That’s true. International ranking businesses maintain a hawk’s eye on fiscal slippages by rising economies like India. At Rs 8.7 lakh crore, the fiscal deficit has already overshot the annual goal of Rs 7.96 lakh crore estimated within the Funds, however greater spending by the federal government appears the one strategy to develop now. Finance Minister Nirmala Sitharaman declared final week that greater spending within the coming Funds will lay the muse for sturdy progress in 2021-22 and within the following years.
Right here we now have 20 concepts from throughout the trade and a cross-section of taxpayers. Most of those are measures that taxpayers would wish to see within the Funds. For example, indexation profit on capital beneficial properties from fairness investments will definitely make traders completely satisfied. The next deduction for medical insurance coverage premium will encourage folks to purchase an enough cowl for themselves. As hospital payments of Covid sufferers present, even a Rs 10 lakh cowl could also be insufficient.
However among the concepts, like reducing the TDS exemption threshold on curiosity revenue to stop tax avoidance, could not precisely please taxpayers. Even so, we hope that a few of these ideas will discover their manner into the Finance Invoice 2021.
1. Give indexation profit to fairness funds:
Radhika Gupta, CEO, Edelweiss Mutual Fund
Indexation makes a good evaluation of beneficial properties primarily based on the true worth of investments and never the nominal worth. This permits retail traders to create actual wealth and safeguards the worth of their investments. Indexation profit is on the market for investments in actual property, debt mutual funds and gold however fairness investments aren’t eligible. Until 2018, there was no tax on long-term capital beneficial properties (LTCG) from equities so indexation was not a priority. Nevertheless, LTCG past Rs 1 lakh from equities is now taxed at 10% with out indexation.
The flat exemption of Rs 1 lakh per yr is just not very helpful normally. As a substitute of a Rs 1 lakh exemption, fairness investments ought to be given indexation profit. Allow us to assume Rs 10 lakh is invested for 10 years and grows at a CAGR of 12%. After 10 years, the funding can be value Rs 31.05 lakh. Since LTCG of Rs 1 lakh is tax free, the beneficial properties would entice a tax of round Rs 2 lakh. But when the Rs 1 lakh exemption is changed with indexation profit (assuming 4% annual progress within the Value Inflation Index through the interval), the tax can be decrease at Rs 1.62 lakh (surcharge & cess not thought of). Contemplating fairness investments are for the long run and traders don’t redeem yearly, the indexation profit can be extra helpful for traders than the Rs 1 lakh exemption per yr.
ET Wealth view: There’s a want for simplifying the disparate tax therapy for various asset courses and likewise inside asset courses. Permitting indexation for LTCG in equities can be a step in that path. The present exemption of Rs 1 lakh per yr additionally provides the improper form of nudge by incentivising traders to guide earnings yearly merely to keep away from paying extra tax later.
2. Lengthen NPS taxsaver choice to basic traders:
Amit Maheshwari, Associate, AKM International
Investments within the Tier I funds of NPS get pleasure from tax deduction beneath Sec 80C, however the cash will get locked up until retirement. Final yr’s funds had launched a brand new tax saving choice throughout the Tier II of the NPS with a shorter lock-in of three years. It’s comparable with ELSS funds however open solely to authorities workers. The Funds ought to prolong this selection to basic subscribers as nicely. The foundations of the scheme additionally want altering. Though subscribers can select a pension fund supervisor on the time of investing, they’ll’t repair the asset allocation. The scheme places 10-25% in fairness funds and the remaining in bond funds. Buyers ought to be allowed to decide on their allocation and even change it primarily based on their studying of the market.
ET Wealth view: This ought to be simple as a result of there are not any monetary implications. NPS can even achieve wider acceptance amongst traders whereas taxpayers will profit from its low prices.
3. Take away tax on dividends:
Sandeep Nayak, CEO, Centrum
Until final yr, as much as Rs 10 lakh dividend obtained on listed fairness shares and fairness funds was exempt from tax. This meant that the retail investor was spared the tax whereas guaranteeing that wealthy traders and promoters paid tax on dividends. However final yr’s Funds eliminated the exemption and made all dividends taxable. For India’s demographic dividend to play out, the rising retail investor class must be inspired to deploy financial savings in equities. Eradicating the tax on dividends will go a great distance in bolstering the fairness tradition amongst millennials. The softening of rates of interest is weighing in opposition to investments in mounted revenue. Fairness shares with a robust payout historical past present an answer to this drawback. Eradicating the tax on dividend is not going to solely give additional fillip to funding in shares but in addition assist maintain the market momentum.
ET Wealth view: Whereas making dividend taxable for all traders, the federal government additionally scrapped the dividend distribution tax (DDT), which led to a income lack of roughly Rs 25,000 crore. Reverting to the previous rule will, subsequently, regain this loss to the exchequer.
4. Make clear tax guidelines for futures and choices:
Feroze Azeez, Deputy CEO, Anand Rathi Personal Wealth Administration
There isn’t a readability on how revenue from futures and choices (F&O) is to be taxed. It’s taxed both as enterprise revenue or as capital beneficial properties. Many small merchants face hardships on account of turnover calculation being excessive or once they make losses – each of those name for a tax audit and alter within the ITR kind. The loss from F&O, if carried ahead, could be adjusted solely in opposition to enterprise revenue. The Funds ought to simplify the tax guidelines regarding F&O. For FIIs, it was determined that they’ll solely be traders and never merchants and therefore revenue from derivatives was to be handled as capital beneficial properties. The Funds ought to spell out guidelines for different classes of assessees as nicely. Sure assessees ought to be allowed to deal with beneficial properties from F&O as capital beneficial properties in the event that they don’t exceed 25% of complete revenue.
ET Wealth view: Taxation of revenue from F&O has all the time been a gray space with no consistency within the tax authority’s method. A clearly laid out standards to tell apart enterprise revenue from capital beneficial properties is the necessity of the hour.
5. Provide exemption to tax-free portion put in annuity:
Niraj Shah, CFO, HDFC Life
Annuity plans guarantee monetary safety by offering a assured revenue for all times and permit one to dwell with out compromising the usual of residing after retirement. Beneath Part 10(10A), there is no such thing as a tax on the lump sum quantity that may be commuted when a pension plan matures. At current, 60% commutation is allowed. Nevertheless, if a person doesn’t commute any quantity and opts to place 100% in annuity, the pension obtained is absolutely taxable. The Funds ought to take away this anomaly. Revenue generated from the exempt quantity of commutation ought to be made tax free. It will convey parity within the therapy of the quantity invested, whether or not one opts for commutation or in any other case, to buy an annuity plan.
ET Wealth view: The tax is on the revenue from the funding. Even when the person commuted the quantity, he must deploy it someplace to earn a return that might be taxable. In addition to, segregating the pension between the commuted and remaining quantities is not going to be simple.
6. Tax advantages for automobile buy:
Sunitha S., IT skilled, 25 years
The financial system wants a requirement stimulus. There are already tax advantages for consumers of properties and electrical automobiles. The Funds ought to present related tax incentives for the acquisition of two- and four-wheelers. The auto sector has a multiplier impact on the financial system and such a measure might assist in reviving demand to some extent.
ET Wealth view: Tax advantages are supplied on loans for getting electrical automobiles. If the identical sops are prolonged to non-electric automobiles, demand could also be revived.
7. Separate deduction for pension plans consistent with NPS:
Rushabh Gandhi, Deputy CEO, Indiafirst Life Insurance coverage Firm
Pension plans supplied by life insurance coverage corporations and NPS are supposed to present retirement revenue. Beneath the previous tax regime, NPS is allowed an extra deduction of as much as Rs 50,000 beneath Sec 80CCD(1b), over and above the Rs 1.5 lakh deduction beneath Sec 80C. However pension plans from life insurance coverage corporations don’t qualify for this extra deduction. Bringing pension plans beneath Sec 80CCD(1b) will make them tax pleasant consistent with the NPS and increase long-term financial savings for retirement.
ET Wealth view: It’s true that the Part 80C basket is just too cluttered and doesn’t give a large sufficient berth for incentivising financial savings. Providing the advantages loved by the NPS to pension plans from insurance coverage corporations will guarantee a level-playing area in retirement financial savings.
8. Take away restriction on setting off house mortgage curiosity:
Ramesh Nair, CEO & Nation Head (India), JLL
The 2017 Funds put a Rs 2 lakh cap on loss from home property that may be set off in opposition to different heads of revenue in a yr. Unadjusted losses could be carried ahead and set off in opposition to revenue from home property for as much as eight subsequent years. This provision restricts taxpayers from claiming deduction for a big portion of the curiosity paid on the housing mortgage in case of purchases for funding functions. It severely dampens the funding sentiment and disincentivises second-home consumers. If the restriction is eliminated, a homebuyer will be capable of declare the complete curiosity on let-out property, leading to greater post-tax returns.
ET Wealth view: Eradicating the cap on set off of loss from property will spur funding demand within the struggling realty market. However, given the federal government’s strained funds, it would introduce a better threshold (say Rs 4 lakh) as an alternative of eradicating the cap.
9. Deduction of bills on upkeep of self-occupied home:
Archit Gupta, Founder and CEO, Cleartax
There are tax advantages obtainable for a house mortgage taken for the development or buy of a home. This profit is on the market even when the home has been given on lease. Nevertheless, as soon as the mortgage is squared off, there are completely zero tax advantages. Each property, whether or not large or small, requires upkeep, together with whitewashing, repairs and basic maintenance. Households that maintain on wage or pension are strained to hold out repairs as a result of they take up a good portion of their month-to-month funds. Householders ought to be allowed to assert a hard and fast sum yearly or each alternate yr for house upkeep bills. This profit could also be restricted to only one property to ease the burden on the exchequer.
ET Wealth view: Such a tax deduction can be too radical a transfer. Greater than the income foregone and the compliance, there are probabilities of tax leakage and fraud on account of faux upkeep claims.
10. Take away sub-limits on HRA exemption:
Abhishek Jain, 40 years, IT skilled, Mumbai
Attributable to sub-limits, many salaried professionals aren’t in a position to declare HRA exemption for the complete lease paid by them. As per HRA guidelines, the bottom of three choices is exempt. The primary choice (lease paid above 10% of the fundamental wage) works in opposition to individuals with a excessive fundamental pay. The second (HRA exemption capped at 40-50% of fundamental) works in opposition to individuals with a low fundamental element. The thought is to minimise probabilities of misuse. Nevertheless, that is higher achieved by insisting on digital or cheque funds and submission of the owner’s PAN. If the owner’s PAN is given, will probably be simple to examine if the lease is reported in ITR.
ET Wealth view: It will definitely simplify the HRA guidelines as additionally plug the leaks within the tax on account of faux lease funds. This concept is value contemplating as a result of it’ll increase revenues on account of discount in tax leakage. However the compliance necessities for the taxpayer will go up.
11. Provide incentives to create demand in auto and housing sectors:
Bal Krishna Piparaiya, Senior Director, Brickwork Rankings
Revival of demand is important for the financial system to get again on monitor. The Funds can do that by offering a GST set-off for optionally scrapping automobiles which might be greater than 15 years previous and concurrently shopping for a brand new automobile. The set-off ought to be equal to the GST on a automobile with an identical engine capability. The client of the brand new automobile ought to get the scrap worth as nicely. The Funds can even enable margin cash loans of as much as 5-10% of the worth of the house to assist debtors purchase their first home. Such loans ought to be assured by the credit score assure company to cowl for dangers on account of a better LTV.
ET Wealth view: Although it’ll convey down the price of a brand new automotive, the GST set-off will not be sufficient to get folks to purchase. Equally, larger loans could not assist in instances of pay cuts, job losses.
12. Widen definition of reasonably priced housing:
Subhankar Mitra, MD, Advisory Companies, Colliers Worldwide India
Final yr’s Funds had given first-time consumers an extra deduction of as much as Rs 1.5 lakh for curiosity on loans for reasonably priced homes. This was over and above the Rs 2 lakh deduction obtainable to all. However there was a restriction. Solely homes valued at lower than Rs 45 lakh have been eligible to get this extra deduction. This restrict ought to be prolonged to Rs 75 lakh to align with the market costs of homes. Likewise, the definition of reasonably priced housing beneath 80IBA additionally must be seemed into. The eligibility restrict have to be prolonged as much as 90 sq m from the present 60 sq m, in order that consumers of MIG housing additionally get benefitted.
ET Wealth view: Housing for all is a precedence for the federal government. Additionally, shopping for a brand new home can have multiplier impact on the financial system, so this measure could also be taken up.
13. Don’t masks fiscal slippage, settle for it:
Raamdeo Agrawal, Chairman, Motilal Oswal Monetary Companies
If the federal government retains giving tax sops or spending to stimulate the financial system, it will be unable to take care of fiscal self-discipline. Since tax collections are low, fiscal targets are already challenged. Governments normally cover the fiscal slippage by transferring bills from one yr to the following. For instance, as an alternative of paying contractors and transferring subsidies in 2020-21, the funds can be made in 2021-22. So, these bills will get counted in 2021-22. Such steps constrict the revenue stream of companies and can be be disastrous at this juncture. The federal government ought to as an alternative cite Covid and settle for fiscal slippage.
ET Wealth view: International ranking businesses are harsh on fiscal slippages. Nevertheless, the world is rising fiscal and financial deficits. So, rising the deficit is a viable choice.
14. Decrease the TDS exemption threshold to seize curiosity revenue:
Sudhir Kaushik, Co-founder, Taxspanner
The curiosity earned on bonds, deposits and a few small financial savings schemes is absolutely taxable however three out of 4 taxpayers don’t report it of their tax returns. Final yr’s Funds raised the TDS threshold from Rs 10,000 to Rs 40,000. So, curiosity as much as Rs 40,000 doesn’t entice TDS and probably escapes the tax web. The TDS threshold ought to, actually, be lowered to Rs 5,000 (or eliminated altogether) in order that curiosity revenue will get taxed. As soon as TDS is deducted, the revenue reveals up within the taxpayer’s Type 26AS, making it tough for the investor to evade tax on it.
ET Wealth view: This is perhaps unpopular with taxpayers however the authorities ought to severely contemplate it. A decrease TDS threshold will result in greater withholding of tax, forcing people to file their tax returns.
15. Embody deduction for all times insurance coverage in new tax regime:
Prashant Tripathy, MD & CEO, Max Life Insurance coverage
The brand new tax regime launched in final yr’s Funds lowered the tax charges. Nevertheless, an assessee has to forego most of the exemptions and deductions, together with the deduction for all times insurance coverage premium beneath Sec 80C. This tax profit ought to be retained beneath the brand new tax regime. The tax benefit of life insurance coverage performs a serious position in rising protection. Insurance coverage penetration in India is abysmal and until there may be monetary consciousness, the tax incentives ought to proceed.
ET Wealth view: Life insurance coverage is a crucial facet of economic planning. If there is no such thing as a tax profit, lots of people won’t purchase life cowl. Subsequently, the tax incentive ought to be retained.
16. Introduce Covid bonds to fund financial stimulus:
Raj Khosla, Managing Director, Mymoneymantra.com
The 7.5% GDP contraction within the second quarter was not as dangerous as beforehand forecast. However extra must be performed to elevate financial progress again into optimistic territory. The Funds ought to introduce Covid bonds to fund the financial stimulus. This may very well be a worldwide issuance, since international liquidity could be very excessive. With government-bond yields in lots of international locations dipping beneath zero, there may be sturdy demand for low-risk paper that pays nicely. Alternatively, there may very well be a home difficulty of Covid bonds alongside the traces of infra bonds. A separate tax deduction for these bonds will entice retail traders, even when the rate of interest supplied is low.
ET Wealth view: The nation’s public debt to GDP ratio is already at a excessive of 89.3%, making India probably the most indebted rising market after Brazil and Argentina. Covid bonds would solely add to the general public debt. However given the state of presidency funds, this appears an choice value contemplating.
17. Increase deduction restrict for medical insurance coverage:
Mayank Bathwal, COO, Aditya Birla Well being Insurance coverage
The pandemic has not solely underlined the necessity for medical insurance, but in addition proven that the quilt ought to be large enough. To encourage taxpayers to take enough medical insurance cowl, the deduction restrict for medical insurance premium beneath Part 80D ought to be raised to Rs 50,000 for self and household. It will convey it at par with the Rs 50,000 deduction restrict for insuring dad and mom. The Funds also needs to reintroduce the tax exemption for medical reimbursements with a better restrict of Rs 50,000.
ET Wealth view: Although consciousness about medical insurance has elevated, folks nonetheless purchase very low covers. Rising the deduction restrict would possibly encourage consumers to take a much bigger cowl.
18. Tax deduction for maternity bills of working girls:
Nishant Kohli, Founder, Mudra Portfolio Managers
Most medical insurance plans don’t cowl maternity bills. Even those who do normally give cowl after 2-4 years. There are additionally quite a few exclusions connected, which implies the precise payout is low in comparison with the precise expense. Usually, maternity bills are incurred out of pocket and are enormous. If full tax deduction of maternity bills is allowed, will probably be a giant help for working girls. This deduction ought to be restricted to 2 youngsters in order that the exchequer is just not burdened.
ET Wealth view: Working girls will profit in the event that they get full tax deduction for maternity bills. This impacts a big share of staff, so authorities ought to contemplate it.
19. Enable employers to assert GST credit score for group well being cowl:
Gopal Balachandran, CFO, ICICI Lombard Normal Insurance coverage
Covid has made folks realise that medical insurance is important, however the penetration of well being nonetheless stays low. Medical health insurance will get a giant fillip if corporations are inspired to supply medical cowl to workers. Firms ought to be allowed to assert enter tax credit score for the GST paid on group medical insurance covers. This isn’t obtainable beneath the present GST legal guidelines.
ET Wealth view: Group medical insurance is an economical medical cowl, however all corporations don’t supply it. If corporations get credit score for the GST paid, it’ll convey down the general value of group insurance coverage.
20. Hike exemption restrict of curiosity revenue for senior residents:
Shrikant Badkas, Retired supervisor, 62, Nagpur
As much as Rs 50,000 curiosity is tax free for senior residents beneath Sec 80TTB. Beneath the prevailing low rates of interest, retirees have seen their incomes fall. Subsequently, the tax exemption restrict ought to be enhanced to Rs 1 lakh to offer some reduction to hundreds of retirees who rely solely on curiosity revenue.
ET Wealth view: Senior residents are grappling with decrease incomes on account of price cuts. Retaining in thoughts the rate of interest atmosphere, the federal government ought to contemplate giving reduction for just a few years.