Revamp RGESS, Extend Tax Benefits to All

We are coming to that time of the year when we look up to the government to change our life for the better! It's our fond hope that the finance minister will wave the magic wand and pull out a couple of rabbits from the hat. Our expectations should not be too high on this front given the fact that there has been limited relief emanating out of these budgets, in the past. This time, the going is expected to be no different. Let's temper down the expectations a bit and look at what we could realistically expect from the finance minister.

One of the things that the common man is looking for is relief from taxes in some form. Hence, the clamour is for higher exemption limits. This time around there could be an increase in the basic exemption limit by Rs 25,000- Rs.50,000 for regular citizens and a similar amount of hike for senior citizens. There is a case for having a senior citizen tax exemption structure starting at age 60, 70 and 80. For 60 and above the exemption is currently at Rs 3 lakh. For 80 and above (super senior citizen category), it is Rs 5 lakh. One can look at Rs 4 lakh exemption for those above age 70.

Most probably, the overall tax structure will not change as the current tax slabs are broadly accepted to be moderate. Also, at some future point, Direct Tax Code may make its appearance again, when another overhaul is expected. The surcharge of 10 per cent for those earning above Rs.1 crore is expected to stay.

The other item to focus on is regarding deductions. Section 80C currently offers deductions up to Rs.1.5 lakh on a variety of investments like PPF, NSC, ELSS, Insurance premium, principal component of home loan etc. There is a case for increasing this limit. But this may not happen. Instead, Rajiv Gandhi Equity Savings Scheme (RGESS) should be made available to everyone instead of just first timers and the tax deduction is expected to be up to 100 per cent (instead of 50 per cent at present). There is a Rs.50,000 deduction available if one invests in NPS under Section 80CCD, over and above the deduction under Section 80C. There could be such other new categories coming in where one may invest in insurance, for instance. But this is leading to a proliferation of different buckets in which to invest. It would be much better to allow one to invest in any of these, under one overall limit. But this may not come to pass.

No change is expected in deductions available under Section 80D as the current Rs.25,000 deduction available, for the family itself is good enough. There are no changes expected in other sections like 80E for educational loan, Section 80DD and Section 80U which offer deductions for people with disabilities.

There could be small changes like those in last budget in respect of the transport exemption hike from Rs 800 per month to Rs 1,600 per month.

There could be some big bang schemes which could address the needs of the economically weaker sections of the population. In the past Jan Dhan Yojana, Pradhan Mantri Jeevan Jyoti Bima Yojana and Atal Pension Yojana had been announced in the Budget. That pattern may be expected to continue this year as well.

There have been schemes like Sukanya Samriddhi Scheme which was introduced outside of the budget. Hence, budget may not be the only platform for announcing new schemes. Even the latest changes in interest rate and credit spread announced in various small savings schemes like term deposits and PPF happened before the budget.

There could be many Trojan horses which could nullify the effect of any tax breaks that one may get. That could come in the form of enhanced service tax in a bid to slowly take it up to the levels expected after implementation of the goods & services tax (GST). Hence, this may go up to 16-18 per cent. Similarly, excise and customs duties may be adjusted upwards on various items, some of which will bite the common man. This we have been seeing, budget after budget.

Come end of the month and we will actually know what googlies are in store for us in reality!

(Suresh Sadagopan is founder of Ladder7 Financial Advisories)

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