Having learned to live with the two eternal constants—death and taxes—the aam aadmi is waking up to a third nightmare: inflation. With so signs of the price spiral letting up, and Budget 2011 not expanding room for manoeuvre, crafting an effective investment plan remains a tough task. Outlook Money offers a primer to make the most of these testing times.
|One per cent interest subvention for housing loans. Limit has been increased to cover housing loans of Rs 15 lakh where the value of the house is not more than Rs 25 lakh.||The enhanced limit will benefit people in lower income groups. However, given that property prices in metros are unreasonable and demand is high, the search for affordable purchases will push consumers to the suburbs. Look for value deals.|
|The limit for housing loans in the affordable category raised to Rs 25 lakh from Rs 20 lakh.||This addresses price escalation. Will also benefit people who purchase property in Tier-II and Tier-III cities.|
|The setting up of a Central Electronic Registry under the sarfesai Act, 2002, to prevent frauds in loan cases involving multiple lending from different banks on the same immovable property.||This will help clean up the housing finance market. Fraudsters would be unable to take multiple loans for the same property and legal checks on the property will eventually be possible. This is also a move towards electronic registry of residential units.|
|“The affordable housing sector will get a boost from these proposals. Once you’ve identified a property to buy in the Rs 30 lakh bracket, ask the lending institution if the project has been approved by them or not.”
Pranab Datta, vice-chairman & MD, Knight Frank (India)
|Insurance And Pensions|
|For unit-linked plans, tax shall be charged on the portion of the premium other than what is allocated for investment. Also, the tax rate for traditional policies is being increased from 1 per cent to 1.5 per cent.||This taxation will affect ulip yield by at least 20-25 basis points. Similarly, in traditional policies, an increase of 50 basis points of service tax is expected to bring down the net yield. You might want to recalculate your return on investments again.|
|The Union finance minister has proposed to impose a service tax on all hospital bills whether paid by you or by your insurance company. The definition of service has also been widened to include diagnostic and doctor fees. The only good news is that the tax rate has been reduced from 10 per cent to 5 per cent.||While we don’t know yet if this will be reviewed, be prepared to up your health insurance cover to factor in these additional costs. Some employers may also ask you to pay a greater portion of the premium as well.|
|Under the New Pension Scheme, exit norms under co-contributory pension scheme ‘Swavalamban’ is relaxed to 50 years from the current 60 years. Benefit of government contribution is also extended from three to five years for all subscribers.||Flexibilities and government contributions should help make nps popular among masses. Once cleared, the pfrda Bill will enable a regulator and give more freedom to subscribers for investing their retirement money.|
|“Service tax on hospital bills is currently paid by the insurance companies and hospitals have to bear the cost. To create a level-playing field, the FM has now announced that no matter who pays the bills, there will be a service tax.”
Bhargav Dasgupta, CEO & MD, ICICI Lombard General Insurance
Shalender Kanodia, 36, Senior Manager, Perfect Accounting
My investments: Approximately 15 per cent of savings in shares and 30-35 per cent in mutual funds; remaining savings in LIC endowment policies, and Public Provident Fund (PPF).
My take on Budget 2011: I am disappointed; there is nothing much for an individual in the budget. I was expecting a number of things from the finance minister. However, I got just a Rs 20,000 increase in the income exemption slab, which is actually peanuts. Moreover, nothing much in the budget to check growing inflation. Apart from that, a new income exemption slab been introduced for 'very senior citizens'. It's of no use because very few people in that category have any income.
|The government has increased spending on infrastructure by 23 per cent to Rs 2,14,000 crore.||Many sectors will be impacted positively by this, but the major beneficiaries will be engineering and construction companies.|
|The government has set the fiscal deficit target at 4.6 per cent.||Control on government borrowing ensures private investment is not crowded out. This is positive for the economy. The upward pressure on bond yield should drop—positive for banks.|
|Minimum Alternate Tax (MAT) rate increased from 18 per cent to 18.5 per cent. The surcharge on domestic companies will be reduced from 7.5 per cent to 5 per cent.||Whatever impact the increase in mat may have had gets largely nullified by reduction in surcharge.|
|“I think there is nothing overall in the budget that should make market sentiments negative. The current market provides an extremely attractive level. All the negatives seemed to have already been priced in. From hereon, the outlook for the next 12 months looks positive.”
A. Sandip Sabharwal, CEO-PMS, Prabhudas Lilladher
| Sakshi Gupta, 24, Manager, Indofil Industries, Mumbai
My investments: Rs 15,000 monthly in SIP and yearly investment in infrastructure bonds and PPF for tax-saving. No loans.
My take on Budget 2011: There was no further IT relaxation for women. No excise duty increase is a boost for the manufacturing industry and market sentiments. Increased service tax on AC restaurants serving liquor, branded clothes, air travel and other luxuries is going to increase my indirect tax payments. The Direct Tax Code is proposed to be implemented from April 1, 2012, so hopeful it's on time.
|SEBI-registered mutual funds can now accept subscriptions from foreign investors who meet the KYC requirements for equity schemes.||This will help the mutual fund industry to add a new class of foreign individual investors. As this is retail investor money, it is expected to provide stable and long-term money for the Indian MF industry. No impact on domestic mutual fund investors.|
|“If the Indian economy is growing at 8 per cent or above, it means growth for the capital market as well. Investors should remain focused on their own asset allocation rather than going for a specific theme.”
A. Balasubramanian, CEO, Birla Mutual Fund
Utpal Mukherjee, 50, works for PwC, Calcutta
My investments: All investments in PPFs, as I believe only in government investments. No direct or indirect equity exposure. Have home loan EMIs for another 11 years and a car loan.
My take on Budget 2011: A higher IT exemption till Rs 2 lakh would have been better. The subsidy of 1 per cent on home loans up to Rs 15 lakh a good move for the middle class. Prices of some electronic goods like ACs, refrigerators to come down, which is a positive.
|The exemption limit has been raised from Rs 1.6 lakh to Rs 1.8 lakh. For senior citizens, it is at 2.5 lakh, up from Rs 2.4 lakh. No change for women this year.||Savings of Rs 2,060 for all taxpayers other than women. Senior citizens will save Rs 1,030. All in all, minor relief for individual taxpayers.|
|Age for tax purposes for senior citizens reduced from 65 to 60.||The 5-year wait after retirement to get tax advantage is over. Flat sum of Rs 90,000 becomes tax-free.|
|A new category, Very Senior Citizens, created for those above 80 with an exemption limit of Rs 5 lakh.||Retired individuals and pensioners gain the most. Flat gain of Rs 2.5 lakh of tax-free money.|
|To continue with the additional deduction of Rs 20,000 for investment in long-term infrastructure bonds under section 80 CCF.||Taxpayers may continue investing in them. Additional savings of Rs 2,060, Rs 4,120 and Rs 6,180 for those paying 10.3, 20.6, and 30.9 per cent tax respectively.|
|“I didn't expect too many things as DTC would be applicable from next year. The government probably didn’t want to do things that would have a shelf life of just a year. There has been a minor relief for the common man, especially for the lower-end assessee.”
Amitabh Singh, Partner (tax & regulatory services), Ernst & Young
K.S. Ranganna, 78, retired executive, Chennai
My investments: No investments in stockmarket or MFs. No yearly investments, existing investments all in fixed deposits. No loans.
My take on Budget 2011: Tax-free slab for senior citizens over 60 years has been raised only by Rs 10,000. It should have been increased to Rs 3 lakh. Medical bills and hospitalisation costs going up is not good news for people my age. There should have been a proposal to give senior citizens the benefit of higher interest rates on bank FDs.
|Year Gone By, Financially|
|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.|