Union Budget 2019 set to be presented on July 5 will be the first budget of Modi 2.0 government. The landslide victory in the general elections and various tax sops for individual taxpayers in the interim Budget have increased the expectations for more tax sops for the middle class. The recent slowdown in the economy requires proactive steps to put more money in the hands of the taxpayers for increasing private consumption and investments. The liquidity crisis faced by the housing finance companies also demands budgetary aid for increasing housing demand and liquidity in the sector.
Reinstate long-term capital gains (LTCG) tax exemption on equities to increase retail investor participation
The LTCG tax exemption played a key role in increasing the participation of retail investor segment in the equity markets, especially through mutual funds. Hence, restoring this exemption would help in further increasing the penetration of equities among retail investors. Moreover, while LTCG tax was reintroduced on equity and equity mutual funds in Budget 2018, other equity-related investment instruments, such as Unit Linked Insurance Plans (ULIPs) and National Pension Scheme (NPS) continued to remain exempt. Thus, reinstating LTCG exemption on equities and equity mutual funds will also restore tax parity with other equity-oriented schemes like ULIPs and NPS.
Make NPS lump sum withdrawals on maturity completely tax free
The government approved the proposal of making lump sum withdrawals of NPS post-maturity completely tax free in December 2018. Currently, up to 60 percent of the accumulated corpus can be withdrawn lump sum on maturity while the rest has to be used for purchasing annuities. While 40 percent of the accumulated corpus withdrawn lump sum is tax exempt, the rest of the amount withdrawn is taxable. The portion of the corpus used for purchasing annuity is tax free; however, returns are taxable. Hence, Budget 2019 should notify the proposal to completely tax exempt NPS withdrawals on maturity to bring tax parity with other competing retirement solutions like PPF and EPF.
Reintroduce Section 80EE deduction to incentivise first-time home buyers
Section 88EE allows deduction of up to Rs 50,000 on interest payments on home loans of up to Rs 35 lakh for house properties valued up to Rs 50 lakh. The deduction is over and above Rs 2 lakh deduction on interest payments available under Section 24b. However, this deduction is only available on home loans sanctioned to first time home buyers between FY2016-17. Budget 2019 should reintroduce Section 80EE deduction to incentivise first-time home buyers and thereby, boost demand in the housing industry.
Increase 80C deduction limit to Rs 3 lakh to incentivise long term savings
Many taxpayers breach the upper limit of Rs 1.5 lakh under Section 80C through wide range of qualifying expenses and mandatory contributions, such as employee’s contribution to EPF, life insurance premiums, home loan principal repayment, children’s tuition fee and payment of registration fee and stamp duty incurred on the construction or purchase of home property. These leave taxpayers without any incentive to save taxes by investing for the long term through equity linked savings schemes (ELSS), public provident fund (PPF), etc. Budget 2019 should increase the Section 80C deduction limit to Rs 3 lakh to encourage middle class taxpayers to invest more in long term investment instruments and thereby, improve their financial security.
Promote term insurance by creating a separate section for it
Term insurance policies allow people buying life cover of up to 10–15 times of one’s annual income at very low premiums. However, most confuse insurance with investment and buy life insurance policies that provide inadequate life cover. A separate section for term insurance policies would incentivise taxpayers to buy term insurance policies and ensure financial security for their dependents.
Promote affordable housing by increasing the refinancing facility from National Housing Bank (NHB)
Budget 2019 should increase the affordable housing fund with NHB from Rs 30,000 crore to at least Rs. 60,000 crore with the objective of providing refinance to affordable housing finance companies. There is a huge latent demand for housing among those belonging to the lower income groups. Considering the liquidity shortage and the government’s objective of achieving ‘housing for all’, a larger pool for refinancing will give a huge boost to the affordable housing sector.
Naveen Kukreja is CEO and co-founder of