Investment limit may be hiked in budget

Will this budget be the dream budget or even better, from the personal finance point of view? Will the disposable income increase? Will taxes be reduced? These are some of the doubts worrying the common man in this budget season.

Each budget, the common man, in the hope of increasing his disposable income seeks an increase in the basic exemption limit. This year is no different. The salaried class is hoping that the tax exemption limit is increased from Rs 2.5 lakh per annum to Rs 3 lakh per annum. However, given that the exemption limit was increased from Rs 2 lakh to Rs 2.5 lakh in the July 2014 budget by finance minister Arun Jaitley, it is unlikely that he will raise the limits in the budget.

Instead, there is a greater likelihood that the investment limit may be hiked from Rs 1.5 lakh to Rs 2 lakh. The idea is to encourage savings and investments which have seen a drop in recent years. Here too, the investment limit had been hiked in the interim budget in July last year from Rs 1 lakh to Rs 1.5 lakh.

According to experts, the hike in investment limit may be limited to investments in insurance products, so as to encourage the insurance sector. It has been seen that the investment limit of Rs 1.5 lakh is exhausted due to investments in instruments like repayment of housing loan principal, public provident fund (PPF). Thus, there is no incentive to invest in insurance products. "Limit of 80CC should be raised and the amount should be linked to inflation. A special limit for life insurance products should be carved out. This will help the government get money for long term infrastructure projects,'' suggests Rajeev Kumar, chief and appointed actuary, Bharti AXA Life Insurance.

Another likelihood is that the finance minister may choose to classify the National Pension Scheme (NPS) as exempt-exempt-exempt (EEE) in order to give a boost to pension funds.

Currently, the NPS falls under the EET category, where the income is taxable. "Till such time that the income from pension funds is not taxable, pension funds are unlikely to take off in a big way,'' says Harsh Roongta, director, apnapaisa.com.

Another likelihood is that the arbitrage funds that are currently treated as equity funds, will be classified as debt funds, this budget. "It is important that the move, if done, is activated prospectively, that is, from March 1, 2016, and not retrospectively, so that investors who may have invested in such funds till the budget day are not impacted adversely,'' adds Roongta.

One of the priorities for the government is to encourage investments in financial products in view of the dip in savings rates. "The focus of the government should be to attract investments, especially long-term investments that can be used for infrastructure development. Hence, incentives for pension funds is very significant,'' says Arnav Pandya, certified financial planner. It is believed that this budget could see the setting up of a separate limit for investment in pension products. The advantage is that it would serve as an incentive to build a corpus for retirement.

"There is a likelihood of government giving the nod to entities for tax free bonds so that they can raise money from the small investors,'' says Pandya. The tax slabs are unlikely to see a major change, but could see minor tinkering, according to sources.