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Low-impact budget from a personal savings perspective

business Updated: Feb 28, 2011 23:56 IST
Dhirendra Kumar

From a personal savings and investments perspective, the budget has been a low-impact event, and that’s not necessarily a bad thing. There were few changes and they were mostly along expected lines.

The exemption limit was raised from the current Rs 1.6 lakh to Rs 1.8 lakh. Unfortunately, there had been so much talk of a Rs 2 lakh limit that this has came across as a bit of a disappointment. The increase doesn’t even cover the real rate of inflation that ordinary salary-earners are facing.

Finance ministers have always doled out these increases as if they were some special gift. However, the actual increases in the exemption limit and the tax slabs hardly ever manage to keep pace with the real inflation rate.

A fair alternative would be to make these increases automated, at a percentage based on an inflation-linked index. Inflation-linked adjustment to taxes is not a strange concept — it is already done for long-term capital gains.

It’s sad that capital gains — which are generally earned by the more affluent—are automatically adjusted for inflation every year while salary-earners have to make do with these ad hoc benefits.

It also good to see that the government is steadfast in its efforts to encourage the uptake of the New Pension System (NPS). The ‘Swalamban’ scheme, which gives a subsidy for small depositors to join the NPS has been extended and made more beneficial. Getting members from the unorganised sector into the NPS will need continuous attention, and this scheme is just the kind of encouragement that is needed.

In mutual funds, there’s no change for retail investors. For corporate investors, the dividend tax on debt funds has been increased, removing their tax advantage over bank deposits. Also, the fund industry has been permitted to get foreign investors directly. This opens up a new route for bringing foreign money into Indian equity, and is something that should bring cheer to the AMCs as well as the equity markets.

(Dhirendra Kumar is the Managing Director Value Research)