February 28, 2013

Budget 2013-14-Implications on your Personal Finance

It is common to all of us to seek more concessions from every budget government present. But at the same time few of our hopes get fulfilled but not many. It is difficult to say which is dream come true budget. Because each individuals needs are different. Hence I will not say that Budget is neither a wonderful or totally pathetic. On budget day, I updated the points as was news breaking. Now let us look at actual review.

1) Tax Slabs and Rates-FM maintained the same tax slabs and rates for coming year too. But the only advantage he showed is Rs.2,000 cash benefit to the tax payers whose taxable income Rs.2,00,000 to Rs.5,00,000. Below is the current slab and the effect.Tax Slabs-2013-14

2) Rajiv Gandhi Equity Savings Scheme (RGESS)-Two major changes for this scheme. As of now only tax payers whose taxable income less than or equal to Rs.10,00,000 are eligible for investment in this scheme. Now this limit raised to Rs.12,00,000. One more important change done is, you can claim the benefit instead of current one year to three years. It means that you can carry forward the current year investment tax benefit till 3 years. But I dont no how these two changes will really a game changer for RGESS.

3) Tax Free Bonds– This year too Rs.50,000 Cr. worth Tax Free Bonds will be allowed. So happy note for risk free+Tax worrying investors.

4) Inflation Linked Bonds-It is proposed about floating Inflation Linked Bonds which is the hedging tool again inflation. But awareness about bond market is totally nil. So dont know how this will affect individual investors. As of now few used Gold as the hedge against inflation. May be the intention is to promote other than gold options. Let us see how this will unfold in future.

5) Additional Tax Benefit for Home Loan-A person taking a loan for the first home from a bank or a housing finance corporation upto Rs.25,00,000 during the period 1st April 2013 to 31st March 2014 will be entitled to an additional deduction of interest of Rs.1,00,000.  Please note the underlined wordings-This offer is only for new home loaners, your loan amount must be within Rs.25,00,000 and the period is only for 2013-14. Eventhough seems to be attractive but in my view only few can benefit from this. Also no clarity about the continuation of this benefit for future.

6) Insurance branches-Insurance companies will be allowed to open branches in Tier II cities and below without prior approval of IRDA. All towns of India with population of 10,000 or more will have an office of LIC and at least one public sector general insurance. We can welcome this move, as this will increase the penetration of insurance in India. But will it stop the mis-selling?? Don’t know 🙂

7) KYC-A big relief for all insurance seekers as KYC of banks is enough for purchase insurance.

8) Banks allowed to sell Insurance-Banks will be allowed to act as insurance broker to increase the penetration of insurance. But it is the hard fact that currently lot of mis-selling is happening through these banks only. Don’t know how this move will actually enhance the true insurance seeker.

9) Vehicle Claims-This I think will applies to public sector general insurance companies only. Their are around 10,00,000 motor third party claims that are pending. Hence it is now proposed to organise adalts to settle these pending claims. So your pending claims may get settled soon 🙂

10) Relaxation in Disability Insurance Premium-Relaxation in the eligibility conditions of life insurance policies for persons suffering from disability or certain ailments by increasing the permissible premium rate from 10% to 15% of sum assured. This relaxation will be available for policies issued on or after 1st April 2013. This announcement we may call it as a truly beneficial for the concerned.

11) Donations to Central Govt Health Scheme-Donations made to Central Govt Health Insurance Scheme are eligible for deduction under Sec 80D of Income Tax.

12) TDS on Property sale of of above Rs.50 lakhs-Now their will a 1% TDS on the value of transfer of immovable property where the sale consideration exceeds Rs.50 lakhs. But this TDS will not be applicable to agricultural land.

13) STT reduced-Security transaction tax is reduced for following categories.

  • Equity Futures-From 0.017% to 0.01%
  • Mutual Fund/ETF redemption at AMCs-From 0.25% to 0.001%
  • Mutual Fund/ETF purchase/sale on exchanges-0.1% to 0.001%

14) Commodities Transaction Tax (CTT)-From now onward their will be CTT at 0.01% on the price of trade in future commodity market. But this CTT not applicable to agriculture related trading. So for the traders of gold, silver and other metals or segment this may be bad news.

15) DTC coming soon!!!-DTC will be introduced in parliament in the budget session only. But their is no hope that this will come into effect from 2013-14.

16) Dividend Distribution tax on Debt Funds-Below is the table that will explain you about the change. This will actually discourage the investors from investing in liquid and debt funds. So instead of opting for dividend better to opt for growth option. Eventhough you are not paying directly but it will be paid from investors fund. So growth of NAV will impact. Funds that will get affected by this move are Gilt Funds, Bond Funds, Income Funds, Balanced Funds (Equity exposure is less than 65%).

DDT

Hope this may give you the gist of Budget 2013.

 

 

9 Comments

  1. This may require a correction. In the table for Tax slabs, for very senior citizens earning upto Rs 5 lakh, you have correctly mentioned that tax rate is NIL. But in the next column, you have mentioned that Rs 2000 is given back 🙂

    Reply
    • Bhushan-The table what I showed is correct. Rs.2,000 cash benefit to the tax payers whose taxable income Rs.2,00,000 to Rs.5,00,000 for all age group. So for very senior citizens they need not pay any tax but they are eligible for Rs.2,000 credit back. Hence I showed it. Hope you got the point now.

      Reply
  2. I have been buying dividend paying MF’s, is it a good option or growth a better option.

    Reply
    • Nitin-it is based on your requirement. If you need some returns back in terms of dividend then you can opt for dividend. If you totally concentrating on growth of your invested money then growth option is better.

      Reply
  3. Hi Basu,
    Please explain ” 27) Non-equity Mutual Fund distributed Income Tax doubled to 25%.”

    Reply
    • Rotti-Please wait for my final touch to this post which you will see within day or two.

      Reply
    • Rotti-Hope by looking at second table about STT, you got the answer to your doubts.

      Reply
    • Shiva-Expected 🙂

      Reply

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