 "Some gain, some pain")
As Sonu Iyer, tax partner and national leader - human capital services leader, Ernst & Young, sums it up: "Not good, not bad!"
Sample this: The FM's opening comment on direct tax proposals was, "In a constrained economy, there is little room to raise tax rates or large amounts of additional tax revenues. Equally, there is little room to give away tax revenues or the tax base. It is time for prudence, restraint and patience."
He followed it up with a Rs 2,000 benefit for people with income levels of Rs 2-5 lakh and a 10 per cent surcharge on taxpayers with over Rs 1 crore income. No wonder, financial planners are not too happy.
Financial planner Gaurav Mashruwala says there are only a few positives, especially the Rs 2,000 benefit. In addition, there is a benefit for the disabled and those suffering from ailments for paying insurance premiums. Now, they will get premium benefit of up to 15 per cent (from 10 per cent) of the sum assured. "But there are very few policies for them, at present," adds Mashruwala.
Pension funds have been allowed to invest in exchange traded funds and there are proposals to introduce an inflation-indexation bond. However, as another financial planner puts it, in the mid-2000s, some banks had introduced floating fixed deposits. But there was little interest in them. "If one is investing in fixed deposit, the main reason is to get fixed returns. If the rate of return fluctuates - when linked to inflation - risk-averse investors will not be too comfortable," says the planner.
But a big negative that seems to come out of this Budget is the rationalisation of taxes for debt mutual funds. At present, the dividend distribution tax on liquid funds is 25 per cent plus cess, and on other debt funds such as monthly income plans, debt funds, etc, is 12.5 per cent.
This latter tax rate has been increased to 25 per cent for debt fund investors and Hindu undivided family. Of course, the dividend will be tax-free at the hands of the individual. But the important point is that it will be deducted by the fund house before giving the dividend.
What is disappointing about this increase is that it will be applicable without taking into account the income of the person. For instance, if a retired person also invest in an MIP for his monthly needs and does not come under any income tax bracket, the tax will be deducted from his dividend income.
More important, this could make bank fixed deposits (FDs) more attractive than debt mutual funds because the interest income from bank FDs are added to the income and tax is levied in line with the income tax bracket.
At present, banks are offering rates of 8-9 per cent on one-year FDs whereas debt funds are offering between 9-11 per cent. "For people with incomes of Rs 10 lakh, fixed deposits become a better option. If you can, go for the growth option," adds Mashruwala.
Other like Iyer says, while the speech was very promising, the fine print of the Finance Bill is a disappointment. Simple measures to boost sentiment, such as a tax incentive to all for investing in market, would have channelled a lot of funds in to the stock market; RGESS is too limiting and too little, and for a very small section of the society.
"The FM spoke about the need for growth but where are the proposals to incentivise and boost growth....maybe the FM is saving these for announcements to be made later. I certainly hope so," adds Iyer. For individuals, all hopes are now on the implementation of the Direct Taxes Code.