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The government will present the Budget for the financial year 2023-24 (FY24) on February 1. This year’s Budget will be the last one before the general elections of 2024. Taxpayers, like every year, expect the Budget to have announcements that put more money in their hands to deal with high costs of living and inflation.
They expect tax deductions under various heads. New deductions ensure greater income in their hands. Greater disposable income boosts expenditure. This is welcome—especially in inflationary times.
The government introduced an optional tax regime in recent years. The new tax regime allowed some taxpayers to opt into a low-tax regime where they would lose their deductions. However, for any person with financial and family responsibilities, it may be difficult to let go of these deductions to opt for the new tax regime. Therefore, they remain on the old regime to claim necessary deductions.
Deductions for provident fund, insurance payments, rent or home loan EMIs, or children’s school tuition fees are common. Anyone with a home loan especially cannot afford to lose its massive tax benefits. This category of taxpayers needs enhancement of deductions. But this hasn’t happened. The deductions have not kept pace with inflation.
In this article, I outline a few suggestions the government may consider for taxpayers. Take a look:
Enhance Sec 80C Limit
Section 80C deduction limit was last revised in 2014 to Rs 1.5 lakh. It is a popular tax benefit deduction used by taxpayers under old tax regime. Considering the rise in inflation, an increase in the deduction benefit limit to Rs. 2 lakh from Rs. 1.5 lakh will provide much-needed relief. It will leave more disposable income in the hands of the people and help them save more.
Enhance the 20% and 30% tax slabs in the old regime
The government can also consider raising the upper limit for various tax slabs to budget for inflation over 10 years. For instance, the upper limit for the 20% deduction should be moved to Rs. 15 lakh from the current Rs. 10 lakh.
Increase the home loan limit and separate it from 80C
Home loans have become expensive after the RBI raised the repo rate by 225 basis points from May 2022 to Dec 2022 to control spiralling inflation. Despite the rising rates, home loan demands have remained high. As per RBI data, home loans grew 8.4% between March and October, faster than the preceding six-month period, during which there were no hikes. Home loans are a long-term financial commitment. With EMIs rising, the government can introduce homebuyer-friendly tax sops.
The government should consider clubbing all home loan deductions under a single section and remove it from the 80C. A single deduction up to Rs. 5 lakh (the sum of 80C, 24B and 80EEA deductions) without sub-limits for principal and interest would help homeowners better tackle the costs of real estate.
Hike 80D Tax deduction Benefits Limit
Healthcare costs are rising day by day. As a result, health insurance policies’ premium rates are also increasing. The high premium cost adds to people’s financial woes who are already dealing with high inflation. The government should consider enhancing the deduction limit under section 80D. Presently, non-senior citizens can avail deduction for premium health insurance payments up to Rs. 25,000. For senior citizens, the deduction available is Rs. 50,000. The premium goes beyond the threshold deduction limit for people going for higher insurance coverage.
Lower GST on health insurance
Insurance penetration is low in India. But the GST rate on health insurance is presently at a relatively high 18%. The government can reconsider this GST rate and reduce it to a lower rate to make it more affordable.
Bring parity between LTCG tax on listed and unlisted equities
Listed and unlisted equities are treated at par for computation of LTCG. As a risk mitigation, this benefit should be extended to unlisted entities with requisite qualification criteria such as a) in BFSI sector those fintech entities who are registered with one of the financial sector regulator b) in MSME sector those with Udyam Registration meeting requisite capital and/or revenue requirements as sufficient to identify genuine nature and value addition to the economy of the unlisted entity.
(The writer is CEO, BankBazaar.com – India’s largest fintech co-brand credit card issuer)
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