A Personal Finance Wishlist for the Union Budget ‘23

The past year has been a turbulent one for the common man, with equity markets remaining volatile, fixed income yields rising, inflation remaining uncomfortably high and more recently, a slew of job cuts affecting the labour market sentiment as well. With the Union Budget round the corner, here are a few things that are on every investor’s wish list at the moment.

Exemption of Term Life and Health Insurance premiums from GST

Currently, the GST on health and term insurance premiums is extremely high at 18%. It also rings true that that we’re vastly underinsured as a nation in terms of both life insurance cover and medical cover – primarily due to a poor understanding of life Insurance as a risk transfer tool. Most individuals still expect something “back” at the end of the policy term, and the high GST only acts as yet another deterrent for the adoption of pure risk products. If term life and health insurance should could fall under the category of ‘essential’ products and services and be completely exempted from GST, that would certainly help boost the penetration of these two products, which have been proven to be critically important in the wake of the pandemic.

Increase in 80C limits

The Rs. 1.5 Lakh limit for Section 80C remains extremely low, and really creates little value for most individuals. More often than not, PPF deductions and home loan EMI principal payments cover this relatively small figure, leaving little or no incentive for investors to make any further tax-saving led, long-term savings for their financial goals. It’s about time that the Section 80C limit was hiked to at least Rs. 2.5 Lakhs or flexible limits were introduced based on income brackets. Doing this may lend indirectly lend a much-needed fillip to the residential real estate market as well by encouraging more people to take up home loans, especially when you consider that interest rates are rising. This move would also drive more retail savings into the equity markets, and further cushion the blow that may be dealt to domestic equities if FII’s exit India to capitalize on rising U.S treasury yields.

Fixed Income options for tax saving – why not a DLSS along with ELSS?

It seems unfair that the only tax-saving options that exist within the Mutual Fund space should be 100% equity oriented. Individuals should be free to choose from a spectrum of ELSS Mutual Funds, ranging from 100% debt oriented, to 100% equity oriented – or even hybrid options, based on their individual risk tolerance levels. The lock-in periods can be kept the same for all categories or even increased to 5 years in case the debt-oriented tax saving funds wish to follow a buy and hold strategy in the style of FMP’s. This would ensure that retail money flows into the fixed income markets too – a segment which is currently dominated by institutional and foreign fund flows.

NPS reforms

It’s a fact that we may have a retirement savings crisis on our hands a few decades hence. The gradual breakdown of the joint family system, steadily escalating medical costs, and increasing lifespans are the chief contributors to this potentially serious problem. At present, it is mandatory for subscribers of the National Pension System (NPS) to buy an annuity plan with at least 40 per cent of their corpus at the time of exit on attaining the age of 60 unless the total corpus does not exceed Rs 5 lakh. The government should do its bit to encourage retirement savings, by doing away with the mandated annuity purchase with such a substantial portion of the NPS corpus. Having to pay income tax on the corpus that you’ve accumulated after paying taxes all your life, just doesn’t seem fair.