The Common Man's Budget Wishlist

But do not expect the finance minister to fulfil all these wishes

With the Union Budget for the year 2016-17 to be announced february 29, Monday, all eyes are on finance minister Arun Jaitley. The Government typically receives a whole lot of suggestions from the citizens of India at large, that receives wide coverage across media. It has been no different this time with the Indian citizen's expecting a lot from the Narendra Modi-led NDA Government that had promised 'acchhe din' to the people at large.

In fact, that expectations have risen after the Government has urged citizens to give up their LPG subsidy and are now paying a 'Swacch Bharath' cess of 0.5 per cent on all taxable services. Here is a budget wishlist of the common man that he hopes will see fruition.

Increase in exemption limits

Whenever it comes to the expectations from the Budget, the woes of the salaried class come into focus. Given the rising cost of living, the salaried class is expecting that the basic exemption limit be hiked to Rs 3 lakh from the current Rs 2.5 lakh.

There is also a widespread expectation that the Government will add some more saving products and hike the limit of exemption to Rs 2 lakh from Rs 1.5 lakh currently under Section 80C and revise the overall limit to Rs 2 lakh.

Along with this, there is also an expectation that the Government will rationalise HRA (Home Rent Allowance) exemption.

Currently this exemption is calculated as the amount which comes as the least of the rent paid from among these options:

1. Actual rent paid minus 10 per cent of basic salary, where basic salary is calculated as basic plus dearness allowance plus commissions.

2. In case one stays in a metro, HRA is calculated as 50 per cent of basic salary and for non-metros it is calculated as 40 per cent of basic salary.

Cities like Pune, Hyderabad, Bengaluru and Gurgaon have attracted a lot of professionals to migrate to such cities, where rents have gone up considerably. There is therefore an expectation that the FM would extend the rule of 50 per cent of rent to such cities as well.

Deduction of interest on housing loan

A roof over one's head is a necessity for all and sundry. Given the fact that the Government is widely advocating 'housing for all' home owners are expecting that they will receive a 100 per cent deduction on home loan interest. Currently, homeowners are eligible for deduction of only up to Rs 2 lakh under section 80C.

Also for houses that are under construction, this deduction is only Rs 30,000 and that too if the construction of the house is completed after 3 years from the end of the year in which the loan has been availed of.

This provision has caused a lot of heartache to property buyers because there after often delays well beyond 3 years in case of the completion of housing projects. There is therefore a widespread expectation that the Government will allow interest deduction without a cap of Rs 30,000 and will be calculated from the year in which possession is due.

Make NPS more attractive

The National Pension Scheme is widely advocated by the Government. However, it is taxed in a manner that even though there are tax exemptions at the time of making investments, there is taxation when the corpus is encashed along with the returns on the investment. This makes NPS less attractive as compared to other investment avenues that allow for tax free withdrawal. Therefore, in order to make the NPS more attractive, there is an expectation that the FM will make the withdrawal under NPS tax-free to bring it with par with other pension oriented schemes.

Further incentives for start ups

Indian is a nation where entrepreneurship is on the rise and start ups are cropping up nearly every day to cater to needs of a wider target audience. The Government has shown in the recent past that it is keen to improve the ecosystem for start ups.

In January 2016, the Government announced exemption of income tax on the profits made by start ups for the first three years among other benefits. start ups however opine that they do not make profits in the first three years and thus are expecting that this tax holiday be extended to a least of five years during the budgetary announcements.

The Government had also announced a Rs 10,000 crore fund of funds for start ups earlier this year that exempted them from paying capital gains tax if such gains made by them were deployed into this fund of funds scheme.

Experts on the matter however say that a Start Up ecosystem needs to be wider and thus the avenue of the fund of funds scheme should be widened. There is proposal therefore by start ups to be allowed to deploy any capital gains in other investment avenues to allow larger flexibility and avail of tax benefits. There is also an expectation that the Government will remove angel tax that is a crucial means of funding for start ups looking for financial aid.

Overall, the common man expects that he be allowed to live well and provide for his family in the face of rising costs and save for his future. While expectations are aplenty from all sections of the society be it the common man to the industrialist, it will serve us well to remember that the Indian economy is currently in a deflationary phase with earnings stagnating and exports declining.

The largest challenge now is to keep the fiscal deficit under 3.9 per cent of the GDP. In the face of such challenges, it won't be surprising if Budget 2016-17, does not turn out to be a populist one.

Illustration: Uday Kuckian/Rediff.com

The author is a credit expert with 10 years of experience in personal finance and consumer banking industry and another 7 years in credit bureau sector. Rajiv was instrumental in setting up India's first credit bureau, Credit Information Bureau (India) Limited (CIBIL). He has also worked with Citibank, Canara Bank, HDFC Bank, IDBI Bank and Experian in various capacities.