RBI Issues Circular On Levying Unfair Interest Charges On Customers

The Budget is like Christmas and the finance minister the Santa Claus, and every person expecting that the Santa will fill their stockings with their wishes.

This year has been a tough for everyone– government as well individuals. The government is fighting to get back growth, improve fiscal health, raise money to fund long term infrastructural growth and create employment.

The public faced job losses, pay-cuts, and a year with no increments. Businesses — big and small — suffered huge losses. It is impossible to repair the personal loss but the budget can use the tax relief balm to ease the financial pain.

Facts that matter

New Wage Code – The proposed new wage code increases basic salary level to 50% of gross salary. This will lead to higher PF deductions and lower disposable income in the hands of individuals.

80C Limit – It was last revised to 1.50 Lacs in 2014, has not kept pace with inflation and needs decluttering.

Goals – Buying a house, buying a car, funding children’s education and travel are the important & common goals of all Individuals.

Government objective

Tax-relief that serves multiple purpose – leave higher disposal in the hands of individual to fuel consumption led growth and encourage long-term savings to fund long-term infrastructural growth.

What’s the Budget expectations?

The government needs to walk a tight rope of providing tax relief and yet managing to control fiscal situations prudently; has limited room to give-aways too much.

Home and car

Home and car are the two cherished big purchases that an individual makes. Increasing the rebate on interest paid on home loan from Rs 2 lakh to Rs 3 lakh will provide a big boost to the ailing real estate industry. With interest rate at such low levels, it increases people’s propensity to buy. Going with the same logic, the government can also offer additional tax rebate of say Rs 50,000 towards interest paid on car purchases. Increased capital consumption will boost three big Industries – (i.e. – real estate, automobiles, general Insurance and retail lending industries). The GST imposed will help offset the tax rebate.

Enhance 80 C: My thoughts are not limited to increasing the 80C limits to a minimum of Rs 3 Lacs, it must be decluttered and few more items added to enhance to 80C deduction. These enhancements will help encourage targeted benefit to few industries, increasing experiences, employability, getting many more small businesses/ individuals under the tax net.

1. In addition to including principal repayment of home loans; It should also include principal repayments towards car loan.

2. Amount spent towards children’s education and self as well. The definition of tuition fees can be expanded by adding private tuition fees, thereby also getting many private tutors under the tax fold.

3. Covid has hit the domestic airlines, rail & hospitality industry hard. Including holiday spent towards travel & hotel stay will give a boost to both these Industries.

4. The pandemic scared humanity; life is more precious and it must be well ring-fenced for own and family’s security. Given that India does not have social security system, premium paid towards Term Insurance and National Pension Schemes must be beyond the 80C limit. In many cases the 80C limit gets fulfilled with EPF and Principal repayments towards Home. This will send a clear message encouraging people o take advantage of these very important aspects of life.

5. Finally, the 80C includes a lot of sub-section 80CCC, 80CCD (1), (1B), (2).

In many ways, these enhanced limited directs people’s consumption habit to boost the economy and partially fund the loss to the exchequer because of these rebates.