Budget 2011 And Its Impact On You

The budget has impacted each of us in one way or the other, on basis of the age, profile, income standards, occupational standards and the rest. But one thing for sure is that it has impacted us for sure. How?

Let us find out.

• If you are a businessman

1.       Business class travel on domestic and international sectors will attract service tax of 10%.

2.       Excise duty of 10% imposed on branded readymade garments (RMG) and made-ups would lead to yarn and fabric manufacturers paying a higher excise duty of 5% vis à vis an optional 4% duty paid earlier.

3.       Introduction of a scheme for the refund of taxes paid on services used for export of goods on the lines of drawback of duties in a far more simplified and expeditious manner has been announced in order to ease the difficulties faced.

4.       Reduction in the current surcharge of 7.5 per cent on domestic companies to 5 per cent. Standard rate of Central excise duty has been maintained at 10 per cent.

5.        A nominal Central Excise duty of 1 per cent has been imposed on the 130 items that are entering the tax net, increasing it from 4% to 5%. No CENVAT credit would be available for the manufacture of these items. Basic food and fuel would continue to be exempt. This levy would also not apply to precious metals and stones.

In totality your travel and branded readymade garments would become costlier. In such a scenario it would be smart to use your credit cards for purchase since you would get more reward points in wake of higher purchases. On the other hand with the taxes refund taking place you would be in a position of higher disposable income coming into your hands. These tax refunds would add a bulk to your income and you can invest these additional windfall funds in avenues requiring one time investments such as single premium insurance plans.

• If you are a salaried person

1.       Income tax exemption has changed for you from the earlier limit of Rs.1.6 lakh to Rs.1.8 lakh.

2.       The electronic filing of Tax Deduction at Source (TDS) statements has stabilized. The Board shall soon notify a category of salaried taxpayers who will not be required to file a return of income as their tax liability has been discharged by their employer through deduction at source. CBDT will provide a separate web-based facility to enable a direct, stand-alone interface for taxpayers with the Income Tax Department so that they can report and track the resolution of their refunds and credit for prepaid taxes.

Income at your disposal will increase marginally and you can invest this additional fund in systematic investment plans requiring small but regular investments. Unitized shares and mutual funds for medium to long-term hold good opportunities for you.  Gold ETFs could be another suitable investment avenue for you.

• If your income is derived from the agricultural sector

1.       Increase in interest rate subvention for agriculture loans to 3% will increase availability of funds at cheaper rates.

2.       The existing interest subvention scheme of providing short term crop loans to farmers at 7% interest will be continued during 2011-12.

3.       The government had provided an additional 2% interest subvention to those farmers who repay their crop loans on time. The proposal to enhance the additional subvention to 3% in 2011-12 has been made. Thus, the effective rate of interest for such farmers will be 4% per annum.

4.       In order to give a boost to production in the agriculture sector, extension of the benefit of investment linked deduction to businesses engaged in the production of fertilizers has been done.

5.       Agricultural machinery, irrigation equipment and cattle feed have become cheaper.

With interest alterations coming up, you are at an advantage and can now borrow more funds for investments into business. Also with machinery and other equipment becoming cheaper for you, your disposable income is bound to rise. With the additional sources you can always look at buying property by investing this additional free fund as a down-payment and then opting for a home loan, since you would be able to pay EMIs through this increased flow of regular saving.

• If your income is derived from infrastructure sector

1.       Replacement of the existing excise duty rates with a 10% ad valorem rate, and an additional Rs 160 per ton of cement has been proposed. This will result in 2% to 4% increase in the excise duty payout.

2.       Considering the importance of housing, a proposal for investment linked deduction to businesses which develop affordable housing has been introduced under a notified scheme.

3.       Bio-based asphalt is an emerging, green technology for the surfacing of roads. Full exemption from basic customs duty is being extended to bio-asphalt and specified machinery for its application in the construction of national highways. Tunnel-boring machines required for the construction of highways are also being included in this exemption.

Increased excise duty could make things a little difficult for you if you deal with construction. But the effect could be set-off at a later stage if you are linked to real estate. So there would be a net no change situation for you.

• If you are an investor

1.       Additional tax exemption of Rs 20,000, applied in 2010-11, on investment in long-term infrastructure bonds has been extended to 2011-12.

2.       The Government will rise about Rs 22,144 crore from disinvestment in 2010-11. So you have a good chance of participating in beneficial IPOs and FPOs.

3.       Currently, only FIIs and sub-accounts registered with the SEBI and NRIs are allowed to invest in mutual fund schemes. To liberalize the portfolio investment route, it has been decided to permit SEBI registered Mutual Funds to accept subscriptions from foreign investors who meet the KYC requirements for equity schemes. This would enable Indian Mutual Funds to have direct access to foreign investors and widen the class of foreign investors in Indian equity market which would provide a good change to Indian investors to profit too.

4.       The FII limit for investment in corporate bonds, with residual maturity of over five years issued by companies in infrastructure sector, is being raised by an additional limit of US Dollar 20 billion taking the limit to US Dollar 25 billion. This will raise the total limit available to the FIIs for investment in corporate bonds to US Dollar 40 billion. Since most of the infrastructure companies are organized in the form of SPVs, FIIs would also be permitted to invest in unlisted bonds with a minimum lock-in period of three years.

5.       It has been represented that the taxation of foreign dividends in the hands of resident taxpayers at full rate is a disincentive for their repatriation to India and they continue to remain invested abroad. For the year 2011-12, a lower rate of 15% tax on dividends received by an Indian company from its foreign subsidiary has been proposed.

6.       Services provided by life insurance companies in the area of investment are also proposed to be brought into tax net on the same lines as ULIPs.

It would be a good idea to invest in infrastructure sector for a medium to long term. But you would have to be cautious about your investments now on. With an increased limit, returns from infrastructure sector would be prone to global fluctuations more. So it could turn out to be a loss for short term investors who play on technical analysis. Investing in eco-friendly products, agriculture and education sector would be other good options.

The proposed increase in the service tax on life insurance products will make both traditional and unit-linked insurance plans, more expensive. In ULIPS, where the policyholder chooses the investment mix (how much to put in equity or debt), the service tax will be charged on the portion of the premium not allocated for investment, like premium allocation and policy administration charges. At present, the service tax is only on mortality and fund management charges.

• If you are a woman:

1.       No changes have been made in the tax slabs and exemptions for woman.

If you are a working woman, you would be a little disappointed. But on the household front, you would be satisfied to find out the other alterations which have been made for good. These alterations have been discussed in the ‘common man’ section.

• If you are a student

1.       The Government has been providing special grants to recognise excellence in universities and academic institutions. In the course of 2011-12, I propose to provide: – Rs 50 crore each to upcoming centres of Aligarh Muslim University at Murshidabad in West Bengal and Malappuram in Kerala;Rs 100 crore as one-time grant to the Kerala Veterinary and Animal Sciences University at Pookode, Kerala; Rs 10 crore each for setting up Kolkata and Allahabad Centres of Mahatma Gandhi Antarrashtriya Hindi Vishwavidyalaya, Wardha;Rs 200 crore as one time grant to IIT, Kharagpur; Rs 20 crore for Rajiv Gandhi National Institute of Youth Development, Sriperumbudur, Tamil Nadu, Rs 20 crore for IIM, Kolkata, to set up its Financial Research and Trading Laboratory; Rs 200 crore for Maulana Azad Education Foundation; Rs 10 crore for Centre for Development Economics and Ratan Tata Library, Delhi School of Economics, Delhi; and Rs 10 crore for Madras School of Economics.

• If you are a senior citizen, above 60 years of age

1.       The income tax exemption limit has been raised from current Rs2.4 lakh to Rs2.5 lakh.

• Is you are a senior citizen above 80 years of age

1.       This category has been developed as ‘very senior citizens’ and has been given an exemption limit of Rs.5 lakh.

• Inclusions that affect the common man

1.       The on-line preparation and e-filing of income tax returns, e-payment of taxes through 32 agency banks, ECS facility for electronic clearing of refunds directly in taxpayers' bank accounts and electronic filing of TDS returns are now available throughout the country. These measures have empowered taxpayers to meet their tax obligations without visiting an income tax office.

2.       Raw silk materials, agarbatti, homeopathic medicine, pistachio, imported art and antiques have become cheaper.

3.       Consumer durables like TV, fridge, washing machines have remained as they were.

4.       Health check-ups are bound to become expensive

5.       Treatment in air-conditioned private hospitals, meals at restaurants serving liquor, hotels charging more than Rs.1,000 per room per day, legal services, air tickets, branded jewellery, branded clothes have become expensive than earlier.

6.       Automobiles (Hybrid electrical vehicles, compressed natural gas kits), low-end housing loans, homeopathic medicines, light emitting diode (LED) lights, syringes and needles, ink jet, laser jet printers,

7.       In 2011-12, Delhi Metro Phase-III and Mumbai Metro Line III are proposed to be taken up. The ongoing Metro projects of Bengaluru, Kolkata and Chennai will be provided financial assistance for speedy implementation.

8.       Service tax on domestic economy class air tickets has been increased by Rs 50, and by Rs 250 for international routes.

All in all, there have been made alterations which would affect you in one way or the other. A number of alterations have been targeted so as to increase investments rather than spending. With new regulations, guidelines and changes for a number financial products coming in, you will naturally be more inclined towards making investments where the platforms are safe and regulated. The regulators and the government, together, are making all efforts to channelize your investments for development of capital intensive sectors. With RBI raising its deposit rates, you are at a win-win situation even if you are a conservative investor. So go ahead, investments are bound to give better returns.