The Finance Minister delivered probably the longest ever budget speech in India’s history. This was one of the most awaited event of the last several months, given the economy has been on a free fall. A lot of expectations surrounded structural reforms and if the government was willing to provide some relief to the ailing sectors like real estate and financials. However, the budget was silent on most of these aspects. The budget was high on vision, but specifics were missing.
The biggest announcement of the budget was simplification of the personal income tax where majority of the income tax have been removed. However, the FM has allowed others who do not want to avail the new scheme to remain in the existing schemes and slabs. Although the insurance and the housing finance stocks have seen a deep cut due to this announcement, the impact may not be that high on these sectors, given that:
i) a big portion of the customers of housing finance companies take loans to buy a house and income tax deduction is an incremental sweetener; the same is true for even the insurance companies given the income from insurance schemes remain tax exempt.
ii) Given removal of all the deductions including HRA, standard deduction, etc, would mean that for a lot of people the new scheme may not be hugely attractive.
Dividend would now be taxable at the marginal tax rate of the receiver.
The Centre also announced some reforms in the financial sector with a) taxpayer’s chartered being introduced b) deposit insurance increased from Rs 1 lakh to Rs 5 lakh. Also, to boost sentiments the FM highlighted that depositor’s money is safe.
(The author is MD & CEO, Motilal Oswal Financial Services Ltd)
in the safe zone
Insurance and housing finance stocks saw deep cut due to the announcement on personal income-tax
But customers will still take housing loans because income-tax deduction is an incremental sweetener
The same is true for insurance consumers