Tax & Investment Budget Primer

• Trust term: Choose a term plan as it gives highest cover at the lowest cost. Go for the maximum term or choose one that provides a cover till maximum age, say, till 75.
  
• Health is wealth: An individual health plan/family floater a must. Top it with a critical illness plan. For long term, take unit-linked health plans.
  
• Hold on to Ulips: If you have a unit-linked insurance plan (Ulip), run it for at least 10 years. If you are planning to buy one, go for a plain-vanilla Ulip that gives sum assured as well as fund value as death benefit.
  
• Retirement kitty: Choose a Ulip pension plan that comes without life coverage to boost your fund value.

• Don't invest now: If you were planning to invest in a new residential property, postpone your decision. Although supply in affordable housing has picked up since January, timely delivery of these projects remains under doubt.
• Go for: If you still want to go ahead, choose a ready-to-move property. Since it's hard to find one in the primary market, look for a project with delivery within the next 6-12 months. Don't bother about projects with delivery beyond 12 months.

• Trust the sheen: These are troubled times. Ensure that you keep at least 3-5 per cent of your investments in gold.

Budget 2009 has no reason for you to change your MF portfolio. If you have a time horizon of at least three years or more, equities is the way to go.

• For steady returns: Stick to large-cap schemes, such as DSP BlackRock Top 100, Birla Frontline Equity and Benchmark Nifty BeES.
  
• For the risk-inclined: Mid-cap schemes like IDFC Premier Equity and Birla Mid Cap Fund would do well for you.
  
• Watch out for: The mad rush for infrastructure funds. These are high-risk, high-return investments—one or, maximum two, of such funds in your portfolio are more than enough.

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• Increase in Tax exemption on home loans
• PPF-like tax status for the NPS
• Removal of Securities Transaction Tax
• Introduction of a real estate regulator for greater transparency
• Increase in the section 80C deduction limit
• Liberalising FDI norms for insurance sector

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Fringe Benefit Tax (FBT)

"The taxability of Esops is under review and a request has been placed for a relook."
Nishchae Suri, President, SOIL

Budget Proposal

• FBT on the value of certain fringe benefits provided by employers to their employees is abolished.

• Companies will now show expenses incurred on fringe benefits only as business expenses. Expenses incurred by employers for the benefit of a specific employee continue to be treated as perquisites.

• In most cases, employers used to pass on their FBT liability to their employees, which will not happen anymore. However, employees still have to pay perquisites tax on employee stock options (Esops).

"The courses for which banks are willing to lend are still limited."
Harsh Roongta, CEO, ApnaPaisa.com

Budget Proposal

• Deduction on interest on loans taken for pursuing higher education has been extended to cover all fields of study, including vocational studies, pursued after completion of schooling.

• Now tax benefits can be claimed on education loan taken to pursue any course/field of study after school.

• While the proposal is good, getting a loan above Rs 4 lakh will still not be easy. And, banks will be wary of lending to unknown institutions.

Even though no budget proposal has made any tax-saving investment option more attractive, you will need to invest and claim expenses to save taxes under Section 80C. Here are recommendations for three categories of people depending on the risk profile

High Risk

• People who keep 70 per cent of their money in equity and rest in debt (70:30)
  
• Keeping most of the portfolio in ELSS or Ulips and diversifying slightly into EPF, PPF and SCSS ensure better risk-reward

• Individuals keeping 50 per cent each in equity and debt (50:50)
  
• Adding market-linked products like equity-linked savings scheme and Ulips to the portfolio would bring in a small element of risk

• People with 100 per cent investments in fixed income options or debt instruments
  
• EPF and PPF are best for long-term, senior citizen’s saving scheme and 5-year deposits from banks and post offices for the medium term

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"Removal of surcharge is to encourage individuals to spend as they would have more cash in hand."
Gautam Nayak, CA, Mumbai

Impact

• Although the exemption limit has been raised, net savings would amount only to about Rs 1,000 for taxpayers; and Rs 1,500 for senior citizens. Removal of 10 per cent surcharge will translate into gains for taxpayers with income above Rs 10 lakh. Their net savings will be at least Rs 25,000 per year.

• The proposals will not change investors' approach in selecting Section 80C instruments as the increase in net savings is marginal. The removal of surcharge is a positive step only for those in the high-income bracket.

* in Rs lakh. As proposed in Budget 2009 for assessment year 2010-11. Present liability Includes 10 per cent surcharge and 3 per cent education cess. Post-budget liability includes 3 per cent education cess.

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"Exemption from DDT and STT makes NPS better than a mutual fund for long-term growth. However, we still seek parity with long-term investment products."
D. Swarup, Chairman, PFRDA

Budget Proposal

• NPS investments are eligible for tax deduction, including self-employed people. The NPS Trust is exempt from income tax. Funds invested in equity and derivatives are now exempt from STT.

• The NPS requires you to invest 40 per cent of your maturity amount into an annuity of your choice. Since the scheme is taxed at maturity, withdrawing the balance 60 per cent lumpsum will attract tax.

• Removing DDT and STT ensures the NPS is the most cost-effective long-term instrument, given its low cost structure. The core issue remains that the maturity amount is taxable.

"Apart from the marginal rise of the gold ETFs, there's not much impact. There's nothing more to it."
Sanjiv Shah, ED, Benchmark MF

Budget Proposal

• Customs duty on gold bars increased to Rs 200 per 10 grams, up from Rs 100 per 10 grams earlier.

• The net asset values (NAV) of gold exchange-traded funds (ETF) will increase by approximately Rs 10.

• The increase in the customs duty of gold bars would lead to a change of less than a per cent in the NAV of gold ETFs. The benefits of holding gold ETF in your portfolio remains.