This year’s Union Budget has to do a balancing act between supporting the economic recovery and maintaining fiscal prudence.
As there was an increase in direct tax collections, the taxpayers hoped for an increase in basic exemption limits and standard deduction.
The individual taxpayers expect a hike in exemption limit for health insurance and a higher tax incentive for investing in the National Pension Scheme. They would also expect the rationalization of taxes for capital gains and tax-free annuity income.
Then the rationalization of taxes for capital gains. Presently the bonds held for 12 months are subject to LTCG tax. At the same time debt mutual funds need to be held for 36 months to be brought under LTCG tax.
The benefit of uniformity in the LTCG holding period is that the listed debt securities and debt mutual funds will help plan effective investments. It will also plug revenue leakage for the government.
It should also bring in parity in the taxation of capital gains from investments in mutual funds and ULIPs. On an aggregate annual premium, up to ₹2.5 lakh a year, capital gains on ULIPs are completely tax-free.
Experts say that only funds that invest at least 65% into equities are granted equity taxation.
Then the hike in the exemption for health insurance. The pandemic raised the awareness and importance of health insurance in India. But health insurance penetration is low and should be more affordable for the people and lucrative for taxpayers.
Under Section 80D, taxpayers below 60 years get an exemption for health insurance premium of ₹25,000 for self, spouse and children. If the parents are senior citizens, then ₹50,000 will also be deducted.
To increase the insurance penetration and ensure that they purchase the appropriate quantity of coverage, the experts say that income tax exemptions, as mentioned in Section 80D should be raised. It would be ideal if doubled.
The GST should be eliminated as it will make insurance more affordable and penetrate more, especially into rural areas. This is necessary, especially in this pandemic era.
The increase in interest deduction on housing loans. Real estate sector is one of the largest employers. It expects a lot of things from the budget, in this case, they expect to enhance the limit for an interest deduction on housing loans.
They also expect to extend the PMAY subsidy which is due to end in March, along with removal of GST for a certain period on the purchase of units by poor customers.
As per Section 24, taxpayers get a deduction of up to ₹2 lakh for interest paid on housing loans for self-occupied houses and no limit for non-self-occupied houses.
Last year the government extended the additional tax deduction of ₹1.5 lakh on housing loans for the purchase of affordable homes by one more year. This step would help and boost individuals.
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