There have been mixed reactions from different counters on the Budget. Even the stock markets fell immediately post the Budget and then rose. But the biggest question is - Is the Aam Aadmi going to have more money left in his pockets from the proposals indicated by the Finance Minister? Can the Budget make you rich? Let’s explore:
Tax Savings: Direct Tax proposals are the most interesting for the common man. This year, the basic income tax exemption limit has been increased from Rs. 2 lakhs to Rs. 2.5 lakhs. This means another Rs. 50,000 of the income will not be taxed, translating to a savings of Rs. 5,000. This is for people below 60 years. For senior citizens, the limit has been raised by Rs.50,000 to Rs. 3 lakhs, again indicating lower tax outflow. Surcharge rates and education cess rates have not been increased - another positive. The limit of eligible investments under Sec 80C has been increased from Rs. 1 lakh to Rs. 1.5 lakh which is another long awaited change. This means you can save your taxes for an additional investment amount of Rs. 50,000. Correspondingly, the annual limit of PPF investments has also been enhanced to Rs. 1.5 lakhs from Rs. 1 lakh. If you are staying in your own house and have a home loan on this house, then the eligible interest deduction for tax purposes has increased from Rs. 1.5 lakhs to Rs. 2 lakhs - meaning again, lower tax payout.
Cheaper products: Certain products like footwear, personal computers, sports gloves, diamonds, televisions and LCD/LED TV panels below 19 inches will become cheaper of the back of exemption/reduction in various duties. The free baggage allowance has been increased from Rs.35,000 to Rs. 45,000.
Easier processes: After this Budget, it will be easier for you to transact in many areas. First, a single operating demat account is proposed for all financial transactions. Second, KYC norms are also proposed to be uniform and inter-usable across the entire financial sector. These steps mean a lot of time and costs will be saved not only for the common man, but also for the industry as a whole. Easy portability of the provident fund accounts will be made possible as EPFO will now launch a uniform account number for the members.
Other measures: Apart from the above, other measures like increasing accessibility of insurance by raising FDI limits in this sector, special saving instruments for the girl child, more IITs, IIMs and AIIMs meaning larger education accessibility, funds for low cost housing, entrepreneurship and other such schemes will bode well for overall development.
On the flip side: The rate of tax on long term capital gains has been increased from 10% to 20% on transfer of mutual fund units, other than the equity oriented schemes. Also, the holding period for purposes of capital gains of such funds was increased from 12 months to 36 months. So if you are in the higher tax brackets, you may be better off holding to your units till 3 years are completed. This of course also depends on the quality of the funds you hold. The Income and dividend distribution tax will be levied on gross amount instead of amount paid net of taxes. This means you will be paying more taxes. Some products like cigarettes, pan masala, aerated drinks and imported electronic items can get costlier as these are subject to taxes/duties. The service tax net has been widened to include a lot more services. This means that you will have to pay more when you use these services.
A large proportion of people and industry experts believe that given the short period of time that the new Government has been in power, the proposals and efforts are commendable. On the personal finance side, small steps listed above can go on to increase the amount of cash in the common man’s pocket. However, a lot will depend on how the proposals are translated into action, especially on the economic development front. A faster growing economy with healthy Government finances is the true test of this Government, which will make the common man rich over the long period.
This article was originally published on Moneycontrol. The author can be reached at firstname.lastname@example.org