The Union Budget for the fiscal year 2022-23 will be presented on February 1, 2022. The budget should aim to put more money in the pockets of the common man. While we discuss the budget, let us not forget the challenges that the country has been facing due to Covid-19.
Although the government has been able to provide some relief to the people during these difficult times, it must also make more efforts to improve the economy in the future. Reducing the prices of essential commodities should be on the radar as it can help improve the living standards of the people. While that remains a basic demand, let us also look at what an average taxpayer expects from the Budget this year.
Expectation 1 – Higher Relief for Home Loans
Despite the pandemic, the demand for real estate in India has increased. The Center can provide more relief to the consumers and lower the prices through tax incentives. The government should also announce measures that can help home loan borrowers. Currently, home loan holders can deduct up to Rs. 1.5 Lakh from their income as per Section 80C and up to Rs. 2 Lakh as per Section 24B.
The government may also consider introducing a new section that allows home loan holders to deduct up to Rs. 5 lakh with no cap. This can equate to the total deductions that a person can make under Section 80C, 80EEA, and 24B.
Expectation 2 – Taking Section 80C limit from Rs. 1.5 Lakhs to Rs. 3 Lakhs
As inflation rises, salaried individuals need more money in their hands to spend and save. The Union Government should consider increasing the Section 80C deduction limit from Rs. 1.5 Lakhs to Rs. 3 Lakhs as this can retain more cash in hands of salaried employees. It will benefit individuals with complex expenses and financial liabilities.
The government can also look to increase the ambit of Section 80C by introducing more tax-friendly instruments. For example, hybrid funds can be brought under the tax-free category. Alternatively, the cost of term insurance can also be allowed to be excluded from taxable income.
Expectation 3 – More Section 80D Benefits
Due to the pandemic, medical expenses have increased significantly. The cost of insurance has also increased. The government may consider increasing the deduction limit for non-senior citizens for their insurance premiums to Rs. 50,000.
Currently, for non-senior citizens and senior citizens, the premium payment can be deducted up to Rs. 25000 and Rs. 50,000 respectively. An increase in the limit can help people save for a higher insurance cover.
Expectation 4 – Increment in Section 80 TTA Limit
A Savings Bank Account is a great investment option for risk-averse individuals. However, interest on these deposits is not tax-free but can be claimed as a deduction under 80TTA (non-senior individuals) and 80TTB (senior individuals). For senior citizens, a deduction of Rs. 50,000 is available whereas, for non-senior citizens, tax on saving bank account interest is applicable as per the normal rates. The government should increase the deduction limit for non-senior individuals to Rs. 30,000.
Currently, banks offer interest rates of around 5% to 6% per annum on savings accounts for up to 3 years. If an investor is in the highest tax bracket, his return after tax would be around 3.85%. Considering inflation, this can be adverse for the individual’s wealth.
Expectation 5 – Reduction of GST on Health Insurance
Currently, 18% GST is levied on health insurance. This contributes to the extra cost of buying insurance for consumers. People expect that the government will reduce the GST on health insurance to a lower slab rate of say, 5% or 12% from the current 18% slab. This move will help consumers save on their health insurance by making them more affordable.
How are hybrid funds taxed currently?
Hybrid Funds are mutual funds that invest in both equity and debt. The short-term capital gains (STCG) on equity-focused hybrid funds are subject to tax at 15 pc whereas long-term capital gains (LTCG) are subject to 10 pc tax. For debt-focused hybrid funds, STCG is taxed as per the normal tax rate applicable to the assessee whereas LTCG is taxed at 20 pc along with indexation benefit.
What are different GST rates and in which category does GST on health insurance fall?
The four slabs under the new tax regime of GST are 5%, 12%, 18%, and 28%. The services of provided health insurance plans fall under the slab rate of 18%. Therefore, when you purchase a health insurance policy, you pay 18% GST on the price.
How can a reduced tax rate on savings bank interest be helpful?
When the tax rates on savings bank accounts are reduced or are given deduction, it can encourage more people to save in banks and that will boost the economy. It will also boost the bank’s cash reserves and stimulate demand.
Disclaimer: This blog is exclusively for educational purposes and does not provide any advice/tips on investment or recommend buying and selling any stock.