The one thing that all individual investors look forward to in the Union Budget is income tax rates and rebates. We are rightfully obsessed with how we can increase the size of the wallet in our pocket. Apart from increasing our savings, it has the potential to compound, if invested well.
Over the years, tax provisions have also acted as a nudge to retail investors who treat tax savings as the only basis of investing.
This year’s budget nudges – almost shoves, actually – most investors to the new tax regime, where there are no rebates and taxes are lower. Suddenly, the finance ministry is not your financial advisor – you have to figure out where to invest in an efficient, goal-based manner.
Yet there are nudges. In the Senior Citizens Savings Scheme (SCSS), the maximum deposit limit has been bumped up to Rs 30 lakh from Rs 15 lakh. The Post Office Monthly Income Plan deposit limit has been increased to Rs 9 lakh for a single account and Rs 15 lakh for a joint account. For women, there is a new small savings scheme where Rs 2 lakh can be invested until March 31, 2025, at an interest rate of 7.5 percent per annum.
Personal income tax slabs have been simplified and rates reduced under the new regime. Overall, if your income is below Rs 7 lakh per annum, you pay no tax. Clearly, the budget aims to provide more money in the hands of investors.
Mixed bag
For the ultra-rich, it is a mixed bag. The ability to save taxes by investing in a residential home without a limit has been snipped by capping the Section 54 and Section 54F limit at Rs 10 crore. Those who bought insurance policies because of the advantageous situation of tax-free pay-outs will be constrained by the cap of Rs 5 lakh annual premium. Except for death proceeds, receipts will be added to income.
The surcharge on income tax at the highest rate of 37 percent for income above Rs 5 crore has been cut to 25 percent, reducing the maximum tax rate of 42.74 percent to 39 percent.
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You may have heard your advisor suggest that it is good to diversify your investments and not have all assets in rupees or situated in India. Over the years, the market has grown despite the introduction of tax collection at source (TCS) of 5 percent on amounts remitted overseas in excess of Rs 7 lakh per year. This budget has increased the TCS rate to 20 percent for overseas remittances other than for education or medical purposes. This may slow remittances from India and in turn allow the rupee to be more stable and even be stronger.
ALSO READ: Budget 2023: Is the Rs 7-lakh tax-free income limit only for the new tax regime?
All this is great information – but as an investor, what should you do? My advice is as follows:
1. Contact your financial advisor. Most likely he will remind you if any of your goals such as retirement, going on holiday, educating yourself or your children have changed – likely they haven’t.
ALSO READ: New slabs, more rebate — 5 big personal income tax changes in Budget 2023
2. Stick to your asset allocation. If the markets are volatile, as they were on Budget Day, stay grounded. Trying to jump from one boat to another in a storm might result in you getting very wet.
3. For investment decisions, look to the future, not the past. If the past was to repeat itself and you started with the Global Financial Crisis in 2008, the markets would have always fallen by over 30 percent every year.
4. Finally, at budget time and always, evaluate returns post-tax to make the right comparison. For example, if you are above the age of 60 and have no other income, interest on SCSS of 8 percent can provide you Rs. 20,000 per month – and all of it tax-free since your earnings are below taxable limits. However, for someone with income above Rs 15 lakh, fixed deposits in banks of 6.5 percent per annum only earn you 4.5 percent after tax, and that’s all that you get.
On another note, the basic customs duty on pecans has been reduced from 100 percent to 30 percent. I read that pecans are a good source of calcium, magnesium, and potassium, which help lower blood pressure, and hence that may make you healthier. For making sure your wealth is on track, do consult your financial advisor.
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