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Budget 2022 wish-list: Looking for sops in NPS, insurance

Switches between schemes of the same mutual fund are subjected to capital gains tax unlike in Ulip transfers. This disparity needs to be removed

Both corporates and the common man will have high hopes from the Budget announcements to propel the economy into a rising trajectory once again.
Both corporates and the common man will have high hopes from the Budget announcements to propel the economy into a rising trajectory once again.

Budget 2022 is being presented by Union Finance Minister Nirmala Sitharaman at a time when the country is still battling the pandemic and the Covid protocols, including some restrictions still in place. Both corporates and the common man will have high hopes from the Budget announcements to propel the economy into a rising trajectory once again.

How and what measures the government takes to provide the necessary impetus to the economy in boosting growth, capex, manufacturing and job creation in the post-pandemic recovery phase will be keenly watched by the industry as well by the common man on the street.

Personal taxation
When it comes to personal taxation, we do not expect any major changes. At the same, there is enough justification for the limit under Section 80C to be enhanced from the present level of `1.5 lakh, commensurate with rising income levels and inflation. Also, a separate bucket for life insurance investments should be provided under Section 80C. This will help in overall market development, better risk management for individuals and provide a financial safety net for families.

Similarly, the limit under Section 24B pertaining to deduction of interest on home loan from taxable income should also be hiked from the present level of Rs 2 lakh. This, together with expected GST benefits and changes in definition of affordable housing should help boost the residential real estate sector.

Uniformity in taxation
The Association of Mutual Funds in India (Amfi) has requested the government to bring uniformity in taxation of listed debt securities and debt mutual funds. At present the holding period for gains on listed debt securities (including zero coupon bonds) to qualify as long term capital gains(LTCG) is 12 months whereas the same for debt mutual funds is 36 months. Presently, debt mutual funds are being unfairly penalised. We expect the Budget to bring the much needed parity in taxation on this front as this will also help in plugging the revenue leakage for the government.

The Amfi has also requested for parity in taxation of capital gains from investments in mutual funds and unit-linked insurance plans (Ulips). At present investment in Ulips enjoys deduction under Section 80C (up to 1.5 lakh per annum) while capital gains on maturity are completely tax free if the aggregate annual premium is up to2.5 lakh a year. In comparison, LTCG from mutual funds are taxed at 10% on gains above Rs 1 lakh a year. There is no reason for differential taxation of these two products and hopefully the Budget will bring parity in this.

Also, switches between different schemes of the same mutual fund are considered as “transfer” and any gains from it are subject to capital gains tax. However, switches between various plans of a Ulips are not considered as transfer and not subject to capital gains tax, when these two are very similar products, investing in similar securities. We expect the government to remove this disparity and allow that inter scheme switches within the same AMC be not considered as transfer.

NPS, insurance
At present, a retiree has to compulsorily take an annuity for 40% of his maturity proceeds from National Pension System. Many retirees may have adequate income from other sources post their retirement and may not like to subscribe to such annuities where IRRs are low and taxable, and the investment amount cannot be withdrawn in case of emergency. This reduces the appeal of NPS which is otherwise a great retirement planning and tax saving option. We expect the government to make this condition optional, to increase the subscriber base for NPS.

The pandemic has underscored the importance of health insurance. It has become a necessity nowadays. At present, GST at the rate of 18% is applied to health insurance premiums. This should be reduced to 5% to make health insurance more affordable to people and thereby increase its penetration. Senior citizens should be exempted from paying GST on their health insurance premium.

In the case of term life insurance, in addition to the 18% GST, stamp duty is also levied, which is a double whammy on policyholders. The stamp duty is charged on the total sum insured, and not on the total premium. Stamp duty on term life insurance policies, which are pure risk products and not investment products, needs to be removed.

The writer is chairman & MD, Bajaj Capital

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