BackBudget 2020 | Increase deduction limit, say planners
Financial planners also feel the government should consider making equity instruments more rewarding for investors and simplify their structure
PremiumFinancial planners are hopeful that the upcoming Union budget 2020 will bring some respite to investors and taxpayers. They also believe that it’s high time to revamp deductions and exemptions available under various sections of the Income-tax Act, 1961, as they are not in line with present-day needs.
Experts also feel that the government should look at the strategy to boost long- term investments, especially equity, and enhance deduction benefits for retired individuals.
Enhance 80C limit
The Section 80C deduction limit of ₹1.5 lakh was enhanced through the Finance Act, 2014. But more than 25 investment products and expenses, including the Employees’ Provident Fund (EPF), investment in equity-linked savings schemes and children’s tuition fees, qualify for deduction under Section 80C. In many cases, EPF and tuition fees are enough to exhaust the ₹1.5 lakh limit.
“The 80C limit should go up, because there is too much clutter. I think the 80C deduction related to home loan, tuition fee and investment instruments for retirement should be carved out and separate deductions should be allowed for them," said Gaurav Mashruwala, certified financial planner and founder, Gauravmashruwala.com, a financial planning firm.
Other planners say that if splitting the investments under various sections is not possible, the ₹1.5 lakh deduction limit should be increased. “At least an increase of ₹1 lakh should be made in the deduction limit under Section 80C," said Rohit Shah, founder and chief executive officer, Getting You Rich, a financial planning firm.
Given the high cost of living, especially in metro cities, the government should ensure that a person earning up to ₹10 lakh should not have to pay tax after investments in various tax-saving instruments, added Shah.
Some financial planners also believe that an increase in deduction limit will not only reduce tax liability but also lead to an increase in the savings rate. “Many individuals save only through mandatory contributions such as EPF or they only invest in tax-saving instruments. So the Section 80C limit should be increased from ₹1.5 lakh to maybe ₹2 lakh or ₹2.5 lakh," said Varun Girilal, co-founder and executive director, Mitraz Investment Advisors.
Boost equity investments
Experts feel that the government should consider making equity instruments more rewarding for investors and simplify their structure, especially given the current economic slowdown.
“There’s a need to simplify equity investing because there are a lot of things to understand and look at before investing. For instance, the different tax rates applicable in case of short-term capital gains and long-term capital gains (LTCG), the grandfathering date, exemption on long-term capital gains up to ₹1 lakh, implication of security transaction tax and so on. So equity investing has not only become costly but also more complicated. The government should think through and simplify equity investing as boosting such investment is the need of the hour," said Shah.
Other experts said the government should allow reinvestment of LTCG into equity instruments to save LTCG tax. “As of now, to save capital gains tax, we don’t have any equity product to reinvest the gains," said Mashruwala. For instance, you can park your LTCG from residential real estate in infrastructure bonds to save tax under Section 54EC. However, there are no equity-oriented avenues to save this tax.
Some planners believe that LTCG from equity investments should not be taxed at all. “I think the government should abolish LTCG tax on equity or maybe increase the time period to two years, after which equity investment will be considered as long term," said Girilal.
Incentivize Senior citizens
There is no doubt that healthcare costs and lifestyle expenses have increased significantly year after year, and senior citizens suffer the most on account of these. That’s why the government needs to specifically look into the benefits and products available for senior citizens, said experts.
“Have a single tax treatment for retirement products and may be create a separate section for deductions (for seniors). Also, there is no need of having different regulators for retirement products. For instance, retirement mutual funds are under the Securities and Exchange Board of India (Sebi), the National Pension System (NPS) is under the Pension Fund Regulatory and Development Authority and annuity plans under the Insurance Regulatory and Development Authority of India. This (a single regulator) will help bring consistency in terms of products and taxation. As of now, there is ‘regulatory arbitrage’, which is not good," said Mashruwala.
Also, deductions related to seniors’ medical expenses, especially for critical illness, should be entirely tax-exempt, said experts.
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