With EMIs on loans rising, experts say that the upcoming union budget 2023 may bring some respite and more sops to loan borrowers and taxpayers.
In theory, the pandemic is now over. But it appears that a new COVID wave in India cannot be ruled out given the virus’s resurgence in neighboring China. Covid’s return would have undoubtedly complicated the situation for the Narendra Modi administration, which is preparing to deliver the Union Budget on February 1.
For two years in a row, in 2020 and 2021, household budgets were destroyed by COVID-related job losses and income reductions. The high inflation rate since then has put additional strain on the average person’s budget. Their purchasing power is being further diminished by rising fuel and service expenses.
Union Budget 2023 Despite increases in loan interest rates, credit demand has increased significantly. Wish lists are flooding in for Finance Minister Nirmala Sitharaman as the Union Budget 2023 approaches. According to experts, the FM may think about including measures in the Budget to help both borrowers and lenders.
Since the Indian Central Bank began raising interest rates in order to control inflation, loan borrowers have been suffering from rising interest rates all year long. Between April and December, the Reserve Bank of India (RBI) raised repo rates by 225 basis points, and future increases are possible.
It differs from its predecessors in that the Union Budget 2023 is the final full-year budget of the BJP-led administration. There are therefore anticipation that the Center will provide the people with something significant. According to some experts, this year’s budget may also result in adjustments to the existing income tax slabs.
There is definitely a basis for providing some relief to homes. Here are several instances when that might be possible.
some cheer for taxpayers in union budget 2023-
1. Income tax slabs-
The highest income tax rate in India is 30%, which is applicable to incomes between Rs 10 lakh (under the previous regime) and Rs 15 lakh (new regime). For revenue surpassing Rs 5 crore, it can reach 42.77 percent after combining the cess and surcharge. This is far higher than in other nations; the highest tax rates, for example, are 17% in Hong Kong, 22% in Singapore, and 30% in Malaysia. Numerous people contend that the government should raise the maximum income subject to the highest tax rate from the current Rs. 20 lakh to approximately Rs. 35 lakh.
2. New tax regime
The “exemptions-free tax regime” was made optional in the Union Budget 2020. With the new system, the government attempted to make tax filing simpler by eliminating over 70 different types of exemptions and deductions, including, among others, the Standard Deduction and deductions for housing rent allowance, leave travel allowance, and housing loan interest.
Few people, it is said, have migrated to the new system. Therefore, experts have urged the government to change the new system to make it more appealing.
3. financial savings
The well-liked Section 80C restriction has also not been updated in a long time. Despite expenses like education and home loan principal repayments that are not savings-related, Section 80 C only allows for a deduction of Rs 1.5 lakh. There is a basis for raising the Section 80C limit because the savings rate fell to a 19-year low of 26.2% of GDP in the first half of 2022–2023.
4. Interest Rebate on Home Loans
The real estate sector is requesting that the government increase the present interest refund on home loans from Rs 1.5 lakh due to the increase in mortgage rates. Home loan interest rates have increased by about 2% over the past seven months, driving up EMIs (Equated Monthly Instalments) and placing a tremendous strain on household finances.
Despite the fact that the average house price has climbed by a multiple over the years, the refund hasn’t changed in a long time.
5. Standard Deduction
The standard deduction, which included the travel allowance and the medical expense reimbursement, was brought back by the government. In FY19, the government provided a deduction of Rs 40,000; this was increased to Rs 50,000 the following year.
Finance Minister Nirmala Sitharaman has the option of raising the standard deduction cap to further relieve the burden on the average person in light of recent increases in fuel prices, the cost of prescription drugs, and rising expenses related to working from home.
6. Health insurance deductions
Taxpayers who purchase health insurance are eligible for a rebate of Rs 25,000 under Section 80D of the Income Tax Act. However, since the Covid GST on insurance was implemented, premiums have skyrocketed. The penetration of health insurance might be raised even further with a tax cut and an increase in the Section 80D refund.
7. ESOP criteria be eased
To address the dual taxation issue and lessen the financial burden that Employee Stock Ownership Plans (ESOPs) place on employees, substantial tax reliefs were offered to start-up employees in the previous budget. Only a very small number of emerging Indian enterprises could benefit from this positive move because of the strict qualification requirements that are set forth. The business community therefore recommends that the government expand the list of young businesses that qualify for this advantage,” said Rohit Garg, CEO and Co-Founder of SmartCoin, a digital platform that handles consumer credit needs.
8. Better sops for homebuyers
The government is expected to offer further incentives to build rental and affordable homes, as well as increase the housing tax credit from Rs. 2 lakh to at least Rs. 5 lakh. Real estate agents anticipate a minor reduction in the Goods and Services Tax (GST) on construction supplies, including steel and cement. “By reducing developer input costs and, consequently, the overall cost of construction, this may indirectly assist the real estate sector.” Developers will benefit from a reduction in GST rates because raw material prices are generally rising.
To assist potential home loan borrowers, LoanTap Chief Financial Officer Ashish Jain stated that the government must reopen the credit-linked interest subsidy programme under the Pradhan Mantri Avas Yojna that was previously closed.
9. Relief for borrowers of personal and student loans
Personal loans and student loans make up 35% of the total credit basket but do not have the same tax advantages as a mortgage. “Under this budget, we anticipate that interest paid on personal loans and student loans will be excluded from taxes. Additionally, repayment of student loan debt is permitted to count toward the Section 80 C exemption limit, according to Jain of LoanTap.
10. Benefits of taxes on retirement plans
The finance ministry must think about compensating loan borrowers in the event that there are no tax benefits for them by enacting tax benefits on retirement plans. Insiders have faith that their wishes will be granted. According to Mahesh Shukla, Founder & CEO of PayMe, a digital lending firm, “the finance minister may offer certain tax incentives for retirement plans in mutual funds under section 80C and may also simplify or alter section 68 to promote hassle-free borrowing in the country.”
11. Several guidelines for different lenders
Experts hope the rate increases won’t put more strain on loan debtors. A thorough explanation of the nature of the lender, including banks and NBFCs, has to be added to Section 68, according to Rachit Chawla, CEO & Founder of Finway FSC, a digital lending platform.
12. Greater emphasis on the co-lending model
The industry wants indirect benefits for the fintech sector, such as greater ease of doing business, while looking at direct benefits for personal loan borrowers in the form of tax incentives. Experts said that this would guarantee that fintech/lenders pass on the benefits to end customers.
Measures that ease the terms of the co-lending model, such as certain adjustments and liberalisation to the current “first loan default guarantee” (FLDG) model, which is being examined with the Reserve Bank of India, could be included in the budget (RBI)
A fintech/sourcing firm and a regulated institution (RE), such as a bank or non-banking financing company, enter into an agreement known as FLDG, whereby the fintech/sourcing company is required to make up for any defaults by borrowers. However, analysts contend that there should be parity between online and offline lenders.
13. Increasing the standard deduction threshold
According to analysts, the government may also take into consideration offering flat deductions to all small and medium-sized enterprises (SMEs) and small firms (similar to those given under Sections 80-IA/80-IC of the Act) (depending on turnover)
In India, salaried workers make up the majority of tax payers but only get a small number of tax breaks, according to one expert. “The 50,000 rupee standard deduction might be increased to almost 80,000 rupees. According to Udit Kariwala of Vastu Housing Finance, this would provide some tax relief, particularly to the nation’s sizable middle-class population.
The government would aim to provide tax assistance to boost the pace of absorption in the market. They could consider changing the tax slabs or raising the 80C maximum. Additionally, MSMEs and SMEs might hope for more incentives.
14. Regulations for the disbursement of gold loans
According to experts, the government would take action to promote collaborations between banks and gold loan providers so that underprivileged people in India can get gold loans. The budget may take action to maintain sufficient liquidity for the organised gold loan segment in order to meet consumer credit requests and business owners’ working capital needs.
What might taxpayers anticipate from the Budget 2023?
According to Deloitte India, the central government can adjust a few things about the former income tax system’s tax slabs and raise the threshold for higher-tax income from 10 lakh to 20 lakh rupees. Additionally, it has been suggested that the government might lower the tax rate from 30% to 25%.
The present cap of Rs. 1,50,000 for investments made under Section 80C “looks fairly low.” The government should consider raising the cap in light of the rising cost of living and inflation. Individual taxpayers would be more willing to save more as a result, and they would also benefit from decreased tax expenses, boosting their disposable income to cover the increase in living expenses.