The Union Budget 2022–23 will have to strike a balance between supporting economic recovery and fiscal prudence. Taxpayers anticipate increases in the basic exemption limit and standard deduction as direct tax collections increase. Individuals anticipate an increase in the exemption limit for health insurance and increased tax breaks for investing in the National Pension Scheme. Taxpayers would also expect taxation of capital gains and tax-free annuity income to be rationalised.
Capital gains taxes should be rationalised.
Long-term capital gains (LTCG) tax applies to bonds held for 12 months, but LTCG tax applies to debt mutual funds held for 36 months.
Uniformity in the LTCG holding period for listed debt securities and debt mutual funds will help investors plan their investments more efficiently and will also help the government plug revenue leakage. The budget should also ensure that capital gains from mutual funds and unit-linked insurance plans are taxed equally (Ulips). Capital gains on Ulips are tax-free up to Rs 2.5 lakh per year in aggregate annual premium.
Kaustubh Belapurkar, director, manager, Research, Morningstar India, says only funds that invest at least 65% into equities are granted equity taxation. “Fund of funds that invest into underlying equity funds, meeting a similar criteria should also be granted a similar status,” he says.
Increase in the health insurance exemption
The pandemic has raised awareness about the importance of health insurance, which can help cover the costs of treatments, hospitalisation, and even post-Covid medical expenses.
Health insurance penetration in India, on the other hand, is abysmally low, and it needs to be made more affordable for citizens and profitable for taxpayers.
Health insurance premiums of Rs 25,000 for self, spouse, and children are currently exempt under Section 80D for taxpayers under the age of 60. There is an additional deduction of Rs 50,000 if the parents are senior citizens.
To encourage more people to purchase health insurance and to ensure that they purchase the appropriate quantity of coverage, Pankaj Arora MD & CEO, Raheja QBE General Insurance, says Section 80D income tax exemptions should be raised, ideally doubled, in light of higher medical expenses post-Covid. “Again, eliminating GST on health insurance premiums can make it more affordable and increase penetration, especially in rural India.”
Similarly, P C Kandpal, MD & CEO, SBI General Insurance, says increasing the tax exemption under Section 80D especially on health insurance premium can help boost health insurance penetration.
Increase in interest deduction on housing loan
As the real estate sector is one of the largest employers, it expects the Budget to enhance the limit for interest deduction on housing loans, extend the Pradhan Mantri Awas Yojana subsidy which is due to end in March and removal of GST for a certain period on purchase of units by economically weaker sections and low-income group customers.
For a self-occupied house, taxpayers can deduct up to Rs 2 lakh in interest paid on a housing loan, with no limit for a non-self-occupied house.
Furthermore, the government last year extended by one year the additional tax deduction of Rs 1.5 lakh on housing loans for the purchase of affordable homes. Experts believe that increasing the tax deduction for interest paid on mortgages will improve sentiment and benefit individuals.