New Delhi: Senior Congress leader and former finance minister P Chidambaram on Sunday urged Finance Secretary T V Somanathan to "re-examine his theory" that a housing loan is not a saving.
Somanathan, in an interview to The Hindu while talking about the old tax regime, said that if one looks at the structure of the tax deductions, half of them are for savings and half of them are for dis-savings like housing loan or interest on housing loan.
The new tax regime announced in the union budget offers lower tax rates, but the the taxpayer will have to forgo most tax deductions and exemptions. Taxpayer can continue to avail existing deductions and tax exemptions only by opting for the old regime.
"The Finance Secretary asks 'Is the housing loan a saving?' His answer is 'No'. I wonder how many people will agree with the Finance Secretary," Chidambaram said on Twitter.
The payment of interest and the installments of the loan is indeed an expenditure, but it is expenditure which is converted into an asset, which is a saving, the former finance minister argued.
"Suppose you spend the same money on a holiday or at a race course: there will be no asset at the end," he said.
"The Finance Secretary should re-examine his theory that a Housing Loan is not a saving," Chidambaram said.
In his remarks as quoted in the interview, the finance secretary said, "I don't agree with the perception that the old regime encourages saving. For the simple reason, if you look at the structure of the tax deductions, half of them are for savings and half of them are for dis-savings like housing loan or interest on housing loan. Is the housing loan a saving?"
"So overall macro economic impact, it's not a savings push at all but merely a push towards certain things. Government wants you to do housing, insurance or pension. But it's not necessarily a savings push or influence the savings rate in the country," he said.