After having weathered two years of back-breaking inflation, the aam aadmi doesn’t quite know whether the recent trend of abating prices is for real. Will this lull—and the fresh options served up by Budget 2013—prompt some to firm up on investment planning for the future? Outlook Money offers a primer to make the most of these testing times.
“The KYC proposal will help everyone. Customers won’t have to duplicate the entire process. It will also help control frauds, they usually happen in this process.”
MD and CEO, HDFC Life Insurance
Proposal: Banks will be permitted to act as insurance brokers
Impact: Wider choice under one roof while buying life and general insurance. Opens doors for bias as well as mis-selling.
Proposal: KYC of banks will be sufficient for insurance policies.
Impact: Speedier KYC process, less hassle and more convenience for you.
Proposal: To claim tax deduction under section 80C and for receiving tax-free proceeds under a life insurance policy, the premium payable should be 15 per cent (10 per cent earlier) of the sum assured for persons with disability or disease
Impact: Good for the disabled who can get tax-free proceeds. Will help offset higher premiums they now pay compared to able-bodied people.
Proposal: Insurance companies will open branches in Tier-II cities and below without prior IRDA approval. Towns with a population of 10,000 or more to have an LIC office and at least one public sector general insurance company by March 31, 2014. Besides, group insurance products will now be offered to homogeneous groups like schoolteachers, nurses, etc.
Impact: People in smaller cities will have easy access to insurance policies. There may be challenges in ensuring claim settlements and service.
Proposal: Public sector general insurance companies to form adalats to fast-track pending motor third party claims.
Impact: Traditionally, insurance companies have not been amiable to looking at claim settlement from the consumer’s perspective, how these adalats pan out remains to be seen.
Photograph by Sandipan Chatterjee
Anamika Ganguly, 27, Senior advertising executive, Calcutta
My investments: I invest in fixed income instruments‚ FDs, RDs and post office schemes, not in equity.
My take on Budget 2013: For me, the budget has been a non-event. There are no tax incentives for the common taxpayer. Eating out getting costlier will certainly hurt. Taxing the super-rich is a good move, but compliance needs to be stricter.
Banking & Loans
Proposal: Additional income tax deduction of Rs 1 lakh on interest paid on a loan of up to Rs 25 lakh for first home
Impact: Including existing Rs 1.5 lakh deduction in income tax on interest paid on home loan for self-occupied property, you would be able to save more taxes depending upon your tax bracket with total deduction of Rs 2.5 lakh on interest paid on home loan if you are a first-time borrower. Only beneficial to people who can afford homes within Rs 25 lakh, no relief to people in large metros.
Proposal: All public sector banks to have ATMs in all their branches by March 31, 2014.
Impact: Will reduce financial transaction time in bank branches and also provide more convenience in terms of ATM access. May have a minor impact on transaction costs.
Photograph by Jitender Gupta
Ashok Tiwari, 32, Chartered accountant, New Delhi
My investments: I have investments largely in PPF, mutual funds and shares. I also have a life insurance policy.
My take on Budget 2013: It is a flat budget with no tax benefits for the common man. It was largely about rich people rather than the common man.
Debt & Commodities
“The proposals will help boost housing sales in tier 2 and 3 cities and suburbs, but not within metros where housing is targeted towards the middle and upper income groups.”
Chairman, Country Head, Jones Lang LaSalle India
Proposal: Introduction of Commodities Transaction Tax
Impact: Negative for the commodities derivatives market as the cost of trades would go up, pushing away day traders who provide the maximum volume to the market. Their absence would reduce liquidity and make trading in commodity derivatives riskier.
Proposal: Introduction of inflation-indexed bonds
Impact: It will provide another avenue for risk-averse investors to hedge investments instead of parking their money in gold. Exact details of the schemes are awaited.
“The extension of RGESS benefits up to 3 investment years would allow young and fresh investors a more committed perspective to equities.”
CEO, Kotak Mahindra Mutual Fund
Proposal: Securities transaction tax (STT) to be reduced from 0.25 per cent to 0.001 per cent on MF redemptions and from 0.1 per cent to 0.001 per cent on ETF sale.
Impact: Lower STT will boost investment sentiment and increase retail participation as fund buyers will get more money in their hands at the time of redemption.
Proposal: Raise current surcharge from 5 per cent to 10 per cent on dividend distribution tax.
Impact: Less money in your hand if you opted for dividend options from debt investment instruments such as debt funds and liquid funds.
Proposal: The Rajiv Gandhi Equity Savings Scheme will be liberalised to enable first-time investors invest in mutual funds and listed shares along with the earlier list of instruments. Besides, now it does not have to be in a single year, but over three successive years. The income limit will also be raised from Rs 10 lakh to Rs 12 lakh.
Impact: With the higher income limit, you can get the tax benefits by investing in the equity market in three successive years.
Proposal: Duty-free import of gold raised to Rs 50,000 for men and Rs 1 lakh for women travellers
Impact: This would be a welcome move given that gold prices have risen sharply in recent years. Gold jewellery abroad is better in quality, especially in West Asia, so you will benefit from this move.
“If CTT is imposed, we may see low intra-day activity as it would add to the cost, challenging the purpose of the commodity derivatives markets.”
Head-Commodities, Nirmal Bang
Proposal: Tax credit of Rs 2,000 to every person with total income upto Rs 5 lakh.
Impact: If your total income is within Rs 5 lakh, you stand to gain Rs 2,000 by way of reduced tax.
Proposal: Introduction of new surcharge of 10 per cent for tax payers with income above Rs 1 crore. This surcharge will be for only one year—FY 2013-14.
Impact: You end up paying more as taxes not just as an individual but also as HUFS, firms and entities with similar tax status.
Proposal: 1 per cent TDS on the value of transfer of immoveable property where the consideration exceeds Rs 50 lakh, agricultural land exempted.
Impact: Houses costing Rs 50 lakh will become more expensive. Expected to dampen speculative interest in real estate. However, also increases scope of cash deals especially where transactions are a little more than Rs 50 lakh.
Proposal: Abatement on service tax from 75 per cent to 70 per cent availed by real estate developers for high-end housing with a greater component of services, above 2,000 sq ft or costing over Rs 1 crore
Impact: Will impact cost of houses, especially in big cities, and also of luxury homes that tend to come attached with extra services.
“Lower STT could have a sentimentally positive impact on equity futures. But the markets will look forward to the reforms being continued by the government outside the budget.”
CMD, Angel Broking
Proposal: The STT on equity futures to be reduced by over 40 per cent from the existing 0.017 per cent to 0.010 per cent
Impact: Traders would now pay only Rs 10 for trade worth Rs 1 lakh, down from Rs 17 earlier. This should have a positive impact on markets but would bring greater cheer for speculators rather than long-term retail investors.
Proposal: Rs 14,000 crore to be infused into public sector banks next fiscal to help them meet the new Basel III norms
Impact: PSU bank stocks would have limited positive impact as the capital infusion would help grow the banks’ balance sheets.
Proposal: Rs 50,000 crore tax- free bonds can be expected next year. Tax holidays for power plants extended till March 2015.
Impact: This would help infrastructure firms that require funds to finance their projects with long-term money. Extended tax holiday to benefit power generation plants to lower mounting losses.
Disclaimer: Outlook and Outlook Money do not accept responsibility for any investment decision taken by readers on the basis of the information given here. The objective is to keep readers better informed and help them decide for themselves.