Suggestions (Wishlist) for Union Budget 2023-24

Call me whatever you want for doing this. But like all common people of India, even I have a few wishes from the Budget 2023. I know my ideas may not even reach the right people but still, let me give it a try.

The government has invited ideas and suggestions for the Union Budget 2023-23 (check this link yourself).

I am no expert in things that have an impact on Budget but given that I work with individual investors and handle people’s personal finances via financial planning, it would be great if a few of the suggestions below get implemented –

  • The current basic income tax exemption limit is Rs 2.5 lakh. This needs to be increased. That is, the basic income tax exemption should be increased to Rs 5 lakh. Anyways those earning below Rs 5 lakh don’t have to pay any taxes. So this benefit should be simplified and extended to all by making the basic exemption limit universal for all.
  • The new income tax regime (which did away with all the exemptions and offered lower tax rates) didn’t find too many takers. So to reduce the confusion between the old vs new tax system, there is a need to rethink and if need be, either do away with the new regime altogether. Or go for a further reduction in tax rates in the new regime to make it more attractive and incentivized to encourage adoption. The Budget 2023-24 should urgently address and clear the confusion and dilemma that prevails in the two different regimes for personal income tax
  • Assuming that the old regime stays, it is high time, and I mean it, that it is now high time to increase the Rs 1.5 lakh limit of Section 80C. This was last revised several years ago and a revision is now long overdue. The biggest issue for the middle class in this is that there are several available options within this section (like EPF, PPF, ELSS, insurance premiums, school fees, home loan principal repayment, etc.) and hence, the limit easily gets exhausted for most salaried individuals. Increasing the Section 80C limit to Rs 3-4 lakh can be a good start. Or maybe, it might be better to just link the Section 80C upper limit to an individual’s income level. That way, those who earn higher will have higher 80C limits.

While I have a few more thoughts, let me address what the above 3 changes would have. There have been no new tax exemptions introduced over the last several years. And infect, things like long-term capital gains and dividends (which were earlier tax-free) have also been made taxable. Then GST too has been introduced which impacts the daily consumption basket of everyone irrespective of their tax status. An increase in exemption limit, reduction in overall tax rates and increase in Section 80C limit will result in more disposable income in the hands of the individuals. The revenue loss for the government, to a large extent will be compensated by an increase in indirect tax collection on the higher spending/consumption. Just my amateur thoughts (I am no economist and hence may be wrong at so many levels).

What else?

Here are a few more from the Budget Wishlist –

  • Unless someone is ultra-rich, they need a home loan to buy a house. Already, home loans get quite a few tax benefits riding on them (via Section 80C and Section 24B). But given the increasing average ticket size of house purchases in most mid-to-large cities, a separate deduction (outside Section 80C) for home loan principal repayment of up to Rs 2.5 lakh can be offered. If not for every house purchase, then this can be considered for every individual’s first house purchase.
  • Linked to the above point is that the limit for interest payment via Section 24B should also be increased to Rs 4-5 lakh.
  • This one is a personal as well as the demand of millions. The government should rethink the capital gains taxation on equity. Currently, the long-term capital gains (or LTCG on gains above 1 year holding period) are taxed at 10% without indexation on gains above Rs 1 lakh (read more here). It would be best if the government could consider the removal of the LTCG tax on equity investments if investments are held for 24 months (or 2 years). This will also require redefining holding period-based segregation to 24 months from the current 12 months for deciding whether it’s short-term or long-term.
  • In general, there is an urgent need to rethink the entire capital gains taxation for various assets. There are just too many buckets under the current structure with so many confusing combinations. There is a need to simplify things and reduce the unnecessary compliance burden for everyone.
  • The switch from regular plans to direct plans of mutual funds shouldn’t be considered a sale-purchase transaction and hence, shouldn’t be considered for taxes or exit loads. The intra-scheme switching from growth to dividend (IDCW) plans or vice versa should also be exempted from the definition of sale-purchase.
  • There is a need for universal KYC (know-your-customer) norms and not have different ones for different products and different organizations like banks, AMCs, Insurers, etc.
  • There is a need to have tax parity of ULIPs with Equity Funds. Currently, a 10% tax is payable on capital gains on equity mutual funds. On the other hand, then gains from ULIP are tax-free if the premium paid is below Rs 2.5 lakh. This should be done away with. Either make equity MFs capital gains also Nil or bring ULIPs up to MF levels for taxation purposes. This discrepancy is still leading to a lot of mis-selling in the ULIP space.
  • There is a need to increase the exemption limit of interest income for senior citizens. Under Section 80TTB, this currently stands at Rs 50,000 interest, which is tax-free for senior citizens each year. This in my view should be increased to at least Rs 1-2 lakh for the age group 60-75 and Rs 3-4 lakh for those above 75. This will provide instant relief to those senior citizens and retirees who depend majorly on interest income.

I know some of what I suggested above might not be new and are repeated each year. And to be honest, some of these might be too far-fetched and financially imprudent from the government’s perspective. But anyways, this is just a wish list and I am sure all of them wouldn’t be implemented in a shot. Even if few of them see the light of day then it will be great for the common man.

Note – These are just suggestions and a wish list of things that can be considered. The government operates at another level when the interests of 1.4 billion people have to be managed. So they have to consider hundreds of factors before making any tax changes for the entire population. So it might not easy to implement all or even some of these suggestions. Let’s see what happens in the Budget 2023.

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