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Budget 2013: Will common man be able to save more?

By Aditya Prasad
Budget 2013: Will common man be able to save more?
Year after year increasingly Budget for the common man is all about looking forward to answer one question- Will I be able to save more? Before we put in our expectations a quick glance at some of the numbers Finance Minister will be looking into before formulating this year's Budget.

Snapshot: The savings rate in the country has declined from 34% last year to 30.8% this year. Adding to this, statistics point out that households prefer physical assets like gold and property over financial assets. In FY2012, 64.1% of the total household savings were parked in physical assets while only 35.9% made way to financial assets. Coming to banks, the credit growth has seen a substantial rise at 16% while the deposit growth is only at 13%.

These figures don't auger well for a developing economy like India.

If one has to go by the comments from the Finance Minister thus far, common man can be rest assured that there will be no major changes made in the tax slabs.

However, inorder to increase tax collection, there are talks about higher income tax rate on the ‘super-rich' or surcharge on tax in the highest income bracket could be on the cards.

To start with, there can a few other surprises for the average Joe in terms of increasing the tax saving deduction limit in investment instruments such as ELSS, equities, longer-duration fixed deposits, tax-free bonds etc.

The basic premise for the above is based on Government's efforts to direct household savings away from non-productive assets like gold into financial assets for funding infrastructure and industrial investment and ease CAD issues.

Like Rajiv Gandhi Equity Savings Scheme announced in the previous budget, we may see inflation linked bonds being announced this year.

Inorder to address the drop in savings in insurance and equities, Government is likely to tweak regulatory or tax structure for insurance products. With respect to medical insurance, there are hopes about tax exemption limits being raised.


To prop up investments, the Government may step in with plans for a deeper corporate bond market. Also, there may be proposals for investment tax credit, depreciation benefits, a cut in the withholding tax rate for debt instruments and a holistic policy for foreign investments.

There can also be a case for reintroduction of tax saving infrastructure bonds.

For the capital markets, expect the Budget to come up with measures to improve the depth of the market in the form of rationalization of STT.

Also, scope of Rajiv Gandhi Equity Savings Scheme may be widened and made more attractive to attract investors to the scheme.

Author: Aditya Prasad, Chief Evangelist @Perfios Software.

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