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Personal Finance: The Blunt Cut
Budget 2017 fails to make any sharp moves in the personal finance section from home-makers to homeowners
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From home-makers to homeowners, all expected that Finance Minister Arun Jaitley would dole out goodies on the personal finance front, when he gave the Budget 2017 speech on 1 February. Experts had widely predicted a populist budget considering the recent demonetisation-led strife. To their surprise, only few of the expected changes came through.
“Budget has been slightly disappointing, with no announcement on retirement savings schemes, NPS or insurance,” says Naveen Kukreja, founder and CEO, Paisabazaar.com.
Broadly speaking, only two moves in the Budget stand to affect personal finances directly. First, the reduction in tax rates for the Rs 2.5 lakh-5 lakh slab from 10 per cent to 5 per cent, and second, the change in the definition of “long -term” from a capital gains standpoint for real estate, from three years to two.
A comparison of Budget 2017 vis–à–vis previous years, clearly underscores the fact that the FM has opted for “prudence over populism”. For instance, Budget 2016 had provided for an additional deduction of Rs 50,000 for first time home buyers, exempted 40 per cent of National Pension Scheme (NPS) withdrawals from taxes, and increased the allowable deduction of rent under Section 80GG for those who do not receive HRA, from Rs 2,000 to Rs 5,000.
In 2015, we saw an increase of Rs 10,000 in health insurance premium deductions under Section 80(D), an additional deduction of Rs 50,000 on NPS contributions under Section 80(CCD), and the Sukanya Samriddhi account being made tax free. Senior citizens over 80 who are not covered by health insurance, were given a deduction of Rs 30,000 towards their medical expenditures.
In fact, Budget 2014 had turned out to be surprisingly “Acche Din”. It had raised Section 80(C) limits from Rs 1 lakh to Rs 1.5 lakh, hiked the personal income tax exemption limit from Rs 2 lakh to Rs 2.5 lakh, and increased deduction limits for interest paid on home loans from Rs 1.5 lakh to Rs 2 lakh. In comparison, Budget 2017 has been a non-event for personal finance.
Arun Thukral, MD and CEO, Axis Securities, is of the view that by not overextending on the personal finance front, the FM has successfully walked the tightrope of maintaining fiscal prudence and taking populist measures. “Although there were expectations of relaxing the tax incidence on tax payers, the overall budget was focused more on improving consumer sentiment and stoking consumption,” says Thukral.
In a noteworthy step, the FM also capped the allowable cash payment for any purpose to Rs 3 lakh, reaffirming the government’s push to curb black money within the economy by promoting digital payments. However, barring the waiver of service charges on e-tickets booked through IRCTC, no specific incentives for encouraging consumers to make digital payments were announced.
Insurance industry experts had anticipated some form of tax relief on annuity incomes, as well as a relook current Section 80(D) deduction limits that have remained unchanged since 2015. At 0.7 per cent of GDP, India remains vastly underpenetrated on the general insurance front; with rising medical costs, rapidly proliferating lifestyle diseases and instances of road accidents, this is an area of much concern.
No announcement on the GST applicable to insurance premiums was made either. This means that the tax rate applicable to term and health insurance premiums, and to the “risk” element of other forms of insurance premiums could be discouragingly high at 18 per cent. Widespread expectations for a revised limit for Section 80(C) deductions were quashed too.
For mutual funds, barring the marginal increase in disposable incomes by Rs 1,000 or so per month, no other positives emerged. Whether the industry can capture this opportunity smartly to increase its overall SIP (Systematic Investment Plan) book, remains to be seen. Additionally, given that the marginal propensity to consume is highest in the sub-Rs 5 lakh income bracket, it is likely that the bulk of excess savings generated thus, will flow towards consumption rather than savings. The increased thrust towards infrastructure, at Rs 3.96 lakh crore, could benefit thematic infrastructure funds in the long term.
On the real estate front, the granting of infrastructure status to affordable housing will provide the developers of such projects access to cheaper sources of capital. Coupling this move with additional incentives for first-time home buyers, and providing an increased limit for deducting home loan interest under Section 24 could have helped address the dual problem of oversupply and muted demand more effectively. “The Budget missed giving any additional income tax incentives to first-time home buyers or providing higher tax savings on housing loans and house insurance premiums. Nor did it raise house rent deduction limits”, observed Anuj Puri, Chairman and Country Head, JLL India.
Overall, there was precious little in this year’s Budget to buoy one’s personal finances significantly and drive investor behaviour in the right direction.