Not Bad!! I think that about sums up the reactions to the annual light and sound show - The Budget. Given the financial constraints under which the government was operating, the market was expecting some big taxation measures. The increase in the service tax and the excise duty from 10 per cent to 12 per cent was more or less expected and the absence of any other significant taxes provided the sigh of relief. It will soon be back to business as usual.
In a surprise announcement, the finance minister announced a deduction of upto Rs 25,000 for investment in a yet to be notified Rajiv Gandhi Equity Savings Sche-me. This is probably a case of bringing back the equity-linked savings scheme throu-gh the back door since the DTC is slated to remove ELSS from the list of deductions.
While the details of the scheme are awaited, there is a significant term “new retail investor” used in the speech, which seems to point to the deduction being available to only individuals not yet investing in the equity markets, as well as the deduction being available only once in a life-time. If such conditions are there in the scheme, then it is unlikely to have much of an impact.
The doubling of the limit for tax-free bonds makes it clear that this asset class is here to stay and will become increasingly important for the high tax paying individuals and corporate bodies.
But the biggest take away for me from the finance minister’s speech was the setting up of the Credit Guarantee Funds for ensuring flow of credit to consumers buying affordable homes and students for higher and vocational education. Finally, it has dawned on the government that what consumers are looking at is access to credit rather than cheap credit. This Credit Guarantee Fund makes the affordable home buyer and the students taking education loans bankable and they may actually be perfectly willing to pay market rates for the loans. Let’s hope that these guarantee funds are capitalized adequ-ately and are set up quickly.
In another relief, a separate deduction for savings bank interest upto Rs 10,000 per year has been introduced. The interest rate on savings bank accounts have climbed from 5.5 per cent to seven per cent in post-deregulation period.
In a blow the finance minister has not renewed the extra deduction of Rs 20,000 available for infrastructure bonds.
The exemption for the maturity proceeds of life insurance policies will now be available only if the insurance cover is at least 10 times the yearly premium. Thankfully, the wordings seem to be clear that it will apply only to policies issued after April 1, 2012 and exemptions of existing policies till March 31, 2012 have been clearly protected.
(The write is the CEO of Apnapaisa.com)