While there is growing expectation that the upcoming Budget 2022 may bring some financial respite, especially with the third wave of the pandemic creating further uncertainty and the fresh set of restrictions hitting incomes, how much difference will it really make?
“The rapid fall in savings rate among Indians is a cause of concern and the government has the right tools in its kit to give the savings rate a push. Increasing the basic deductions and investment limits under various sections of the Income-tax Act can promote savings and investments towards long-term goals at the same time,” says Vivek S.G., a Sebi-registered investment advisor (Sebi RIA), associated with Wealth Crafts, a financial planning firm.
Relief on insurance: After the outbreak of Covid, more and more people realised the importance of insurance and bought policies. People are now expecting the Budget 2022 to reduce GST levied on the policies.
“Health insurance needs to be slotted in the 5 per cent GST tax slab to make it more affordable to access quality healthcare. A significant reduction in the GST on all personal lines of products—from the existing 18 per cent to 5 per cent will encourage more people to buy health insurance,” says Anup Rau, managing director and CEO, Future Generali India Insurance.
Revision of tax slabs: Experts believe that the only realm of personal finance that sees a slight impact is taxation. “While the government has reduced corporate taxes and successfully attracted companies to invest in India, the common Indian has not seen any real change in income tax slabs. By increasing the base limit for taxes and simultaneously reducing the maximum tax slab, the government can boost savings, consumption and, hence, the economy,” says Vivek.
However, in the past few years, Union Budgets have hardly brought about any relief to individuals, especially salaried. “People expect the budget to reduce their tax liability, help them in getting more surplus in hand etc. But over the last so many years, I realised that a budget is a non-event as far as people’s personal finances are concerned,” says Melvin Joseph, a Sebi RIA.
When standard deduction was introduced in Budget 2018, people thought it could help in the long-term. “It put more money in the hands of individuals but has not been significantly raised. While businesses and freelancers get ample opportunity to show costs associated with their operations and get some relief, the salaried are left with nothing,” adds Vivek.
How far will lowering of tax slabs or reduction of GST on insurance premiums will help reduce inflation is not very clear. If inflation continues to bite investors, savings rate may not go up as much as people are hoping for.
“Even if there is a reduction in the tax rate, it won’t be sufficient to offset even the inflation. A country like India cannot change the tax structure every year because uniform tax structure is good for the economy and the country,” adds Joseph.
