Budget 2016 comes at a time when India needs to increase investments in its social and physical infrastructure and when the central government’s own finances will be constrained due to fiscal deficit targets and 7th Pay Commission recommendations. To take off some load from government’s own finances, this budget should introduce some changes in tax exemptions and deductions to increase domestic savings rate channel those savings into long-term investment and insurance products. Long-term investment and insurance products will not only boost the financial well-being of individuals, it will also help the government and private sector to raise funds for their capital expenditure and cope with FII outflows from capital markets.
Following is my wishlist for 2016 Union Budget:
Tax exemption limit for delayed projects: The government should amend Section 24b to allow home loan borrowers to claim the entire tax deduction limit of Rs. 2 lakh, even if the possession of the property gets delayed at the developer’s end.Currently, Section 24b allows you to claim deductions for home loan interest of up to Rs. 2 lakh per year only if you receive the possession within three years of taking that loan. This limit comes down to Rs.30000 if you receive the possession after three years. As developers often fail to meet the schedule of delivery, the borrowers are forced to avail lower tax benefits.
Increase tax deduction limit for housing loans: Budget 2016 should also increase the tax deduction limit for interest paid on housing loans as the current limit of Rs.2 lakh is insufficient for most Indian cities where even a 2BHK flat costs more than Rs.25 lakhs. After all, the interest payout on Rs 25 lakh home loan of 20 year tenure @ 10% p.a. interest rate works out at around Rs. 2.90 lakh p.a.
Introduce tax deductions for house insurance premiums: Not having home insurance leaves us vulnerable to huge financial damages from natural calamities, such as earthquakes, landslides and floods. Introducing tax exemptions for home insurance premiums would encourage people to insure their homes and secure their financial well-being from the acts of nature.
Change the tax exemption status of NPS from EET to EEE: As NPS comes under Exempt-Exempt-Taxable (EET) regime;its maturity amount becomes taxable. This erodes the attractiveness of NPS as its competitor retirement products, such as PPF, EPF and VPF,come under Exempt-Exempt-Exempt (EEE) regime, making their maturity proceeds tax free. Bringing the NPS under EEE regime will encourage the non-government employees and other retail investors to invest more in NPS.
Bring pension products from insurance and mutual funds under Section 80CCD (1B): Currently, you can avail an additional deduction of Rs 50,000 under Section 80CCD (1B) over and above the Rs. 1.5 lakh limit available under Section 80C. However, this deduction is only available for investments in NPS. As the main objective of this section is to increase pension coverage in India and provide some sort of social security to senior citizens, bringing pension plans from mutual funds and insurance companies under this section will increase the competition in pension space and thereby, bring more people under pension coverage.
To sum it up, Budget 2016 should use tax-exemption limits to encourage people to increase their exposure in long-term investment products and buy essential insurance covers. This will also help the government to realise its objective of comprehensive financial inclusion and help raise funds for financing capital expenditure in the infrastructure sector.
(The article is authored by Naveen Kukreja, co-founder & CEO Paisabazaar.com)
