Why budget 2017 matters to savers
In November last year, Prime Minister Narendra Modi announced the demonetization drive in order to combat the twin evils of black money and terrorism. While the decision received mixed responses from across the country, it left a big mark on the economy.
With a drastic cut in liquidity and long queues outside ATMs and banks, people had a difficult couple of months. With this in focus, the Union Budget for the year 2017-18 is expected to provide relief to the common man. Experts believe that this budget will offer incentives with a strong focus on savings and investments.
Let’s see why this budget matters to savers.
- Increase in tax exemption limit
With demonetization adding a lot of money to the government’s coffers, expectations are high for the budget to extend the benefit to the people. Currently, the exemption limit for all taxpayers under the age of 60 is Rs.2.5 lakh. Since this limit has not been changed during the last two budgets, a revision might be on the cards. For individuals under the age of 60, the limit might be raised by Rs.50,000 to Rs.3 lakh. As for taxpayers over the age of 60, an increase from Rs.3 lakh to Rs.3.5 lakh is expected. Such a change will certainly help individuals increase their annual savings.
- Interest earned on savings bank account
In accordance to the government’s directive, a lot of cash has been deposited into bank accounts after demonetization. As a result, this would be a good time to increase the deduction limit on interest income earned on savings bank accounts. Under Section 80TTA of the Income Tax Act, individuals can avail a maximum deduction of Rs.10,000 on interest earned on savings accounts with banks. An increase in this limit will certainly encourage individuals to save more in these accounts. In addition, it would be beneficial to extend this deduction to term and recurring deposit accounts too.
- Increase in deduction limit under 80C
Deductions under Section 80C of the Income Tax Act offer a good opportunity for individuals to invest their income. However, there are other allowances such as child education allowance and transport allowance which are clubbed under this section. In addition, the limit for deductions under this section stands at Rs.1.5 lakh. This might discourage individuals from investing more than the specified limit. The upcoming budget should consider increasing this limit by at least Rs.50,000 in order to boost investments.
- Medical reimbursement
It is no secret that medical costs have increased rapidly over the past few years. This has resulted in a greater amount of money being spent by individuals towards medical charges. At the moment, tax free medical reimbursements are capped at Rs.15,000 per year. This amount seems to be quite less when compared to the yearly medical bills of most people. This limit could be increased in the coming budget in order to cut down the expenses of taxpayers.
- TDS on NBFC deposits
Non-Banking Finance Companies (NBFCs) are a big part of the Indian financial community. Companies such as Bajaj Finserv offer good competition to government banks on many fronts. However, the TDS on deposits made in NBFCs stands at Rs.5,000 per annum. This is exactly half of the deduction on deposits made in bank accounts. By increasing this limit, the government would encourage people to continue saving their money in NBFCs.
The bottom line
Every year, people have different expectations from the budget. But one common expectation from the budget this year is to offer incentives that help individuals increase their savings. But whether the budget will incorporate any of these suggestions is anyone’s guess. We’ll have to wait and watch.