Many have called it a ‘Robinhood’ budget. Last Friday, finance minister Nirmala Sitharaman presented a budget that taxes the ‘super’ rich and provides relief to the rest. The government expects those with an annual taxable income over Rs 2 crore to contribute more towards the nation.
The budget builds on the personal tax announcements made in the interim budget earlier this year. If you make regular investments under Section 80, you pay no tax over taxable income of up to Rs 5 lakh per year.
Beyond the headlines, the government is nudging you to do things it believes are right for your finances. So, the budget is encouraging you to increase long-term savings, protect yourself against emergencies, buy environment-friendly electric vehicles and not buy too much gold.
From your standpoint, you have to look at all these aspects and plan your finances.
Use medical insurance
The budget has increased the limit for medical insurance to Rs 25,000 from Rs 15,000 earlier. There are additional benefits for senior citizens too. You have to take an adequate medical cover so that medical emergencies do not hurt your savings. Health insurance penetration in India is low, and this move will encourage people to take some form of health cover.
The government is encouraging you to use digital channels for making money transfers and use less cash. There is a relief on online transaction charges. The budget also introduces Tax Deducted at Source for cash withdrawn beyond Rs 1 crore in a single year. The idea is to keep a trail of money transactions. When more people use digital channels for payments, this is easier.
The government has extended the benefit of Section 80C to Exchange-Traded Funds (ETF). So, just like Equity-linked Tax Saving Schemes allow you to save on tax, an investment in ETFs will do the same. This column has advocated investing in equities through ETFs by individuals as a first step. American household wealth has surged after the advent of ETFs in the 70s. Indian households can benefit
from such a habit too. The only catch in this announcement is that the tax benefit is allowed only for an ETF that has Central Public Sector Enterprises shares included. However, the government needs to include ETFs based on Sensex and Nifty for broader participation.
Own more financial assets
The budget has introduced an ‘interoperability’ between Aadhaar and Permanent Account Number (PAN) cards. It means you can use your Aadhaar number wherever the PAN number is needed. More than 120 crore Indians have Aadhaar today. PAN card holders are a fraction of that number. A PAN card is mandatory for filing your tax returns, opening a bank account, buying a mutual fund or an insurance policy. Going forward, you can use your Aadhaar number for the purpose. That has the potential to expand the ambit of financial inclusion.
Electric vehicles are not cheap. You have to apparently take a loan for the purpose if you wish to use one. The government has offered a deduction of Rs 1,50,000 on interest paid on loans made for the purchase of an electric vehicle. It has also said that the Goods and Services Tax (GST) on electric vehicles would be in the lowest slab of 5 per cent against 12 per cent earlier. That means the government is nudging the consumer towards electric cars.
Consume less oil and gold
The budget raises the price of petrol and diesel despite a consistent slide in international oil prices. The government looks at it as a way to encourage people to consume less fossil fuel. India imports 80 per cent of the total fuel it consumes. Another critical step is the hike in customs duty on gold. It is now 12.5 per cent against 10 per cent earlier. This is to discourage consumers from buying gold. The government wants you to consume less fuel and gold to minimise imports. Higher imports lead to a broader trade and current account deficit. That has the potential to stoke inflation in the economy.
The government wants you to consume less fuel and gold to minimise imports. Higher imports lead to a broader trade and current account deficit. That has the potential to stoke inflation in the economy.