Union Budget 2022-23: Given the tight fiscal situation, the government is walking a tight rope
As the date for Budget 2022 draws near, speculation is rife about what the finance minister might have to offer. After witnessing a sharp decline last year, the economy is back on track and grew 8.4 percent in the July-September quarter. According to a survey of analysts, India’s economy is likely to grow at 9.4 percent this year.
However, any expectations of concessions sound a bit optimistic considering the fact that high commodity prices have provided a fillip to inflation. A lot needs to be done in the personal finance space. For example, the Sec 80C basket can be expanded to encourage retail participation in mutual funds. At present only ELSS is covered under this section. The ELSS category should be expanded to include not just equity schemes, but fixed incomes and hybrid schemes.
The expansion of mutual fund categories will provide more choices to investors. Even in the ELSS category, an exemption up to Rs 5 lakh should be considered. Since ELSS already has a lock-in period such exemption will go a long way in increasing retail participation in mutual funds.
Disparity in capital gains treatment
At present, there exists disparity in various asset classes for capital gains treatment. This makes capital gains structure extremely complicated. Right now, the long-term capital gains from the sale of gold are taxed at 20 percent compared to a 10 percent flat tax on long-term gains from shares. Even to qualify for long term capital gains, gold has to be held for a period of three years. This period is one year for shares. By removing the disparity among various asset classes, the government can make India a global trading hub which eventually will result in higher income for the exchequer. This will also make commodity funds more attractive.
Reduce GST on health insurance premiums
The COVID-19 has made people realise the importance of health insurance. The spiralling medical inflation has put many in a fix. Health insurance has become an everyday need in order to protect oneself from uncertainties. The government should consider reducing GST on health insurance premiums. At present, GST is charged at 18 percent which makes the costs prohibitive for some. The reduction of GST will encourage people to purchase health insurance and additional top-up plans to protect themselves from emergencies.
There is a need to increase the limit for deduction under Section 80D. The current deduction of Rs 50,000 (Rs 25,000 for self and family and Rs 25,000 for parents below 60 years) should be raised to Rs 1 lakh. In India, life insurance is being viewed as a saving and investment product rather than a protection product. Incentivising the purchase of life insurance can go a long way for the industry and the finance sector.
Raise interest limit on investments for senior citizens
The falling interest rates have hit retirees and senior citizens hard. The investment limit of the Senior Citizens’ Savings Scheme remains fixed at Rs 15 lakh. At this rate, a person gets a monthly interest of approximately Rs 9,250.00. Similarly, the Pradhan Mantri Vaya Vandana Yojana (PMVVY) also has a Rs 15 lakh limit per individual. Given the current interest rates and the high inflation, this is not adequate. The government must consider raising the limit so retirees and senior citizens get added benefits. If the government raises this limit to Rs 25 lakh, a couple can invest Rs 1 crore in both schemes and maintain a healthy lifestyle.
Given the tight fiscal situation, the government is walking a tight rope. It needs to balance growth and development at the same time ensuring equitable distribution of income in India. One thing is certain; the Budget 2022 will aim to take India closer towards becoming a $5 trillion economy. For investors, it is highly advisable to avoid making hasty decisions in anticipation of favourable announcements.
The author is founder, Investonline.in, a mutual fund advisory. Views are personal.