On Friday, I had the privilege of attending a pre-budget consultation with the Ministry of Finance. The consultation was in context of banking and financial institutions. The leaders of the industry made several requests to the government. These requests, if granted during the upcoming Union Budget, will be to the benefit of citizens. Here they go:
1. Creating a separate tax exemption for term life insurance: Currently, the maximum tax exemption via Section 80C of the Income Tax Act is Rs 1.5 lakh. The industry wants to encourage more people to buy term plans, which help people insure their lives adequately at low premium costs. The industry wants a separate exemption limit for premiums paid towards term insurance.
2. Increasing the limits on affordable housing: Recently, interest rate subsidies on home loans have been provided to Middle Income Group households. For example, households earning between Rs 6 and Rs 12 lakh a year can claim a 4% subsidy on home loan amounts up to Rs 9 lakh. Households earning between Rs 12 and 18 lakh annually can receive a 3% subsidy on loans amounts up to Rs 12 lakh. The industry wants these caps to be raised so that they’re in tune with the ever-escalating costs of property ownership in urban areas.
3. Increase TDS limit for bank interest: The Tax Deducted at Source limit for bank interest should be raised from the current Rs 10,000, especially as the limit of Rs 10,000 was last set in the year 1997. This will ensure more interest in hand for bank customers.
4. Push UPI harder: The UPI is seen by the industry as a better alternative to POS machines. In the near future, a vast majority of Indians will be connected to the internet via smartphones. It would therefore be prudent to push UPI harder since it is highly scalable, cheaper than POS, and requires lesser maintenance.
5. Bring FD taxation at par with debt mutual funds: Millions of Indians prefer to invest via the humble fixed deposit which, though safe and reliable, is highly tax-inefficient. If you’re in the 30% tax bracket, a 7% FD actually earns you 4.9% which wouldn’t beat inflation or aid wealth creation. Therefore, the industry proposed to bring the taxation on FD returns at par with debt mutual funds, wherein an investor is taxed only upon redemption and if redemption is after three years, the tax is calculated on the Long Term Capital Gains at 20.6% with indexation benefits, which significantly reduces tax outgo.
6. BankBazaar’s demand for e-Sign and e-KYC: Readers would have read of my support for PaperLess onboarding via usage of e-Sign, e-KYC via OTP, e-NACH, and the tremendous reach and cost benefits of instant account opening via the mobile. This would have far-reaching consequences for financial inclusion in our country where a vast majority of Indians remain excluded from access to loans, insurance and mutual funds for one reason or the other.
(The author is CEO and Co-Founder, Bankbazaar.com)