2021 Budget Roadmap: Need for more choice of tax-saving investment options

Union Budget 2021 India: The 2021 budget is expected to announce measures to improve access to credit and improve financial well-being by offering a greater choice of investment instruments to save taxes.

Indian Union Budget 2021-22: The disruption caused by the Covid-19 pandemic has resulted in an unprecedented drop in economic activity, credit demand and overall financial well-being. Therefore, the 2021 budget is expected to announce measures to improve access to credit and improve financial well-being by offering a greater choice of investment instruments that save taxes.

Extend the benefits of section 80EEA
The 2019 budget introduced an additional tax deduction of up to Rs 1.5 lakh under section 80EEA due to the interest paid by first-time buyers for the purchase of houses with stamp duty value going up to Rs 45 lakh. This deduction is in addition to the deduction of Rs 2 lakh available under section 24b. While the 2020 budget had extended Article 80EEA to mortgage loans sanctioned during the 2019-2020 fiscal year, it should be extended until the next fiscal year and preferably made a permanent element to stimulate demand in the housing segment. affordable housing. In addition, the upper cap of Rs 45 lakh should be increased to Rs 75 lakh to expand the coverage of the 80EEA section, especially in the subways.

Tax parity between equity funds
The imposition of a 10% tax on long-term capital gains from stocks exceeding Rs 1 lakh in a financial year has put mutual funds at a disadvantage over equity-based schemes offered through ULIP and NPS. The budget should correct this anomaly by removing the LTCG tax on all equity-based mutual funds or at least tax-saving mutual funds (ELSS).

Likewise, the move of transactions from regular plans to direct plans or from a dividend option to a growth option within the same mutual fund system are considered to be sales transactions and, therefore, are subject to capital gains taxes. The budget should make the necessary changes to the Income Tax Act so that intra-plan transfers into mutual funds are not considered sales transactions, as is the case with ULIPs.

Extend the benefits of section 80CCD (1B)
While investments in mutual fund pension plans, notified by the government as pension plan and pension insurance plans, are eligible for tax deduction under section 80C, NPS investors have entitled to an additional deduction of Rs 50,000 under section 80CCD (1B), which is beyond the deduction of Rs 1.5 lakh available for NPS investments under section 80C. The 2021 budget is expected to extend Article 80CCD (1B) benefits to insurance pension schemes and notified pension schemes of mutual funds in order to improve consumer choice in the pension segment and to create a level playing field for all types of pension plans.

Extend the NPS Tier-II Taxsaver Scheme option to all
Budget 2020 introduced the NPS Tier-II tax saving scheme for central government employees. It comes with a blocking period of only three years. The asset allocation ratio for this system has been set at 10-25% for equities and the rest in debt securities. This year’s budget is expected to extend this option to the self-employed as well as state government and private sector employees so that they can benefit from the low-cost investment offered by the NPS and benefit from the section deduction. 80C through debt-focused investments, especially during overvalued markets. , with a blocking period of only three years.

The writer is CEO and Co-Founder, Paisabazaar.com

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Dorothy H. Lewis