We saw a deluge of analyses coming on Budget 2014 right from 11th July 2014. However, we chose to wait for clarifications and finer details so that readers get the right perspective for themselves.
People would have different opinion about the budget depending on their own profession and field. However, from investor and taxpayers point of view, we have made an attempt to list down few good things and few not-so-good things about the budget.
What’s Good ?
a. Add your PF deduction of the entire financial year.
b. If you have a home loan, add the principle repayment amount of your home loan. (You need to obtain a loan repayment schedule from the bank for exact figures).
c. If you have a term plan, add your term plan premium. If you don’t have a term plan yet, immediately buy one.
For example, if you have Rs. 4000 as your monthly PF deduction. Then you would have Rs. 48,000 towards PF. Then lets say your home loan principle repayment adds up to Rs. 60,000. And you have a term plan with an annual premium of Rs. 10,000. So now these 3 items add up to Rs. 1,18,000. Thus, you only need to invest Rs. 32,000 towards your 80C. Till last year, you might be investing more than Rs. 1 Lakh but getting tax benefit for only Rs. 1 Lakh. This year, plan in advance to get the full benefit.
3. The maximum limit u/s 24B has been hiked to Rs. 2 Lakhs from 1.5 Lakh earlier. This could come as a great breather for those already having home loans and who are servicing EM Is. Those who have recently availed home loans, would have a higher component of interest in their EMIs in the initial years. Thus, this increase in exemption would help them to save some tax. Someone in 30% tax slab can get a tax saving of as high as Rs. 15,000 with this. Also, those couples having double income can save upto Rs. 30,000 given that :
a. Both are co-owners of property
b. Both are co-applicants of home loan
c. Both are contributing towards EMI
However, for those who are looking to buy property as an investment are advised to view this with caution. Sec 24B is applicable on self occupied property. For rented out properties, entire interest can be set-off against the rent received. Thus, there is no change on that.
4. Other than above, there have been certain measures taken which would contribute towards overall growth of the economy. This could result in equity markets giving good returns. Thus, investing systematically in diversified equity could be helpful in wealth creation.
What’s Not-So-Good ?
What can we do about it ?
As they say, there is no point in crying over spilled milk. Investors now need to tweak their strategies and see how they can benefit (or at least reduce loss).
Life is pretty much same for those in 10% slab as If they redeem debt mutual funds after 1 year, they will still pay 10% on the gains.
Life is slightly different for those in 20% slab as they will have to invest with a time horizon of more than 36 months if they want to reduce tax liability.
5. If you are in 30% tax slab, FDs and Debt Mutual Funds have become at par for a period of less than 36 months. But if you want to invest for more than 36 months, debt mutual funds still give you tax arbitrage. FD income will be taxable at 30% whereas debt mutual funds will be taxed at 20% with indexation.
p style=”text-align: justify;”>All-in-All, the budget comes with a mixed reaction. But that’s how life is. You cant expect every day to come with a good news. You can just have a positive and receptive mind, which accepts every challenge as an opportunity, and take best possible advantage of the same.
We look forward to your valuable comments and feedback.
The Author Prof. Saurabh Bajaj is CEO with Nidhi Investments, Mumbai. He may be contacted on CEO@nidhiinvestments.com if you have any questions.
(The views mentioned in the article are personal opinion of the author)