Budget 2020 Expectations: FM Sitharaman should improve credit access, incentivise digital payments, housing and financial fitness

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Updated: January 29, 2020 11:20:08 AM

Budget 2020 Expectations for Housing, MSME: This year’s budget should announce measures for reviving housing demand, promote digital payments, improve credit access and incentivise taxpayers to focus on their long-term financial fitness.

Budget 2020, union budget 2020, Budget 2020 Expectations, Budget 2020 Expectations for Housing, Budget 2020 Expectations for MSME, Budget 2020 Expectations for taxpayers, Aadhaar, Section 80CBudget 2020 Expectations: A separate section for term insurance outside Section 80C should be announced in Budget 2020 to incentivise taxpayers to buy term policies

Budget 2020 Expectations for Housing, MSME: The Budget 2020 comes at a time when India is facing challenges in the form of low credit off-take, dipping consumption, stagnant private investment and slowdown in the crucial housing and MSME segments. This year’s budget should announce measures for reviving housing demand, promote digital payments, improve credit access and incentivise taxpayers to focus on their long-term financial fitness. Here is my wishlist for the Budget 2020:

Include credit to first-time borrowers in banks’ PSL target

Most banks and NBFCs prefer lending to those having a credit score of over 750 and monthly in-hand income of Rs 30,000 and more. Eligibility criterion like these hinder credit access to ‘new to credit’ loan applicants and those belonging to lower-income groups. While Small Finance Banks and Micro-Finance Institutions are playing a major role in improving institutional credit access to these under-banked segments, the cost of credit from these providers is too high. Hence, unsecured loans sanctioned to new-to-credit borrowers with annual income below Rs 3 lakh should also be included in the ‘PSL’ target of banks. This will improve access to institutional credit for the under-banked and subprime sections and decrease their credit cost.

Extend Section 80EEA deduction to FY21

This section was introduced in the last year’s budget to promote affordable housing. It offers an additional deduction of Rs 1.5 lakh for the repayment of home loan interest. This deduction is over and above the Rs 2 lakh deduction offered by Section 24b. However, it is only applicable on home loans availed by first-time home buyers in this financial year, for housing properties having stamp duty value of up to Rs 45 lakh. This year’s budget should extend this deduction to FY21 as a tax-incentive for increasing demand in the housing sector.

Introduce separate deduction for term insurance policies

The primary purpose of purchasing a life insurance policy is to provide replacement income to one’s dependents in case of his untimely demise. This cover should at least be equal to 10-15 times of one’s annual income. Term insurance is the best option for buying such large covers as its premiums are very low. However, most consumers still confuse insurance with investment and end up purchasing life insurance policies with inadequate life cover. Hence, a separate section for term insurance outside Section 80C should be announced in Budget 2020 to incentivise taxpayers to buy term policies and thereby, get adequate life cover.

Watch: Budget 2020: Your income tax burden may come down – Top 5 Expectations

Redefine LTCG on equities to 3 years and make it tax-exempt

The exemption of LTCG tax on equities played a huge role in increasing the participation of retail investors in equity markets. Restoring this exemption will increase retail investor participation in equities and boost market sentiment. This budget should also change the definition of ‘long term’ in equity LTCG from the existing 1 year to 3 years. The redefinition will encourage retail investors to stay invested in the equity-oriented mutual funds for the long term.

Announce GST concession on digital payments

The government’s decision to waive off MDR charges on RuPay and UPI payments will go a long way in promoting digital transactions. However, transactions through other payment gateways still continue to attract steep MDR charges. These charges are hindering the adoption of digital transactions among smaller merchants and informal sector. Hence, this year’s Budget should announce a GST concession of 2% to merchants accepting digital payments. Doing so would incentivise these segments to move to digital payment modes as well as maintain a level playing field for other payment gateways.

Extend Aadhaar (OTP) based eKYC to all financial products

The customer on-boarding process in the fintech sector has been adversely affected due to the withdrawal of Aadhaar-based e-KYC. Currently, Aadhaar-based e-KYC is allowed only for opening bank accounts. The return to old paper-based offline KYC for other financial products has increased the turnaround time as well as cost of customer acquisition. Increased turnaround time is especially detrimental for those requiring loans to meet financial emergencies. Hence, customer on-boarding based on Aadhaar-based eKYC should be extended to other financial products like loans, credit cards, mutual funds, insurance, etc. This will allow seamless access to financial products and speed up financial inclusion.

(The author is CEO & Co-founder, Paisabazaar.com)

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