Union Budget 2014 was looked at much higher expectation than previous budget. With NDA coming in full majority with a vision of economic development there were lot of expectations for creating provisions for common man. There were expectations on changing tax slabs, raising tax exemptions through various sections, rise in home loan exemptions and many others which matter most to the tax payers.
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But the going is not always easy. With high fiscal deficit and not many days as a ruling party there are many challenges for ruling government to roll out incentives. Lot of exemptions means forego of revenue for the government which may not be viable. Hence a mature budget was needed. Although our Honorable Finance Minister did achieved it but with a big blow to the mutual fund industry. The budget sets road map for the economic reforms along with benefit to all tax payers. On personal finance front there are many provisions introduced in this budget which will benefit all tax payers.
Let’s see what has been done in this budget which will impact your finances going forward-
- Personal Tax Exemption: The personal tax exemption has been raised from Rs 2 lakh to Rs 2.5 lakh for age below 60. For individuals above age 60 i.e. for senior citizens, the income tax exemption limit has been raised to Rs 3 lakh from Rs 2.5 lakh. It’s a welcome move considering there are other benefits too which when combined with this exemption results in giving more disposable income in your hands.
- PPF & Sec 80C: The most popular tax deduction benefit for all tax payers. There was a huge demand that the ceiling should be raised as it has hung on Rs 1 lakh for too long and comprises of too many instruments. The budget has addressed this and has raised the limit under Sec 80 C to Rs 1.5 lakh. In addition to this the ceiling of investment in PPF, which is the most lucrative long term small savings scheme, has been increased Rs 1.5 lakh. Both of these are good move and benefit all tax payers.
- Housing Loan: One of the preferred option for home buyers and attractive options also for real estate companies. The ceiling for claiming interest deduction under sec 24B has been raised from Rs 1.5 lakh to Rs 2 lakh on self occupied house. A relief to many home buyers who are burdened with huge EMIs.
- Small Savings Scheme: It has got a big push in this budget. Considered as a big chunk of money government utilizes for long term infra projects, small savings schemes have seen two new additions apart from changes in PPF. The first is the NSC where insurance will also be provided going forward. The other is a new savings scheme for girl child which will be introduced in the due course. The last is the Kisan Vikas Patra which has been reintroduced for planned and unplanned areas.
- Uniform KYC: KYC has been a huge hurdle for investments as with different financial instruments one has to undergo multiple KYC. This hurdle has been removed as going forward there will be a single and standardized KYC process for entire financial sector. You can expect the ease of investments in the future.
- Single Demat Account: A single demat account has been proposed wherein you can transact in all your financial assets. This will surely ease the management of your investments across all financial assets.
- Debt Funds Taxation: This is a big setback for the MF industry. The budget has proposed that non-equity mutual funds schemes i.e. debt mutual funds, gold mutual funds scheme, international funds, funds of funds etc.. will derive long term capital gains only if investments s held in them for three years or more. Also, the taxation of LTCG will be at 20% with indexation benefit i.e. similar to real estate. Surely it is a bad news for the companies as FMPs will loose interest among investors and debt mutual funds comprised almost 16-17% of industry AUM. There are lot of reactions to this proposal. We will have to wait for the bill being passed in the parliament to know when it is effective and whether there is a rethinking.
- REITs: Real estate investment trust are good vehicle for investment. The real estate sector also benefits if these instruments are available. The budget has taken a step forward and given them a pass through status i.e. the income generated by REITs will be taxed in the hands of investors. By removing this tax ambiguity, government has actually benefited SEBI which has delayed guidelines due to clarification on this aspect. So we can expect these instruments gaining importance in the Indian market too benefiting investors and the real estate sector.
- Senior Citizens: There were many sops to senior citizens. The Varishtha Pension Bima Yojana, a popular scheme run previously, has been reintroduced. An insurance scheme for senior citizens will also be introduced this year. Both these provisions will surely benefits senior citizens who have less options available to deal with their cost of living
- Sec54(1) & Sec 54EC – There was lot of ambiguity related to Sec 54 & Sec 54 (F) whether investing in more than one house can be claimed for exemption. On other hand there have been instances where Rs 1 crore have been invested in Sec 54 EC Bonds within the stipulated horizon but in two financial year and claimed for exemption. Budget has removed both these ambiguities. Now only one residential house can be purchased/constructed for benefits under sec 54F and also in sec 54EC bonds max Rs 50 lakh can be claimed in more than one financial year.
Health and Wealth
There is good news for all of us. We are being forced to live healthy as the cost of cigrattes and areated drinks will go up. In an interview Honorable Finance Minister has said “ We can live without them” and I fully agree with him. Health is becoming one of the reason for many life uncertainties and its high time that we all take care. A welcome move for all of us.
On other hand honorable finance minister has ensured we continue to our shopping and so he has made LED,mobiles etc..cheaper in this budget.
Provision for Disabled
Disability is a grave concern and the numbers are growing. Understanding the needs of this section of society there are few provisions for the disabled in this budget. Firstly, for improving the life of handicapped and marginalized, the government will provide funds to the tune of Rs 50548 cr under SC plan and Rs 32,387 cr under TSP . In addition to this the government will also extend the scheme for Assistance to Disabled Persons for purchase/fitting of Aids and Appliances (ADIP) to include contemporary aids and assistive devices. The Government will also establish 15 new Braille Presses.
There are many other provisions like FDI in insurance, one rank one pay pension scheme, e-visas, setting up new institutions, GST by year end, infra push and many other which holds good for development of our country. On personal finance front more income has been given in your hands and its up to you now how you utilize it. But the most talked about provision is the taxation of non-equity mutual funds and it will be keenly watched till it is implemented finally.
How you feel about the budget? What are you going to do with money you will save?
Share your views in comments section…
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I’ve read with due diligence the post & today the world is focused rather India centric, alacrity, 20bn$ FII investment in the capital markets till date, CY14 Sensex up 23.5%, [prior to budget.] in spite expensive equities relative to other BRIC or expensive US & Japan. In the last six weeks as many nations diplomats have visited India.
Today our PM is for BRICS’s meet.
When the coffers are empty what should have been the Fiscal Bill presentation ?! In which manner can expectations be aligned with contemporary realities?
Hope the govt. is not at loggerhead with my demigod Raghuram Rajan in battling inflation & other measures to steer the economy by FY16.
So the FM, Mr. Arun Jaitely handicapped by the interim budget, needed to FIRST get things back to normal.
Big-bang reforms ‘utter’ aspects to be discarded without paying any heed to it. In 45 days what else was expected? Eventually they will be.
It is said that FM’s who behave with imprudence can scarcely pull out a rabbit thro’the hat. The imprudence of his earlier FM, he could hardly do so.
Keynes had stated ‘the only chance of balancing the budget in the long run is to bring things back to normal’!
It’s reminiscent of what Kautalya said ‘a king with depleted treasury will eat into the very vitality of both citizens & country people’!
He has proved fiscal rectitude, accepting challenge 4.1%FD, and macroeconomic stabilization 2015-16.
Mr. Jitendra, this is half a budget, expect during the FY many ongoing changes as progressive & this will be perpetual a budget.
Further Mr. Jitendra, can you answer me the “BLOW TO MUTUAL FUND INSTRY”!? What is MF? Erstwhile UTI! With deviations.
What was the reason? The tax arbitrage & hedging by corporate’s.
ON WHAT? DEBT & BONDS!
HOW DO YOU CALL IT BLOW TO MF INDUSTRY?!
What is the participation of retail investors? Further CBDT is yet to announce its implementation, tho’ it will be effective from April 2015.
Do not conclude that FY2014-15, AY2015-16 will penalize the small, retail investor exit or exiting. [NO RETROACTIVE.]
So different investment limits to be formulated to encourage retail investors, MIP, DEBT.
FYI, the AMFI is all set to promote MF, SEBI has underlined to develop it, a gradual process.
Now I talk of your 10 ITax aspects you’re positive.
1] Personal IT – much desired. SINCE 1947 have you ever known IT LIMIT RAISED BY 50K IN A STROKE?
2] PPF & sec80C – yes solace to all BUT GO THRO’ ALL secs AS PER FISCAL BILL TO ANALYSE IT!
3] Housing loan – obviously was required!
4] Small savings scheme – well articulated by the FM, is KVP got back to channelize non bank funds into the economy?
This will help genuine small investors.
5] & 6] Uniform KYC & Single Demat — much awaited & appreciated.
7] Debt Funds taxation – I’ve already answered above.
8] REIT – can fetch US$10bn in a year, BSE has formed an expert advisory group to advise it on proposal framework including making it popular. This can reduce pressure on the banking system. [NPA’s!]
9] Senior citizens – yes required aspects.
10] Sec 54[1] & 54EC – You’ve forgotten to mention sec 54F[1].
Further, health, wealth, are all jargons. WHAT WILL HAPPEN TO THE TOBACCO FARMER?
IS ANY LEVY ON “ROLLED BIDIS”? – WHO WILL EMPLOY THE MILLIONS OF WOMEN ENGAGED?
SO THE BIDI INDUSTRY WILL COUNTINUE COZ POWERFUL POLITICIANS OWNERSHIP & NEXUS OF TENDU LEAVES AUCTIONS!? TAXATION [SIN TAX] CAN BE COUNTERPRODUCTIVE.
FOR THE DISABLED YES LET’s see what’s the outcome?
Mr. Jitendra, will you answer this [longer than yr post] post of mine?
Regards,
Mr.Vinay,
Firstly we need to move out from UTI fiasco now. I believe MF is now a much highly regulated industry then it use to be during UTI regime. Secondly the tax arbitrage was always there so the decision would have been taken earlier. But a blow to an industry happens when the asset size in such schemes reaches to a bigger chunk of total asst size. My point was in this respect that any bigger jolt to MF industry due to delayed decisions is a blow to investors. There are many category of investors who would have alligned their income need by strategising their investment in debt instruments. They might have to look for alternatives.
Coming to points you have raised there will always be dissapointment on some sections in any budget. Also, it’s difficult for any new government to address all issues at one go when your economy is in a good stress. Whatever provisions have been made i am sure will benefit investors somewhere while may also need some issues to resolve. There are many which i have not mentioned but surely leads to some vision of long term planning.
Rest what matters more is the implementation for which its still early days to answer.
Dear Mr. Jitendra P. S Solanki,
You’ve misunderstood my UTI comment, tho’ we’ve moved out of the UTI. UTI laid the foundation for MF – BEFORE THE WORD “MF” WAS COINED – then had AUM of 64kcr & rest is history.
Today also it’s no close chapter & enactments awaited.
Only its offspring Axis Bank now in the forefront.
In policy paralysis what decision could have been taken? Who would have taken the decision?
The revenue Sec; Shaktikanta Das, at a CII function has stated the ‘concerns’, raised are being examined in all aspects.
Such a scaremongering aspect is untoward as the scheme essentially was for the benefit of retail investors.
Corporate’s contribute [approx] 75% of assets in liquid funds & approx 50% in other debt funds.
MF is the harbinger for retail investors, CBDT has yet to come out with its aspects on taxation, as stated by me, can’t be retrospective for AY2015-16.
However the move is [was] to correct disadvantage of bank FD’s & deposit mobilization, YET, w.e.f 18 th, SBI has reduced its short term FD rates by 50bps. Others will follow!
AMFI is lobbying with the FinMin, as well written to SEBI, to take up the matter with the govt.
The govt. is likely to put a investment cap & segregate corporate’s investing.
The jury is still out.
As ihad stated for FY14-15 it will be a perpetual budget as things move on. [today drought fears seem to recede as rains have picked up.]
Re – “REITS”, today there are ten co’s in different stages preparing a portfolio that can be ‘reited’, & I expect it to cross my estimate of 10bn over a period when more will come in. PE’s are keen.
Some prominent include DLF,RMZ Corp, Xander, Red FC, Embassy [Blackstone] et al; The incubation stage proposal, certain taxation aspects will be ironed out.
Min float will be 25% to ensure public participation & till the market develops it will only be for HNI’s & DII’s.
Further MSME’s may find it easier to raise funds, banks may accept movable assets as collateral. [MSME’s are our backbone.]
RBI has eased norms [for affordable housing] for banks infra development in this aspect. Banks exempt from mandatory CRR, SLR if funding such projects. Min seven years maturity bonds can be issued, borrowers interest rates can be lowered apart from 80C advantage.
The budget has helped everyone including senior citizens & have not taxed the rich also. The real budget will be there in Feb’15.
ONGC stake sell worth 3bn$ is contemplated, spectrum in the offing, world watching, 4.1%FD target. CAD comfortable as of now, oil moderating, infact OPEC has considered cutting down production by 113K bpd as lower demand, unless any crisis emanate to flare up prices for the Indian basket link.
Regards,
Mr. Vinay,
I fully agree with your views.