Budget 2016

Budget 2016: Finance Minister, Arun Jaitley, must use this budget to increase domestic savings rate and encourage more people to buy insurance and long-term investment products, such as mutual funds and retirement plans. While higher savings rate will increase the demand for goods and services, a surge in retail investment will help the government and private sector to finance their future capital requirements and cope with FII outflows.

Among the measures that can be considered are:

Extending tax exemptions for interest paid on home loans to pre-possession

Currently, interest of up to Rs 2 lakh per year paid on a home loan is eligible for tax deduction, only if you receive the possession of your property within three year of availing the loan. The deductible amount comes down to Rs 30,000 if we receive possession after 3 years. Delay in completion of housing projects is quite common and in the process, borrowers are forced to settle for reduced tax benefits. The government should allow the borrowers to avail the entire Rs 2 lakh deduction, even if the possession gets delayed at the developer’s end.

Increasing tax deduction limit for housing loans

The current limit of Rs 2 lakh is insignificant in most of the tier 1 and 2 cities where most houses are priced above Rs 50 lakhs given that you will have to pay around Rs 5 lakhs per annum as interest for Rs 50 lakhs loan with 25 yearrs tenure and 10% rate of interest.

Introduce tax concessions on house insurance premiums

Not having home insurance leaves one vulnerable to huge financial damages during natural calamities such as earthquake and flood. Tax exemptions on home insurance premiums would encourage homeowners to insure their home or even property.

Accord EEE status for NPS

Although National Pension System is aimed at retirement planning, its tax treatment does not favour retirees. Given that NPS comes under Exempt Exempt Taxable (EET) regime, the amount that one receives at maturity is taxable. This puts NPS at a sharp disadvantage over other retirement products, such as EPF and PPF, whose maturity proceeds are not taxable. Taking NPS under EEE regime would be a good move, in the interest of investors.

Extend Section 80CCD (1B) benefits to pension products from mutual funds

At present, Section 80CCD (1B) provides additional deduction of Rs 50,000 over and above the Rs1.5 lakh limit under Sec 80C. As of now, only investments in NPS qualify for deduction under this section. This budget should extend Section 80CCD (1B) to pension products from mutual funds to expand pension coverage.