Despite being an interim budget, I expect Budget 2019 to make major announcements for providing tax reliefs to middle class taxpayers, easing credit supply to housing and MSME segments and incentivising digital transactions. Here are my Budget 2019 expectations.

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Increase Section 80C deductions to boost long-term savings

: Currently, Section 80C is crowded out by a wide range of qualifying expenses, such as home loan principal repayment, children’s education or tuition fee, life insurance premiums, employer’s contribution to EPF and payment of registration fee and stamp duty incurred on the construction or purchase of home property. Such a wide range of compulsory payments leave no incentive for the middle tax taxpayers to invest in tax saving fixed deposits, PPF, ELSS, NPS, etc for saving tax. With India’s household savings rate steadily declining over the last five years from over 23.6% in FY 2012 to about 16.3% as on March 2017, increasing the Section 80C deduction limit to Rs 3 lakh in Budget 2019 would encourage middle class households to increase their exposure in long term investment instruments.

Restore LTCG tax exemption on equities and equity mutual funds: The tax exemption on LTCG in equities played a major role in increasing retail investor participation in the equity markets. Hence, reintroducing LTCG tax exemption on equities and equity mutual funds will go a long way in increasing the equity penetration and improving the overall investor sentiment. Moreover, doing this will also bring tax parity with other equity-oriented schemes like NPS and ULIPs, which still remain exempt from LTCG tax.

Reintroduce Section 80EE deductions to encourage affordable housing: Section 80EE allowsa deduction of Rs 50,000on home loan interest payment. However, this deduction is only available to fresh home loan buyers who availed home loans of up to Rs 35 lakh for property valued up to Rs 50 lakh during the Financial Year 2016-17. The deduction available is over and above the home loan interest deduction available under Section 24b. Thus, re-introducing Section 80EE for fresh buyers of affordable homes will boost the housing demand and help achieve the policy objective of “Housing for All by 2022”.

Create a separate deduction for term insurance: The main objective of buying a life insurance policy is to provide a replacement income to the dependents through a life cover in case of untimely demise. Ideally, this cover should be equal to at least 10-15 times of the annual income. Among all life insurance product categories, term insurance plans are the most cost effective ones to buy such large life covers. However, most confuse insurance as an investment vehicle and end up buying life policies that provide very little life cover. Introducing a separate section for term insurance within or beyond the Section 80C limit would act as tax incentive for buying term insurance policies and get adequately covered in the process.

Incentivise digital transaction through lower GST rates: Currently, merchant discount rate (MDR) charges on debit cards and UPI transactions of up to Rs 2,000 are waived off to promote digital transactions. This waiver should also be extended to credit cards and other digital payment options to create a level playing field. Similarly, the proposed 20% cashback of up to Rs 100 on GST on making payments made through Rupay and BHIM app should be extended to the rest of the debit and credit cards and all forms of digital transactions.

Additionally, government can also consider a 2% concession in GST rates to merchants accepting digital payments. With a large section of smaller merchants and the informal sector still resisting digital payments modes due to their higher transaction cost, the concession will act as fiscal incentive for moving towards digital payment modes.

Priority sector tag for bank on-lending to housing and MSME sectors: Currently, bank loans to HFCs for the purpose of on-lending home loans of up to Rs 10 lakh per borrower get treated as priority sector loans. This upper limit should be increased to at least Rs 35 lakh per borrower to boost credit flow to the affordable housing segment and reduce the liquidity pressures faced by the HFCs. Similar provisions should also be made for on-lending to NBFCs lending to the MSME segment as a sizeable chunk of it is serviced by the NBFCs.

Naveen Kukreja is CEO and co-founder, Paisabazaar.com

This article was first published in Paisabazaar.

First Published:Feb 1, 2019 6:30 AM IST