NEW DELHI: As the government prepares to present the interim budget on February 1, individuals are waiting eagerly to see if the finance minister will make any announcements that change the way they invest or do savings. Individuals wait for the budget to see if there are any major taxation related changes that may affect their life in any major way.
We list a few expectations that individual investors and taxpayers have with the interim budget.
Higher tax deduction under Section 80 C: Currently, an individual can get income tax deduction benefits up to R 1.5 lakh per year for contribution towards insurance premium, Employee Provident Fund (EPF), Public Provident Fund (PPF), and others. The Section 80 C also includes expenses like child tuition fee. There has been a long-pending demand from taxpayers to increase this limit to R3 lakh. This year too taxpayers would be expecting some announcement towards this.
Vighnesh Shahane, MD & CEO, Ageas Federal Life Insurance, says the government should introduce a separate tax deduction limit for life insurance as the current section 80C is too cluttered.
Make pension schemes more tax friendly: Contribution to National Pension Scheme (NPS) up to R1.5 lakh is tax deductible under Section 80 C. An additional R50,000 invested in NPS also gets deduction benefits under new Section 80CCE. There has been a demand for allowing similar benefits to pension schemes offered by insurance and mutual fund companies.
“The other demands are to make pensions tax-free in the hands of annuitants. The current R50,000 tax exemption for the National Pension Scheme under Section 80CCD(1B) should also apply to pension and annuity plans of insurance companies to provide a more level playing field,” says Shahane of Ageas Federal Life Insurance. Similar demand comes from the mutual fund industry.
Jimmy Patel, MD & CEO of Quantum AMC, requests that the government should allow mutual fund-linked retirement scheme the same tax concessions available to the National Pension System (NPS). “A majority of NPS subscribers are from the government and organised sector. Mutual fund-linked retirement scheme could target individuals who are not subscribers to NPS, especially those from the unorganised sector, providing them with an option to save for a vital long-term goal such as retirement coupled with tax benefits,” says Patel.
Level-playing field between mutual funds and Ulips: At present, capital gains made from Unit-linked Insurance Plans (Ulips) are tax-free if the annual premium is less than R2.5 lakh. MF industry has been demanding a level playing field between Ulips and equity mutual funds as far as tax on capital gains is concerned. “It is important to bring both ULIP and equity mutual funds on par as regards taxation since ULIPs are essentially investment products providing some risk cover,” says the Quantum Mutual Fund CEO.
Simpler capital gains tax regime: Deloitte advocates for a clear and concise Indian capital gains tax regime, highlighting the importance of predictability and certainty for investment decisions. It suggests reducing the total number of tax rates applicable to capital gains, uniform rate of surcharge for classes of foreign investors and similar treatment for different types of investors and rationalisation of holding period for different capital asset classes.
The mutual fund industry has demanded giving equity status to fund of funds schemes. Currently, fund of fund schemes are treated as debt funds for taxation purposes even if it is an equity fund of funds. Short-term capital gains (made from sale of units before 12 months) from equity mutual funds are taxed at 15% while long-term capital gains (sale of units after 12 months) at 10%. The short-term capital gains (from sale of mutual fund units before completing 36 months) are taxed at income tax slab rates, while long-term capital gains are taxed at 20% without indexation.
Lower GST on health insurance policies: Another popular angst among individuals is the high GST rate of 18% on insurance services. Insurance industry has been demanding a lower GST at least on health insurance. Ritesh Kumar, MD & CEO of HDFC ERGO General Insurance, is urging the government to reconsider the 18% GST rate on health insurance policies to improve the affordability for all citizens.
Lower TDS on crypto trading: The crypto industry as well as investors expects the finance ministry to reduce the tax deducted at source (TDS) rate on Virtual Digital Assets (VDAs) from 1% to 0.01% in the upcoming interim budget.