With Budget day approaching, we individual tax payers wish the Union Finance Minister to fulfill some of our wishes. Let us discuss what I as a common man expect from the Finance Minister.
Revision in the monetary limit of deduction available under Section 80C, 80CCC and 80CCD
At present, as per Section 80 CCE, the deductions available under Section 80C, 80CCC and 80 CCD(1) put together are capped at Rs1.50 lakh per year. This limit of Rs1.50 lakh was revised from Rs1 lakh in 2014. The earlier limit of Rs1 lakh was fixed way back in 2003. It has been almost 18 years when the original limit of Rs1 lakh was fixed. It has only been increased by 50 per cent in 2014 which works out to just less than three per cent annually. This annual average increase is not even on par with average inflation during the same period. In my opinion this should be directly raised minimum to Rs2.50 lakhs.
Tax provisions on NPS withdrawals
The present tax law exempts only upto 60 per cent of withdrawals from NPS account at the time of closure of the account. For the balance, the NPS subscriber is required to purchase annuity. I would like to point out that the annuity becomes taxable as and when received. Put simply, effectively only 60 per cent of the corpus is tax-free and the balance becomes taxable if not immediately then in future.
In contrast to the NPS withdrawals, the accumulated balance in Employee Provident Fund (EPF), comes fully tax free at the time or retirement. If the government can’t make the EPF balance on retirement taxable to the extent of 40 per cent of the accumulated corpus like NPS, which the government had attempted a few years back, the government should at least attempt to bring in parity by working other way round and make the entire accumulated balance in NPS at the time of withdrawal tax free. The Government should do away with requirement to buy annuity with 40 per cent of the corpus and leave the decision with the subscriber where to invest the money.
Rationalisation of interest deduction for self-occupied property
The tax laws allow you benefit of interest on money borrowed for purchase, construction, repairs renovation of any house property. However, the amount of such claim is restricted to Rs2 lakh in aggregate case of upto total of two self-occupied houses. In respect of a let out property, there is no such restriction and full interest is allowable as deduction though there is restriction on set off of the loss under the head ‘Income from house property’ against other sources of income to the extent of Rs2 lakhs in current year. The balance unabsorbed loss is allowed to be carried forward for set off against losses under the head house property in subsequent eight years. Rationally tax benefits for full interest should be made available to the genuine home buyers who need the house for their own residence and not for the people who use the same as investment and do tax arbitrage.
In case of loan for an under construction house where the construction is delayed beyond a period of five years, the interest deduction gets reduced to Rs30,000 for no fault of the tax payers. This unjust provision of reduced deduction should also be removed altogether from the statute book to grant relief to the home buyers who are any way victim of the delaying tactics of the developers.
Separate limit or Principal repayment
As per present provisions of Section 80 C of the Income-Tax Act, you are allowed to claim a deduction of up to Rs1.5 lakhs from your taxable income, for the repayment of the principal amount of a housing loan taken for a residential house.
This deduction is available along with other eligible items of expenditure, such as life insurance premium, tuition fees, contribution to Provident Fund (PF) and Public Provident Fund (PPF) and EPF, investments in ELSS, National Saving Certificates (NSC), tax saving bank FDs, etc. This also covers any amount paid for buying an annuity under Section 80 CCC and any contribution made towards the National Pension Scheme under Section 80 CCD(1).
Over the years, the amount of housing loan that is needed to buy a property has gone up significantly due to significant increase in the prices to residential houses. So the principal repayment on a housing loan itself generally exceeds the limit of Rs1.5 lakhs set under Section 80CCE leaving other items getting crowded out. In view of the overcrowding of Section 80 C, 80CCC and 80CCD(1) and need for larger home loans, the Finance Minister should provide a separate deduction for repayment of home loans, in the ensuing budget. A leaf can be taken from Section 80EEA, under which a separate deduction was introduced in 2019, for interest on home loans for first-time home buyers.
The writer is a tax and investment expert and can be reached on email@example.com