Budget Expectations: Personal Finance

24 Jan 2022 , 10:19 AM

The 3 segments of the Indian economy that await the Union Budget with bated breath are the salaried class, the small businesses and the pensioners. The focus is on direct tax benefits. Tax exemptions and tax breaks have a direct and salutary impact on investments and consumption. As the government looks to recharge the Indian economy through a consumption thrust, here is what people are expecting from the budget.

Key expectations on direct taxes and personal finance

The expectation is that the government will use the Budget to re-ignite consumption in the Indian economy. Here is how.

1. The basic exemption limit of Rs2.50 lakhs is likely to be raised in this budget to Rs5 lakhs. Currently, incomes up to Rs5 lakhs are exempt via rebates, anybody with annual income above Rs2.50 lakhs still needs to file tax returns. This would go a long way in providing tax and process relief. The alternate tax model is not attractive as the number of slabs are too many and losing all exemptions and rebates is not productive.
2. The Section 80C is overdue for a revamp. The exemption limit of Rs1.50 lakhs was last set more than 15 years ago and lost its meaning. A lot of assets are covered including PPF, CPF, Long term deposits, ELSS, insurance, ULIP etc. However, the overall limit is too low. There have been demands for carving out specific limits for ELSS, DLSS, insurance etc. That would not be too useful. The budget must enhance the overall Section 80C limit from Rs1.50 lakhs to Rs5 lakhs to make it meaningful.
3. Home loan exemptions under Section 24 of the Income Tax Act must be linked to the cost of housing. The current limit of Rs2 lakhs pre-supposes home prices that are not practical in most cities. Hence home buyers do not get full exemption. There is a time-bound additional exemption of Rs1.50 lakhs under Section 80EEA which expires in 2022. The Budget can enhance the limit to Rs5 lakhs from Rs2 lakhs so that home buyers can avail full benefits. The principal component can continue under Section 80C.
4. Time to get rid of LTCG tax to boost capital market participation. The proliferation of demat accounts indicate that retail is latching on to stock markets. Today, there is STT on equity transactions, STCG tax, LTCG tax and tax on dividends. In short, equity returns are becoming unattractive in post-tax terms. The STT is likely to continue as it generates over $2 billion each year. While STCG tax can stay on at 15%, the LTCG must be done away with to encourage a long term investment culture. Also, there are too many classifications of LTCG, that need to be standardized.
5. Making health insurance affordable is a priority after COVID-19. Unfortunately, due to enhanced risks, the costs have gone up. One thing to do is to cut the GST on health insurance premiums from 18% to 5% to make them more affordable. Also, the current Section 80D exemptions of Rs25,000 for those under 60 and Rs50,000 for senior citizens; must be enhanced to Rs50,000 and Rs75,000 respectively. In a country where social security cover is almost absent, reasonable health insurance is a must.
6. It is time for workable tax breaks on education. The current exemption under Section 80E for interest on education loan does not have an upper limit but the tenure is limited to 8 years. That needs to be increased to 15 years, at least. Most banks are unwilling to give education loans and the cost of a typical education loan is more than a car loan. Government can offer a 5% interest subsidy on education loans to make it affordable. Also, for parents remitting fees for tuitions and hostel fees of children, remittances above Rs7 lakhs a year is liable for TCS at 5%. The limit must be raised to Rs.1 crore.
7. Fuel prices have gone through the roof. The budget needs to bite the bullet and bring petrol and diesel under GST. It will take away the cascading effect of taxes and make petrol and diesel substantially cheaper, boosting household budgets.
8. The raising of income exemption limit to Rs5 lakh is already there in an indirect form. Hence the government can provide real relief by enhancing the standard deduction from the current Rs50,000 to Rs100,000. That is likely to prise open a lot of consumption.
9. Just like dearness allowance is inflation adjusted, the budget must put in place a system wherein even exemption limits are pegged to inflation and revised automatically every 3 years based on this index. It would make the budget tasks much easier.
10. Lastly, small businesses need relief. MSMEs are the backbone of the Indian economy in terms of job creation and exports. However, many MSMEs are structured as proprietorships, partnerships or LLPs. Hence they pay peak 35% taxes compared to corporates that now pay between 15% and 25%. Also, the presumptive scheme for small businesses has a turnover limit of Rs.50 lakhs, which must be hiked to Rs.1 crore.

Budget 2022-23 is expected to give the much needed boost to people’s personal finances. With a slew of elections coming up, people friendly reforms will be both economically and politically sagacious.