As Finance Minister Nirmala Sitharaman and her team start work on the Union Budget 2022, there’s some good news about the economy. After dipping to a multi-year low, the GDP growth rate has bounced back. The Indian economy grew 8.4% in the July-September quarter. According to a survey of analysts, India’s economy is likely to grow at 9.4% this year.
But analysts also point out that this robust growth is aided by the base effect from the year ago, when the economy contracted 7.4%. The recovery, they have cautioned, is fragile and high global commodity prices and domestic coal shortages, could act as a drag.
ET Wealth reached out to financial services companies, investment experts and even common taxpayers for some ideas and suggestions for the coming Budget 2022. The Budget wishlist of taxpayers, investors and even the financial services industry has not changed much in the past few years. Taxpayers want lower taxes, investors want more reforms and the industry wants more tax deductions for the services it offers. However, meeting these expectations will be difficult for a government struggling to bring the economy back on track.
Government finances have deteriorated due to the disruption caused by covid and tax cuts will only make things worse. If anything, taxpayers should brace for higher taxes in the coming budget. Last year’s budget removed the tax exemption to interest earned by contributions of more than Rs 2.5 lakh a year to the Provident Fund. It also brought Ulips with a premium of more than Rs 2.5 lakh a year into the tax net. Taxpayers should get ready for more such measures, instead of expecting tax breaks.
At the same time, some relief measures are sorely needed. For instance, the outbreak of covid made everyone realise the utility of health insurance. However, the high GST rate on health insurance pushes up the premium. “The 18% GST on health insurance premiums raises the total cost of insurance which becomes a deterrent for sufficient coverage. The GST rate should be reduced from 18% to 5%,” says Tapan Singhel, MD & CEO, Bajaj Allianz General Insurance. This will put pressure on government finances. The annual health insurance premium is close to Rs 60,000 crore and cutting GST from 18% to 5% would burn a Rs 7,800 crore hole in government coffers. Even so, it is a measure the government should seriously consider.
Some other ideas can bring relief without affecting tax collections. Falling interest rates have hurt fixed income investors but retirees and senior citizens are the worst hit. The investment limit of the Senior Citizens’ Savings Scheme remains fixed at Rs 15 lakh. At the prevailing rate of interest, this means a retiree can get a maximum pension of Rs 27,750 per quarter. Similarly, the Pradhan Mantri Vaya Vandana Yojana (PMVVY) also has a Rs lakh limit per …….