Even before the finance minister rose to present the Union budget 2013 before the Parliament, it was quite evident he had an unenviable task of maintaining the balance between the fiscal prudence and populism as this was going to be the last budget before the general elections. While on the one hand the finance minister was expected to revive growth, contain inflation and reduce the current account deficit, on the other hand he needed to keep the UPA hopes alive for the next general elections. To his credit, the finance minister managed to present a prudent and a responsible budget as promised and did not breach the red line of the fiscal deficit.
While the fiscal year for the current year has been contained at 5.2 percent, it is pegged at 4.8 percent for the next financial year. Considering that this was a key number for more than one reasons, the finance minister did a commendable job. Besides, clearly highlighting the fact that only higher growth will lead to sustainable and inclusive grow, higher allocations have been made to education, rural development and planned expenditure.
The finance minister has announced a few steps that would help in attracting retail investors to the stock market either directly or indirectly. First, the reach of Rajiv Gandhi Equity Savings Scheme (RGESS) has been expanded by increasing the income level eligibility to Rs. 12 lacs as against Rs. 10 lacs. Besides, a first time equity investor will now be able to enjoy the tax benefit for three successive years. Second, Mutual fund distributors have been allowed to become the members of the stock exchanges. Considering that a large section of mutual fund investors depend on these advisors to invest, there is a likelihood of increased participation in the ETFs, if not the stocks, thru this channel. Third, the Securities Transaction tax (STT) on redemption of mutual funds/ ETFs at the fund counters has been reduced to 0.001 percent from the 0.025 percent. The STT on MFs/ETFs sale/purchase on exchanges has been reduced from o.1 percent to 0.001 percent only on the seller.
Besides, STT has also been reduced from 0.017 percent to 0.010 percent on equity futures. While it may not of a great value to retail investors, it is a positive for the stock market. For the debt portfolios of investors, the announcement of inflation indexed bonds/certificates is a major positive. Considering that investors have been grappling with higher inflation, there was definitely a need for such instruments. Besides, investors will continue to have an opportunity to invest in tax free bonds as some financial institutions have been allowed to raise Rs.50,000 crore in 2013-14 to boost infrastructure sector.
Another positive is that the KYC done by the bank will be enough to buy an insurance policy. The same could have been done for mutual funds too.
On the direct taxation front, no change has been proposed in the personal as well as corporate tax rates. However, tax payers with an income between Rs. 2- 5 lacs would be granted a tax credit of Rs.2000. The finance minister has also proposed an additional tax deduction of Rs. 1 lac on housing loan interest for loans upto Rs. 25 lacs.
With an objective to tax the super rich, a onetime surcharge of 10 percent has been proposed for those who have an income in excess of Rs. 1 crore. Besides, for domestic companies wherein the annual income crosses Rs. 10 crore, the surcharge will be levied at 10 percent as against 5 percent earlier. Foreign companies too will have to pay 5 percent surcharge as against the current rate of 2 percent. The surcharge on DDT has also been increased from 5 percent to 10 percent. While these tax provisions are not likely to contribute much to the exchequer, these can be seen as a token efforts made to tax a little more to those who can afford to pay more. However, not much seem to have been done to expand the tax base.
While Sports utility vehicles (SUVs), imported cars and motorcycles, high end mobiles, eating out at air conditioned restaurants and cigarettes will be costlier as the finance minister has imposed higher taxes on these items, the branded apparel will become cheaper as there will be no excise duty on them.
In a bid to improve reporting and accountability, 1 percent TDS will be charged if the property transacted is for more than Rs.50 lacs. However, agricultural land has been exempted. This will certainly create inconvenience for those sellers who may like to invest in capital gains bonds to save taxes.
Overall, the finance minister has presented a pragmatic budget. While the union budget may have disappointed those who were expecting too much from it, it may have done enough to spur investments and growth.
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