19 May, 2015

Crystal ball gazing...

Budget is a yearly jamboree, which occupies our consciousness at the beginning of the year. It is a moot point as to whether we need to really get so worked up about the budget. It has minor impact at best, considering that there is going to be just tinkering around the edges.

As a society, we fuss too much over our tax outgo. That is not going to change in any significant way considering the deficits the government is running.  But still, people wait with bated breath for the budget, much like they would for a SRK starrer!

The perpetual lemon handler 

One of the things every Indian citizen who pays tax ( and hates it! ) wants is a reexamination of the basic exemption slab. Currently, it is at Rs.2.5 Lakhs. The reasonable expectation could be that this could go to Rs.3 Lakhs, considering that years of runaway inflation has eroded purchasing power so much so that, giving a bit more leeway on the basic slab should be conceded without argument.

The slabs themselves are not expected to change in any significant way. Direct tax code wanted the highest tax slab to start from Rs.25 Lakhs onwards. Alas… if only pious intentions get translated to law! This is not expected to happen anytime soon. So we may be stuck with Rs.10 Lakhs as the slab beyond which we pay 30% tax.

Sections need surgery 

Only last year the benefit under section 80C went up from Rs.1 Lakh to Rs.1.5 Lakhs. While this is a welcome move, this could have been bettered. Is it realistic to expect an increase in this? No, in my opinion. This will largely remain untouched.  There is not much scope in terms of any further leeway for any further concessions regarding education loans ( Section 80E).

One section that needs examination is Section 80D – Medical insurance comes under this. The deduction available under this section is Rs.15,000 pa ( Rs.20,000 for senior citizens ). Also, for one’s parents, there is a further Rs.20,000 pa, which becomes applicable. With ballooning inflation in the medical area, there is a case to reexamine the deductions given, considering the government does not do anything for it’s citizens and they need to fend for themselves. An exemption upto Rs.25,000 in a year, is a realistic figure today. For senior citizen parents an amount of atleast Rs.40,000 in a year, seems like an amount that may provide some decent cover.  Considering that the government is not providing any medical assistance, this is the least it could do.

Housing loan interest upto Rs.2 Lakh per year is available as a deduction. Considering the huge amount of loans one needs to take for buying a home, the interest outgo would be very high, in the initial years. There is a case to increase this to enable people to buy their homes. It is one of the professed aims of our government to enable citizens to have a roof over their heads. However, the deduction limit has gone up only last year and there is just as much chance of this going up as a yeti sighting!

The silvers need consideration 

Senior citizens may get a reprieve. The differential of Rs.50,000/- between the regular tax payer and the senior citizen is too small. A senior citizen is someone who has paid tax life long and has got almost nothing in return, except the promise of good governance! Senior citizens are still waiting for someone to redeem that pledge. So is it not fair to let them off the hook, now that they are over 65 and have propped up the government and it’s machinery for too long? It is.

Being a realist I expect the differential to stay at Rs.50,000/-. Optimistic notions of what can be expected, prompt me to up that figure to Rs.1 Lakh. That’s about what a senior citizen can expect – expect the initial tax exemption slab to go to between Rs.3.5 – 4 Lakhs.

Other sweeteners to mask the bitterness 

Rajiv Gandhi Equity Savings Scheme ( RGESS ) scheme can be made open to the public irrespective of their income level or without putting a condition about them being a first time investor. A complete revamp of the scheme is called for, if this is to be a meaningful vehicle for citizens. This may happen.

Also, instead of 50% credit, 100% credit may be considered after increasing the holding period to 5 years. After all equity is an asset class that does well in the long term.

There is a chance that fixed deposits in banks which qualify under Sec 80C, the lock-in period  may be brought down to 3 years instead of 5 years. This is to get parity with ELSS MF schemes. There is a strong bank lobby on this and this may happen. Actually it would be a better idea to increase the lock-in in ELSS from 3 to 5 years, instead of bringing down the tenure for bank FDs. It is actually better for equity assets to be locked in for longer periods.

Nothing is expected on the stock market front and status quo is expected to continue. More services are expected to come under the ambit of taxes and indirectly, we will all be paying more taxes. This trend would accelerate with the coming budget.

People desperately would want the tax-free bonds to come back. These long tenured bonds are a wonderful way to finance long gestation projects. Since there is huge demand for this, Finmin should consider bringing it in. There is a  good chance for this to happen.

As mentioned right in the beginning, the budget may not change much in our lives. There can be some changes, which we hope will positively impact us. But, there is no need to lose sleep over it. Budget will come and go…life goes on

Author : Suresh Sadagopan   |   Article published in Moneycontrol on 14/02/2015

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