For long, fixed deposits were held close to heart by generations of Indian investors. In fact, chances are that plenty of Indians still think of FDs as the go-to investment option when looking for a safe and predictable way of investing. On Fixed Deposits
This has however changed in recent years. Banks have been slashing down interest rates year on year, and the government's five-year lock-in on FDs haven't helped either.
Smarter, savvier investors have been shifting their investments into mutual funds, equity, and lately, even crypto. To make FDs a viable, if not favourable investment option, the government could consider reducing the lock-in period under section 80C to three years from five years.
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A closer look at tax slabs
At the very top of the income tax slabs, the 30% slab doesn't seem abnormally high when compared to that of other countries. The government recognises anyone earning up to Rs 8 lakh per annum as hailing from an economically weaker section.
While this does make sense, given today's cost of living, what doesn't add up is that the minimum tax slab starts too early. Picture someone earning Rs 2.5 lakh per annum having an annual tax liability of Rs 12,500. It makes for a big chunk of their income.
Redefine capital gains
There's a disparity between the definitions of short term and long-term capital gains across different types of funds. Anything over a year in an equity mutual fund is considered as long-term capital gain, while in debt funds, it's three years. Uniformity in the holding period for the capital assets will help simplify investing for Indians. And the tax rate should be the same for all forms of capital assets.
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Higher education could use lower taxation
Since the pandemic, more of us have been setting aside a portion of our income for education. But there's no deduction or exemption on this category of savings. Take for example the Sukanya Samriddhi Yojana scheme which caters specifically to the girl child's education and future. Even here, the tax deductions are not substantial and are clubbed within the 80C limit of Rs 1.5 lakh.
Some tax relief in this area could make a big difference
One way to go about this would be to have a separate deduction for education savings. Institutions can be exempt from GST charges on auxiliary services like rent, food contract, housekeeping, security, transport services etc. These benefits will then be passed on to reduce the fees, thus making higher education more accessible.
Real Estate's helping hand
The real estate sector persevered through the pandemic and has now risen from its proverbial ashes. While it's on its way back up, it could use a shot in the arm from the budget.
An increased tax rebate on home loan interests from the current Rs 2 lakh to about Rs 5 lakh could give the sector a much-needed boost to get back to pre-pandemic levels. Housing loan interest rates currently stand at 6.5 to 7%.
Those looking for a loan for over Rs 30 lakh cannot claim deductions over the interest paid on this loan, since it is capped at Rs 2 lakh.
It wouldn't hurt either to revisit some sections of the Income Tax Act or update them to reflect today's circumstances. Section 80C of the Income Tax Act, 1961 can be amended to give buyers more time to repay their home loans.
The definition of 'affordable housing' also needs to be changed across cities. Especially since there have been many benefits outlined for the affordable housing segment. Standardising prices for 'affordable housing' alone doesn't work. Property prices in Mumbai, for instance, are nearly three times that of prices in other cities.
(The author is Co-Founder, Fi Neo-Bank.)