BudgetSpeak #4: Anisha Motwani: Need relief in I-T to increase household savings

26 Jun,2014

By Anisha Motwani

 

With strong fundamentals, the Indian economy has tremendous growth potential. The new government has shown intent in the right direction and the Union Budget must turn them into actions to make a difference.

 

The country’s economy grew by less than 5% in FY2014. To regain the 2006-7 buoyancy of 9.6%, fiscal discipline in the near term is very important to maximise growth in long term. The new government should make effective use of resources to boost revenue generation. Implementing the Goods and Services Tax (GST) and broadening the tax base would help create the fiscal space for accelerated growth. Also, a reform in Direct Taxation could provide much needed impetus to sluggish Indian economy with simplified tax structure and transparent tax laws.

 

After some months of moderation, food inflation again reached 9.5% in May 2014. The new government must control high inflation, as it eats into disposable income of households that affects the savings capacity. Supply side reforms are essential for a lasting solution and a comprehensive monetary and fiscal policy should be in place to rein in inflation across various components of WPI and CPI.

 

Keeping in view the dented disposable income in the hands of individuals, the Finance Minister should provide relief in income tax burden to individuals so that household savings rate could again pick up.

 

Life insurance plays a critical role in utilisation of small savings for infrastructure development. To help the sector further enhance this role, the government has to provide right tax savings support to the long-term savings instruments and clearly differentiate it from short-term financial instruments.

 

The insurance industry expects the Finance Minister to make announcement related to FDI increase in the sector and also implement the long pending Insurance Bill amendment.

 

Specific to life insurance industry, there is a need to increase the limit for deducting tax at source on annual commission payable to agents from current Rs 20,000 to Rs 50,000. There is also a need to rationalise service tax rate on life insurance policies which was increased to 3% on first year premium.

 

Anisha Motwani is Director and Chief Marketing Officer, Max Life Insurance

 

Series coordinated by Shobhana Nair

 

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