With the new NDA Govt., with new Prime Minister, Finance Minister and
other Ministries, lots of expectations have developed. In this year’s
Union Budget, I would expect to see something in the box that would
benefit middle-income group of people. The benefits could be modifying
certain tax laws that allow tax deductions, which can encourage savings
habit and help them take exposure to different asset classes.
EPF contributions investment decisions should be left to the employee
A certain percentage of our salary is contributed (by employee as well as employer) to the Employee Provident Fund (EPF), which earns a fixed rate of return; the interest rate is declared every financial year. But, in the U.S. for such kind of employee contributions plan; the employee has the right to choose instrument / asset class where he wants his contribution should be invested. Similarly in India too, I feel each employee should have the right to decide specific investment instrument, where he would want the monthly contribution to be invested. It can be either Equity or Debt, or a combination of both, the option should lie with the employee. Special Equity funds should be developed just like how we have Equity Funds in NPS (National Pension System); and as far as Debt is concerned a fixed Interest Rate option should be available, which is available today to everyone. The employee should also be given the right to change his asset allocation, after a certain period – say every 5 years, since the asset allocation should change, as you grow older and your risk taking capacity decreases. This will encourage lot of salaried class people to take at least some exposure of Equity. This can promote investments in Equity markets.
A certain percentage of our salary is contributed (by employee as well as employer) to the Employee Provident Fund (EPF), which earns a fixed rate of return; the interest rate is declared every financial year. But, in the U.S. for such kind of employee contributions plan; the employee has the right to choose instrument / asset class where he wants his contribution should be invested. Similarly in India too, I feel each employee should have the right to decide specific investment instrument, where he would want the monthly contribution to be invested. It can be either Equity or Debt, or a combination of both, the option should lie with the employee. Special Equity funds should be developed just like how we have Equity Funds in NPS (National Pension System); and as far as Debt is concerned a fixed Interest Rate option should be available, which is available today to everyone. The employee should also be given the right to change his asset allocation, after a certain period – say every 5 years, since the asset allocation should change, as you grow older and your risk taking capacity decreases. This will encourage lot of salaried class people to take at least some exposure of Equity. This can promote investments in Equity markets.
Increase limit u/s 80C
Tax deduction u/s 80C is one of the best ways, by which an individual makes certain investments just to save tax. Tax saving u/s 80C is like a mandatory savings for most of people; very few people ignore to claim full deduction u/s 80C. Lot of individuals in first slab of income tax, are barely left with any surplus for investing for investing for their financial goals; over and above Rs.1 lakh investment (including certain allowable expenses). If the limit u/s 80C is increased, it will encourage people to save more and invest in tax savings investment instruments to claim deduction u/s 80C and claim tax deductions. Whether an individual invests in 5 Year Tax Savings Fixed Deposit, PPF, ELSS Fund or any other eligible investment instrument, it at least inculcates a habit of saving and investing. It is very difficult for a person to reduce the regular household expenses, to increase the surplus for saving and investing. But increase in the limit u/s 80C will automatically motivate people to save more just for the tax benefit and reduce his other expenses in some manner.
Tax deduction u/s 80C is one of the best ways, by which an individual makes certain investments just to save tax. Tax saving u/s 80C is like a mandatory savings for most of people; very few people ignore to claim full deduction u/s 80C. Lot of individuals in first slab of income tax, are barely left with any surplus for investing for investing for their financial goals; over and above Rs.1 lakh investment (including certain allowable expenses). If the limit u/s 80C is increased, it will encourage people to save more and invest in tax savings investment instruments to claim deduction u/s 80C and claim tax deductions. Whether an individual invests in 5 Year Tax Savings Fixed Deposit, PPF, ELSS Fund or any other eligible investment instrument, it at least inculcates a habit of saving and investing. It is very difficult for a person to reduce the regular household expenses, to increase the surplus for saving and investing. But increase in the limit u/s 80C will automatically motivate people to save more just for the tax benefit and reduce his other expenses in some manner.
Introduction of REITs
Lot of middle-class people cannot take exposure to real estate since it’s a lumpy investment and requires large one time payment. Just like with the help of Mutual Funds, investors can take exposure to Equity shares listed in the stock market; with the help of Real Estate Investment Trust (REITs) investors can take exposure to Real Estate. Different categories of REITs allow the investors to choose the type of property (i.e. residential, commercial, etc.) where he wants to invest. Not only it will help investors to take exposure to real estate, but will also help to regulate the Real Estate market since the REITs should be listed, reduce cash transactions and thus the circulation of black money in the Real Estate market.
Lot of middle-class people cannot take exposure to real estate since it’s a lumpy investment and requires large one time payment. Just like with the help of Mutual Funds, investors can take exposure to Equity shares listed in the stock market; with the help of Real Estate Investment Trust (REITs) investors can take exposure to Real Estate. Different categories of REITs allow the investors to choose the type of property (i.e. residential, commercial, etc.) where he wants to invest. Not only it will help investors to take exposure to real estate, but will also help to regulate the Real Estate market since the REITs should be listed, reduce cash transactions and thus the circulation of black money in the Real Estate market.
Tax deduction for interest on home loan on self-occupied property
Today, if you take a home loan and you let it on rent, then the entire interest payment towards the home loan is available for tax deduction u/s 24B. But, if you take a home loan and it is self-occupied i.e. you stay in that house, then only upto Rs.1.50 lakhs interest on home loan is available for tax deduction in a financial year. Why should the property given on rent get higher tax benefits compared to the property, which is self-occupied? The person self-occupying the property has taken home loan for his need, unlike an investor who has taken the home loan for leveraging and put property on rent just as an investment. So, I think this section should be the other way round and should be altered; tax deduction of full interest on home loan should be given for self-occupied property and a limit should be placed for tax deduction for interest paid on home loan for let-out property. The alteration of this tax law will not only benefit to the needy people who take a home loan for one of their basic need (Makaan), but also control rising the real estate prices, since it will discourage the wealthy real estate investors who leverage, for claiming tax benefits.
Today, if you take a home loan and you let it on rent, then the entire interest payment towards the home loan is available for tax deduction u/s 24B. But, if you take a home loan and it is self-occupied i.e. you stay in that house, then only upto Rs.1.50 lakhs interest on home loan is available for tax deduction in a financial year. Why should the property given on rent get higher tax benefits compared to the property, which is self-occupied? The person self-occupying the property has taken home loan for his need, unlike an investor who has taken the home loan for leveraging and put property on rent just as an investment. So, I think this section should be the other way round and should be altered; tax deduction of full interest on home loan should be given for self-occupied property and a limit should be placed for tax deduction for interest paid on home loan for let-out property. The alteration of this tax law will not only benefit to the needy people who take a home loan for one of their basic need (Makaan), but also control rising the real estate prices, since it will discourage the wealthy real estate investors who leverage, for claiming tax benefits.
Published in: Moneycontrol.com
