With just few weeks remaining for the Finance Minister to present the Union Budget for 2015, the common man has started building up expectations from the Narendra Modi-led NDA government at the Centre.
The euphoria that had gripped the entire nation during the 2014 Lok Sabha election in the form of ‘Modi wave’ is still very much alive in people’s mind and now it is time for the BJP dispensation at the Centre to deliver what it promised in the run up to the Lok Sabha polls.
Considering the Modi government’s track record since May last year, people have high expectations from the BJP regime and hope that there will be some significant policy changes that would make a positive impact on their day-to-day lives.
Moreover, the government has taken several steps in last 9 months to break policy logjam by speeding up reforms both on FDI and structural front, which has resulted in the form of gradual rejuvenation in the confidence of investors towards Indian equities.
But the common man, who has nothing to do with the nitty-gritty of the very volatile and evolving business world, hopes to see the net effect of the strong measures taken by the government on inflation, education, taxation, and affordable housing etc.
No doubt, it is the best time for the government to address common man’s issues in the upcoming Budget as the falling oil prices have made the government’s task much easier on macro-economic front, (inflation, fiscal deficit and current account deficit).
However, experts opine that the recent decline in both WPI and CPI inflation numbers are mainly due to the slump in food and oil prices.
Prices of manufacturing are still at high level due to which consumers, mainly middle class are feeling the pinch now, they suggest.
Further domestic savings rate, which is continuously falling, remains a very serious concern both for the government and common man. The country’s savings rate needs to go up by at least 5 percentage points to 35 percent, if we want to boost GDP growth to 7-8 percent. The national saving rate is about 30 percent of GDP. It had hit an all-time high of 36.9 percent in FY08, but has been consistently declining ever since as the economic conditions worsened. The government should aim at restoring domestic savings rate by boosting financial savings of households through tax incentives.
If government enhances tax exemption limit or announces tax incentives on small savings scheme, it would then increase domestic savings rate in the country and minimize government’s dependency on foreign capital.
Be it tax exemption, hiking the transport allowances, increasing the rebate cap on home loans, giving subsidies to farmers or addressing the issue of women’s and senior citizens’ taxation, the decision of the Finance Minister will be closely watched by one and all.
From the common man’s perspective, Union Budget 2015 could be really a litmus test for the Modi government.
Here are some changes we expect in this year’s Budget that would benefit a common man.
Raising the Income Tax exemption limit
The common man expects the income tax limit to be increased from prevailing Rs 250,000 to Rs 300,000. This would help people save more. Additionally, increase in tax limit will kickstart savings which will ultimately lead to increase in investment and liquidity in the system.
The working women’s contribution to the national economy is also increasing slowly but steadily. As an incentive, tax exemption for them too needs to be raised to at least Rs 4 lakh.
Deduction under Section 80C
At present consolidated deduction of Rs 1.5 lakh is allowed on all long term and short term serving instruments, including provident fund, pension funds, and equity linked savings scheme etc.
Exemption limits of allowances such as children education allowance, transport allowance, medical allowance etc are very low in the current financial situation, having been fixed a long time back, when inflation was not this high. So expectations are that the allowances exempted from tax are increased along with rise in exemption limits under Sections 80C from the present Rs 1.5 lakh to at least Rs 2.5 lakh.
Deduction in respect of payment of premium under life insurance policies
Section 80C allows deduction up to Rs 1.5 lakh in respect of payment of premium under life insurance policies and for other specified payments. The other specified payments include amounts invested in mutual funds, bank deposits, payments towards tuition fees etc. The government should provide a separate deduction limit of Rs 1 lakh for investment in various life insurance products.
Deduction in respect of amount paid under pension/annuity plans
As per section 80CCE, the overall ceiling for deduction is Rs 1.5 lakh for the payments covered by section 80C, payment towards annuity plans covered by section 80CCC and payment towards NPS covered by section 80CCD.
It is suggested to provide for a separate deduction limit of Rs 1 lakh paid to pension funds.
Deduction in respect of health insurance premium/hiking annual medical insurance cap
Section 80D allows aggregate deduction of up to Rs 15,000 in respect of payment of health insurance premium and payment made on account of preventive health check-up. With the steep increase in the cost of medicines and routine medical check-ups, expectations are high for the limit to be increased to Rs 50,000 to further encourage the spread and coverage of health insurance.
Hiking the cap on interest of bank savings A/c (Deduction on Interest earned on savings bank account)
Section 80TTA was introduced in Assessment Year 2013-14 to promote savings by providing for deduction on interest income earned on savings bank account. Currently deduction can be availed up to maximum of Rs 10,000. The government should increase the scope of the Section to include interest earned on time deposits and increase the deduction limit to Rs 25,000 per year.
Deduction in respect of investment in Infrastructure bonds
Deduction under Section 80CCF of the Act should be restored with an increased investment limit in infrastructure bonds from Rs 20,000 (allowed earlier) to Rs 50,000 for individual / HUF to boost infrastructure development.
Raising transport allowances
The transportation allowances granted by the employer to his/her employees for commuting between the place of work and residence is tax-free to the extent of Rs 800 per month. This limit was fixed more than a decade ago, and needs to be revised upwards to at least Rs 3,000 per month, given the rising commuting costs.
Children education allowance
The education sector in India is growing at a phenomenal rate but it still needs significant attention, support and backing. Education allowance is currently exempted up to Rs 100 per month per child for a maximum of 2 children. This should see a change of up to a minimum of Rs 1,000.
Hiking the cap on interest on home loan
We have great expectations from this budget, starting with support to incentivize affordable housing and permit higher tax exemption limits on interest and principal repayments for home buyers.
The deduction for interest on housing loans needs to increase from the current limit of Rs 2,00,000 considering the significant rise in rates for residential properties over the past few years. To provide relief to the tax payer this limit should be increased to at least Rs 3 lakh. This will give impetus to the housing industry, thus boosting the economy in the long run.
Payment of principal amount on home loan
There is a demand from a wider section that a separate provision should be made for the principal loan amount which is currently included in 80C [under which maximum limit is Rs 1.5 lakh (all inclusive)].
Launching of equity schemes
Deduction in respect of Rajiv Gandhi Equity Savings Scheme: The Rajiv Gandhi Equity Savings Scheme is a tax saving scheme that was announced in the 2012-13 Union Budget aimed at first time retail investors. The scheme is aimed at encouraging the flow of savings of small investors in the domestic capital market, and presents investors with tax benefits provisioned under a new section, 80CCG in the Income Tax Act, 1961. It is recommended to raise the income ceiling to Rs 25 lakh as compared to Rs 12 lakh at present.
Allowing Infrastructure Debt Funds to issue tax saving bonds
Infrastructure Debt Funds (IDFs) should be permitted to issue tax savings bonds, and such issuances may be limited to a percentage of the net-worth of the IDF. Such tax-savings bonds, which give retail investors a tax exemption on the interest payable to them, would provide an incentive for greater retail participation in IDFs.
More room should be given for senior citizens in tax rebate. An increase in the exempted limit for the senior citizens ( above 60 years) , which currently stands at Rs 300,000 to at least Rs 400,000 would give a boost to their retirement funds.
Similarly, very senior citizens (above 80 years) who do not come under tax bracket for earnings up to Rs 5 lakh are also expecting a further increase in the exemption limit.
Students are hoping that exemptions against education loans can be extended to 10 years from the currently allowed 8 years. They hope that there will be no further rise in service tax otherwise educational institutions will increase their fees.
To make domestic higher education more affordable, the government must take adequate steps to decrease education loan rates across the board.
Easy loan facility should be made available to farmers at a cheaper rate or without interest if they require loan for agriculture purpose. Also, imparting knowledge to farmers regarding the latest farming technology & fertilizer will add to the total agriculture sector output. Adding to that the government can take some additional measures to ensure the farmers get a good price for their cultivated product.