Budget 2018 Must Raise HRA Limit, Reduce GST On Insurance Products

Anil Rego, CEO, Right Horizons, shares his expectations from Budget 2018:

Increasing HRA limit
In 2016, Finance Minister Arun Jaitley announced in his Budget speech that the annual deduction under Section 80GG on house rent allowance (HRA) will be increased from Rs 24,000 to Rs 60,000. On a monthly basis, the amount increased from Rs 2,000 to Rs 5,000, bringing little relief. Despite the raise, the amount doesn't sync with the kind of housing rent levels prevalent in the market where Rs 10,000-15,000 is the average expectation. Budget 2018 should focus on making the limits more realistic.

Also, there is a need to add more cities to the metropolitan umbrella under HRA. At present, an employee can claim a higher deduction for HRA if the employee is living in Mumbai, Delhi, Kolkata and Chennai. The rental charges for accommodation facilities in Bengaluru, Hyderabad, Pune, Ahmedabad, Noida, and Gurgaon are at metropolitan levels. So they should also be included under the 'metropolitan' category.

Reduce GST on insurance products from 18%
The 18 per cent GST (Goods and Services Tax) on life insurance has made the products costlier, especially pure protection and endowment plans. The GST rate should be brought down. In the absence of a comprehensive social security mechanism like in the US, insurance provides the first layer of financial security. So, the Union Budget should exempt insurance products like term insurance totally from the GST purview.

Raise tax-free limit for medical allowance
The medical expenses of an average household today easily exceed the present medical allowance limit of Rs 15,000 per year. As a result, employers usually cap the medical allowance at the tax free limit of Rs 15,000. The Budget should revise this limit upwards to Rs 50,000. This will encourage employers to hike the allowance.

Offer tax deduction on home insurance premium
The destruction caused by recent floods and earthquakes is an ugly reminder of what can happen to our homes. Home insurance policy could have saved many from a permanent financial loss. The government should consider making home insurance compulsory and incentivise citizens by providing income tax benefit for the premium paid towards a policy.

Have uniform lock-in period for all tax savings products
At present, tax saving products for investors have different lock-in periods. While Equity Linked Savings Scheme (ELSS) has a lock-in of three years, long-term capital gains tax benefit is one year for direct equity and three years for debt investments. For tax saving bank FDs, the tenure is five years for tax benefit while for Public Provident Fund, it's 15 years. The Budget should align tax benefits so that investors take decisions based on the nature of the product and individual requirement, rather than on lock-in period.

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