It is Budget time again and the common man’s expectations are running high from the newly-elected Modi government’s maiden Budget, to be presented on July 10. After all, hit hard by high inflation and slow income growth in the last few years, the middle and lower income groups have struggled to make their both ends meet, leave alone saving. This has also led to a fall in the household savings rate.
“The common man will, therefore, expect the Budget to widen tax slabs and reduce tax rates, launch new tax savings schemes and bring in other short and long haul initiatives aimed at making life easier for him. Time is ripe for steps to alleviate their suffering to some extent. However, considering the fiscal situation, not much relief can be expected in terms of subsidies or tax reliefs,” says Anil Chopra, group CEO & director, Bajaj Capital Ltd.
Still, some of the expectations the common man may have are as follows:
1. Basic exemption limit of income tax for individuals should be raised from Rs 200000 to Rs 300000. Limits for senior citizens (aged 60 to less than 80 years) should be raised from Rs 250000 to 350000. This will help the FM in compensating the tax payers for the increased level of inflation.
“Raising the current basic exemption limit to Rs 3 lakh and Rs 3.5 lakh for individuals and senior citizens, respectively, will increase the purchasing power of tax payers and stimulate demand,” says Vineet Agarwal, director, KPMG.
2. Deduction limit u/s. 80C can be increased from Rs 100000 to Rs 200000, “the additional Rs 100000 limit being available only for investment in growth asset classes through ELSS, RGESS and ULIPs,” says Chopra.
Some other experts, however, are of the opinion that deduction limit under Section 80C should be increased from Rs 100000 to Rs 300000, as raising the present limit will add to the tax savings and also stimulate forced savings and investments.
“A relaxation of Section 80C limit from Rs 1 lakh to Rs 3 lakh will enable many people to buy insurance products and tax-saving mutual funds, etc. The current limit of Rs 1 lakh gets exhausted very fast by provident fund contributions,” says Agarwal.
3. Deduction for medical insurance premium u/s. 80D, which is currently capped at Rs 15,000 for self, spouse and children and Rs 20,000 for parents, should also be revised upwards considering the double digit medical inflation.
“As per the IT Act, reimbursement of medical expenses is exempt up to Rs 15,000 pa. This limit was fixed in 1998 and with the increase in medical expenses this limit should be raised to Rs 50,000 pa. This will also make it par with the proposals in the Direct Taxes Code,” says Agarwal.
1. The Budget should encourage investment in supply-chain management for, eg., cold storages and logistics. We also need strict laws to discourage hoarding of essential items and their effective implementation at the state level. Marking critical food items as essential commodities may help.
“Recently onion and potato were marked as essential commodities. The government can mark more such items. The recent dismantling of APMC model in Delhi is a step in the right direction. Steps can be taken to create markets where producers can directly interact with consumers, thereby weakening the clout of the middlemen,” says Chopra.
2. Analysis shows that the double digit rise in Minimum Support Prices (MSP) in the past has been the single largest contributor to high food inflation. A structured policy for revising and fixing MSP and NREGA wages may help.
3. Finally, to provide relief from high inflation, a hike in basic exemption limit, deduction limit u/s. 80C and 80D, as requested above, should help in increasing the disposable income with households.
Fuel & Cooking Gas Prices:
Though the common man will always want that the prices should not rise, there is a need to align fuel prices to the market if we are to balance our fiscal budget. High subsidies on fuel, food and fertilizers are the primary cause of high fiscal and current account deficits which in turn fuel further inflation. The gap between the administered prices of fuel and LPG and the actual market prices is still wide and must be filled. This may cause a short-term spurt in inflation, but will help moderate it in the medium to long term. The expectations need to be managed to this effect.
Despite numerous steps in the past, timely availability of affordable housing has kept eluding home buyers. The reasons are structural and cannot be fixed by the Union Budget alone. An effective Real Estate Regulator is a must to ensure delivery of quality projects on time. Affordability is another factor. Home prices, despite the recent moderation, are too high for middle and lower income classes. Only a cyclical correction in home prices or a rise in overall income levels can help in this regard.
“The government has already provided enough tax relief avenues for home buyers. However, they may need to be tweaked considering the ground realities. The home loan interest deduction limit can be raised from Rs 150000 to Rs 300000. Presently, there is an income tax deduction for principal repayment of home loans u/s. 80C that is subject to the overall limit of Rs 100000. The government should bring it out of the ambit of section 80C and provide a separate deduction for this purpose to encourage home ownership,” suggests Chopra.
Even though successive budgets have increased the government outlay on education, the irony is that education loans are still costlier than car loans or other consumer durable loans. Lending rates on education loans can be lowered if the government subsidizes the same, without which banks will find it tough to bring down rates as the credit risk is high for such loans. In terms of taxation, presently tax payers get a deduction u/s. 80C for tuition fees paid for their children. The deduction is however subject to the overall cap of Rs. 100000 u/s. 80C, which, if increased, may provide some relief.