PERSONALISED INVESTMENT MANAGERS
Yesterday was indeed a momentous day. India’s first digital budget was announced by the honorable Finance Minister, keeping in line with the times of global digitalization.
A lot of expectations surround this Budget, especially since the economy contracted for the first time in this fiscal year FY2020-21 due to the impact of COVID 19.
After 5 years of fiscal consolidation, we are now seeing the Government moving towards an expansionary budget with spending increased towards Capital expenditure. Outlay for Capital Expenditure has increased by 26% from ₹4.39 Lakh Cr in FY21 to ₹5.54 Lakh Cr for FY22 with more emphasize towards road & rail networks, textile parks, ports etc. The recent pandemic enforced the Government to spend more on healthcare, and expenditure on the health sector has increased to 1.8% of GDP from 1.5% and total outlay for health is ₹2.23 lakh Cr.
With regard to direct taxation, Government has maintained ‘status quo’ and there are no changes in this budget.
Following are few highlights from the Finance Minister’s speech regarding the impact on Personal Finance and our view on the same.
Now in the 75th year of Independence of our country, when we continue our endeavor with renewed vigor, we shall reduce compliance burden on our senior citizens who are 75 years of age and above. For senior citizens who only have pension and interest income, I propose exemption from filing their income tax returns. The paying bank will deduct the Necessary tax on their income”.
Sinhasi View: As per this, there is no need to file ITR if the person is above 75 years of age which is a good move. However, this is only applicable if the person receives income only from pension and interest from fixed deposit/bonds & Banks will deduct the tax liability. However, in case of an income from capital gains & business/profession and dividends, the person has to file ITR.
When Non-Resident Indians return to India, they have issues with respect to their accrued incomes in their foreign retirement accounts. This is usually due to a mismatch in taxation periods. They also face difficulties in getting credit for Indian taxes in foreign jurisdictions. I propose to notify rules for removing their hardship of double taxation.
Sinhasi View: As per this, the GOVERNMENT WILL NOTIFY a set of rules at the earliest on this matter. As of now, there is no clarity on this from budget speech. We will need to wait for more details.
Sinhasi View: All the above measures are aimed to simplify compliance requirements. Pre-filling of Capital gains and dividend was announced in the earlier budget also and implementation from FY21-22 onwards is a good move.
In order to rationalize taxation of ULIP, it is proposed to allow tax exemption for maturity proceed of the ULIP having annual premium up to ₹2.5 lakh. However, the amount received on death shall continue to remain exempt without any limit on the annual premium. The cap of ₹2.5 lakh on the annual premium of ULIP shall be applicable only for the policies taken on or after 01.02.2021. Further, in order to provide parity, the non-exempt ULIP shall be provided same concessional capital gains taxation regime as available to the mutual fund.
In order to rationalize tax exemption for the income earned by high income employees, it is proposed to restrict tax exemption for the interest income earned on the employees’ contribution to various provident funds to the annual contribution of 2.5 lakh. This restriction shall be applicable only for the contribution made on or after 01.04.2021.Sinhasi View:
Government has proposed to sell partial holdings of LIC through the IPO route.
As per the budget speech, Govt has proposed to consolidate the provisions of SEBI Act, 1992, Depositories Act-1996, Securities Contract (Regulation) Act, 1956, & Government Securities Act-2007 into a rationalized single securities code.
Along with this, Govt has also proposed to announce an “Investors Charter” as a right of all financial investors across all financial products.
Sinhasi View: Consolidation is always a good move. We will need to wait and see about this proposals especially regarding details of the Investor’s Charter’.
As per the budget speech, Govt has proposed to move an amendments to the DICGC Act, 1961 in this budget session to increase deposit insurance cover from ₹1 Lakh to ₹5 Lakhs. The Government had approved the same last year itself.
Sinhasi View: This is a good move, since as per this proposal, if a bank is temporarily unable to fulfil its obligations, the depositors of such a bank can get easy and time-bound access to their deposits to the extent of the deposit insurance cover. This would help depositors of banks that are currently under stress such as PMC bank.
Government has proposed to issue tax efficient “Zero Coupon Bonds” towards infrastructure funding.
Sinhasi View: This is a positive step as it will be another investment avenue in debt asset class. We have to wait and see the key parameters of these bonds, related risk issues & its suitability to individual / institutional investors.