The Budget proposals intend to calm the nerves of the Indian household, which suffered the previous year due to double-digit food inflation apart from other inflationary and recessionary trends which affected family finances adversely. From the perspective of financial planning, a larger disposable income is channelised to long-term asset creation and meeting a family’s financial goals. The Budget proposes to leave more funds with the family for effective financial planning.
A household with a net taxable income of Rs 5 lakh can save an additional Rs 20,600 in income tax in the new fiscal. This increases to Rs 51,500 if the taxable income rises to Rs 8 lakh. The recent downturn drove families to manage their finances prudently, keeping in check their discretionary spends. The additional disposable income should be deployed towards achieving long–term financial goals, taking a cue from the government’s resolve to implement the Direct Taxes Code (DTC) with effect from April 1, 2011.
The impending Exempt-Exempt-Tax scenario should propel families to invest savings and liquidity not solely to save income tax. The implementation of the DTC could redefine the taxation structure in savings instruments and rationalise tax sops for home loans. Goals such as retirement should be given a holistic view of long-term asset creation by employing a strategic asset allocation and risk management regime. The additional tax savings to the extent of Rs 20,000 in infrastructure bonds to be notified by the government should be seen in this perspective where the lock-in period and impact of tax on redemption need careful study.
The Budget has targeted an excess Rs 46,500 crore by way of indirect taxes while giving a benefit of Rs 26,000 crore by way of lower direct taxes. This calls for fiscal prudence on the part of families for additional disposable incomes. While the prices of some goods such as petroleum products may rise, the fiscal consolidation stance may contain inflation.
The Budget further consolidates on the roadmap charted for a sustained high GDP growth of 9 per cent, with an emphasis on harnessing the economic growth to make development more inclusive and restructuring the government’s delivery mechanism. The government’s determination to have greater financial inclusion, financial literacy and inter-regulatory cohesion would aid the process of a sustainable investment scenario, which will equally benefit the investing public and industry. We expect the roadmap to the 2010-20 decade to open up more avenues for holistic financial panning by the Indian household.
The writer is principal adviser and member, board of directors, FPSB India