Union Budget 2022-23: The costs of insurance, hospitalisation and varied COVID-related healthcare expenses have significantly impacted people’s lives across the nation
Indian Union Budget 2022: The great tax slab mystery. Image courtesy CNBC-TV18
Drawing on the psychology of human behaviour, behavioural economics provides insights to ‘nudge’ people towards desirable behaviour. Budget 2022 can use nudges and incentives for better tax compliance, building the proper habits for creating a corpus for retirement savings and children’s future.
We have seen how Swachh Bharat Mission (SBM) and Beti Bachao Beti Padhao have successfully employed behavioural insights which lay the foundation of social change.
This post-pandemic slowdown necessitates an emphasis on-demand development, job creation, and economic sustenance in the 2022 Budget. From an investor point of view, data proves significant growth in systematic investment strategies.
The buoyant markets and the significant rise in Demat accounts, encouraging retail investors to enter the financial markets, are positive signs of growth and rebound in the economy.
How can the 2022 Budget further ensure continued growth and thus far strengthen investors’ sentiments to further invest in the financial markets?
Here are some expectations that investors look forward to in the expected budget.
Social Security and Retirement Benefits
In 2021, India’s senior citizen population was 13.1 million, projected to be 23.9 million by 2041. Our citizens do not have adequate social security or retirement benefits. Though efforts in giving tax benefits for NPS are positive, more needs to be done in this direction. We need more nudges and incentives in this direction to ensure savings are channelized to meet the above objective.
Tax incentives can encourage people to invest in savings instruments, and these savings can be channelised to meet the target of domestic investments in the next five years.
Section 80C is by far the most widely used section by individual taxpayers. This section covers a gamut of tax savings investments, which reduce the taxable income burden on taxpayers. The government must make an effort to offer more benefits, which will encourage retirement savings.
Inflation and COVID relief
There have been instances of current high global inflation and supply chain bottlenecks with soaring global crude prices. This in turn could further stoke a price rise with a higher inflationary environment, leading to calls for raising interest rates.
Three waves of the pandemic have rocked the world, making healthcare expensive and, to some extent, inaccessible.
Countries like US, UK and Canada have introduced certain tax breaks on COVID-related medical expenditure like medical supplies, testing kits, etc.
The costs of insurance, hospitalisation and varied COVID-related healthcare expenses have significantly impacted people’s lives across the nation. With little sign of the pandemic slowing down coupled with rising inflation, the need and costs for healthcare will continue to surge.
The expectation from taxpayers is some relief under section 80D and an increase in the standard deduction to cover the above additional expenses. This move could be beyond the existing health insurance premium rebate, thus covering COVID-related healthcare incurred costs.
An additional expenditure incurred by individuals involves the costs of ‘working from home’, where employees invest in requisites like internet connectivity, office setups, increased electricity charges, and similar incidental expenses. To offer relief to a struggling employee sector–where the job market is at a standstill, salary cuts are the new normal, and job loss is on the rise–the government could introduce an additional deduction under the title of a ‘work from home allowance.
Government prudent tax policies, better execution on disinvestment plans, and improved tax collection will give much more robust and fundamental support to the government’s borrowing plans and Current Account/Fiscal Deficit. Additionally, strong policy support to priority sectors will also give a strong fillip to the overall economy.
The writer is Board Member, Association of Registered Investment Advisers (ARIA).
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