In a budget that presents an array of pacifiers to savers, the finance minister has created room for higher household savings. His pronouncements on small savings will generate opportunities for efficient use of capital.
The FM has also sought to revitalise two instruments espoused by a rather large community of ordinary citizens, particularly those who relied on small savings schemes managed by the post office.
While Kisan Vikas Patra (KVP) will stage a comeback of sorts, there will also be a National Savings Certificate (NSC) with an insurance cover. For PPF adherents, the annual ceiling stands increased to Rs 1.5 lakh. At another level, the budget encourages greater involvement in yet another asset class — real estate, which is constrained by pretty high financing costs.
Deduction limit for interest on loan in respect of self-occupied house property will go up from Rs 1.5 lakh to Rs 2 lakh.
These announcements are meant to benefit small and marginal tax-payers. Only the coming days will tell us whether the government has been able to net enough additional resources from such savers.
Here, let me quickly refer to two critical issues witnessed in recent times: slowdown recorded in savings and inadequate returns for savers.
The government could have used this opportunity to trigger higher tax-savings by further widening the scope of Section 80C — not by a mere Rs 50,000 but to a more meaningful extent.
Tax-saving equity funds, for instance, could have been leveraged for such a policy, keeping in view the convenience and advantage they offer to small investors.
In sum, the latest budget will prove to be an enabler for middle-class savers. The government, which must now seriously pursue the ideas expressed today, should actively encourage them to start saving early and regularly.
Globalisation helps channelise capital in any country. Liberalisation of FDI in insurance to 49 per cent via the Foreign Investment Promotion Board is a much-awaited move for the Indian economy. The move will enable more capital and technological transfusion in the country. While this will boost growth in the sector, it will also help create jobs in the insurance sector. It will also help incorporate world class business practices and strengthen distribution channels in insurance.
The entry of foreign processes and vast data analyses would benefit Indian insurance companies. This would provide a huge impetus towards the penetration of insurance in India. With an additional investment, new branches could be set up, leading to servicing newer and under-serviced geographies. This provides an incentive to financial inclusion from an insurance perspective.
The investment into the insurance industry will bring India’s insurance penetration levels closer to global standards.
Talking about the health insurance, it is said that less than 25 per cent of the population in the country has access to any form of health insurance. However, India’s public and private expenditure on health is 4 per cent of its GDP, the lowest among the BRICS countries.
Given the scenario, we see a growing need to incentivise retail investors to invest in health insurance. While some initial steps have been taken by the government to make the sector more attractive, we think, there is still a long way to go. We will have to wait for the insurance bill to be passed in Parliament for this move to yield results.
For household savers and investors, Arun Jaitley has delivered a great budget. Not only have lower taxes left more money in people’s pockets to save or spend, the scope for tax-saving investments is significantly enhanced.
And it doesn't stop there. It's not just that the amount to which you can make tax saving investments is higher, there's an entirely new channel of investments that combines tax-savings, long-term equity savings, and retirement planning in the best manner possible.
Let's examine the whole set of changes and see what has been done and exactly what benefit it will bring.
The basic change is that the total amount of tax-exempt investments that can be made in equity-backed mutual funds have gone up manifold. This will benefit investors, mutual funds, as well as the equity markets as a whole.
This enhancement comes from a combination of different measures. First, tax exempt investments through section 80C have gone up from Rs 1 lakh a year to Rs 1.5 lakh. So far, section 80C has been the only way for investors to make equity investments and save taxes in doing so. This is a big increase in the amount that can be invested in the funds that are designated for the purpose, the so-called ELSS funds.
For many investors, a part of the Rs 1 lakh under 80C would go into mandatory deductions or in insurance, the amount available for ELSS was typically lower. An increase of 50 per cent in the total limit could easily mean a doubling or more of ELSS investments for the typical investor.
However, the budget has another great new asset type that seems to have been introduced without any fanfare. It finds no mention in the speech, and is referred to only in the Budget Highlights document.
Here's what it says, “Uniform tax treatment for pension fund and mutual fund linked retirement plan”. Pension fund here means the National Pension System (NPS). What this means is that mutual funds can now introduce 'retirement plans' of their existing schemes, and these will be eligible for the same concessions as investments in the NPS.
While the full details are not yet known, it's clear that investors can now invest an additional Rs 1 lakh in these retirement plans which will get them exemption under section 80CCD.
These are retirement savings and so will be locked-in till retirement age. This opens up a new way for investors' long-term money to earn equity returns.
While the specifics could bring some caveats, it all adds up to a huge jump in the total amount of tax-exempt equity savings that are possible. If someone was earlier using half of their 80C limit for equity mutual funds, the total now goes up to potentially Rs 2 lakh.
That's certainly a revolution in long-term savings. And the potential economy-wide benefits in terms of increased investments are of course a separate issue.
I find that all in all, the general coherence of vision in Jaitley's budget is emphatically sustained in what he has done on the savings and investments front. It rather makes me look forward to more Jaitley Budgets in the years to come.
Amidst high expectations from the corporate world, economists, salaried classes, farmers and home-makers, the FM had a tough task at hand to balance these expectations and deliver a budget which would put India on a long term growth trajectory while checking inflation, government expenditure and also restricting the ballooning current account deficit.
The finance minister had to balance high expectations from the corporate world, economists, salaried classes, farmers and home-makers while delivering a budget that would put India on a long-term growth trajectory while checking inflation, government expenditure and also restricting the ballooning current account deficit.
The 2014 Union budget had all of Narendra Modi's trademarks and his vision of promoting India as a brand in itself with focus on the 5-T's — talent, tradition, tourism, trade and technology.
Finance minister Arun Jaitley has tried to provide some relief to both the aam aadmi at home and global corporate houses by rationalising tax structures and clearing the governments stand on retrospective taxation, respectively. Middle class tax payers had a lot of expectations from this budget in terms of tax benefits and its tools.
The key changes for individual tax payers are below:
Slab rates: To provide relief to small taxpayers, the minimum exemption limit for a resident individual has been raised to Rs 2.5 lakh from the current limit of Rs 2.0 lakh. Further, the limit for senior citizens has been increased to Rs 3 lakh from Rs 2.5 lakh with no change in the exemption limit for individuals above 80.
In nutshell, income up to Rs 2.5 lakh will be nil, income between Rs 2.5 lakh to Rs 5 lakh will be taxed at 10 per cent, income between Rs 5-10 lakh at 20 per cent and above Rs 10 lakh will be taxed at 30 per cent. The above increase in minimum exemption limit would lead to a tax saving of around Rs 5,000.
Deduction under section 80C: An individual can now claim tax benefit for investments in instruments under section 80C up to a ceiling of Rs 1.5 lakh, up Rs 50,000 from Rs 1 lakh. This would lead to an additional tax saving between Rs 5,000 to Rs 15,000 depending upon the tax slabs.
House property: The most welcome change for individual taxpayers is the increase in the limit of deduction on interest paid on a home loan taken for self-occupied property by Rs 50,000, forming the new limit of deduction at Rs 2 lakh. This leads to more disposable income in the hands of a taxpayer by saving between Rs 5000 to Rs 15,000 in tax depending upon their tax slabs.
MF units: With the purpose of removing tax arbitrage, the rate of tax on long term capital gains has been increased from 10 per cent to 20 per cent on the transfer of units of mutual funds (other than an equity oriented mutual fund). Further, unlisted security and a unit of a mutual fund (other than an equity-oriented mutual fund) would qualify as short-term capital asset even if it is held for more than 12 months but not more than 36 months.
PPF investment: With the proposed amendment, annual ceiling of investment would be increased by Rs 50,000 forming the new limit of Rs 1.5 lakh
Our FM has tried to put some money in the hands of the aam aadmi. How much it helps in combating inflation is left to be seen. This is a modest but good beginning for the common man.