Marzee Kerawala is a Certified Financial Planner with expertise in Income Tax and Investment products. Managing assets worth over Rs. 4 Billion, his firm ‘NiveshIndia’, designs Tailored Investment Strategy through Customised Financial Planning for individuals and NRIs, and also handles Treasury Management for corporates and SMEs. You can contact him at +91 9987567667 or Email: marzeek@niveshindia.co.in [Website is www.niveshindia.in]
Union Finance Minister Nirmala Sitharaman on February 1 presented the Union Budget 2021 and revised the expenditure target for FY 2021 at Rs. 34.50 lakh crore. She allocated Rs. 2,23,846 crore for health, Rs. 1.18 lakh crore for road infra, Rs. 1,10,055 crore for Railways, outlay over Rs. 3 lakh crore for power and set the divestment target for FY22 at Rs 1.75 lakh crore, among other things. Over-all, Budget 2-21 is bold and offers a direction for growth with a strong intent for reforms. Here is a preview on how the Budget will broadly impact Employees; Investors; Tax-payers; and Consumers.
EMPLOYEES: Interest earned by Employees’ Provident Fund contributions above 2.5 lakhs a year will be taxed at the marginal rate. This will come in effect from April 2021. Employer’s contribution does not form part of this. This will impact employers with higher salaries – more than 1.75 lakhs as their basic salary and used to contribute towards Voluntary Provident Fund to create tax free income. VPF is the option where employee contribution to PF can be above the 12% of basic.
INVESTORS: The gains in ULIP policies with a premium of more than 2.5L will now be taxed in the same way as equity Mutual Funds. i.e. More than 1 years Capital Gains will be taxed @ 10% with 1 lakh exemption. If an investor has invested in small premiums, 2.5 lakhs across all the policies will be clubbed to determine the ceiling of 2.5 lakhs. However, there will be no tax if the exit is due to death of the policy holder. Tax on ULIPs comes with immediate effect. This will bring ULIPs at par with Mutual Funds in terms of taxation. Currently, ULIP investors are exempted from paying capital gains tax. Many HNI investors had redeemed money from Mutual funds and invested in ULIPS due to this tax arbitrage, even though they remain one of the most opaque and expensive way of investment.
Major development in insurance industry is increase in Foreign Direct Investment Limit (FDI) to 74% now, from the earlier 49%. It is a positive step in growth of insurance sector and will improve insurance penetration.
Another big announcement was the IPO of Life Insurance Corporation of India. It will sell part of its holding in LIC through IPO route in FY 2021-22. The IPO size and brand value can bring in lots of investors into the IPO market. LIC policyholders will be eligible to subscribe to the LIC IPO at a discounted price. The government has proposed to reserve up to 10% of the total shares for its existing policy holders. Usually in IPOs, shares are reserved only for employees of the company.
In a major relief to investors and deposit holder of banks under the moratorium of RBI, now you can withdraw up to Rs. 5 lakhs even if your bank is under the RBI withdrawal ceiling. This comes as a welcome move for the depositors of bank like PMC who can withdraw the said amount once the finance bill is passed.
In April 2020, Franklin AMC wound up its 6 debt schemes, citing freezing of liquidity in bond market for its lower rated bonds, due to the Covid pandemic. The government’s proposal to set up an institution which will buy and sell corporate bonds will be helpful in such situations. The institution will buy and sell investment grade securities, which in turn will help adequate secondary market liquidity.
TAX-PAYERS: Individual tax-payers are relieved that there is no change in Personal Tax slabs or exemption limits, given there was a concern of a possible Covid-cess or higher Capital Gains Tax. However, a senior citizen above 75 years of age, who earns only pension and interest income, will be exempt from filing Income tax returns. They can do so only if full TDS is deducted from pension and interest income and no tax is payable. Senior citizens having income from capital gains will still have to file their Income Tax returns as usual.
Earlier, many salaried employees didn’t declare their capital gains or interest/dividend incomes in their tax returns and they filed their taxes based on their Form 16A salary certificates. With the introduction of prefilled income tax forms with all the details of capital gains, dividend and interest income from banks and post office included, it will become extremely difficult for these employees to evade taxes on income from other sources and capital gains.
Additional deduction on interest of Rs. 1.5 lakhs paid for affordable housing loan extended to March 2022.
In a relief to tax-payers, time limit for reopening of IT assessments is also reduced from earlier six years to now three years.
CONSUMERS: The prices of smart phones and luxury vehicles will go up as import duty, on various auto parts and electric components which go along the manufacturing of a smart phone, has been increased.
Gold and silver will become cheaper as the import duty has been reduced from the earlier 12.5% to only 7.5% now. This will also help curb smuggling of gold.
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