The Union Budget 2018-19 is just over a month away. Yes, 1st February 2018 is the great day you are eagerly waiting for. You have your wish list ready. It's a guessing game. What goodies does Finance Minister Arun Jaitley have in store for you? With a number of State Elections coming up in the year 2018 including major states like Rajasthan, Madhya Pradesh and Karnataka, the Union Budget 2018-19 is expected to be a populist budget.
For those who don't know, a populist budget serves the interests of a larger population base in the country. The Government devises the Budget to suit the general concerns of the people in India. Expect this budget to be all about farmers, jobs, infrastructure and reforms.
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As the Finance Minister Arun Jaitley and his team sit down to make the Union Budget 2018-19, the experts in the financial services industry have a wish list, which they want to see implemented. Let's take a look at 5 Budget ideas for Union Budget 2018-19.
1. Duration for education loan deduction must be increased
If you have availed an education loan and you are repaying it, you get a deduction on the interest part of the EMI under Section 80E of the income tax act. This deduction is on the total interest part of the EMI paid during the financial year. This deduction is for 8 years, starting from the year you start repaying the loan, or until the interest is repaid fully, whichever is earlier.
This deduction was introduced in 2006 when an engineering course cost around Rs 4 Lakhs and a medical course cost around Rs 8 Lakhs. Today, an engineering course costs close to Rs 10 Lakhs and a medical course is around Rs 15 Lakhs. The interest rates for an education loan are around 11-13% a year. Assuming an interest rate of 12%, the EMI for a loan of Rs 20 Lakhs for 8 years is around Rs 33,000. The average borrower may have to extend the loan repayment beyond 8 years. Don't you think the duration for education loan deduction on interest repayment must be extended beyond 8 years?
After demonetization, banks were flush with cash and reduced interest offered on savings bank accounts and even FD rates. The Government has steadily been reducing interest on small saving schemes like PPF, NSC and postal saving schemes. The Government just slashed interest rates on PPF and NSC by 0.2% for the January-March quarter. PPF and NSC will now have an interest rate of 7.6% a year.
You and other citizens have been pumping money into mutual funds, particularly equity mutual funds, with the hope of getting higher returns. Most of this money is invested via SIPs. SIP inflows were nearly Rs 6,000 Crores for the month of November.
One of the main reasons, you and other citizens like to invest in equity, is long term capital gains (LTCG) tax benefits. If you stay invested in equities (equity mutual funds + stocks) for a year or more, LTCG is tax free.
There has been talk that the Finance Minister may remove the LTCG tax benefits on equity. Experts in the financial services industry wish long term capital gains tax benefits will be retained.
If you stay invested in debt funds for 3 years or more, your gains are called Long Term Capital Gains (LTCG). Long term capital gains are taxed at 20%, but enjoy indexation benefits. Indexation allows you to inflate the purchase price using cost Inflation Index (CII), helping you save on taxes.
If you stay invested in debt funds for less than 3 years, your gains are called short term capital gains (STCG). STCG is taxed as per the income tax bracket you fall under.
It would be great if the holding period for LTCG gains on debt funds, could be reduced from 3 years (36 months) to 1 year (12 months). This would encourage you and other investors to invest in debt funds.
Financial Services fall in the 18% GST tax bracket. Insurance products had a service tax of 15%, but this has increased to 18% under GST, making term life insurance plans and endowment life insurance plans, more costly.
It would be great if life insurance plans and health insurance plans could be brought under the 5% GST slab. They could even be labeled as essential services and made tax exempt, increasing the penetration of insurance products in India.
Many houses in India have been destroyed in natural calamities like floods, fire, earthquakes and landslides. This makes home insurance a must for citizens in India, as it saves them from financial stress.
Wouldn't it be great if home insurance was made compulsory and homebuyers were given an income tax benefit/deduction for the premium paid towards home insurance plans?
So what are you waiting for? Get your wish list ready for the Union Budget 2018-19. Be Wise, Get Rich.
Mr. C S Sudheer is the founder and CEO of IndianMoney.com – India’s largest Financial Education Company. He started his career with ICICI Prudential Life Insurance and later on worked with Howden India. After his brief stint in Howden India, he moved on and incorporated Suvision Holdings Pvt Ltd which is the sole promoter of IndianMoney.com. He aims to build a nation that is financially literate with investment savvy citizens.
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