As is well documented, the previous Govt.’s 10-year rule, marked by policy paralysis and socialist outlook, all but derailed the unprecedented buoyancy witnessed by the Indian economy since independence [See '3 economic policies of the Vajpayee Govt. that catapulted India's GDP growth' and 'Whose growth is it?'].
As such, it was widely expected that the new Finance Minister of the new political regime after a decade, would have to first bring the economy back on rails, before it could pick up speed.
Given this background of faltering economy coupled with rising oil prices, crisis in Iraq and Ukraine, missing monsoon, stalled infrastructural growth and high fiscal deficit, not much good was expected out of this year’s budget. More so when it has not even been two month since the new Finance Minister took charge of the office.
Yet, contrary to all expectations, Mr. Arun Jaitley has delivered a lot for the aam investor to enjoy.
I divide this commentary on 2014-15 Budget into two categories — The Positives and The Negatives.
The Positives
- The announcement to contain the fiscal deficit is a huge positive on the interest rates. It will accelerate softening of interest rates the moment we see some moderation on the inflation front. Hence there is a likelihood of the much-awaited reduction in our EMI burden in the foreseeable future.
- Basic exemption limit on Income Tax increased from Rs.2 lakhs to Rs.2.50 lakhs. This translates into a straight saving of Rs.5150.
- For senior citizens, the basic exemption limit on Income Tax increased from Rs.2.50 lakhs to Rs.3 lakhs. They too will have to pay Rs.5150 less tax this year.
- Deduction allowed u/s 80C enhanced from Rs.1 lakh to Rs.1.50 lakhs. A big boost to common man’s tax saving potential.
- Deduction of interest payable on home loans u/s 24 enhanced from Rs.1.50 lakhs to Rs.2 lakhs. High interest rates and high property prices meant that part amount of the interest exceeding Rs.1.5 lakhs could not enjoy tax benefit. Now we get additional Rs.50,000 limit to save tax on.
- Investment in PPF enhanced from Rs.1 lakh to Rs.1.50 lakhs. So we get a chance to invest more in one of the best investment products.
- Salary limit of Rs.6500 for Employees Provident Fund increased to Rs.15,000. That apart, the minimum pension under EPF has been fixed at Rs.1000/month.
- Real Estate Investment Trusts (REITs) get a huge incentive in the form of tax pass-through status. This will bring a great investment product within common man’s reach.
- A scheme similar to the erstwhile Kisan Vikas Patra is proposed.
- Varishta Bima Yojna for senior citizens to be revived for at least one more year.
- NSC, coupled with insurance, for girl child is proposed.
- FDI in insurance sector enhanced to 49% from 26%. A great boost for foreigner insurers to bring in both money and innovative products to India, which is largely uninsured / under-insured.
- Single demat account for various investments and Unified KYC norms across various institutions is a big plus point towards simplifying investments.
The Negatives
Fortunately, there weren’t many negatives. In fact, I spotted just one so far.
Tax arbitrage on debt mutual funds GONE. Long term capital gains tax on debt mutual fund doubled from 10% to 20%. More importantly, the applicability of long term capital gains tax has been increased from 12 months to 36 months. This is a massive opportunity loss for a common investor looking for safe but tax-efficient investment. But not to worry… you can try Arbitrage Funds as an alternative [See my blog ‘Baffled by Arbitrage Funds? Here's the simple explanation.’].
