07 July, 2009

Budget wishlist

“If wishes were horses, beggars would ride”, is one of oft repeated proverbs of my friend, Satish. But why not wish. You never know – they may come true. And like Cindrella, a fairy Godmother may make it come true – in this case his name starts with P.
So, Let’s start. One of the cribs that most tax payers have, is lack of tax shelters. Most complain that the Rs.1 Lakh which is available under 80C as a deduction is woefully inadequate. Also, everything from Home loan principal, School fees for children to tax saving Investments, Insurance etc., are under this. Hence, the Rs.1 Lakh figure is seen as entirely inadequate. Earlier, Pension plans were under a separate category, which also got clubbed into 80C.
Government is keen on Infrastructure development in the country, the spending on which will give an impetus to the economy. A win-win solution could be a new class of infrastructure bonds which will save tax, but is in addition to 80C amount of Rs.1 Lakh. This way, the government will get money to spend on nation building and the taxpayer, a much needed tax shelter.
Government has accorded priority to housing sector as it wants people to move towards owning their homes. That is the reason why there is a deduction of upto Rs.1.5 lakhs available on the amount of interest paid for home loan. It will be a step in the right direction if in this budget they allow entire interest on home loans as a deduction, like in the case of Education loan. This is a reasonable subsidy from the government, as it promotes a good cause. And accord Industry status to a sector like Real Estate, especially when it is a sector that has multiple linkages with several sectors ( like Cement & Steel ) and subsectors ( like flooring materials, lighting, claddings etc. ).
A lot of people are concerned about the non-availability of good investment options, for those with low risk appetite. One has NSC, KVP, Term Deposits & Bank FDs. But the post tax returns on all these are less than 6% for someone in the 30%+ bracket. The only option available, which gives 8% post tax returns, is the PPF. But then, one can contribute a maximum of Rs.70,000/-pa and that is seen as a serious limitation. RBI tax-free bonds at 6.5% was an alternative available in the past. A scheme like RBI Bonds would be a welcome addition to the current bouquet of investment products.
In Mutual funds, fund-of-funds as a category has not taken off, primarily because the taxation is like that of a debt fund, even if the entire investments go into Equity funds. This is the biggest dampener. Fund of Funds as a concept is quite good, as it reduces the risk profile for the investor, although the investor pays a higher cost for FOF. Government should rectify this anomaly and help investors to take advantage of this good investment option.
Fringe Benefit Tax ( FBT ) was a stinker that the Government unleashed a few years back. In the process, the corporate bore the brunt of it and in many instances were passed on to their employees. For instance, there is no justification to tax foreign travel done from a business promotion view point. I believe GOI is considering abolishing this, which would be a welcome step.
There are those who are waiting with bated breath to see if the budget increases the threshold for taxation. I would instead be happy if the surcharges & Education Cess were abolished. These levies are supposed to be for a short time frame. But, like toll bridges, these things become permanent fixtures. People are saddled with a lot of tax – direct and indirect. We all work for over 6 months, just to pay all taxes ( apart from Income taxes, there is Sales & Service tax, VAT, Excise Duty, Octroi etc. to contend with ) as there are all those levies on all products we consume. Government should take steps to curtail expenditure. Also, reckless increase in expenditure for Social sectors does not percolate, as intended. Instead, delivery mechanism for various social sector schemes should be tightened and made more efficient. This will ensure that the government is not perpetually hungry for more money and constantly seek avenues to increase taxes.
Home rent, especially in metros is high. There is brokerage & shifting expenses too, every now and then. In the current least-of-one-in-three scheme, these don’t get factored. For giving relief to citizens, it should be higher of the three. Also, one of the conditions – 10% of rent paid above basic – could be modified to rent paid. Also, brokerage and shifting expenses should also be allowable as a deduction along with HRA.
A lot of people are driving to work and the conveyenace deduction is still stuck at Rs.800/-pm. This figure should be moved up to a more reasonable figure like Rs.3,000/-pm.
The wishlist can be endless – but these seem to be the main ones. Yesterday, I sat up on bed in the morning with the uncanny feeling that these wishes had been granted, only to realize that the budget is still to be presented. When farmer loan waivers happens & sops for BPL households ( which don’t reach most ), why not give some relief to the people who pay taxes and are helping the politicians to dole away the largesse. Over to FM.

Published in DNA Money on 30/6/2009

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