With this budget, the FM has said a lot, but there is a lot that he has left unsaid, which are just as important. But let me cut the bullshit and get to the point: what does this mean for you?
No Large Changes in Direct Taxes
Every year, we come to consider that there will be changes in the tax regime. This year, not so.
The No-tax slab is up to 1.8 lakhs for everyone.
- Upto 1.8 lakhs: no tax. (1.9 lakhs for women)
- 1.8 to 5 lakhs: 10%
- 5 to 8 lakhs: 20%.
- Higher: 30%.
(i.e. nothing else has changed other than the top slab)
Senior citizens may be happy, especially if they just turned 60. The age for "senior" comes down to 60 from 65, and they get the first 2.5 lakhs off tax. Extremely senior citizens who are above 80 get the first 5 lakhs tax free. (Brilliant!) The rest of the tax slabs continue to apply.
No Housing Loan Incentives (or disincentives)
A lot of expectations were in the budget to increase housing loan interest repayment exemptions beyond the 1.5 lakh limit. That has not happened. The Direct Tax Code takes out even the housing loan principal repayments for real estate. Again, a negative in that it was not a positive.
On loans of Rs. 15 lakhs, taken for a house that costs less than 25 lakhs, there will be an interest rate subsidy of 1%. That applied for sub-10-lakh loans on sub-20-lakh property last year.
Infra bonds to stay
20,000 rupees invested in infra bonds are tax-exempt, and that continues for one more year. But there is no increase in the limit.
Surcharges reduced to 5%
If you’re a company, you used to pay 7.5% surcharge on your income tax. (30% tax, and then the surcharge, and 3% cess, taking the net to 33.21%). Now you’ll pay just 5% surcharge, taking your percentage number to 32.45%. That’s a difference in tax of about 0.76%, which might be large if you’re a huge company.
If you’re a tax free company, you will pay 18.5% as Minimum Alternate Tax, rather than 18%. Eevn with the reduced surcharge, your net impact is higher – at 20.01% versus 19.93% earlier. Again, it depends on how big you are before you think this is not worth sneezing at. (If you really were that big, you wouldn’t be reading this blog, but anyway).
Foreigners can invest in Equity MFs
Yeah, now foreign individuals (not just NRIs and PIOs like now) can buy Indian equity mutual funds directly, if they follow KYC guidelines. They can’t follow KYC guidelines currently because that process needs a PAN card so don’t go jumping around just yet.
Secondly, investors in the US can’t buy many mutual funds like Fidelity, Franklin Templeton etc anyway because of US SEC restrictions. Assuming Uncle Sam is not willing to follow Pranab Mukherjee’s budget, you don’t get no satisfaction, US investors. (This may also apply to Canadian investors, I don’t know).
What is unsaid: They still can’t buy our debt funds, dammit. Banks are paying over 10% for even 100 day CDs in the money markets, and those guys will love anything that sounds like 5%. But we won’t let them in.
Foreigners can buy 5 year plus infrastructure corporate bonds
That limit was $5 billion (with $15B in other corporate bonds), which is now going to be $25B for infra-5-year-plus, making it $40 billion. Again, nice for the infra sector. Doesn’t change a thing for any body else.
Service Tax: You’ll pay more
Go to an air conditioned restaurant that serves liquor: you’ll pay 10.3% service tax. So now there is VAT, Surcharge, Service tax, Service Charges and Cess. I’m learning to cook. (What about takeaways? I don’t get service if I took away food no?) Update: it’s not 10% tax – 7/10th is ‘abated’ – so only 3% extra will be payable as service tax.
An centrally air conditioned hospital = 10% service tax. I absolutely hate this. But what to do. Update: it’s not 10% tax – 1/2 is ‘abated’ – so only 5% extra will be payable as service tax.
Take a flight and you’ll pay Rs. 50 more for domestic flights. Rs. 250 more for international economy. International business class and above paid 10% service tax anyway, but now you must pay that much even for domestic business class.
Update: Hotels charging more than 1,000 per day have 5% service tax.
ULIPs have to pay service tax on mortality charges. Now all investment products must.
Ask me questions, I will respond!
