The government has been making earnest endeavours to lift the sentiment of industry and public through populist measures such as reduction in corporate tax and indicative relief in personal tax rates. With the current thinking in the government in favour of moving beyond age-old saving norms/schemes, it is an opportune moment for the finance minister to match pace with the changing mindset in respect of savings, in the upcoming Budget 2020.
Apart from personal tax rate cuts, tax relief may be provided by inducing taxpayers to put money in various savings/ investment schemes focusing on retirement planning, housing and education.
Though the government has provided several benefits to encourage savings towards housing, savings towards children education has often been ignored. Additionally, the increased average spending on education deserves a separate provision under the Income- tax Act, 1961 (the Act) by excluding from existing Section 80C of the Act. An additional benefit on girl child education may also supplement the existing government schemes/policies of “Beti Bachao Beti Padhao".
Taxpayers expect an increase in existing deduction from ₹1.5 lakh to ₹3 lakh for the populist Section 80C of the Act. This section has remained unchanged for past six yearsand it is time to rejig this section to make it focus on savings/ investment avenues by taking out expenditures such as education, principal housing loan prepayment, from its domain.
The finance minister should consider increasing the limit of tax-free contribution to the National Pension Scheme (NPS) from an existing amount of ₹50,000 to ₹1 lakh per annum. While, such contribution may still be insufficient considering the increased cost of living, it could still be an encouraging factor to save for post-retirement days.
In the past six years, deduction for housing loan has not increased from ₹2 lakh, although the government did introduce deduction for affordable housing with loan of up to ₹35 lakh, where the value of the house does not exceed ₹45 lakh. To boost the demand for housing and to provide the common man with his own shelter, additional housing loan relief should be extended to all kinds of homebuyers.
The cost of hospitalisation has been rising and medical treatments are becoming more expensive over time. It is time that tax deduction towards medical insurance be increased from ₹25,000 to ₹50,000 per annum for self, and ₹50,000 to ₹75,000 for dependent parents under Section 80D of the Act. This would encourage the common man to invest in health insurance for a secured medical cover in the times to come.
In the existing situation, the upcoming Budget should align with the vision of the Prime Minister to provide a secured future to people during their post retirement age; hence measures to boost savings/ investments by the common man is the need of the hour.