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Budget 2021: 5 Wishlist For The Government From The Taxpayer

Adhil Shetty
·6-min read
Finance Minister Nirmala Sitharaman presenting her second Union Budget on Saturday, February 1, 2020. Photo courtesy: twitter.com/PIB_India
Finance Minister Nirmala Sitharaman presenting her second Union Budget on Saturday, February 1, 2020. Photo courtesy: twitter.com/PIB_India

This year’s budget is going to be different for various reasons. For the first time in India’s history, the Budget will not be printed and will be paperless due to the Covid-19 pandemic. Also, Budget 2021 will be presented amidst economic challenges due to the nationwide lockdown necessitated by the Covid-19 crisis. Indian citizens will thus have big expectations from the budget and will expect the Finance Minister to announce growth stimulus measures.

While the pandemic has brought major health and financial setback to millions, it also pushed people to change the way they spend or manage their money. If there was one important learning from the pandemic, it was to save more and have liquidity at hand to deal with unforeseen challenges. With this year’s budget, the government needs to do more to revitalize spending and announce sops that can give more money in the hands of the salaried class.

Take a look at a list of expectations that every salaried individual can identify with and which has the potential to put more money in their hands.

Increase 80C Limit From Rs. 1.5 Lakh To Rs. 3 Lakh

Section 80C is immensely popular as it provides a tax break of Rs.1.5 lakh for investments such as Public Provident Fund, mutual funds, the premium paid for life insurance policies, home loan principal payment, fixed deposits etc. The government should consider hiking this limit to Rs. 3 lakh in line with the rise in income and inflationary trends. Hiking the exemption limit will encourage people to invest more, especially in qualified 80C government-backed investment schemes such as PPF, NSC and EPF. This would be a win-win situation for both the government and taxpayers. While it will put more money in the coffers of the government, the investor would put the money in more safe and viable options to beat the economic challenges. Further, the government could introduce higher deductions for the increasing cost of education tuition of children. Currently, combined with insurance and investment, it is not possible to get the full value of these deductions under the current limit.

New Section For Home Loan Tax Deduction

The Indian property market is costly. Despite a challenging 2020, property prices continue to rise. Home buying, thus, is an expensive proposition for which homebuyers depend on a big-ticket home loan. Large home loans mean less disposable income, limited savings and strained income. The government should introduce steps that can provide more tax benefits to home loan borrowers while putting more money in their hands. Home loan borrowers should get higher exemptions for the payments made. This will help result in higher disposable income and strengthen them to deal with rising expenses and inflationary pressures. The current exemptions available for a home loan is Rs 1.5 lakh under Section 80C and Rs. 2 lakh under 24B. The government should consider a total deduction of Rs. 5 lakh for principal and interest paid. The government can also consider clubbing all the home loan-related tax deductions under one section for both interest and principal payment. Presently, home loan borrowers get tax deductions under sections 80C, 24B, 80EE and 80EEA of the Income Tax Act. These deductions can be clubbed into a single section for home loan deductions up to Rs. 5 lakh without sub-limits for principal and interest. This will make the deduction limit of Rs. 5 lakh limit equal to the current limits under sections 80C, 24B, and 80EEA.

Increase 80TTA Limit To Rs. 30,000

Section 80TTA allows taxpayers to claim a tax deduction of Rs.10,000 for interest income earned through savings account in banks, co-operative banks and post offices. In the upcoming budget, the government should consider increasing this limit to Rs. 30,000 to encourage people to save more and earn interest rather than stashing cash at home. With capital protection a preference over capital appreciation in the aftermath of the pandemic, savings account have come back in focus for many people. So it is time for the government to increase this limit. The move would also benefit the banks as more savings will bolster more cash reserves and boost lending.

Separate Tax Deductions For Term Insurance

The pandemic has made having a term insurance policy more important. It is one of the easiest ways to ensure that your family manages any financial issues conveniently in the unfortunate event of your demise. Since the premiums are low, it is one of the most cost-effective ways to protect your family’s financial future. Despite such benefits, term insurance is still not a priority buy for many salaried individuals. To make it more popular amongst taxpayers, the government can provide an income tax incentive for buying term insurance products. Currently, tax deduction can be availed for term insurance premium payments through Section 80C. The government may consider introducing a separate tax deduction for term insurance. Section 80C can be dedicated to investment-related deductions, whereas a separate section for term insurance, which is a necessary expense that can be introduced to encourage people to buy the insurance and seek high tax benefits.

Better Tax Treatment Of ESOPs

Employee Stock Option Plans (ESOPs) given to employees attract double taxation. The first taxation as a perquisite when the employees exercise their ESOPs after the vesting period (calculated on the difference between the fair market value of the shares and the exercise value on the day of allotment) and second on capital gains when employees sell the allotted shares (calculated on the price difference between the fair market value and the selling price of the stocks) need to be reviewed. We suggest that the first taxation should be done away with and tax should only be levied on the sale proceeds when an employee makes a profit. The idea of ESOPs is to retain talent and encourage them to perform better. So the government should consider stopping the taxation on ESOPs at the point of exercise. The removal of the first tax point would encourage employees to perform better.

Final Words

With people trying to save more, this year’s budget should focus on a giving higher breaks to the salaried class to help them enjoy higher disposable incomes, purchase property, increase discretionary spends, all of which will help revive the economy.

The writer is CEO, BankBazaar.com, India’s leading online marketplace for loans and credit cards.