The Union Budget 2022 is just a week away and taxpayers are eagerly waiting for announcements from the Finance Minister Nirmala Sitharaman to boost economic sentiment. Amid the third wave of Covid-19 pandemic and serious concerns about inflation, people are looking for a budget that can help in creation of more jobs, bring down the prices of essential commodities, and improve their quality of living.
There are several expectations from the Budget 2022 but here is the list of the expected announcements from the personal finance point of view.
Increasing Sec 80C Limit, Allow It To Focus On Investments Only
The deduction limit under Section 80C of the Income Tax Act was last revised in the year 2014. Keeping with inflation trends and rising incomes, this limit must be hiked to at least Rs 3 lakh. Also, 80C is currently a smorgasbord of deductions from investment, insurance, and eligible expenses. Streamline it; allow it to focus only on investments.
Encourage Term Plan Adoption; Provide One-Time Deduction For Covid
Life Insurance: The government needs to consider allowing separate deductions for term insurance premiums of Rs 50,000. This is the best way to allow taxpayers to cover their long-term liabilities. Currently, 80C makes taxpayers mix insurance with investments that leads to sub-optimal coverage and returns.
Increase 80D Limit: The pandemic has made it important for households to provide all family members health insurance. The policy premiums have also increased during the pandemic. In this regard, deductions for non-senior citizens under 80D should be doubled to Rs 50,000 to allow all families to avail higher coverage to shield against hospitalisation costs.
One-Time Deduction: Due to Covid-related hospitalisation and treatment costs which may have caused taxpayers enormous financial strain in 2021, it is requested to grant a special one-time deduction of Rs 1 lakh.
Home Loan Tax Deductions: A new section should be added to the Income Tax law for home loan deductions of up to Rs 5 lakh with no sub-limits for principal or interest. This 5 lakh will equal the total of deductions under 80C, 24B, and 80EEA. Larger deductions for housing finance should be extended to all borrowers. Current deductions are not enough to cover both 80C investment and home loan payments.
Affordable and Rental Housing: From a realty perspective, expanding the definition of affordable housing beyond the price cap of Rs 45 lakh in metro cities will bring more homes within the affordable price tag, allowing more buyers to avail of multiple benefits like lower GST rates at one percent without input tax credit (ITC).
FD Taxation: Real returns from fixed and recurring deposits are currently negative due to low rates and high inflation. Since most Indians depend on these for guaranteed returns, the taxation of interest income should be reduced, especially for senior citizens. The 80TTB limit should be doubled to Rs 1 lakh for all, not just senior citizens.
Savings Taxation: The 80TTA limit should be tripled to Rs 30,000 to encourage savings and lower use of cash, in line with the broader objectives of the government. The savings rates have dipped below 3% and taxing the same less would be advisable
Hike 30% Slab: This slab has been stagnant at Rs 10 lakh since 2013. The old regime is still availed by taxpayers with home loans, school going children, insurance and investment payments. To keep the slab stagnant makes it difficult for the urban population to deal with rising costs.
Reduce GST on Health Insurance: GST on health insurance is currently 18%. As health insurance is purchased by direct retail customers, GST contribution increases their cost and makes it unattractive for them. Lower GST will encourage people to seek higher coverage.
Keeping Up The Good Work In Fintech
To streamline and promote innovations in the fintech lending space, the Reserve Bank of India (RBI) has taken multiple initiatives, notably the setting up of a dedicated fintech department recently and publishing the report of the Working Group on digital lending. Digital online marketplaces like BankBazaar who partner banks and NBFCs already fall under the outsourcing guidelines of RBI. In this regard, a few recommendations and comments have already been submitted through the industry’s forum FICCI. The fintech industry now expects generous support from the central bank to keep growing at a rapid pace like in the past and overcome subdued economic sentiment due to the ongoing pandemic.
Now when the Working Group recommendations have already come out and a dedicated fintech department is also carved out, this is the right time for discussions and dialogues with the fintech industry to address some regulatory asks. Since these are new developments, the industry’s inputs need to be incorporated and more clarity is required from the apex bank for smooth functioning and strong growth of fintech and digital lending marketplaces. Once again, we thank the RBI for its constant support and initiatives to stimulate fintech growth in the country.
(The author is CEO, Bankbazaar.com)