Budget 2020 and Income Tax: Here is what experts want from FM Sitharaman

Budget 2020 (#BUDGET2020ZEE): Industry is expecting a lot from Finance Minister Nirmala Sitharaman. In fact, the list is getting longer by the day. The demand for making provisions to push long-term investments through income tax exemptions and waivers from long-term investment gains on equity investments etc. have started to hit the public debates and social media increasingly. In fact, there are some media reports that also suggest that LTCG Tax can be waived off in the upcoming budget 2020. Apart from that, an increase in tax exemption limits in Section 80C and some more measures are on this list. What Narendra Modi government will do about it will be clear on Budget day.

Prateek Mehta, Chief Business Officer at Scripbox said, "Long term Capital gains tax on equity instruments: Direct investments in equity or via mutual funds are taxable if the gains are more than 1 Lakh. However, equity investments in insurance instruments are not taxed. This anomaly needs to be resolved. Ideally, to encourage financial savings in a country like India, this tax should be done away with. Possibly, look at increasing the 80c limits to 2.5 Lakh. The country per capita income has moved significantly since the limit was raised last time. Also, increase short term capital gains tax on equity investments – This will deter speculation and encourage long term investing." 

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Mehta went on to add that Section 80C deduction on Debt - DLSS - While we have seen a lot of inflow into ELSS and equity-linked funds in general, providing a tax break into a 'Debt Linked Saving Scheme' would be great. Indians are inherently conservative investors and this gives a meaningful option to get returns better than all fixed income instruments. By introducing a lock-in of 3 years, the fund manager would also be able to eliminate interest rate risks if they want to do the same. This would put the debt funds at par with debt-based ULIPs.

Batting for an increase in Section 80C tax exemption limit Dr. Soumya Kanti Singh, Group Chief Economic Advisor at State Bank of India (SBI) said, "Given the high cost of revenue loss because of tax rationalisation, the alternative is to incentivize savings. When the Government had notified an increase in PPF limit by Rs 50,000 to Rs 1,50,000 in Aug’14, its impact on household savings was enormous. During FY15 over FY14, Provident and Pension Funds increased by merely Rs 13,000 crore but during FY16 over FY15, it increased by more than Rs 1 lakh crore. We believe that an increase in PPF limit by Rs 1 lakh to Rs 2.5 lakh for individual households under 80C will lead to additional savings of more than Rs 2 lakh crore compared to the revenue foregone of Rs 23,000 crore. Even we add up the extra interest burden of around Rs 17,000 core (@ 8.5 per cent on Rs 2 lakh crore), the total revenue foregone is only Rs 40,000 crore compared to Rs 2 lakh crore jump in savings (incentive saving multiplier is at least 5 times more!)."