By Balwant Jain
The budget of the Modi-3 government is expected to be presented in the month of July 2024. Wishes are unlimited and we individual taxpayers have some wishes from the finance minister for this budget.
Increase in limit of deduction available under Section 80C, 80CCC and 80CCD
By making the new tax regime a default tax regime the government wants people to not avail of various tax deductions and pay tax on their actual income. However, the importance of saving cannot be ignored looking at the fact that we do not have any social security scheme in India. Presently the deductions available under Section 80C, 80CCC and 80 CCD(1) put together are capped at Rs. 1.50 lakh per year for Individual and HUF (Hindu Undivided Family) as per Section 80 CCE. This limit of Rs. 1.50 lakh was revised from Rs. 1 lakh in 2014. The earlier limit of Rs. 1 lakh was fixed way back in 2003. It has been almost 21 years since the original limit of Rs. 1 lakh was fixed. It has only been increased by 50% in 2014 which works out to just less than 2% annually. This annual average increase is not even on par with average inflation during the same period. In my opinion, this should be directly raised minimum to Rs. 3.50 lakhs taking average inflation of 6% during this period.
Tax provisions on NPS withdrawals
The present tax law allows withdrawals of up to 60% of the corpus in the NPS account at the time of closure of the account which is treated as tax-exempt. For the balance, the NPS subscriber is required to purchase an annuity from a life insurance company in India which is a low-yield product. I would like to point out that the periodic annuity becomes taxable as and when received. Put simply, effectively only 60% of the corpus is tax-free and the balance 40% becomes taxable if not immediately then in future.
In contrast to the NPS withdrawals, the accumulated balance in the employee provident fund (EPF), comes fully tax-free at the time of retirement. If the government cannot make the EPF balance on retirement taxable to the extent of 40% of the accumulated corpus like NPS, which the government had attempted a few years back, the government should at least attempt to bring in parity by working another way round and make the entire accumulated balance in NPS at the time of withdrawal tax-free. The Government should do away with the requirement to buy an annuity with 40% of the corpus and leave the decision to the subscriber where to invest the money.
Rationalisation of interest deduction for self-occupied property
The tax laws allow you to benefit from interest on money borrowed for the purchase, construction, repairs renovation of any house property. However, the amount of such a claim is restricted to Rs. 2 lakh in aggregate cases of up to a total of two self-occupied houses. In respect of a let-out property, there is no such restriction and full interest is allowable as a deduction though there is a restriction on set off of the loss under the head “Income from house property” against other sources of income to the extent of Rs. 2 lakhs in current year. The balance unabsorbed loss is allowed to be carried forward for set off against losses under the head house property in the subsequent 8 years. Rationally tax benefits for full interest should be made available to the genuine home buyers who need the house for their own residence and not for the people who use the same as investment and do tax arbitrage.
In the case of a loan for an under-construction house where the construction is delayed beyond a period of five years, the interest deduction gets reduced to Rs. 30,000 for no fault of the taxpayers. This unjust provision of reduced deduction should also be removed altogether from the statute book to grant relief to the home buyers who are in any way victims of the delaying tactics of the developers.
Please note that these deductions are available only if you opt for the old tax regime as these deductions are not available if you opt for the new tax regime which has been made the default option for the financial year 23-24 for which ITR are being filed now.
The author is a tax and investment expert and can be reached at jainbalwant@gmail.com
Disclaimer: Views expressed in the above article are personal and do not necessarily reflect the official position or policy of the Outlook Media Group or its employees.
