Budget 2021 Wishlist: Lower barriers for credit access, rationalise tax-saving investments

Budget 2021 should be aimed at improving credit access and enhance financial well-being by offering a wider choice of tax saving investments.

The Budget should also enhance tax sops for home loan borrowers to boost housing industry, which has a multiplier effect on jobs and core sectors of the economy.

Listed below are my Budget 2021 expectations:

 Include credit to first time borrowers in the banks’ PSL targets

Institutional lenders prefer lending to those having monthly in-hand income of Rs 35,000 and above and to those with credit scores of 750 and above. These often create a barrier in accessing institutional credit for new-to-credit loan applicants and those falling in lower income brackets.

COVID 19 pandemic has only led most lenders to furthermore tighten their eligibility norms for new loans and credit card applications.

While small finance banks and micro finance institutions have increased the credit access for the underserved segments in the last few years, the interest rates charged by these institutions are much higher than those offered by commercial banks.

Hence, Budget 2021 should include the unsecured loans sanctioned to the new-to-credit borrowers and below prime applicants in the PSL (Priority Sector Lending) target of banks.

Doing so can increase credit access as well as reduce credit cost for the loan applicants from the new-to-credit and lower income segments.

Extend Section 80EEA benefits to the next financial year

Budget 2019 introduced Section 80EEA to stimulate demand in affordable housing.

It offers an additional deduction of up to Rs 1.50 lakh on the home loan interest component, which is over and above the deduction under Section 24(b).

However, note that Section 80EEA is only applicable to first time home buyers purchasing homes with a stamp duty value of up to Rs 45 lakh.

The previous Budget 2020 extended the Section 80EEA to the home loans sanctioned in the FY 2019-2020.

This should get further extended to next financial year and preferably be made a permanent feature.

Doing so will stimulate demand in the affordable housing sector.

Also, the upper limit of Rs 45 lakh should be enhanced to Rs 75 lakh to increase the coverage of Section 80EEA, especially in the metro cities.

Tax parity between equity mutual funds & equity linked investment instruments

Imposition of long term capital tax (LTCG) of 10% on the capital gains surpassing Rs 1 lakh realized from equities put equity mutual funds at a disadvantage as compared to equity linked products offered through NPS and ULIPs.

Budget 2021 should restore the tax parity by eliminating LTCG tax on equity oriented mutual funds or at least from the tax saving mutual funds i.e. ELSS.

Likewise, switching from regular plan to direct plan or from growth option to dividend option within the same MF scheme is considered as sell transactions and thereby, are subjected to capital gains taxes.

It unnecessarily imposes a cost on investors seeking to switch to direct plans or dividend options within the same mutual fund.

Budget 2021 should make amend the Income Tax Act to stop considering intra-scheme switching in mutual funds as sell transactions, as is the case in ULIPs.

(Naveen Kukreja is CEO & Co-founder, Paisabazaar.com. Views expressed are personal.)