Union Budget 2019 India: The first full budget of the Modi 2.0 government mainly focused on stimulating growth, promoting affordable housing and incentivising digital economy. The liquidity crisis faced by NBFCs and reduced credit flow to MSMEs were the two key issues that Budget 2019 has tried to address. This year’s Budget also tried to revive the housing demand by providing major tax sops on home loans for purchasing affordable homes.
Here is a list of my key hits and misses of Budget 2019.
#Additional interest deduction of up to Rs 1.5 lakh under affordable housing
This year’s Budget provided major impetus to the ‘Housing for All’ mission by announcing an additional deduction of Rs 1.5 lakh on interest payments made on home loans availed by March 2020. The value of housing property qualifying for the deduction has been capped at Rs 45 lakh. This deduction is in addition to the current Rs 2 lakh deduction available on interest payments made on home loans. The additional deduction will incentivise homeowners to purchase affordable housing units by the end of this financial year, which can help in reviving the subdued demand in housing industry.
# Incentives to NPS subscribers
Although the Government approved the proposal of making lumpsum withdrawal from NPS post-maturity completely tax-free in December 2018, the decision was notified in the Interim Budget. This anomaly has been rectified in this Budget. Once the Budget is approved, NPS will enjoy EEE status as enjoyed by competing retirement products, such as PPF and EPF. This year’s Budget has also provided additional incentives to the central government employees by increasing the deduction for employer’s contribution from 10% to up to 14% of their salary and by allowing a deduction under section 80C for the employee’s contribution to Tier II NPS account.
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# Higher credit flow into MSMEs & NBFCs
Despite the MSME segment contributing around 29% to the GDP, this sector has been facing unmet credit demand due to lack of credit flow from one of its primary lenders, the NBFCs. The Budget proposal to provide partial credit guarantee to the public sector banks for high-rated pooled assets of strong NBFCs will improve the liquidity of the financially sound NBFCs, which will enhance their capacity to meet the credit demand from MSME segment. The capital infusion of Rs 70,000 crore into PSU banks will also allow these banks to increase their lending to the MSME segment as well as to the NBFCs, some of which then will be passed onto MSMEs as well.
The proposal to provide 2% interest subvention to all GST-registered MSMEs on fresh and incremental loans will also boost the MSME segment by reducing their cost of credit.
# Not reinstating LTCG tax exemption on equities
The exemption of LTCG tax on equities played a major role in increasing the penetration of equities among retail investors, especially through mutual funds. Hence, restoring this exemption in Budget 2019 would have helped in further increasing retail investor participation in equity markets. Additionally, this would have also restored the tax parity with other equity-related investment avenues, such as NPS and ULIPs, which continue to remain exempt from LTCG.
# Not increasing 80C deduction limit
Many taxpayers often breach the upper limit of section 80C by availing deductions on term insurance premium, home loan principal repayment, employee’s contribution to EPF, etc. As a result, many of them don’t feel incentivised enough to invest in long-term investment products, such as ELSS and PPF. An increase in the 80C deduction limit from the existing Rs 1.5 lakh to Rs 3 lakh would have provided a strong incentive to those middle class tax payers to invest in long-term investment instruments and ensure their financial security in the process.
(The author is CEO & Co-founder, Paisabazaar.com)