Here are a few quick takeaways from the Union Budget 2018 for investors, individuals, economists and corporates. Union Budget 2018 and its impact on the common man.
Standard deduction of Rs 40,000 for the Aam Admi
The salaried class has got a relief through a standard deduction of Rs 40,000 in lieu of medical reimbursement and transport allowance. Now, medical reimbursement was allowed upto Rs 15,000 every year and Rs 19,200 was allowed as transport allowance, So, what you gain is Rs 5,800.
Now, add the 1% cess that has been levied and you realize that if your income is Rs 5 lakhs, you save only Rs 177 every year. If your income is Rs 15 lakhs, your tax liability increases to Rs 3,815 every year. So, with the present levy of standard deduction you may end-up paying tax if you are in the highest tax bracket, while gaining a very small sum of Rs 177, if your income is Rs 5 lakhs.
Impact of Union Budget on Stock Market investors
Equity investors who sold shares after one year, did not have to pay long term capital gains tax. Now, equity investors would have to pay 10 per cent capital gains tax on selling shares at a profit after a period of one year.
Long term capital gains tax has been levied on sales of shares at a profit, while the short term capital gains continues at 15 per cent.
This would now place equity shares on par with other asset classes like gold and real estate, where there was a long term capital gains tax that was payable. Thus far, there was no long term capital gains on shares, which prompted more investors to invest in this asset class.
Good Budget for Senior Citizens
For senior citizens there is a tax break on FDs and health insurance tax benefits under Sec 80 D has been enhanced. So, senior citizens can now claim tax exemption up to Rs 50,000 on health insurance premium as against Rs 30,000 currently.
Bank FDs and post office schemes will attract an income tax benefit of Rs 50,000 for senior citizens, as against Rs 10,000 earlier. Apart from this Rs 7.5 lakh per senior citizen limit for investment in interest-bearing LIC schemes has been doubled to Rs 15 lakh.
EPF benefits for employees
For women employees there is a hope for higher disposable income.
An amendment has been proposed in the Employees' Provident Funds and Miscellaneous Provisions Act which for women employees shall reduce contribution to the EPF account to 8% of the salary without affecting employer's contribution. This may leave women employees with higher disposable income.
Facility of fixed term employment has also be extended. Further the government will now contribute 12 per cent by way of EPF for new employment for all the sectors.
Taxation on mutual funds
Finance Minister Arun Jaitley also announced tax on distributed income of equity oriented mutual funds at the rate of 10 per cent. This is not good news for equity mutual fund investors, who have been pouring money into equity mutual fund schemes.
One will need to wait and watch the impact though there was an initial knee jerk reaction in the markets. It is a good idea to tax equity mutual funds, given that there were favourably treated when compared to other asset classes.
Gold policy for investors
The government plans to set up a comprehensive gold policy and to revamp gold monetisation scheme.
One is not sure that this is workable and whether this would impact investment as the past policies like the Sovereign Gold Bond (SGB) Scheme have met with poor response in the past.
Investors have continued to prefer physical gold as an investment class over Gold ETFs and SGB. The government has been trying to deter physical gold consumption, but, with poor results so far.
Health insurance for poor families
The government has launched a fagship national health programme which will insure over over 5 crore people.
The amount would be to the tune of Rs 5 lakhs for a single individual.
How it percolates down to the poor families will remain a major issue. The scheme like all other schemes that have been introduced must reach the masses for any benefits to emerge.
The fiscal deficit by the government has been breached for 2017-18. The target set during last year's speech by the Finance Minister was 3.2 per cent of GDP, but, that has now been comfortably increased to 3.5 per cent. The target set for 2018-19 is 3.3 per cent.
However, analysts are cautious that unless the divestment target is met there maybe a breach of that target. Also, if crude prices keep rising, there is no saying where the deficit could be headed.