A Targeted Approach

The Union Budget is focussed and intelligent

Let us begin by looking at what Budget 2003 entails for everyone. Finally, we have a union budget that seems to be very focused and intelligent. It is focused as it seeks to percolate benefits to the targeted segments of our economy, like the middle class and the infrastructure, that could spur demand and therefore the economy.

It is intelligent as it seems to have done its balancing act fairly smartly by containing any further slippage on the fiscal front despite budgeting for lower revenue receipts on account of lower direct and indirect taxes.

Therefore, Budget 2003 is expected to achieve its goals. This is a clear indication that the people in power are becoming business oriented, which, surely, is great news for our economy.

What it entails for you?

Following is the inventory of Budget provisions which may impact you directly or indirectly.

Investment related

Seven per cent tax-free Government of India bonds have been scrapped and may be replaced with a new series of bonds with a lower interest rate of 6 per cent per annum.

Eight per cent Tax Free Relief Bonds have also been scrapped and may be replaced by a new series of bonds with a lower interest rate of 7 per cent with a limit of Rs 2 lakh.

Interest rates on Public Provident Fund and other sovereign small saving instruments too have been reduced by 1 per cent.

Dividend distribution tax on the equity mutual funds has been removed for one year. Further, dividends in the hands of the investors would be exempt from tax.

Dividend distribution tax of 12.5 per cent on the debt mutual funds has been introduced. However, dividends in the hands of the investors would be exempt from tax.

Long Term Capital Gains Tax on listed equity shares bought after March 1, 2003 has been scrapped.

Dividend tax on equity shares in the hands of the shareholder has been removed with effect from April 1, 2003. However, a company declaring the dividend would have to pay a withholding tax of 12.5 per cent.

Any life insurance policy wherein the premium in any year during policy tenure exceed 20 per cent of the actual capital sum assured would now not be eligible for exemption under section 10(10D).

This implies that the maturity proceeds of single premium policies and policies with short payout where the premium is in excess of 20 per cent of the actual capital sum assured in any year will not be eligible for tax exemption from financial year 2003-04. However, the payments in case of death of the policyholder benefit will continue to be exempt from tax.

What would this lead to?

To sum up, these measures would boost the equity markets because while on one side interest rates have gone down further, the after tax returns on equity would improve