Dear Friends,
The budget this year has been a balancing exercise for the UPA Govt in general and the Finance Minister (FM) in particular. The need to continue with the Growth plank while still not losing sight of state elections this year and the General Elections next year is not easy. The budget could be classified as middle-of-the-road this year with no major upheavals either way. Disappointments with what has not been given along with relief of what further has not been taken away would aptly describe the budget.
We give below what is of actual concern to you, cutting through the clutter of reams of newspaper / website texts:-
| Budget Announcement | Impact on You | Our Take |
| For the lowest tax bracket (2L – 5L), tax credit of Rs 2000. | Savings of Rs 2000 in net tax. | |
| No change for mid and upper tax brackets. The same remains 20% for Rs 5-10L and 30% above that. | No impact on your effective income if you are in these brackets. | |
| Surcharge of 10% on taxpayers with annual income above Rs 1 Crore | Additional surcharges of 10% if you number among the official 42,800 elites in the country. | |
| No change in senior citizens’ tax slabs. | Tax will remain the same. | |
| Additional deduction of Rs 1L for interest paid on home loan if it is your first house, house value is up to Rs 40L and loan is up to 25L. | No change in home loan interest exemption for others – rules remain the same. | Need to plan the property well since the relief is quite good. However, choosing a home for yourself within a 40L budget may be tricky. |
| No change in IT Sec 80(C) Exemption | Tax savings will remain same under this with the limit being Rs 1L. | |
| Increase in limit For Rajiv Gandhi Equity Savings Scheme (RGESS) from Rs 10 Lakhs to Rs 12 Lakhs. Scheme extended to three years now but only first time investors remain eligible through demat account. | Relief for highest tax bracket now. Two additional years make it a better equity-linked investment. | First time investors need to be very diligent in choosing the funds available in this scheme. More so, because this scheme comes with a lock-in period. |
| For homes costing above 1 Crore or carpet area above 2000 sq ft, service tax paid on 30% of value now instead of on 25%, as till now. | High-end houses/flats get costlier. | Not much material difference for property in that range. |
| Excise duty on SUVs as also high-end sedans increases by 3% making them costlier by 15 – 50,000. | Be prepared to pay more if you desire higher car-status. | |
| Target of 4.8 fiscal deficit for FY 2013-14. | Government has achieved 5.2% of fiscal deficit target. If deficit indeed gets on the 4.8% route, capital markets can expect to set new benchmark by the year end. | |
| Inflation target set at 6 – 6.2% for next FY, encouraged by the latest inflation numbers. | Indication to RBI to reduce interest rates. If materialized, you can expect a decrease in loan rates and improvement in your long-term debt mutual funds portfolio performance. | Time seems right to invest in dynamic bond funds as debt portfolio and diversified funds in equity portfolio. However, need to choose intelligently with a lot of care and deliberation. |
All in all, the union budget for FY 2013-14 focuses on aggressive cut down in fiscal deficit, improving current account deficit and boosting the industry and capital markets. But ultimately what will matter going forward will be, how much the Govt will walk-the-talk in an election year.
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With regards,
Col (retd) Sanjeev Govila, CERTIFIED FINANCIAL PLANNERCM
CEO, Hum Fauji Initiatives,
Your Long-term Partner for Wealth Creation
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