Budget 2023 Expectations: Government to consider these 8 reliefs for loan seekers in upcoming budget experts say

Notwithstanding hikes in interest rates on loans, the demand for credit has seen a considerable uptick. As we move closer to the Union Budget 2023, wish lists for Finance Minister Nirmala Sitharaman are pouring. Experts are of the view the FM may consider introducing measures in the Budget to provide relief to borrowers and lenders.  

Rising interest rates on loans have been a pain point throughout this year for loan borrowers as the Indian Central Bank has been on a rate-hiking spree in order to tame inflation. The Reserve Bank of India (RBI) has increased repo rates by 225 bps between April and December and further hikes could come down the line.   

Experts suggest at least 8 measures that must come as a part of relief:

1. ESOP criteria be eased

In the previous budget, significant tax reliefs were provided to start-up employees to resolve the dual taxation issue and alleviate the tax burden that Employee Stock Ownership (ESOPs) imposes on employees. “There is a very stringent qualification criterion that is prescribed, so only a very limited number of young Indian companies could reap the benefits of this welcome move.  As a result, industry suggests that the government broaden the eligibility criteria for this benefit to include a broader range of young companies,” added Rohit Garg, CEO, and Co-founder, SmartCoin, a digital platform that caters to credit requirements from people.

2. Better sops for homebuyers

Real estate developers anticipate that the government will provide additional incentives to increase affordable and rental housing, as well as increase the Rs 2 lakh tax rebate on housing to at least Rs 5 lakh.  Real estate dealers expect a slight decrease in the Goods and Services Tax (GST) on building materials such as cement and steel. “This might indirectly benefit the real estate sector by lowering developer input costs and, as a result, the overall cost of construction. Prices for raw materials, in general, are rising, and lowering GST rates would provide some relief to developers,” said Atul Goel, MD, Goel Ganga Group, a builder group.

Meanwhile, LoanTap Chief Financial Officer Ashish Jain said that government must relaunch credit-linked subsidy for interest under the Pradhan Mantri Avas Yojna which got closed earlier to aid prospective home loan borrowers.

Nisha Harchekar, Head of equity Research at Fintoo stated that to cater affordable housing to middle-class people as they are still struggling it is expected that sop won't be the priority, and even as per section 80EEA will increase interest deduction of more Rs.50000/- and even restriction of not holding second property can be eliminated in this section.

3. Respite for personal and education loan borrowers 

Personal Loans and education loans account for a 35 per cent share in the overall credit basket and yet do not enjoy tax benefits like a home loan. “Under this budget, we expect that there shall be tax exemption on the interest paid on personal loans and education loans. Further, repayment of education loans shall also be allowed to form part of the exemption limit of Section 80 C,” said Jain of LoanTap.

4. Tax Benefits on retirement plans

In the event of no tax benefits for loan borrowers, the finance ministry must consider compensating borrowers by introducing tax benefits on retirement plans. Insiders hope that this wish may come true. “The finance minister may announce some tax breaks for retirement plans in mutual funds under section 80C and may also simplify or amend section 68 needs to promote hassle-free borrowing in the country,” asserted Mahesh Shukla, Founder & CEO, PayMe, a digital lending platform.

5. Some measures for different types of lenders

Experts hope that loan borrowers would not be burdened further with more rate hikes. “There is a need to simplify section 68 regarding a complete explanation of the nature of the lender, including banks and NBFCs,” mentioned Rachit Chawla, CEO & Founder, Finway FSC, a digital lending platform.

6. More focus on the co-lending model

While the industry is looking at direct benefits to borrowers of personal loans in the form of tax benefits, they demand indirect benefits for fintech sector in the form of higher ease in doing business. This would ensure that fintech/lenders pass on the benefits to the end users, experts pointed out.

“Budget could include measures that simplify the conditions under the co-lending model including some changes and liberalization to the existing ‘first loan default guarantee’ (FLDG) model which is under examination with the Reserve Bank of India (RBI),” said Udit Kariwala, Chief Financial Officer, Vastu Housing Finance.

FLDG is an arrangement between a fintech/sourcing company and a regulated entity (RE), including banks and non-banking finance companies, where the fintech/sourcing companies need to compensate the RE in case a borrower defaults. However, experts suggest that both online and offline lenders must have a level playing field.

7. Enhancement in the standard deduction limit

According to experts, the government may also consider providing flat deductions (similar to those provided under Sections 80-IA/80-IC of the Act) to all small and medium enterprises (SMEs) and small businesses (depending on turnover)

Salaried employees are the biggest contributors to tax, in India, yet they receive very few tax exemptions, one expert said. “The standard deduction of Rs. 50,000 could be enhanced to around Rs 80,000. This would renter some tax relief, especially to the country’s large middle-class population,” said Udit Kariwala of Vastu Housing Finance.

To this, Pramod Kathuria of EasiLoan added, “To increase the rate of absorption in the market, the government would look to provide tax relief. They can look at possibly revising the tax slabs, or by look at 80C limit increase. The MSMEs and SMEs can also hope for further incentives.” 

8. Disbursement of gold loans regulations

Experts anticipate that the government will take steps to encourage partnerships between banks and gold loan companies to make gold loans available to underserved communities in India. To meet consumer credit demands and business owners' working capital needs, the budget may take steps to ensure adequate liquidity for the organized gold loan segment.