With Budget 2018 being the last full Budget before the general elections in 2019, expect Minister of Finance Arun Jaitley to announce a slew of sops and major relief to taxpayers.
Here are a few banking, finance and insurance industries are hoping for:
1) Exclusive tax exemption on term insurance: Currently, section 80C allows for a maximum exemption of Rs 1.5 lakh for premium paid towards a life cover. The industry believes that term insurance is a better option as it provides adequate cover at much lower premiums. We expect that the Budget 2018 will provide for an exclusive tax exemption of up to Rs. 20,000 for premiums paid towards a term insurance in addition to the current 1.5 lakh available for life.
2) Revised GST for insurance: As a result of GST, the price of insurance has gone up by anywhere between 3 percent to 18 percent. The insurance industry has suggested that the term insurance be treated as an essential and not be taxed under GST. It is currently in the 18 percent bracket and we expect it to move to a lower bracket at least. This is important as only 8 percent of India’s population, according to report released by PolicyBaazar.com, is covered by any insurance at all - health, life or ULIP, and pure life insurance penetration is abysmal. We, as an industry, have been pushing for term insurance to be made mandatory for all citizens in a phased manner to make social security net be available to all. GST exemption will be a step in the right direction.
3) Increased and deferential exemption under 80D: According to the statement released by NATHEALTH in the lead up to the Budget, only 4 percent of India’s population has health coverage, and most of it is inadequate to deal with the rapidly escalating medical costs. The low penetration of health insurance results in 86 percent of the healthcare spending being out of pocket and, as per a 2011 paper published by TISS, India, one-sixth of India’s poverty resulting from those unavoidable out-of-pocket expenses. We expect the government to increase the tax exemption limit under section 80D to allow for higher premiums required for adequate coverage today. Further, with the percentage of ageing population on the rise across significant regions of the country, the government has to provide additional help to the senior citizens. In this regard, we expect that the Budget would include increased exemption for senior citizens who are themselves the proposers for health insurance.
4) Increased subsidies on housing loan: Recently the government had announced interest rate subsidy for middle income households on home loan. At present, it stands at 4 percent for households earning Rs 8 lakh to Rs 12 lakh on a loan of upto Rs 9 lakh, and 3 percent for Rs 12 lakh to Rs 18 lakh on a loan of upto Rs 12 lakh. We expect that these limits to be increased across the board to make housing more affordable despite the rising inflation.
5) Higher TDS limit on bank interest: The current limit for deducting tax at the source on bank interest is set at Rs 10,000. This limit was set way back in 1997. We expect this to be revised in the Budget 2018 as this is long due and will effectively ensure more interests for bank customers.
6) Promote UPI: With smartphone penetration already high and increasing across the nation, a switch from the current POS systems to UPI will be effective for all parties involved. We hope that the government will find ways to promote UPI aggressively. At present, the adoption has been low and the government will also have to apportion some funds for the development of the software backbone to handle increased transactions. UPI is not only scalable but also easier to maintain than the current POS.
7) Push for e-KYC: Given the government's commitment to go paperless, we expect a greater push for e-KYC and e-Sign across the board. This will not only simplify processes and documentation across industries but will also have cost benefits for all parties involved. This would also have far-reaching consequences for financial inclusion allowing the bankers and insurers reach out to the vast majority of Indians who remain excluded from access to loans, insurance and mutual funds for one or the other reason.
8) Change taxation on FD: Most Indians prefer to invest in fixed deposits because they are considered safe investments vis-a-vis other instruments. But these do not perform well from a post-tax returns perspective. For someone who is in the 30 percent tax bracket, a 7 percent tax bracket earns under 5 percent interest. We hope that the Minister of Finance would bring the taxation on FD on par with mutual funds. That is, they will only be taxed on redemption and the interest will be treated as long term capital gains if the redemption is at least three years after the purchase. This will significantly reduce the tax outlay for the investor.
(The writer is Chief Underwriting Officer, Bharti AXA General Insurance)
Updated Date: Jan 31, 2018 23:07 PM