In the Budget, the finance minister has chosen to walk a cautious path while the focus on growth is maintained. Markets look forward to the Budget as the direction of policy is very crucial apart from the proposals for various sectors.
The financial planning, however, is a plan for long-term achievement of goals and annual policy directions should only give an adjustment and review opportunity to the individuals. Thus, the Budget is a time to have a relook at your personal investments and modify strategy in view of the broad outlook for the economy and individual segments of the market. However, broad principles should not be altered. Although it is advisable from the financial planning perspective that personal investments should be made from the angle of optimising taxes, it is pertinent that the full permissible limits of tax incentives must also be utilised before moving on to other investment vehicles. This infuses long-term tax efficiency in the personal finance portfolio of an individual.
The proposals to increase the income tax exemption slab for individuals would translate to an advantage of Rs. 2,060 for taxpayers earning a taxable salary of up to Rs. 5 lakh and Rs. 22,660 for the taxable salary of Rs. 10 lakh and above.
The budget also incentivises an investment of up to Rs. 50,000 in the "Rajiv Gandhi Equity Saving Scheme", which entails tax exemption of 50% of up to Rs. 50,000. The eligibility is for individuals with income not exceeding Rs. 10 lakh and has a 3-year lock-in period. So an individual with a gross income of Rs. 5.45 lakh may be able to seek exemption under the rules on the income tax payment. The proposals would help the taxpayers to seek higher investment advantage by virtue of effective optimisation of tax planning. This is the objective of financial planning.
The reduction of securities transaction tax (STT) will help in increasing the volumes in the exchanges in addition to giving some relief to individual investors. The yields in the bond market are expected to be strong and debt can be looked as an attractive asset class for the near future.
The markets going forward would take into cognisance the government's fiscal prudence in containing deficit and accessing lower borrowings than the previous year. The reduced pressure on the cost of finance would eventually help the RBI to reduce interest rates. This would prove to be a great saviour to industry and the markets in the upcoming business cycle.
Ranjeet S Mudholkar, vice-chairman & CEO, Financial Planning Standards Board India