After the rough ride due to demonetisation, it isn’t unfair to expect some doles in Union Budget 2017-18. Experts feel that the finance minister can do a lot of things due to a wider database of tax payers that will improve collections. More money in the hands of people will also boost consumption. The way to go will be through direct taxes and enhancing existing exemptions.
Dated exemptions: First, the Budget needs to look at some of the outdated exemptions that have lost all relevance due to inflation (see table). And some benefits are so minuscule that people don’t even claim them, like children’s education allowance at Rs100 per month and hostel fees at Rs 300 per month. Says Amarpal Chadha, tax partner and India mobility leader, EY
India: “Many exemptions available to individuals have upper limits that were fixed decades ago. Considering the effect of inflation, the current limits have become redundant. Enhancing them has become important.” Even the Rs 1,600 benefit on transport allowance is quite meagre.
Direct tax benefits: On the personal tax front, Rakesh Bhargava, director, Taxmann suggests more relief can be given by increasing the tax slabs. There are expectations that the basic exemption Union Budget 2017 limit could be hiked from Rs2.5 lakh to Rs3 lakh. Also, with the dire need to increase household savings, the Budget may increase the Section 80C limit from Rs1.5 lakh to Rs2 lakh.
Higher exemptions needed: Benefits are expected on the home buying front. Budget 2016-17 allowed additional deduction on interest payment of Rs 50,000 under Section 80EE for a first-time buyer and for new housing loans sanctioned during April 1, 2016, to March 31, 2017. “We hope the government extends this deduction to loans taken in FY18 and FY19 as well,” says Archit Gupta, founder and chief executive officer (CEO), Cleartax.com. Adds Anuj Puri, chairman and country head, JLL India: “A similar tax exemption for first timers, but with higher limits, should be introduced in the metros where housing costs are higher.”
Even in the case of health insurance, more incentives need to be offered. “There is a need to incentivise health insurance through further tax exemption, given the current medical inflation in the country, and to address the ordeal caused by non-communicable diseases, which have a high share in India’s mortality rate,” says Sandeep Patel, MD & CEO, Cigna TTK Health Insurance. Pushan Mahapatra, MD & CEO, SBI General Insurance suggests that the government should provide tax incentives to home insurance also.
Extend retirement benefits: Experts feel that if income from annuities becomes tax exempt, it will provide relief to the retired. “To provide parity among all retirement products, additional exemption limit of Rs 50,000 under NPS should be extended to life insurance products also,” says Rajesh Sud, executive vice chairman and MD, Max Life Insurance.
New mutual fund products: AMFI has made several proposals to the Finance Ministry. “Proposals like introducing Debt Linked Savings Scheme (DLSS), Mutual Fund Linked Retirement Plan (MFLRP) similar to 401K in the
The US, and extending Section 54 EC to mutual fund schemes with lock-in of three-five years will boost fund penetration,” says Nimesh Shah, MD and CEO, ICICI Prudential AMC.
Fears: Since Prime Minster Narendra Modi said that those who make money from the stock markets should contribute to nation building, there has been fear that the one-year criteria for treating capital gains from equities may be done away with. The time limit for treating gains as long-term may be hiked to three years. Investors will be hoping that this doesn’t become a reality.