Budget 2013- A mixed bag for investors

Updated: Saturday, March 2, 2013, 10:56 [IST]

The highly anticipated budget was being laid in parliament by Mr. P Chidambaram on 28 Feb 2013. The expectations from middle class and investor lobby this time were higher due to steep rise in inflation in the last few months. Finance Minister tried to meet some aspirations but fell short on many others. All in all it was a mixed bag if reforms and deficit where the two parameters.

Steps in Favor

The steps that the Finance Minister took in the right direction are as under:

Home loans

First time home buyer has been given a relief of the additional deduction of Rs 1 Lac over and above the existing Rs 1.5 Lac if the person takes a loan from a bank or housing finance company of up to Rs 25 Lac. The Finance Minister also set a period of 1.4.2013 to 31.3.2014 for such loans. The idea is to promote home ownership and to motivate associates sectors like steel, cement, bricks, glass and wood etc. The FM failed to address any existing home loan borrowers and the measure therefore fall short on that account. But at least aspiring new buyers will get attracted to the tax benefits involved.

Diminution of transaction tax on Securities

Investors in equity markets were guided by a recent set of world economic events. Internally the environment was less investor friendly. Taking into account these problems, FM has tried to reduce the transaction costs by adjusting Securities Transaction Tax (STT).

Tax credit

Although tax slabs were kept untouched the FM in order to provide relief from high inflation proposed to give a tax credit of Rs 2000 to every person who has a total income of not more than Rs 500000. FM mentioned that the proposal was expected to benefit at least 1.8 crore tax payers.

MSME Assistance

The merits of Micro Small and Medium Enterprises (MSME) relating to job creation are well known. FM has planned greater support to the MSME by enhancing the refinancing capacity of the Small Industries Development Bank Of India (SIDBI) from Rs 5000 crore to Rs 10000 crore per year. FM has also given Rs 500 crores to SIDBI to establish a Credit Guarantee Fund. Further the amount of Rs 104 crore has been proposed to 37 Micro Finance Institutions.

Thumbs Down Announcements

Surcharge on Super Rich

The idea of putting a surcharge on super rich is bringing limited benefits in terms of revenue from tax collected by the government as the taxpayers under the category who have taxable income of more than Rs 1 crore per year are only 42800. Finance Minister has proposed a surcharge of 10 percent on the persons whose income is more than Rs 1 crore per year. The surcharge is also applicable to Hindu Undivided Families, Firms and Entities. The surcharge will also be levied on domestic companies whose taxable income exceeds Rs 10 crore.

Commodity Transaction Tax

Market participants of commodities were hoping that Commodities Transaction Tax (CTT) will not be introduced in the markets but that didn't happen. The trading activity will not be affected much as the tax rate is 0.01 percent of the price of trade of non agricultural commodities. Having said that the niche nature of markets will hamper transactions and traders will be lured to shift in grey markets.

All said and done, the budget is expected to bring revenues of Rs 13300 crores from direct taxes and Rs 4700 crore from the indirect taxes. Markets are a bit disappointed that the growth rates projected in the economic survey of 6.1-6.7% for 2013-14 are a bit more ambitious and attaining it will be a tough ask for the government.

Inflation control measures were also not being discussed and it was assumed that high inflation and high deficits will be a part for another year and things will only be clearer after the next elections.

Very populist measure from budget is difficult to achieve by any Finance Minister therefore considering the limited instruments in the kitty and growth rates slipping down with a current account deficit estimate at 5.3% of GDP this budget can be termed as a fifty fifty.

InvestmentYogi.com