Here’s a short summary of what we expect from budget 2016 and we hope that the Finance Ministry obliges.

1. Direct and Indirect Taxes

• At present, for individuals the non taxable income limit is Rs. 2.5 lakhs and for senior citizens, the limit is Rs. 3 lakhs. For very senior citizens (age 80 or more), the limit is Rs. 5 lakhs. We do not expect much change here.
• With respect to the roadmap of implementation of GST (Goods and Services Tax) by April 2017, we expect an across the board increase in the tax rates for all indirect taxes. However while such increase in indirect taxes is good from an economic perspective i.e. from the government’s tax collection perspective, it tends to be adverse to the financial health of the honest taxpayer as well as taxpayers in the higher tax brackets. This is because indirect taxes are levied when you buy goods and services from your tax-paid income. Thus you, the consumer, is paying huge additional taxes as a result. Indirect taxes helps the government to collect money from those who are selling goods and services, but are escaping from the income tax net in one way or the other. So while the government’s tax collection rises, the honest taxpayers and consumers become even poorer.
• Therefore for effective implementation of indirect tax payments, there must an offset of personal income tax. If this balancing act does not happen, quite definitely we will go back to a situation where we are creating avenues for the production of unaccounted transactions i.e. black money. Small business owners, service providers and merchants will face extreme heat in terms of compliance of indirect tax rules while they are already existing in a highly competitive business scenario.
• Hence in our view, there must be a significant discount in the personal income tax slab rates and / or a significant expansion of the slab itself. This is to combat the adverse impact of the likely increase in indirect taxes.

2. KYC

• Simplification of KYC rules…implementation of smoother KYC norms across various platforms and regulators.

3. Health Insurance

• Currently, the health insurance premiums upto Rs. 25,000 are subject to tax deductions. For senior citizens, the limit for additional tax deduction is Rs. 30,000.
• Hoping to have a NEW special health benefits section, just like section 80C, to the extent of about Rs. 2 lakhs in the absence of any social security provisions by the state. The methods could be:
  • 80D itself could be enhanced to a higher limit.
  • OR new special health sections set up to include everything, viz Rs. 25,000 for self, Rs. 30,000 for parents, OPD treatments, dental and eye care treatments which are not included anywhere else, medical tests, doctor’s consultation, etc. Essentially all those expenses that an insurance policy would not cover.

4. Housing Finance and Real Estate

• Currently we have principal deduction of Rs. 1.50 lakhs under sec 80C.
• The home loan interest limit is Rs. 2 lakhs in case of SOP and in case of a LOP it is the total home loan interest paid.
• We do not expect any changes here.
• Perhaps we would expect to eliminate all home loan benefits to properties valued over Rs. 150 lakhs. Thus only need based buying is eligible for tax benefits and that too for people buying their first home and which are below Rs. 150 lakhs in value.
• For job creation, wealth creation and economic prosperity, the real estate industry has to be vibrant for which the prices have to be forced to come down. Thus all tax benefits must be withdrawn.

5. Section 80C, Life Insurance and Retirement Benefits

• Long term savings are good for the economy as well as the individual concerned. Also there are certain essential expenditures that each individual has to incur. Not all instruments available in section 80C are appropriate from the point of view of essential expenditure or   long term wealth creation or retirement benefits. Thus 80C needs a complete restructuring.
• In our view tax benefits should be divided according to ;
  • Essential expenditures / needs – which would typically include term life insurance, non-life insurance and education needs. There should be a separate section for this with a limit for it, say Rs. 1 lakh.
  • Savings for long term wealth creation –  which would typically include ELSS and ULIPs. There should be a separate section for this with a reasonable limit of about Rs. 2 lakhs. Correspondingly eliminate all traditional life insurance policies, PPF, NSC, NSS, FDs from 80C as these are not wealth creation products and infact create a drain on the resources of the government.
  • Retirement benefits – which would typically include NPS and ULIP pension plans only as these products create long term wealth for the pensioner. There should be a separate section for this and a limit of about Rs. 2 lakhs. Further to make NPS an attractive retirement savings vehicle convert it from EET to EEE, in addition to it being the only product in its own section of tax benefit. Further just like the American retirement savings are driven by the 401K plans, our retirement savings should be ideally driven by the NPS and for that enhance the retirement benefit saving limit as stated above.
• Thus tax benefits should be given to incentivise investments which serves larger purposes for both the county and the individual.

6. Gold & Gold Bonds

• Incentivise gold bond schemes so that dependency on gold imports reduce. This should continue and enhanced to seriously to motivate people to give up on their gold hoards.