The Hon’ble Finance Minister is busy in finalising
the Union Budget. After a stable government is formed in the Centre, people’s
expectations have gone up and most of the people are expecting a landmark budget
which can revive the growth and create more job opportunities. On individual
front there is a demand for enhancing the basic limit of tax-free income from
Rs. 2 lakhs to Rs. 5 lakhs and also people want tax deduction u/s 80-C to be
increased from Rs.1 lakh to Rs. 2.50 lakh. All sections of society are making
representation to Finance Minister and giving their wish list. I will represent
middle-class families through this article and urge FM to take note of the
same.
The middle-class at present is struggling with managing
their monthly budget not only because of high food inflation but also increasing
education and medical costs. The rise in fuel prices has also increased their transportation
and conveyance expenses considerably. People think that food inflation is too
high but are unaware that education and medical inflation has also risen much
higher than food inflation in the recent past. Expenses are part of life and
nobody can avoid the same. You can live happily without making investments but
can’t survive without incurring unavoidable expenses. Personal finance is one
of the most neglected areas and I think important issues need to be addressed
so that people take necessary corrective steps to improve their life style.
At present tax deduction is available for few expenses
as well as for investment in specified instruments. We have seen lot of mis-sell
happening in life insurance segment as a tax saving avenue. Common investors
always forget to take tax implications on their investment which reduces their
overall return. Very few people plan their investments for tax saving purpose
and most of others end up investing in a product which may not suit their risk
profile or may not be in line with their future financial goals. Investing,
just to get the tax benefit leads to wrong buying. There is lack of awareness
and most of the selling for tax savings is driven by high commissions. Looking
at the present scenario of tax saving investment, lots of mis-sell happens in
the market, I am of the firm opinion that tax deductions related to investment
should be abolished and should be restricted to the genuine expenses which are
unavoidable and are also necessary for the family for their future. If expenses
are given tax break automatically surplus will increase and would be available
for future investment. But it is equally important to look beyond tax planning for
making investment.
I would like that Finance Minister consider my
points for the betterment of middle-class families as I firmly believe that the
present government represents middle-class families.
1) Do not allow tax-deduction for any investment
which is not mandatory as most of the products which are sold are driven by
high commissions. People are not literate to plan their investment. There is
lack of awareness which allows agents to sell the complex products only because
they are tax deductible. There are simple products also like Bank Fixed
Deposit, N.S.C and Postal schemes which are available for tax deduction but in
reality very few opt for these types of avenues. Secondly, interest is taxable
which many do not take into account, thirdly these are short-term in nature and
can’t beat inflation in the longer run.
2) Allow deduction up to Rs.1 lakh per child for
education expenses including tuition fees paid to classes. Every parent’s priority is children’s future and nobody is ready
to compromise on the same. Today providing good education and establishing a
professional career is expensive and will further go up with time. It is
today’s expense but also investments, as children are future of India. This
deduction will allow parents to spend more for higher education which
ultimately is good for the society at large. FM should also make sure that
education loans are also available easily for all the courses in India and
abroad. The rate of interest is also high and should be lower like home loan
interest rate.
3) Allow deduction up to Rs. 1lakh for life term
plan premium, health and disability insurance premium, preventive health check
up, medical bills incurred for parents who are not covered under health
insurance. As we do not have social security mechanism in place, having
adequate insurance can help a lot to the family. I will also request FM to
withdraw service tax levied on life and health insurance plans as this will
make products cheaper and affordable to the public at large.
4) Increase the home loan interest deduction amount
from present Rs. 1.50 lakhs to Rs. 3 lakhs p.a. u/s 24. This home loan EMI
again a fixed cost to the family for 20 years and has to go month on month just
like other regular expenses. The home loans are available at very attractive
rate of interest, I think it should be restricted to first home only. Any additional
loan for second or third house for investment should be given under loan
against property. Availability of cheaper
home loan with additional tax benefit has helped rich people to create wealth
in real estate which has deprived many middle class families to buy their own
home.
5) Allow deduction of Rs.1 lakh for retirement
benefit under EPF, PPF. Living long is also a concern and has to be addressed
carefully at younger age. The rising trend of nuclear family, advancement of
science and medical facility has forced people to seriously think about the
same. Both the investments are simple to understand, safe, secure and also give
high tax-free returns as compared to other debt instruments. Both instruments
are mainly long-term in nature which can help people build part of their
retirement kitty.
Earn, Save and then spent, should be the correct way
of planning your finances. This article is only about tax planning avenues which
drives the investment market and people lose their hard earned money. I am hopeful
that FM will consider this expenses linked tax deduction for uplifting the
standard of living of millions of middle-class families. This will also ensure
people will spend enough for their children’s higher education and also take
adequate insurance which can help them in case of unfortunate event in the
family. The need of the hour is spare poor, give maximum possible relief to
middle-class and tax rich people.
article first published at moneycontrol
http://www.moneycontrol.com/news/tax/budget-mr-fm-restrict-tax-deductions-to-expenses-only_1112005.html
