Is the budget over-rated for our personal finances?
By iTrust Financial Advisors (www.iTrust.in)
When it comes to our personal finances, the annual budget is not really worth that much attention. Every year expectations build up that major tectonic shifts will happen that will impact our personal finances.
This year is no different. In fact, the expectations are even higher given the outcome in the general elections. The usual items populate the wish list of changes that are being talked about by pundits.
Here’s a quick compilation of items, by personal finance category, that could have an impact on our personal finances. But do keep in mind that not all of these could happen, or happen in the magnitude that they are expected to.
Stocks and Trading
Phase out of securities transaction tax and commodities transaction tax. The impact of this could be that trading could become marginally cheaper than what it is today.
Nothing major expected here. The big change, not a part of the Budget, was SEBI’s new policy on zero entry loads for mutual funds, i.e., no more fees paid out of our money to sellers of mutual funds.
The Life Insurance Council of India has asked for a separate limit for deduction under Section 80C for long term instruments like insurance. If this were to happen, the impact of this could be that one will get a higher annual amount for your tax deduction.
There is also talk of limiting the service tax on ULIPs to only the fund management charges. If this goes through, the impact will be to reduce the overall charges levied on one’s ULIP.
The annual limit under Section 24 for tax deduction on interest paid on an outstanding home loan is expected go up fro Rs 1.50 lakhs to Rs 2.50 lakhs. This will result in saving of up to approximately Rs 30,000 depending upon one’s marginal income tax rate.
Additionally, there have been strong demands for the deduction to begin as soon as loan repayment begins. Currently, the tax deduction is possible only when the home has been fully constructed.
Small Savings Schemes
The interest rate regime on schemes such as NSC, KVP etc. is expected to be brought in line with the prevailing market rates of interest. A reduction of 0.50% – 0.75% in the rate of return is expected. The impact of this will be that the returns from these small savings schemes will not be that appealing compared to other fixed return instruments such as debt funds, or even bank accounts.
Petrol and Diesel prices have already gone up by up to 10% as of the announcement on July 1, so the impact on our transport costs will clearly be felt.
Additionally, if LPG subsidies are also changed, they will likely impact our costs of operating our kitchen.
The Budget is clearly a guessing game for policy watchers, so lets see what happens on July 6 and how many items end up impacting our personal finances in a really meaningful way.