Economy

Budget 2020 Wishlist: Improved access to credit and incentives for digital payments, housing, and long-term wealth generation

Updated : January 28, 2020 06:37 AM IST

The CEO and Co-founder of Paisabazaar.com seeks Aadhar (OTP) based eKYC for all financial products

2% GST concession on digital payments and separate deduction for term insurance plans are some of his other ideas

Budget 2020 will be presented amid stiff economic challenges in the form of consumption slowdown, low credit off-take, stagnant private investment and lack of demand for the housing and MSME segments. Hence, Budget 2020 should announce measures for promoting digital payments, improving credit access, reviving housing demand and incentivising investments for long term wealth creation.

Here is my wish-list for Budget 2020:

Loans to first-time borrowers in the banks’ PSL target

Lenders usually prefer lending to those with a good credit score (750 and above) and monthly in-hand income of Rs 30,000 and more. This criterion often ends up leaving out those in the lower-income groups with no prior credit history.

You may argue that small finance banks and micro-finance institutions extend credit to these under-banked segments, but the cost of credit, in this case, is much higher. This year’s budget should announce the inclusion of unsecured loans to these segments in the bank’s PSL. Apart from improving credit penetration, higher credit flow from commercial banks to the under-banked and subprime segments will also decrease their credit cost.

Extension of Section 80EEA deduction to FY21

Budget 2019 introduced Section 80EEA to stimulate demand in affordable housing. It allows an additional deduction of Rs 1.5 lakh on home loan interest component, over and above the deduction available under Section 24b. However, Section 80EEA is only applicable on home loans availed by first time home buyers in the current financial year for purchasing housing properties with a stamp duty value of up to Rs 45 lakhs. With the continuing slump in the housing sector, extending Section 80EEA to FY21 can play a major role in reviving demand in the housing sector.

Redefine equity LTCG to 3 years and make it tax-exempt

LTCG tax exemption on equities played a huge role in increasing retail investors’ participation in equity markets. When it comes to wealth creation, equity as an asset class beats other asset classes by a wide margin in the long run. Budget 2020 should re-introduce this exemption to further encourage retail investor participation in equities and thereby, boost market sentiment and wealth creation. Budget 2020 should also change the definition of ‘long term’ in LTCG for equities, from the existing 1 year to 3 years. This will encourage long-term investment by retail investors in equity-oriented mutual funds.

Separate deduction for term insurance plans

The prime objective of purchasing a life insurance policy is to have a replacement income for dependents in the event of the insured’s untimely demise. Ideally, one’s life cover should equal 10-15 times of his annual income. Buying a term insurance policy is the best way to get such large life covers as their premiums are very low. However, most people confuse insurance with investment and thereby, buy life insurance policies with very little cover.

Budget 2020 should introduce a separate section for term insurance plans outside Section 80C. A separate section will incentivise taxpayers to buy term policies and thereby, get themselves adequately covered.

Aadhar (OTP) based eKYC for all financial products

The withdrawal of Aadhar-based e-KYC has adversely impacted the customer on-boarding process in the financial sector. Currently, Aadhar-based e-KYC is only allowed for opening bank accounts. The return to paper-based offline KYC for availing other financial products has increased both the turnaround time and customer acquisition cost. The increased turnaround time is especially impacting those requiring loans to meet their financial emergencies. Hence, this year’s budget should make some policy announcements towards allowing Aadhar-based eKYC for customer on-boarding of loans, mutual funds, credit cards, insurance, etc. This will ensure seamless access to financial products and expedite financial inclusion.

2% GST concession on digital payments

The decision to waive off MDR charges on UPI and RuPay payments was aimed at promoting digital transactions. The cost associated with digital payments is proving to be the main obstacle in the widespread adoption of digital transactions by small traders and the informal sector. However, transactions through other payment gateways are still attracting steep MDR charges. Hence, I would like Budget 2020 to announce two percent GST concession to merchants accepting digital payments. Doing so would create a strong incentive for merchants and traders to adopt digital payments and also ensure a more level playing field in the digital payment ecosystem.

Naveen Kukreja is the CEO and Co-founder of Paisabazaar.com.

Budget 2020 Wishlist: Improved access to credit and incentives for digital payments, housing, and long-term wealth generation

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