Last Friday’s Union Budget had a clear focus on retail investors, especially first-timers. Put more in equities and instruments that give interest income to get tax benefits. On the other hand, the import duty on gold and silver was raised. As an investor, however, there needs to be clarity on how the portfolio has to be rejigged to take advantage of tax.
Equity: The big announcement for the retail investor was the Rajiv Gandhi Equity Savings Scheme. Under this, direct investments in stocks will get tax exemptions. The scheme would allow for income tax deduction of 50 per cent to first-time investors, who invest up to Rs 50,000 directly in equities and whose annual income is below Rs 10 lakh, with a lock-in period of three years.
With the equity-linked savings schemes going out of the 80C benefits under the Direct Taxes Code, this could be the fillip retail investors required to invest in equities. But contours of the scheme are yet to be announced.
So, there isn't clarity on whether only direct investment in equities will get the benefit or there would be special schemes under mutual funds as well. The latter would be preferable for the retail investor, as they lack the expertise to invest in stocks directly.
Investing in Initial Public Offerings (IPO) have been made more convenient, companies now having to allow investment through the electronic route for an issue bigger than Rs 10 crore. It was also announced that for wider shareholder participation in important decisions of companies, electronic voting facilities should be put to use. The Securities Transaction Tax has also been reduced to 0.1 per cent from 0.125 per cent for delivery-based transactions.
"The announcements should encourage investments in equity and help people make positive real rate of return. If you move out of Tier-I cities, and look at people in the lower-income brackets, the major investments are in gold and home," says Suresh Sadagopan, a certified financial planner.
Debt: The proposed new 80TTA Section of the Income-tax Act provides for a deduction of up to Rs 10,000 for interest from savings bank accounts for those with salary of up to Rs 5 lakh and interest from savings bank accounts of up to Rs 10,000, as they would not be required to file income tax returns.
"Interest on savings bank accounts being made tax exempt up to a level will help retain outflows to liquid funds. It should have a positive impact on bank savings accounts," says Ashish Kehair, EVP & head, private wealth and international business, ICICI Securities.
Therefore, the government wants you to put more money into equities and savings bank accounts. But, at the same time, it seems to be discouraging investments in certain other asset classes.
Gold: We do invest a lot in the yellow metal. And, a large amount of this gold is imported, which has widened our current account deficit.
The basic customs duty on standard gold bars, gold coins and platinum was increased, so has the excise duty on refined gold.
Gold is not considered a productive asset, unlike equity. "Gold can, at best, be an insurance against extremely adverse times, like we saw during the credit crisis and European crisis. However, it should not be a disproportionately high allocation in an overall portfolio, because over longer periods, equities carry a much better chance of beating inflation and gold returns," says Kehair.
Real estate: A small negative in terms of investment in real estate was announced. With effect from October, it will be mandatory for the buyer of a property at the time of making payment to the seller, to deduct tax at source at one per cent of the sum. "Though not a very negative announcement, it does still create a bit of nuisance for one buying property," says Sadagopan.
Experts, however, feel it is too soon to get cracking on the portfolio. Some more time needs to be given to understand the nuances of the Union Budget before going for a portfolio change.
