Future perfect, present tense

When it comes to the Union Budget, the common man is most fixated on the section related to direct taxes. The taxpayer views various tax benefits through the prism of money he saves. This year, the magic sum is Rs.4.44 lakh compared to Rs.3.8 lakh earlier that one needs to save and invest towards maximum claimable exemptions across instruments.

Several experts have praised this additional tax saving made available to the taxpayer, without realising the fact that these are subject to conditions. Blindly putting money to save tax is a sure shot recipe for disaster. Like we have been saying through this magazine, the smart way is to align available benefits to your financial situation and plans. So, avail yourself of additional tax savings towards health insurance payments only if you are under insured, or, increase your contribution to the National Pension Scheme (NPS) knowing very well the kind of returns it has posted. Think of a home loan only if you need the house to live in and can manage the loan repayment.

My concern lies in the government’s intent to collect money in the name of tax savings, without focusing enough on the taxpayers’ interests. Arun Jaitley mentioned that additional savings will increase household savings and facilitate a secure future for taxpayers and for the rest of the people. I defer with this view, because for the sake of a secure future, it puts the taxpayer’s present in jeopardy.

If the common man, in the 10 and 20 per cent tax brackets were to deploy Rs.4.44 lakh to save taxes as suggested by the government, he will hardly be left with any money for a decent meal today.

Also, the choice of instruments to deploy money in to maximise tax benefits is not necessarily the best. Take the returns from NPS; it hasn’t been encouraging to think for the long term.

Likewise, in the absence of any healthcare regulator, there is always a sense of hospitals charging more from those who have insurance versus those who don’t.

One could argue that the government is giving taxpayers more money to save; that said, it does not clarify that this additional money needs to be deployed where the government protects its present needs for funds, with the promise of securing your future.  

This story first appeared in Outlook Money March, 2015 issue.

nk@outlookindia.com