The ‘aam aadmi budget’, the pre-election budget, the political budget… The 2019 Vote on Account has already been given several titles even before the event takes place. While corporate India may not expect too many major announcements as this is an interim budget, the fact that it’s the Modi government’s last before the 2019 general elections, has made the ordinary tax payer hopeful and optimistic.
The ‘aam aadmi’ and the retail investor is hoping that the Finance Minister (FM) will waive the green flag on some of the long pending personal finance demands, leaving a little more cash in people’s pocket. So what does the 2019 Personal Finance budget wishlist look like? Here are the highlights:
Hike In Income Tax Exemption Limit
There is a buzz around an increase in the income tax threshold. Reports suggest that the range could be hiked from current Rs 2.5 lakh to Rs 3 lakh, or even all the way to Rs 5 lakh. The last time the IT threshold was raised was in 2014, when the Modi government presented its first budget. That year, FM Arun Jaitley hiked the basic IT slab from Rs 2 lakh to Rs 2.5 lakh. The same year, the deduction bounty under Section 80 C was raised from Rs 1 lakh to Rs 1.5 lakh.
Hike In Sec 80C Deductions
Wealth planners and tax experts have unanimously agreed that the bunched up 80C deductions kitty needs to be expanded and perhaps even unbundled. At present investments in ELSS/ULIPs/PPF/National Savings Certificates/Tax Free Fixed Deposits, all fall in the same Rs 1.5 lakh basket along with premium paid for Life Insurance, children’s tuition fee and even the principal on a home loan. The salaried class will cheer any enhancement in this deduction amount.
Loss From House Property
Speaking of homes, the Finance Act of 2017 had upset much of the real estate sector by capping the loss that can be set off against rental income from a house property to Rs 2 lakh. The limit is currently at par with the deduction an owner of a self-occupied house can claim against the interest paid on his/her home loan.
Industry body FICCI argues that Rs 2 lakh ceiling on loss from house property acts against the government’s intent of incentivizing the housing sector, and thus should be scrapped. Given the fact that the government is keen on promoting affordable housing, let’s see if the FM will make any tweaks in the provision on February 1.
Hike Standard Deduction
Budget 2018 heralded the return of standard deduction in lieu of medical reimbursement and transport allowance. While this meant less paper work for salaried employees, the criticism was the lack of higher limits. The government replaced Rs 19,500 of transport allowance and Rs 15,000 of medical reimbursement (i.e a total exemption of Rs 34,200) with a standard deduction of Rs 40,000- a net benefit of just Rs 5,800.
Given rising medical inflation, a higher medical reimbursement limit or an increase in the standard deduction amount is perhaps a justified demand.
Investments & Wealth
Now let’s come to markets and mutual funds. Equity investors have enjoyed a tax-free investment ride over the last 14 years till the government reintroduced the Long Term Capital Gains (LTCG) tax on equities in 2018.
The personal finance world is now hoping that FM Jaitely will perhaps offer some concessions to long-term retail investors by tweaking the LTCG applicability criteria. Any relaxation in the 10 percent LTCG tax, which is currently payable on gains arising after one year, would be welcome.
Budget 2018 also levied a 10 percent tax on dividends paid by mutual funds. The dividend tax has been one of the key reasons behind the marked slowdown in inflows into balanced funds. The MF industry will thus keenly watch if the FM is willing to ease the tax burden.
Another consistent demand from the mutual fund houses is to introduce the concept of DLSS i.e Debt Linked Savings Schemes on the lines of ELSS. MF industry participants say tax incentives can go a long way in getting retail investors to invest in debt funds, which can offer more attractive returns than fixed deposits.
However, given the recent volatility in the fixed income market, credit events like IL&FS and the ever changing moves in benchmark yields and interest rates, the government may not incentivise such a move immediately.
And the final demand is to give mutual funds the benefit of Sec 54 EE i.e allow an individual to save LTCG tax arising out of sale of property by reinvesting the gains in mutual funds. As of now capital gains can be saved from taxation, if they are reinvested in specified bonds issued by institutions such as NHAI and REC.
Budget 2019: The Personal Finance Wishlist Taxation
Hike in Income Tax Threshold (current Rs 2.5 lakh)
Hike Standard Deduction limit (current Rs 40,000)
Increase deductions under Sec 80 C (current Rs 1.5 lakh)
Budget 2019: The Personal Finance Wishlist Investments
Exempt long term retail investors from LTCG
Allow Sec 54EE benefit to MFs (tax exemption on capital gains arising from sale of property)
Introduce Debt Linked Savings Schemes on lines of ELSS
Budget 2019: The Personal Finance Wishlist Housing
Hike deduction on interest paid on home loan from current Rs 2 lakh (Sec 24 b)
Remove offset cap of Rs 2 lakh on loss from house property
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