Wednesday, February 28, 2007

Budget 2007

This is my perspective for Indian middle class from Budget 2007 announced by PC
especially for Mumbaikars - My rating 1 out of 10.

PC the magic fm, darling of the markets and part of the dream team of congress has in my opinion always been a word and number juggler and a figure fudger or a Numbers man Everybudget he makes looks wonderful on paper but once analysed in detail offers little or negative to the middle class man.

For Mumbai nothing concrete no money to show just more blabber after PM s Shanghai
about making it a financial hub in Asia.

POSITIVES (if any/ if u can call them that)
1. Personal income tax: Little relief to the taxpayers.
Exemption limit increased to Rs 110,000, for women Rs 145,000 (Rs135000 budjet 06)
for senior citizens up at Rs 195,000.(Rs185000 budjet 06)
That means after all the price rise in all daily essentials the bread earner gets benefit of a paltry
Rs 1000 on taxes in a year ie not even Rs 100 a month.
Also the paltry increase in slab limit is negated by Increase in Education Cess, which is increased to 3% from 2%. meaning pay for follys of Arjun Singh and undeserving Obc reservation candidates.

Deduction: Medical insurance (Sec 80D) to be increased to Rs 15,000; for senior citizens Rs 20,000. Time now for planning to take that medical insurance i have been postponing Ps how many middle class people have Medi Insurance above 5000 i wonder cause a cover for 2lakhs does not cost more than 3000 even wt private insurers, this is more to benefit Oriental National and other health insurance cos.

2. Banking Cash Transaction Tax. The limit for individuals and HUF raised from Rs 25,000 to Rs 50,000. God knows how many people will benefit basically i wont, but it mite be useful in emergency cash needs.

3. No hike in S T T / S T C G - Much expected measure was not taken up this time, well this means good news for Speculators, Traders, big players, institutions and jobbers ie those who trade and dont hold stocks but trade in them. Nyways STT is not very low as it had been increased in the last budget by 25 per cent from 0.1 per cent to 0.125 per cent.

4. Student Loans : the benefit on student loans- Sec 80E is henceforth extended to parents and relatives who can claim rebate for loans taken for children`s education.

5. Introduction of a Reverse Mortgage scheme 2007/08 for Senior Citizens - Just a tiny note put in by PC but lets see how beneficial it will be to them when the details come out.

6. PAN with a prefix as id for markets - late but good - if correctly implemented, this will help investors with reduction in paperwork and proliferation of id cards like min uin etc.

7. Lastly no increase in VAT especially in branded essential commodities, which i really cant call as a positive but have to in desperation as i see it there are little positives in this budget.Point to note is that he has put a few more things under VAT

Negatives and many of them
Intention is to tax the middle class ie Milk the Urban Middle class not by direct tax means but by limiting exemptions or reducing savings benefits. Overall the message is dont save and if u do - be ready to be taxed so that whatever u get over inflation will be transferred to govts coffers so they can spend it on some vote grabbing scheme.

1. Dividend distribution tax raised from 12.5 to 15 per cent. Hello more taxes on dividend this one is a shocker mainly hitting the middle class and Small investors holding equity on long term basis and not the rich businessmen like say a birla or ambani who earn like crores in dividends and a lot more in Salaries and perks.

2. Minimum Alternate Tax being extended to I-T companies. ESOPs to be brought under FBT and Education cess increased. Be ready to see ur tech portfolio taking some hit at least say of 10 to 20% in the next 3 days.

3. No benefit for Salaried class which lost standard deduction benefit in last budget especially the urban poor or middle class people who earn upto 2 lakh. This is bad news due to the price rise.

4. No reduction in the lock-in period for fixed deposits to three years from five years to get deduction under Income Tax Act, 1961. No resumption of 80l benefit on Savings and Deposits.

5. Mutual funds- big negatives
Equity Mf investors who have to face double STT, will see an increase in DDT , FBT , MAT on Equity which will reduce their overall returns substantially will start to pinch especially when the market will turn southwards .
The Debt funds which had seen negative returns and were taxed have not got any relief either. Overall there is no focus or talk in developing our debt market which are wholly based on govt and govt institutional debt and private co debt is negligibly traded.
The dividends on Money market funds and liquid mutual funds will henceforth be taxed at the rate of -- YES--- 25%.

Well live with it and be happy paying taxes on negative returns on savings interest and FD interest earning just above inflation.The taxation of liquid funds will also be Savings negative. Biggest negative for the Senior Citizens who have payed substantial taxes in their youth during Indira Gandhi era and are straddled with overall higher cost of living and obviously without any state benefit or social security.

6. Capital gains Bonds
The FM had, by a notification in December 2006, restricted the limit of investment in bonds of NHAI and REC, eligible for capital gains tax exemption under Section 54EC, to Rs 50 lakh per investor per year with retrospective effect from April 1, 2006. The limit will be continued.

7. Taxation of super rich agriculturists has never been talked about. This is one reform which I never expect to be implemented because of obvious reasons.


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