The financial services industry is looking for its own stimulus of sorts in the Union Budget due next Monday.
With the likelihood of a rise in income tax exemption limit for individuals from the current Rs. 1.5 lakh or the expansion of the tax-exempt deduction window for specified investments beyond Rs. 1 lakh, the industry is hoping that this will kick up more demand for savings-based products.
Indications are that the tax exemption may go up from Rs 1.5 lakh to Rs 2.5 lakh or the deductions under section 80C may go up from Rs 1 lakh to Rs 1.5 lakh, said a senior government official on conditions of anonymity. The Urban Development ministry has even sought for a raise tax exemption limit on interest payment on home loans from Rs 1.5 lakh to Rs 2.5 lakh.
Savings can go into post-office instruments, stocks, mutual funds and insurance products, besides pension and public provident funds.
It will encourage people to save more, said, Sam Ghosh, CEO, Reliance Capital.
This will make available a larger sum of money that can be invested in equity linked savings scheme of mutual funds, said Sanjay Sinha, CEO, DBS Cholamandalam AMC.
An increase in the exemption limit on interest paid towards a home loan from Rs 1.5 lakh to Rs 2.5 lakh will come as a booster for the housing finance industry and of course, real estate.
RR Nair, CEO, LIC Housing Finance, said incentives must be extended to those who do not pay tax yet to kick up demand for homes. The life insurance industry wants service tax exempted on unit-linked insurance plans.
Removal of service tax will result in higher returns to the policyholder, said SB Mathur, secretary general, Life Insurance Council.