Over the years the interim vote on account Budgets have been lacklustre with minimal tinkering with taxes, and without any major policy announcements.
However, this trend could well possibly be changed by the Modi government, thereby exhibiting their purpose of continued development. There are a few things which could be looked into which may have a bearing on the common man.
Infra bonds
Infrastructure development has been key in the last few years. During the 2023 Budget, the government increased the outlay for infrastructure by 33 per cent to ₹10-lakh crore, 3.3 per cent of GDP. Given the multiplier effect, maintaining the momentum is crucial.
Interestingly, however despite the optimism, data shows that as in end March 2023, the deployment of bank credit to infrastructure has been the lowest in last five years. Hopefully the continued focus on infrastructure, will help the sector to enhance its share by at least 1 per cent in March 2024 over the previous year if not more.
Further as in November 2023 the share of bank credit to infrastructure stood at 35.5 per cent of total bank credit to industry, which was lower than the corresponding period in 2022 when it was 37.1 per cent. This difference hopefully would be covered by end of the financial year. Within the infrastructure sector, the power sector garnered the highest share of bank credit (49.4 per cent, followed by roads (23.9 per cent), as in November 2023.
Bank credit to segments like ports, airports and railways has been consistently less than 1 per cent of the total – with India’s focus towards increasing exports and connectivity, these segments require focussed attention.
Currently, infrastructure bonds are eligible for immunity under Section 80CCF, which gives an exemption of ₹20,000 to the investors in the year during which the money is invested in the bonds and is over and above the ₹1,50,000 exemption limit that Section 80C offers.
While the exemption is only for the contribution, and the interest component continues to be taxable, the government may consider excluding the latter too, which are beyond 10 years. This may be a welcome step for the salaried class giving them better returns, especially amidst uncertainties.
Housing tax incentive
Secondly, and as corollary to the above is supporting the residential housing sector by enhancing the tax benefits accruing from home loans, given that India’s per capita income is likely to increase from $2,450.
In fact, the share of housing loans in overall personal loans has remained quite robust and averaged around 47 per cent during March 2022 to March 2023. At the same the share of housing loans as a share of the overall deployment of bank credit increased from 14.5 per cent in FY 2022 and FY 2023 to 16.5 per cent in November 2023.
Currently, the repayment of the principal amount of a home loan is eligible for a deduction of up to ₹1.5 lakh per annum under Section 80C.
On the other hand, the interest paid on the home loan for the year can be claimed as a deduction from the total income up to a maximum of ₹2 lakh under Section 24 (b).
These limits have not been increased for quite some time, while investments into residential flats have seen an increase and so has their valuations.
An increase in Section 80C up to ₹3 lakh and under Section 24 (b) to ₹4 lakh will encourage the housing sector and enhance the related ones.
The government may also look at providing some incentives for NRIs towards investing in fresh housing projects in India, which will further help the related companies in housing infrastructure.
Healthcare support
While there has been an increase in life expectancy in India to 70.2 years as in 2023, there has also been surge in medical expenses as well, with some increase post the pandemic.
Given the same, the deduction limit under Section 80D for medical insurance premiums may be increased from ₹25,000 to ₹50,000 for individuals, and ₹50,000 to ₹75,000 for senior citizens.
Alternatively, the government can include 10 per cent concessions in all the hospitals in the country, including private, for senior citizens as part of the consultancy fees charged by the doctors, upon showing the Aadhaar card.
Child education
Launched in 2015 for girl child the Sukanya Samriddhi Yojana has been a success. It offers an attractive interest rate which is higher than PPF and is fully exempted from tax under section 80C. The Tamil Nadu government in 2015 introduced only for its permanent residents the Ponmagan Podhuvaippu Nidhi scheme. This social welfare scheme has been curated to provide educational aid to the male students in the State.
India today is not only having the largest population in the world, but also is home to the largest number of illiterate people with over 25 per cent of the population still uneducated.
So taking a holistic view, the government may like to explore and widen the scope of the Sukanya Samriddhi Yojana by including boy child as well through a similar scheme.
(The writer is Economist with Exim Bank. Views expressed are personal)