Union Budget 2018: A Financial Planner's Wishlist
As the rumblings of a potential out and out populist budget continues to disconcert a number of economists, the common man holds his breath in anticipation of the most awaited personal finance related event of the fiscal. It's a well-known fact that that both tax savings and tax efficiency serve as potent drivers of investor behaviour in our country - sometimes, even at the cost of making irrational money decisions in the bargain! Though, in my experience, pre-budget wish lists are seldom heeded; here's one that may serve the interests of savers and investors without hurting the exchequer too much (the obvious point related to changes in tax slabs has been duly excluded!)
A rationalisation of Section 80C
The Rs. 1.5 Lakh limit for Section 80C is abysmally 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. It's about time that the Section 80C limit was hiked to at least Rs. 2.5 Lakhs. Doing this may lend indirectly lend a fillip to the residential real estate market as well.
'Across the risk spectrum' options within the ELSS space
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, based on their individual risk tolerance levels. The lock-in periods can be kept the same for all categories. At the very least, a hybrid fund option for ELSS needs to be introduced.
Flip the LTCG structure in case of Mutual Funds
I'll likely get brickbats for suggesting this - but I, for one, firmly believe that the LTCG structures for equity and debt oriented Mutual Funds should be flipped. Why should the minimum holding period for a high-risk asset be 1 year and 3 years for a low risk asset? Flipping this the other way (or at the very least, rationalising both) with help ensure that short term investments flow into debt funds and longer-term investments into equity funds - not vice versa.
A higher Medical Allowance - as a higher Section 80D limit would be nugatory
The medical reimbursement limit of Rs. 15,000 per fiscal desperately needs a re-look. Doctor visits and medicines are not cover by Health Insurance polices under most circumstances, and for a typical family of four, these can run into several thousands more than Rs. 15,000 in a year. Raising the Section 80D limit beyond Rs. 25,000 (for non-senior citizens) will be a nugatory move, as hardly anyone below the age of 50 pays that much in a year anyhow. The medical allowance limit should be at least doubled to Rs. 2,500 per month.
Exemption of Term Life and Health Insurance premiums from GST
It's not news that we're vastly underinsured as a nation - primarily due to a poor understanding of Life Insurance as a risk transfer tool. I, for one, firmly believe that term life and health insurance should fall under the category of 'essential' products and services and be completely exempted from GST. Along with a raised 80C limit, this move will encourage more Indians to cover themselves adequately, both in terms of term life insurance and health insurance.
And to top it off, a few "retiree" and "retirement saver" friendly moves!
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. The government should do its bit to encourage retirement savings, by doing away with mandated equity caps in the NPS (National Pension Scheme), and also doing away with the mandated annuity purchase with a substantial portion of the NPS corpus. Either that, or making annuity incomes tax-free. Having to pay income tax on the corpus that you've accumulated after paying taxes all your life, just doesn't seem fair!
