Union Budget 2022: Hope for bigger tax deductions, Covid sops

Hike the 80C exemption limit

Section 80C of the Income Tax Act is one of the most popular tax saving options for many, especially salaried individuals as it allows exemptions up to Rs 1.5 lakh. This budget can consider increasing this limit up to Rs 3 lakh to help people save and invest more amidst inflationary pressures and a rise in incomes. Additionally, the government may consider bringing in more investment instruments into Section 80C’s ambit. Currently, Section 80C is used for claiming benefits for home loan repayments, insurance, and other qualified investments. The Income Tax Act was last revised eight years ago in 2014 and so this may be an opportune time for the government to revisit it and make it more people-friendly.

New section for Home Loan Tax Deduction

The government should consider a bigger amount for home loan deductions for homebuyers. A home loan is one of the most convenient ways to fulfill the home-owning dream. But it is a big expense that needs to be serviced for a long time. Currently, home loan borrowers can avail of tax benefits for an amount up to Rs 1.5 lakh under Section 80C and Rs 2 lakh under 24B. To provide more money in their hands, the government may add a new section to the Income Tax law that can provide deductions of up to Rs 5 lakh with no sub-limits for principal or interest. This 5 lakh will equal the total of deductions under 80C, 24B, and 80EEA.

Sops that can encourage people to buy Term Insurance

The Covid-19 pandemic brought to the forefront the need to have strong health and term insurance coverage. Buying a term insurance plan is one of the most cost-effective and best ways to protect your family against life risks. It is a priority that should never be ignored, especially by individuals who have dependents and other financial liabilities. Despite being such an important financial instrument, term insurance penetration remains very low. To encourage people to buy such an important policy, the government can consider having a separate deduction for term insurance premiums for an amount up to Rs 50,000. Such tax incentives may encourage people to buy more term insurance products.

Increase tax exemption limit for Health Insurance under Section 80D

Health insurance demands special attention in the aftermath of the ongoing Covid-19 pandemic. Buying an adequate health insurance plan helps people deal with sudden medical expenses. With medical costs going up, it becomes extremely important for people to buy health plans that provide the maximum coverage benefits.

With the health insurance premium prices going up, the government may relook at the current tax incentives and increase them so that more people can buy sufficient health insurance coverage. As per Section 80D of the Income-tax Act, 1961, tax exemption can be availed for the premium paid up to Rs 25,000 for individuals under 60 and up to Rs 50,000 for those aged above that. Looking at the pandemic, if a family opts for a bigger coverage, the premium may stretch beyond the exemption threshold limit. To encourage people to buy adequate coverage, it is important that the government hikes the exemption limit amount.

Covid-related treatment and hospitalisation were financially draining for many. To provide relief to such people, the government can think of providing a special one-time deduction of Rs 1 lakh.

Additionally, I request the government to relook at the current 18 per cent GST rate on health insurance. The addition of GST increases their cost and makes it unattractive for them. Reducing GST will help people to opt for higher coverage.

Increase deductions limit under Section 80TTA

Interest earned on fixed deposits and recurring deposits by people above the age of 60 or non-senior citizens are taxed as per the applicable tax slab. However, senior citizens can avail of tax deductions for interest earned up to Rs 50,000 in a financial year under Section 80TTB. The government may consider increasing the 80TTA limit (applicable to people below 60 years) to Rs 30,000 to encourage savings instead of stashing cash at their homes. To understand their FD returns vis-a-vis inflation, the government should allow the benefit of calculating the inflation-adjusted return on FDs to calculate the tax, i.e., tax to be charged after reducing the inflation from the interest earned.

If implemented, the above-suggested ideas will bring in relief for the taxpayers and help them sail through these tough times when liquidity flow remains challenging.

The author is the CEO at BankBazaar.com. Views expressed are that of the author.