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  • What Can Budget 2017 Do For Retail Investors?

    Article by Jayant pai in Bloomberg Quint, January 19, 2017

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    This year, February will be an important month for many Indians for two very diverse reasons. While February 14 is likely to appeal to the right side of the brain (the one dealing with emotions), February 1 will excite the left side (dealing with reasoning and analytical thought).

    The constant refrain, over the past decade or so, has been that Union Budgets are becoming more prosaic owing to the steady reduction of governmental influence on economic matters, coupled with the fact that several important announcements are made outside the budgetary framework. Despite this, every year there is a rising tide of expectations, as B-Day nears.

    This year is no different. In fact, the Union Budget due to be announced on February 1, may be more interesting than recent ones, as it follows a period of pain experienced by many citizens on account of the demonetisation. The shadow of this seismic event must surely be looming large over the boffins at North Block, as they attempt to balance the demands of various sections of society with the constraints faced by an economy whose rhythm has been arrested.

    Some are hoping that the bulging coffers, on account of a one-off receipt of hitherto unaccounted money, will induce the government to bestow a largesse in the form of tax cuts across the board. This may be accompanied by the announcement of a 'Universal Basic Income' for certain categories of citizens.

    Others counter that this desire will have to be tempered with prudence on account of the prospect of muted tax collection growth in the near term due to dislocation of key parts of the economy, as well as teething troubles following the impending introduction of the Goods and Services Tax (GST) later in the calendar year.

    Apart from this, in keeping with the current milieu I expect a vivid roadmap for further digitisation of the economy. Some of the current sops (like waiving off transaction charges) may be extended for a few more months, funded/subsided through budgetary support, in the belief that it is unfair for individual companies/Reserve Bank of India alone to bear the brunt of popularising digital transactions across the nation.

    While monumental changes are not envisaged on the personal finance front, here are a few areas where some progress would be welcomed:

    Linking Tax Exemption Limits To Inflation

    Today, one is supposed to be delighted whenever the income-tax exemption limit is randomly raised or limits under Section 80 are arbitrarily enhanced. However, speculation on both these fronts could be kept under check by simply linking these limits to an appropriate inflation index.

    Unifying Sections

    Also, it may be worth experimenting with subsuming various sub-sections (80C, 80D, 80 TTA, etc.) into an omnibus section wherein the individual has full freedom to allocate monies inter-se, subject to one overarching limit. (say, ₹ 5 lakh). If that is not possible, the Hon'ble Finance Minister could at least consider doing away with income tax-induced silos that impede the development of the insurance sector. On the one hand, this encourages misdirected demand in some categories (say, Unit Linked Life Insurance Plans or Endowment Plans which are popular in the last quarter of each financial year merely on account of the 80C benefit) and on the other, vital categories like home insurance and personal accident insurance fall through the cracks simply because they do not enjoy any tax-benefit.

    Progress On The Direct Tax Code

    At the risk of appearing panglossian, I hope this proposal will rise like a phoenix. Any progress on this front (even though it will surely be markedly different from that envisaged by Pranab Mukherjee) will help in providing stability and reduce the scope for periodic tinkering.

    Redressal Of Tax Queries And Grievances

    Over the years, while the process of filing taxes has been digitised almost to perfection, online query and grievance redressal have yet to earn the same level of plaudits from tax assessees.

    The problem could be exacerbated over the next few months as those who have deposited large tranches of cash pursuant to demonetisation are bracing themselves for the threat of 'demonisation' by the Income Tax department

    Hence, I hope the Union Budget outlines measures for smooth redressal (preferably online) of taxpayer grievances regarding overreach, etc. without them having to run from pillar to post.

    It would help if there is a new breed of 'Tax Query Respondents' on the line of 'Tax Preparers' whom assessees can contact and get guidance on the correct procedure for responding to queries.

    Mutual Funds: No News May Be The Best News

    It will appear churlish on the part of mutual funds to expect any wide-ranging tax benefits, considering equity mutual funds are already the most tax-efficient investment vehicle after a holding period of merely one year.

    In fact, considering the prevailing fear regarding re-introduction of long-term capital gains tax, no news on this front may actually be the best news for the industry.

    Despite this, 'yeh dil maange more' on two fronts :
    • Equity Linked Savings Schemes (ELSS): Relaxation of the 80 percent monthly average investment floor in Indian equities to 65 percent.
    • Removing the anomaly in tax treatment for Indian equity-oriented Fund-Of-Funds by bringing them on par with other equity schemes.
    I also hope we are not subject to any 'throwback levies' such as estate duty (likely) or wealth tax (highly unlikely) or any new type of cess/increase in service tax rates. In fact, some clarity on how the existing levies (like Swachh Bharat Cess) are being utilised, will be welcome.

    Finally, as always, my fervent exhortation to readers is: Do not accord undue importance to any single year's Union Budget. Expend your energies on bolstering your own net worth by making the appropriate financial moves either on your own, or by consulting a competent advisor.

    Once you are sorted, watching the Union Budget webcast should be no different than watching the latest Netflix production. Great entertainment...and nothing more.

    The original article could be seen here.

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