The union budget is essentially a document that sets out the government’s estimated expenses and receipts for the upcoming financial year. At first glance, it may appear that the budget only impacts the country’s policies, finances and the macroeconomic aspects in India. After all, it is the government’s projected annual receipt and expenses statement, isn’t it? Surely that has nothing to do with you?

The truth, however, is that the budget can - and will - be more intricately connected to your personal finances than you expect. Certain policies and projects may have a direct effect on your financial plan, while others may indirectly affect how you would need to budget your money in the coming financial year.

To give you more clarity on this subject, let’s take a closer look at the various ways in which Budget 2022 may be connected to your finances.

1. Direct taxation

This is one the primary areas on your finances that Budget 2022 could have an impact on. Every year, the union budget contains key proposals related to individual income tax. This could impact how your income is taxed and how much of your investments and expenses are eligible for tax deduction. More particularly, here are some things expected from Budget 2022 that may have an effect on your direct taxes.

• The upcoming budget is expected to revise the highest tax rate for individuals and/or change the qualifying limit for the highest tax slab. This could impact the rate at which your income is taxed, if you fall under the said category.

• It has also been proposed that in Budget 2022, the standard deduction under section 16 be revised from Rs. 50,000 to Rs. 1,00,000. If this does happen, and you are a salaried individual or a pensioner, you can expect some tax relief.

• Similarly, the proposed ‘Work From Home’ allowance is another major expectation from this year’s budget. If the allowance is included in the budget proposal, that could also reduce the tax burden for salaried employees who work remotely.

• There have also been requests to make home loans more beneficial on the tax-saving front, by increasing the amount of home loan interest that can be deducted from the total income. Currently, the maximum limit stands at Rs. 2 lakhs as per section 24 of the Income Tax Act. If this is increased to Rs 5 lakhs as expected, you may be able to enjoy more tax benefits if you are repaying a home loan.

2. Investments

Budget 2022 is also expected to include a number of proposals and measures related to the many investment options in the country. So, depending on the policies suggested, some investment options may be more or less attractive than they are now. And this, in turn, could affect how you invest your money - which is a major part of personal finance management. So, here are some Budget 2022 expectations that may impact your investments.

• The banking sector has put forth a proposal requiring that the tenure of tax-free fixed deposits be reduced from the current 5 years to 3 years. This reduced lock-in period, coupled with general economic volatility, may make tax-free FDs attractive once more.

• The crypto sector has also been appealing for a bit of clarity on the regulations surrounding digital currency in India. Although a separate bill for the same is in the works, experts have recommended that the government should officially classify crypto as an asset. If this comes to pass, and if you invest (or plan to invest) in cryptocurrencies, the purchase and sale of the said assets may be taxed as proposed in the budget.

• Aside from the above mentioned proposals, if the union budget for FY 2022-23 includes regulations regarding any other investment option like gold, PPF, NPS or real estate, you may have to modify your investment plan to benefit optimally from the said measures.

3. Insurance

Insurance is another vital area of personal finance. And interestingly, it is also a key area in the union budget. Putting two and two together, you can no doubt appreciate that any budget propositions related to any kind of insurance is of great significance to your finances. So, let’s take a closer look at the Budget 2022 expectation in this area.

• Currently, life insurance premiums are eligible for deduction under section 80C of the Income Tax Act, up to Rs. 1.5 lakhs. This section also includes a host of other investments like PPF, NPS, EPF and more, as well as various expenses like home loan principal repayment and tuition fees.

Life insurers have requested that a separate tax bucket be created for tax benefits on premiums. This can help life insurance policyholders to fully enjoy the tax advantage of their life covers. So, say the government accepts this proposal, and say you have invested Rs. 2 lakhs in PPF and pay Rs. 1 lakh as life insurance premium annually. In that case, you can claim Rs. 1.5 lakhs as tax benefits under section 80C for your PPF investments, and Rs. 1 lakh as deduction under the new tax bracket for your insurance premiums.

4. Indirect taxation

Indirect taxes like Goods and Services Tax (GST) and import duties may not directly affect your finances. But they play a major role in determining the cost of products and services in the country. In other words, they affect the general cost of living. So, any changes to the tax rates in this area may make the related products or services either more expensive or more affordable. And needless to say, your personal finances need to be adjusted accordingly to account for these changes.

Let’s take a closer look at some indirect tax expectations associated with the budget for FY 2022-23.

• This year, the government has received appeals from various quarters of the economy to reduce the GST rates associated with many products and services. For instance, health insurance providers expect the government to reduce GST rates on health covers to 5% from the current 18%. If this is accepted, your health insurance plan may become more affordable.

• Similarly, the auto sector has proposed that the GST rates on two-wheelers be reduced from the current 28% to 18%, and the GST rates on used cars be reduced from 12% to 5%. These measures could make the respective vehicles cheaper, freeing up some room in your personal budget.

• Given how the healthcare sector has been at the forefront of the struggle during the past couple of years, healthcare providers have also requested that the finance ministry bring down the GST rates and import duties for healthcare products and life-saving medicines. This, in turn, will make healthcare more affordable.

Conclusion

This should give you a fair idea of how the union budget 2022 is connected to your personal financial plan. So, make sure that you tune into the budget speech on February 1, 2022 to get a firsthand account of what this year’s budget includes. And if you cannot do that, worry not, because we’ll give you timely updates on the same.