Jaitley has also proposed to increase the deduction for interest paid on borrowed money from banks on self-occupied house property to Rs 2 lakh from Rs 1.5 lakh.
Vikas Vasal, partner, Tax, KPMG, said the tax relief is a welcome move, especially when the government is battling a tough macro-economic situation. The increase in tax deduction under Section 80C will help achieve twin objectives of encouraging households to make long-term savings and increasing the overall savings rate in the economy, which has fallen considerably over the last five years. The higher deduction for interest paid on housing loan will boost the housing and banking sectors and create job opportunities for unskilled and semi-skilled workers.
Rajesh Sud, CEO & MD of Max Life Insurance, said the tax initiatives would allow more money in the hands of the customer, which is positive for long-term saving instruments, including life insurance.
Lauding the hike in foreign direct investment in insurance from 26% to 49%, Tarun Chugh, MD & CEO of PNB MetLife, said it was a positive move and would help the industry gain an additional R7,800 crore.
We are also encouraged by the increase in Section 80C limit to Rs 1.5 lakh. While we would have looked forward to a separate limit for life insurance, we are sure the current measures will help retail customers, who will benefit from the enhanced tax benefit on savings products, including life insurance.
To boost small savings, Jaitley has raised the limit of Public Provident Fund to Rs 1.5 lakh per annum from R1 lakh. This will benefit risk-averse investors who will get tax-free returns.
The popular Kisan Vikas Patra will be re-introduced by the postal department for those who may have banked and unbanked savings to invest.
A special small savings instrument to cater to education and marriage of the girl child will be introduced. A National Savings Certificate with insurance cover will also be launched, which will provide additional benefits.
To address the issue of unclaimed money lying with the PPF and post office saving schemes, Jaitley has proposed to set up a committee to examine how this amount could be used to protect and further the financial interests of senior citizens.
For the convenience of subscribers, the Employees Provident Fund Organisation (EPFO) will launch the Uniform Account Number (UAN) Service for contributing members to facilitate portability of provident fund accounts. The finance minister also raised the minimum pension of EPS subscribers to R1,000 per month. This will benefit about 28 lakh pensioners, including 5 lakh widows. Also, for mutual fund investors there there will now be parity between pension funds and mutual fund retirement plans.
In the Budget highlights, there is a mention of uniform tax treatment for pension fund and mutual fund-linked retirement plan. In other words, mutual funds can now launch retirement plans of their schemes, which will get the same tax treatment as pension funds. This will also promote the flow of investors retirement money into equities.
Jaitley also announced a move to correct the tax arbitrage of investing in debt mutual funds vis-a-vis investing in bank deposits or debt securities directly. Analysts say, in the near to medium term, it could potentially result in outflows from some sections of investors who have a investment horizon of under three years and are also in the higher tax bracket.