With the month of March approaching, the one thing that looms on the horizon and on everyone’s mind is ‘Budget’. Every year, financial gurus try to predict and raise suggestions as to what is required and expected from the budget. Whether, it is the man on the street, or a corporate head honcho, each one has expectations and it remains to be seen how the FM will juggle economic dictates with political diplomacy and try to appease at least most of the people, some of the time.
Increase in exemption limits
Whenever it comes to the expectations from the Budget, the woes of the salaried class come into focus. Given the rising cost of living, the salaried class is expecting that the basic exemption limit be hiked to Rs 3 lakhs from the current Rs 2.5 lakhs. There is also a widespread expectation that Government will add some more saving products and hike the limit of exemption to Rs 2 lakh from Rs 1.5 lakhs currently under Section 80 C and revise the overall limit to Rs 2 lakhs.
Along with this, there is also an expectation that the Government will rationalize HRA exemption. Currently this exemption is calculated as the amount which is least of rent minus 10% of basic salary. In case one stays in a metro, actual rent paid and 50% of basic salary or 40% in case of residence in any other city. Cities like Pune, Hyderabad, Bengaluru and Gurgaon have attracted a lot of professional to migrate to such cities, where rents have gone up considerably. There is therefore an expectation that the FM would extend the rule of 50% of rent to such cities as well.
Deduction of interest on housing loan
A roof over one’s head is a necessity for all and sundry. Given the fact that the Government is widely advocating “housing for all” home owners are expecting that they will receive a 100% deduction on home loan interest. Currently homeowners are eligible for deduction of only up to Rs 2 lakhs under section 80 C. Also for houses that are under construction, this deduction is only Rs 30,000 that too if the construction of the house is completed after 3 years from the end of the year in which the loan has been availed of.
This provision has caused a lot of heartache to property buyers because there after often delays well beyond 3 years in case of the completion of housing projects. There is therefore a widespread expectation that the Government will allow interest deduction without a cap of Rs 30,000 and will be calculated from the year in which possession is due.
Make NPS more attractive
The National Pension Scheme is widely advocated by the Government. However, it is taxed in a manner that even though there are tax exemptions at the time of making investments, there is taxation when the corpus is encashed along with the returns on the investment. This makes NPS less attractive as compared to other investment avenues that allow for tax free withdrawal. Therefore, in order to make the NPS more attractive, there is an expectation that the FM will make the withdrawal under NPS tax free to bring it with par with other pension oriented schemes.
Further incentives for startups
Indian is a nation where entrepreneurship is on the rise and start-ups are cropping up nearly every day to cater to needs of a wider target audience. The Government has shown in the recent past that it is keen to improve the ecosystem for startups. In January 2016, the Government announced exemption of income tax on the profits made by startups for the first three years among other benefits. Start-ups however opine that they do not make profits in the first three years and thus are expecting that this tax holiday be extended to a least of five years during the Budgetary announcements.
The Government had also announced a Rs 10,000 crore fund of funds for start-ups earlier this year that exempted start-ups from pay capital gains tax if such gains made by them were deployed into this fund of funds scheme. Experts on the matter however say that a startup ecosystem needs to be wider and thus the avenue of the fund of funds scheme should be widened. There is proposal therefore by start-ups to be allowed to deploy any capital gains in other investment avenues to allow larger flexibility and avail of tax benefits. There is also an expectation that the Government will remove angel tax that is a crucial means of funding for start-ups looking for financial aid.
Overall, the common man expects that he be allowed to live well and provide for his family in the face of rising costs and save for his future. While expectations are a-plenty from all sections of the society be it the common man to the industrialist, it will serve us well to remember that The Indian economy is currently in a deflationary phase with earnings stagnating and exports declining. The largest challenge now is to keep the fiscal deficit to 3.9% of the GDP. In the face of such challenges, it wont be surprising if Budget 2016-17, does not turn out to be a populist one.
Finhealth.in 