Is there an investment opportunity in PSP Projects shares?

Expectations are mixed from the upcoming Budget. Even as Finance Minister Nirmala Sitharaman has promised a never-before-like Budget, experts are not expecting many big-ticket reforms as far as personal finance and taxation are concerned.

However, for the sake of a good omen, we would expect to make capital gains tax rates (Long Term & Short Term) uniform across all asset classes. This will allow rationalisation of Asset Allocation Process by removing tax arbitrage between asset classes.

Also there should be some Formula to link the basic exemption with some objective criteria (inflation, per capita GDP, House Price Index, education and healthcare expense per household as per latest NSSO survey, etc.)

This will make the taxation structure more equitable and end the need to speculate over exemption limits before every budget.

And not the least, the government should refrain from imposing additional taxes and cess to cover the cost of Covid vaccination and stimulus.

Senior citizens expecting relief
Interest rates have been sliding downwards for the last few years and have impacted regular income needs of investors, especially the retired. Inflation is not likely to go away and will increase the cost of living.

With rising medical costs and after paying high premium for health and life insurance, the imposition of tax on the annuity income of senior citizens is leaving them with limited funds to meet their household needs.

Senior citizens are expecting some income tax relief or enhancement in existing tax incentives to help meet their household expenses. The amount of pension received is added to one’s income and is taxed as per the income tax slab.

In the case of senior citizens between 60 and 80 years, income up to Rs 3 lacs is tax exempt. While for those who are above 80 years, income up to Rs 5 lacs is exempted from tax.

A case for tax-free pension
One big relief for the senior citizens would be making pension tax-free in the year of receipt.

When all through their earning period spanning over 2-3 decades, they have paid tax on their income, it is fair that their annuity income gets relief from taxation during the retired years. Annuity or regular pension is received from several schemes such as Immediate Annuity Scheme, NPS, Pradhan Mantri Vyay Vandna Yojna (PMVVY) or even the pension received after superannuation.

NPS is a popular investment option to save for retirement. While the commuted portion at age 60 is tax-exempt, the monthly annuity received thereafter is taxable in the hands of investors.

Even interest received from the Senior Citizens Savings Scheme is taxable which senior citizens want to be made tax-exempt.

The government may also introduce a new tax-free pension scheme for senior citizens.

Introducing a tax-free annuity scheme will help the retired enjoy their annuity stream without worrying about taxation.

The government may also provide a cut-off limit up to which the pension received from existing schemes could be tax-exempt.

(The writer is Managing Director, Midas FinServe. Views expressed are personal)