25 February, 2016

Budget 2016 expectations

We are coming to that time of the year when we look up to “Mai-Baap” – our Sarkar-  to change our life for the better!  It’s our fond hope that the Finance minister will wave the magic wand and pull out a couple of rabbits from the hat. Our expectations should not be too high on this front given the fact that there has been limited relief emanating out of these budgets, in the past. This time is going to be no different. Let’s temper down the expectations a bit and look at what we could realistically expect from the Finance Minister.

One of the things that the Aam  Aadmi is looking for is relief from taxes in some form. Hence, the clamour is for higher exemption limits. This time around there could be an increase in the basic exemption limit by Rs.25,000- Rs.50,000 for regular citizens and a similar amount of hike for Senior Citizens.  There is a case for having a senior citizen tax exemption structure starting at age
60, 70 & 80. For 60 & above the exemption is currently at Rs.3 Lakhs. For 80 and above ( Super senior citizen category ), it is Rs.5 Lakhs. One can look at Rs.4 Lakhs exemption for those above age 70. FM Sir, are you listening?

Most probably, the overall tax structure will not change as the current tax slabs are broadly accepted to be moderate.  Also, at some future point, Direct Tax Code may make it’s appearance again, when another overhaul is expected.  The surcharge of 10% for those above Rs.1 Crore is expected to stay.
The other item to focus on is regarding deductions.  Section 80C currently offers deductions upto Rs.1.5 Lakhs on a variety of investments like PPF, NSC, ELSS, Insurance premium, Principal component of home loan etc. There is a case for increasing this limit. But this may not happen. 

Instead, RGESS may be made available to everyone instead of just first timers & the tax deduction is expected to be upto 100% ( instead of 50% at present ). There is a Rs.50,000 deduction available if one invests in NPS under Section 80CCD, over and above the deduction under Section 80C. There could be such other new categories coming in where one may invest in insurance, for instance. But this is leading to a proliferation of different buckets in which to invest. It would be much better to allow one to invest in any of these, under one overall limit. But, this may not come to pass.

No change is expected in deductions available under Section 80D as the current Rs.25,000 deduction available, for the family itself is at a good enough point.  There are no changes expected in other Sections like 80E for Educational loan, Section 80DD & Section 80U which offer deductions for people with disabilities.

There could be small changes like it happened last budget in respect of the transport exemption hike from Rs.800 pm to Rs.1,600 pm.

There could be some big bang schemes which could address the needs of the economically lower sections of the population. In the past Jan Dhan Yojana & the Pradhan Mantri Jeevan Jyoti Bima Yojana, Atal Pension Yojana had been announced in the Budget. That pattern may be expected to continue this year as well. Which rabbits they may pull out of the hat here, remains to be seen.

There have been schemes like Sukanya Samriddhi Scheme which was introduced outside of the budget.  Hence, budget may not be the only platform for announcing new schemes. Even the latest changes in interest rate & credit spread announced in various small savings & fixed income products like Term deposits, PPF, Senior Citizens’s savings scheme, Post office MIS etc. are just before the budget.

There could be many Trojan horses which could nullify the effect of any tax breaks that one may get. That could come in the form of enhanced Service tax, in a bid to slowly take it up to the levels expected after implementing the Goods & Services Tax. Hence, this may go up to between 16-18%.  Similarly, excise & customs duties may be adjusted upwards on various items, some of which will bite the common man. This we have been seeing, budget after budget.

Those are the expectations.  Come end of the month and we will actually know what googlies are in store for us in reality!

Author    –    Suresh Sadagopan    |     Founder     |    Ladder7 Financial Advisories

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