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Sunday, 13 March 2016

BUDGET 2016: Personal Finance Perspective

Budget 2016 was an attempt to address the concerns of Individuals involved in the Agriculture Sector as well as ensure that Infrastructure Developments are on the right track which is very encouraging. The stance on Fiscal Consolidation is also commendable considering that 7th Pay Commission is bound to put additional burden on the Government. However, the Budget did not bring much cheer to the Middle and Salaried class who in my opinion are already burdened by various direct and indirect taxes. The Government has chosen to tax the existing tax payers instead of widening the tax base, and in my opinion even the Super Rich Farmers should be brought under the purview of tax, while incentive and benefits should be extended to Farmers who are indeed struggling to make their ends meet and unduly burdened with debts.
  • Individuals with Taxable Income in bracket of Rs 1- Rs 5 lakh have been provided a marginal relief of Rs 3,000/- under Section 87A but apart from that no additional relief has been extended to existing Tax Payers.
  • Furthermore, Individuals not only have to pay the Direct Tax and Professional Tax (if applicable) on their earnings, but also have to pay indirect taxes such as Service Tax, Cess, Excise and Customs duties on the various goods and services availed. The decision to hike service tax further by 0.5% means that one needs to pay service tax @15% on many of the services which are pretty essential in our day to day lives.
  • With the consumer inflation on the rise every month, a marginal hike in the exemption limit would have been a welcome relief for the tax payers. As rising expenses does dig deep into their hard earned money. Even, if hike in Tax Slabs was not possible at this juncture atleast some sort of leeway could have been made under Deductions available U/S 80C. Moreover, it would have encouraged individuals to save more which in turn would have helped them accumulate more wealth for the future.
  • Even House Rent Allowance Deduction is pretty paltry in my opinion for Individuals staying in Tier-1 cities. The additional deduction provided on House Loans also may not be sufficient for Individuals staying in Tier-1 cities as apartments cost much more than Rs 50 lakh limit announced.
  • Although the Government has announced Health Insurance benefits upto 1lakh per family which is great news for individuals with lower income as the medical costs have gone up considerably over the years. But in my opinion, a hike in Deduction available U/S 80D for the premium paid towards Medical Insurance would have helped more and more individuals avail adequate Health Insurance cover for themselves and family. Even 1lakh medical cover announced is hardly sufficient in case of any critical illness which requires lakhs and lakhs of rupees for treatment.
  • Last of all, the most controversial decision announced in the budget and later rolled back following the backlash was to tax major chunk of your retirement corpus accumulated under Employees Provident Fund account. I’m glad that the decision has been rolled back but there was something more which could have been done. Government wants every individual to make use of the EPF corpus to buy a retirement annuity plan which would entitle them for a monthly pension, to take care of their basic needs. But the bigger problem at present is that most of the annuity plans offered by the insurers have a very low yield and are financially not deemed viable. It is better if the money is withdrawn and deposited in banks as Fixed Deposit will fetch better returns. In my opinion even National Pension Scheme withdrawal should be made completely tax free and provision to mandatorily buy annuity scrapped or replaced by any other viable alternative.
  • If the Government seriously wants to ensure better quality of living and providing Social Security to senior citizens then they should improvise the flawed Employees’ Pension Scheme (EPS) under which most of the salaried individuals are covered.
Lets hope the issues raised above will be addressed soon.

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