Budget for Women: Can Nirmala Sitharaman incentivise more savings and nudge to health insurance?

Only a fifth of mutual fund investors in India are women, as per AMFI, the mutual fund industry’s trade body. Interim Budget 2024 should therefore incentivise women to build a financial kitty

Each year, the wishlist for the annual union budget is usually a mile long. Individual taxpayers, for instance, always want sops to reduce their taxes. Over the years, these tax incentives have been coming down, with the government moving to rationalise taxes. This year, too, the common wishlist includes rationalisation of capital gains taxes and an increase in the limits on tax saving instruments. Be that as it may, an important step the budget can take is to provide extra tax benefits for women.

Why should women be given extra tax benefits?

It is no secret that there is a 20 percent gender pay gap in India.

Women work fewer years due to childcare and eldercare responsibilities and also earn less. Further, women drop out of the workforce due to many factors, one being non-affordability of caregivers. According to World Bank and International Labor Organization statistics, in 2021, women formed only 19 percent of the workforce in India. Many were forced to stop working during the Covid-induced lockdowns. (However, on a positive note, the Periodic Labour Force Survey Report for 2022-23 shows the participation of women in the workforce rose to 37 percent in 2023.) Women constitute more than 50 percent of the workforce globally.

Added to the above issues, women in India are risk averse investors. A recent report on Women and Finance by DBS CRISIL found that only 15 percent of the women surveyed invested in mutual funds. As per AMFI (Association of Mutual Funds of India, the mutual fund industry’s trade body), only a fifth of mutual fund investors are women. Further, as per a report by the Reserve Bank of India, only 4.8 percent of household assets in India are invested in equities. With a major part of their savings invested in traditional instruments, which do not beat inflation, women are not growing their wealth.

All these factors lead to a big gender savings gap, which is much larger than the gender pay gap.

With so much gender inequality in earnings and savings for 48 percent of India’s population, why should taxation be equal?

The wishlist for women in this budget

A few simple benefits can help women bridge the savings gap to an extent. Here are some suggestions for the Finance Minister:

Lower slab rates of taxation for women

While corporations are doing their bit to reduce the pay gap, the government can set a strong tone and bring some parity with a lower slab rate than the one for men.

Provide a tax credit for expenditure on child and dependent care

With so many responsibilities, women can do with some external support in childcare or eldercare and having a tax exemption on this expense may help women remain in the workforce and contribute to building India.

Separate Section 80D benefits for women

Women, especially the non-salaried, tend not to insure themselves due to outdated gender beliefs and lack of knowledge. As per a report released by PayNearby in association with RBI Innovation Hub, only 18% of women have health insurance in India.

A standardised policy for women covering critical illnesses such as breast and cervical cancer and including maternity coverage, can be introduced and a tax deduction can be provided on this policy.

Incentivise women investors in mutual funds

To meet any long-term goal, it is imperative to invest in equities to beat inflation and grow wealth. Women have shied away from equites due to a lack of knowledge and the fear of being judged for possible interim losses. Thankfully, over the last few years, equities and mutual funds are no longer frowned upon and have been widely accepted by Indians. Equities, and more specifically mutual funds, can help reduce the gender savings gap by compounding wealth in the long term.

To boost women’s participation in equities, a tax deduction can be provided for investments up to a certain amount in equity-oriented mutual funds. There can be other covenants added like a lock-in to ensure the discipline of remaining invested is adhered to. Further, other restrictions like investment only from the woman’s earnings can be applied to prevent tax evasion.

As Christine Lagarde put it, “When women do better, economies do better.”

A few tax nudges is all it will take to inspire inclusion and for women to do better financially, and have a lasting impact on India’s economic growth.

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