The countdown to the 2022 Union budget has begun. Finance Minister Nirmala Sitharaman will present the annual budget on February 1. Earners are eagerly awaiting budget announcements to find out if there will be any policy changes that can help them save more. The budget for the 2022-23 financial year would be presented in the context of the Covid-19 pandemic which has impacted the economy while accelerating the rate of inflation.
With inflation on the rise, I hope the government will consider these tax relief measures in the next budget.
Increase exemption limit to 80C
Section 80C of the Income Tax Act is one of the most popular tax saving options for many people, especially wage earners, as it allows exemptions of up to Rs 1 .5 lakh. This budget may consider raising this limit up to Rs 3 lakh to help people save and invest more amid inflationary pressures and rising incomes. In addition, the government may consider bringing more investment instruments within the scope of Section 80C. Currently, Section 80C is used to claim benefits for home loan repayments, insurance, and other qualifying investments. The Income Tax Act was last revised eight years ago in 2014 and now may be the time for the government to revise it and make it more user-friendly.
New section for tax deduction for home loan
The government should consider a larger amount for mortgage deductions for homebuyers. A home loan is one of the most convenient ways to fulfill the dream of home ownership. But it is a big expense that needs to be maintained for a long time. Currently, home loan borrowers can avail tax benefits for an amount of up to Rs 1.5 lakh under Section 80C and Rs 2 lakh under 24B. To provide more money in their hands, the government can add a new section to the Income Tax Act which can provide deductions of up to Rs 5 lakh with no sub-limits for principal or interest. These 5 lakh will equal the total deductions under 80C, 24B and 80EEA.
Promotions that can encourage people to buy term insurance
The Covid-19 pandemic has brought to the fore the need for strong health and temporary insurance coverage. Purchasing a term insurance plan is one of the most cost-effective and best ways to protect your family against life’s risks. This is a priority that should never be ignored, especially by people who have dependents and other financial liabilities. Despite being such an important financial instrument, the penetration of term insurance remains very low. To encourage people to purchase such a large policy, the government may consider having a separate deduction for term insurance premiums for an amount up to Rs 50,000. Such tax incentives can encourage people to purchase more term insurance products.
Increase the tax exemption limit for health insurance under Section 80D
Health insurance requires special attention in the aftermath of the ongoing Covid-19 pandemic. Purchasing an adequate health insurance plan helps people deal with sudden medical expenses. With rising medical costs, it becomes extremely important for people to purchase health plans that provide the maximum coverage benefits.
With health insurance premium prices rising, the government could revisit current tax incentives and increase them so that more people can purchase sufficient health insurance coverage. In accordance with Section 80D of the Income Tax Act 1961, tax exemption can be used for the premium paid up to Rs 25,000 for persons below 60 years of age and up to Rs 50,000 for people over 60. Regarding the pandemic, if a family opts for higher coverage, the premium may extend beyond the waiver threshold. To encourage people to buy adequate coverage, it is important that the government increase the amount of the exemption limit.
Covid-related treatments and hospitalizations were financially draining for many. To relieve such people, the government may consider providing a special one-time deduction of Rs 1 lakh.
Furthermore, I ask the government to review the current rate of 18% of the GST on health insurance. Adding the GST increases their cost and makes it unattractive to them. Reducing the GST will help people opt for higher coverage.
Increase the limit for deductions under Section 80TTA
Interest earned on fixed deposits and recurring deposits of persons over 60 or non-elderly is taxed according to the applicable tax bracket. However, elderly people can avail tax deductions for interest earned up to Rs 50,000 in a financial year under Section 80TTB. The government could consider increasing the limit from 80TTA (applicable to people under 60) to Rs 30,000 to encourage savings instead of hiding money at home. To understand their FD yields vis-à-vis inflation, the government should allow the calculation of inflation-adjusted yield on FD to calculate the tax, i.e. the tax to be charged after reducing inflation of interest earned.
If implemented, the ideas suggested above will bring relief to taxpayers and help them through those difficult times when cash flow remains difficult.
The author is the CEO of BankBazaar.com. The opinions expressed are those of the author.