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Empower Financial Consumers

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The presentation of the annual statement of accounts by the Union Government is not a mundane budgetary exercise. The recent intent of the government to address the burgeoning fiscal deficit through a flurry of economic reforms has increased expectations of a continued trend in the upcoming budget. A sustainable economic progression requires better tax compliance while widening the tax net of direct and indirect taxes. The whole effort should be aimed at improving the financial wellbeing across economic strata and reduce distortions amongst them. 
 
What the corporate and individuals do with their finances determines the gross domestic product of a country. In the same way as capital invested for increasing capacity and finally production adds to the financial muscle of a corporate, better financial discipline by individuals adds to wealth creation at unit level, and when aggregated the wealth of a nation. The annual budget is a small but a steady step in this direction. The policy direction should enable individuals to develop the ability to make informed financial decisions. The efforts should aim at financial literacy amongst the general public to manage their money. 
 
The availability of holistic, consumer-centric and ethical financial advisory is an integral component of the financial wellbeing of consumers. The recently issued Investment Adviser Regulations by the Securities and Exchange Board of India (Sebi) seek to establish the distinction between ‘Advice’ and ‘Selling’. There is also a need for convergence of regulations across the financial sector. So, instead of regulations being product or domain centric, they should empower and protect financial consumers. The Approach Paper released by Financial Sector Legislative Reforms Commission (FSLRC) emphasises this aspect. Further, the establishment of Self Regulatory Organization (SRO) for Investment Advisers which could make reforms participative and effective shall complement the activities of primary regulators in achieving the same. While the SRO may be established by Sebi, the same could be co-opted by other regulators as well. We expect significant developments on this front in FY2013-14 with an impetus to the progression of the businesses of financial planners. Additionally, for practicing independent financial planners, the impetus may also be provided in the form of enhancement in the limits for statutory audits under Section 44AB. Further, the service tax provisions could also be moderated for independent financial planners. 
 
Personal Tax
On the personal tax front, a moderation in the tax slabs is expected on account of rising inflation and the increased share of indirect taxation. The reforms like Direct Taxes Code (DTC), Goods and Services Tax (GST) would enhance efficiency of tax administration. With rising real estate prices, an adequate support is expected in raising limits for deduction from income of the interest on home loan under Section 24 from the present Rs 1.5 Lakh. The limit of Rs 1 lakh under Section 80C may be increased as well for investment in financial products across all domains for effective investments to meet life goals, particularly retirement. A separate limit for investing in retirement products like NPS, retirement schemes of mutual funds and insurers, EPF, PPF would be a good step in redirecting financial resources from Gold and Real Estate to the long-term capital requirement of the industry and the nation, while safeguarding retirement needs of a growing population of retirees in the coming decades. 
 
The principle of taxation should minimise personal taxes by promoting long-term investments on the Exempt-Exempt-Taxed (EET) model. From the perspective of Financial Planning, there should be ways in the budget in accordance with the principle of 1/3rd of the income being spent, the other 1/3rd saved and invested for meeting various life goals, and the balance 1/3rd utilised for servicing debt. The Union Budget 2013 should accordingly enable individuals to minimise their tax liability to negligible levels by investing 1/3rd income under various medium to long term instruments; while servicing their housing debt through the other 1/3rd of their income. Accordingly, various deductions available under sections Section 80C, Section 80CCC, Section 80CCD, Section 80CCG, Section 80D, Section 80DD, Section 80E as well as exemptions from capital gains under sections 54EA, 54EB and 54EC need to be streamlined to provide maximum benefits to the individuals. 
 
We hope that the Union Budget 2013 provides a pathway for an all inclusive economic growth and well being across all sections of the society. 
 
Mudholkar is vice chairman and CEO, Financial Planning Standards Board India (FPSBI). The views expressed here are personal