Budget 2019 may make major announcements aimed at reducing tax burden for the middle class, promoting digital transactions and restoring credit supply in the housing and MSME segment.
Despite being an interim budget where governments usually restrain from announcing major tax-breaks and policy changes, I expect the Budget 2019 to make major announcements aimed at reducing tax burden for the middle class, promoting digital transactions and restoring credit supply in the housing and MSME segment. Here is my wishlist for the Budget 2019:
Increase Section 80C deductions to boost savings rate: Currently, tax deduction of up to Rs 1.5 lakh under Section 80C is available on a wide range of expenditures and investments. These include compulsory payouts or expenditures such as home loan principal repayment, life insurance premiums, children’s education or tuition fee, employee’s contribution to EPF and payment of stamp duty and registration fee incurred on purchase or construction of home property. For many, these compulsory payments leave little need to save and invest in tax-saving fixed deposits, PPF, ELSS, NPS, etc for claiming Section 80C deductions. With India’s household savings rate declining from over 23.6% in FY12 to about 16.3% by March FY17, increasing the Section 80C deduction limit to Rs 3 lakh will boost long-term investment in financial assets and help improve the long-term financial security of middle class households.
Remove LTCG tax on equities and equity mutual funds: Equity market plays a major role in the capital formation and overall development of an economy. The erstwhile LTCG tax exemption also played a major role in encouraging retail investors to shift their savings to equity markets. Hence, reintroducing the LTCG tax exemption on equities and equity mutual funds in the Budget 2019 will go a long way in increasing the equity penetration, encouraging fresh retail investor inflows and improving the overall investor sentiment. Moreover, while the LTCG tax was reintroduced on equity and equity mutual funds in the Budget 2018, other equity-related investment options such as ULIPs and NPS continued to remain exempt. Thus, removing LTCG tax on stocks and equity mutual funds will also bring in tax parity with ULIPs and NPS on the other.
Reintroduce Section 80EE deductions to encourage affordable housing: Section 80EE provides an additional deduction of Rs 50,000 on interest repayment to first-time home buyers who availed home loans during Financial Year 2016-17. This deduction is over and above the deduction on interest repayment available under Section 24b. With an upper cap of Rs 35 lakh on the loan amount and Rs 50 lakh on the property, Section 80EE was primarily aimed at boosting the affordable housing segment. Reintroducing this Section to all fresh first home purchases in the affordable housing segment will help in improving the housing demand and achieve the policy objective of ‘Housing for All’.
Allow separate deduction for term insurance: Term insurance is the most cost effective way to buy life cover of up to 10–15 times of one’s annual income. However, most confuse insurance with investment and buy other life insurance policies with inadequate life cover. A separate section for term insurance beyond the Section 80C limit would incentivise people to buy term insurance policies and get adequate cover in the process.
Differential GST rates for digital transactions: The waiver on merchant discount rate (MDR) charges available on debit cards and UPI transactions of up to Rs 2,000 should also be extended to credit cards and other payment options to create a more level playing field. Similarly, the proposed 20% cashback on GST of up to Rs 100 on payments made through Rupay and BHIM app should also be extended to all debit and credit cards and other forms of digital transactions.
As the smaller merchants and the informal sector are still largely hesitant in adopting digital payments modes due to the higher cost of digital transaction, a 2% concession in GST rates to merchants accepting digital payments would encourage them to move to digital payment modes.
Priority sector tag for bank on-lending to HFC/NBFC for housing and MSME segments: Currently, bank loans to HFCs for on-lending of home loans of up to Rs 10 lakh per borrower are treated as priority sector loans. Given the liquidity-related issues faced by several HFCs and slowdown in the housing sector, increasing the upper limit of the qualifying loan amount to at least Rs 35 lakh per borrower would help in improving the liquidity of the HFC segment and revive credit supply in the affordable housing segment. Similar provisions for on-lending should be made for the MSME segment as the liquidity problems faced by NBFCs threaten to cut-off credit to sizeable chunk of the MSME segment.
(The author is CEO & Co-founder, Paisabazaar.com)