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Budget ’21 Delivers No Material Boost To Common Man’s Personal Finances

The move to tax capital gains on ULIP’s with annual premiums exceeding 2.5 Lakhs is actually a hidden gem.

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While the Union Budget ’21 delivered the goods in terms of boosting capex, providing a much-needed fillip to infrastructure, and throwing a lifeline to ailing banks, it fell short once again in terms of bolstering the personal finances of the aam aadmi.

While the disconcerting fiscal deficit numbers made it difficult to bring about a tax cut, there were multiple other measures that have been part of “wish lists” for many years running, which could have been implemented this year; especially with the common man’s personal finances reeling in the aftermath of the pandemic.

First, the equity LTCG bugbear could have been done away with. LTCG on equities made an unwelcome return in 2018 after a gap of 14 years, and has added precious little incremental value to the exchequer. It’s an open secret that tax efficiency continues to be a key driver of investment decisions by most retail investors; and in an environment where investors are becoming increasingly risk averse and the Mutual Fund industry’s SIP book has been shrinking at an alarming rate, the abolition of LTCG tax would have gone a long way in harnessing household savings to power the capital markets ahead and reducing our dependence on FII inflows.  At the very least, the LTCG period for fixed income could have been brought at par with equity, in order to channelize more retail savings towards the ailing Indian bond markets.

The widely expected increase in the Section 24 rebate limit did not materialize. This move could have kick-started demand for housing to a degree, especially in the affordable and mid-segment categories. After all, the glut of unsold inventory remains a very key issue that the industry has now grappled with for years.

The archaic 80C limit itself is in desperate need for a re-look. AT the very least, it could have been made proportionate to one’s income bracket, thereby channelling a much larger chunk of HNI savings into the capital market through SIP-like products. After all, what’s Rs. 1.5 Lakhs for a person earning in excess of Rs. 50 lakhs per annum?

The move to tax capital gains on ULIP’s with annual premiums exceeding 2.5 Lakhs is actually a hidden gem. Insurance companies have long used this angle to prey on the tax-conscious Indian’s mind and lure them away from their better performing, more transparent and more cost-efficient counterparts – Mutual Funds. Hopefully, this move will channelize more premiums away from ULIP’s into pure protection products and Mutual Funds; both of which are much more value creating in nature.

Dividend payments by REIT’s and INVIT’s are no longer subject to TDS. That really doesn’t add much value to the common man’s personal finances, given that both products are not preferred investment avenues for them, and that TDS related benefits are really just a case of kicking the can down the road; often back-ending financial pressures much like a balloon EMI does.

Overall, I would say that the budget could have done a lot better to bolster our personal finances, especially in light of the challenges that 2020 brought with it. All eyes on next year, then.