Budget 2021 for Savers: How the FM can give savings and investments a boost

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Updated: Jan 31, 2021 2:12 PM

Union Budget 2021: It is necessary to help individuals hit by Covid-19 and also put more money in their pockets not only for survival, but also to enable them to save more.

It is time for the finance minister to increase the standard deduction limit to at least Rs 100,000, which would enhance the spending power of individuals due to tax savings.

Union Budget 2021-22 for Savers: The spread of Covid-19 pandemic has impacted industries and individuals alike. As the earnings of individuals have got negatively impacted, many of them are now finding it difficult to save and invest for their future financial goals. Even paying the EMIs of home loans and personal loans has become difficult for a majority of persons, particularly those who have either lost their jobs during the lockdown or are still taking a pay cut.

It is, therefore, necessary to help such individuals and also put more money in their pockets not only for survival, but also to enable them to save some money every month. Savings and investments can also be increased if the common man is given more incentives to do that.

Keeping this in view, here is what Finance Minister Nirmala Sitharaman can do for them in this regard in the Budget 2021:

Enhancement of deduction under Section 80C

Currently an individual is eligible for a deduction up to Rs 150,000 for avenues such as PPF, tax-saver FDs, ELSS etc. However, in most cases, employee’s contribution to Provident Fund (PF) easily exhausts this limit. “If the limit is enhanced, then the individual may consider investing in other permitted investments which will give them a tax break in the current year and increase their savings,” says Aarti Raote, Partner, Deloitte India.

Increase the limit for deduction under Section 80D

With the increase in the premium amounts due to health complexities, individuals are required to pay more for insurance coverage and mediclaim benefits. The pandemic has also increased the medical costs and to ease this burden on the individuals, the government has to consider increasing the limit to Rs 50,000 for self and family as well.

Enhancement of standard deduction limit

Medical reimbursements and conveyance exemptions were repealed with the introduction of standard deduction. “The cost of medical expenses have increased substantially with the pandemic ruling the health condition of the people and it is time for the finance minister to increase the standard deduction limit to at least Rs 100,000, which would enhance the spending power of individuals due to tax savings,” says Raote.

Rebate under Section 87A

Currently a resident individual is eligible for a rebate if his/her taxable income is less than Rs 500,000. However, this rebate is not available for Non Resident individuals. The government could treat both the groups at par.

Enhancement in the deduction for housing loan

Enhancement in the deduction for housing loan u/s 24, from the current Rs 200,000 to provide relief to employees burdened with EMIs at the time of pay cuts and retrenchments is also the need of the hour. The move will help put more money in the hands of savers and investors, which they can use for investment purposes.

Separate deduction for term insurance premiums

The Budget 2021 should also announce a separate deduction for term insurance premiums to incentivise consumers to buy adequate life insurance covers. Term insurance policies allow consumers to buy large life covers at much lower premiums than other insurance products.

Extend tax deduction through Sec 80CCD(1B)

As a step towards improving post-retirement security among the salaried class, the tax deduction available through Section 80CCD(1B) should also be extended to investments made in pension plans offered by life insurance companies and mutual fund houses. The inclusion of these products will enhance consumer choice and bring tax parity among the pension products.

Open NPS Tier-II Tax-saver Scheme to salaried

The NPS Tier-II Tax-saver Scheme announced in the Budget 2020 for the Central government employees has a lock-in period of just 3 years and a fixed asset allocation of 10-25% for equities and the rest in debt instruments. “This year’s Budget should open this tax-saving scheme to self-employed and salaried individuals working with State governments and the private sector. This will offer them an option of saving taxes under Section 80C by investing in a debt-oriented instrument, especially during overvalued equity markets,” says Naveen Kukreja, CEO & Co-founder, Paisabazaar.com.

Do you know What is Finance Bill, Short Term Capital Gains Tax, Fiscal Policy in India, Section 80C of Income Tax Act 1961, Expenditure Budget? FE Knowledge Desk explains each of these and more in detail at Financial Express Explained. Also get Live BSE/NSE Stock Prices, latest NAV of Mutual Funds, Best equity funds, Top Gainers, Top Losers on Financial Express. Don’t forget to try our free Income Tax Calculator tool.

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