost and makes it unattractive for them. People expect that the government would reduce the GST on health insurance from 18% to a lower slab rate. The move will immensely help health insurance buyers by lowering the effective premium and thus making it more affordable for them.
Author: Adhil Shetty| CEO, BankBazaar
Adhil Shetty is a guest contributor. Views expressed are personal.