You have more money to invest wisely

In his Budget speech, when Finance Minister P Chidambaram doled out a bonanza to four crore (40 million) farmers by announcing a loan waiver of Rs 60,000 crore (Rs 600 billion), a lot of urban Indians would have felt the jitters. Where would he get the money from? Would it mean more taxes or another surcharge?

However, he had the urban middle-class in mind as well. Thus came a slew of measures like the hike in basic exemption limits, duty cuts for breakfast cereals, water purifiers and milk, clarification on incomes from reverse mortgage for senior citizens and even a higher deduction on insurance premiums paid for parents under section 80D. All in all, these are satisfying sops from the FM for the individual.

The direct measures for one have enthused many. By hiking the basic exemption by Rs 40,000, Rs 35,000 and Rs 30,000 for male, female and senior citizens respectively, Chidambaram has saved them a lot of money.

Says financial planner Sajag Sanghvi, "The income taxpayer, with a salary of up to Rs 5 lakh, can save as much as Rs 45,000 a year."

That basically means another month's salary comes into the hand of the individual. And for the salaried, with incomes above Rs 5 lakh, the savings is an additional Rs 5,000 a year.

Also, now you have a wider choice of investment avenues under section 80C. The introduction of two instruments, Senior Citizen Saving Scheme 2004 and the Post Office Time Deposit Account, gives more options to risk-averse investors.

However, remember that there is a lock-in period of five years for both these instruments. Importantly, if you were to withdraw any amount from such deposits before five years, the amount withdrawn will be included in the income, and be taxed according to the income bracket.

For senior citizens, there is more. With a move of treating cash received from a reverse mortgage on your home as a loan and not as income, he has also pleased many who were worried that there would be more income tax to pay, if they mortgaged their house with a bank.

Also, under section 80D, now an individual can claim another Rs 15,000 of tax relief on the premium paid for purchasing medical insurance for his/her parents.

In other words, now the individual taxpayer has a benefit of Rs 30,000 under this section, which is a straight deduction on total taxable income.

Also, senior citizens, at present, get deductions up to Rs 20,000 on medical insurance. Therefore, an additional amount would be great for them with the rising cost of medical treatment and hospitalisation.

Housewives also can be happier now. Though fuel prices continue to be a concern, the fact that duties on some essential items like milk, water and refined edible oil are down should bring some smiles. Besides, the across the board cut in Cenvat from 16 per cent to 14 per cent will mean that most household goods would become cheaper.

Also, investment experts have felt that the hike in the short-term capital gains tax from 10 to 15 per cent will dissuade a lot aggressive investors and traders from active stock market trading.

But many financial planners like this move a lot. "By increasing the short-term capital gains tax, the FM has given a disincentive to traders who want to play the market. It is something we always advise our clients," says Kartik Jhaveri, director, Transcend India.

Of course, like in every Budget, there are some negatives as well. The introduction of service tax on unit-linked insurance plans (Ulips) is one that many are looking as a negative. Ulips, which are already considered very expensive because of the high costs that are paid to the insurance agent in the initial years and other fund management costs, will now become more expensive.

Many financial planners are quite happy with this as they believe that this will make investors think twice before mixing their investment and insurance needs.

Says Ranjeet Mudholkar, CEO, Financial Planning Board of India (FPSB), "The introduction of service tax on the asset management services, provided under Ulips will surely have a long-term impact on the personal finances of a large number of investors."

Yes, this was the last year for the UPA government before elections. Many people even believed that this would be the Budget where he would give sops to all and sundry. That has happened now.

While there will be critiques about how the FM will raise money to do all that he has plans to, for the urban middle-class, this is almost the best-case scenario.

To give Jhaveri the last word, "From a personal finance point of view, this is a pretty good budget." Absolutely true. As personal finance advice goes, you will be better off considering this bounty as a windfall and invest it wisely.


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