The extra day (29th Feb) of 2016, was well utilised as I love following important events. Well, I could not get more as both events belong to subjects close to my heart… movies and finance. I woke up to 88th Academy Awards (Oscars) and ended with decoding Budget 2016. This Oscars ended 20 years wait for Leonardo de Caprio and it was a proud moment when Priyanka Chopra was on the stage of the Dolby Theatres. The Budget wasn’t so glamorous, but it scaled high on “filmy” parameter. Market danced throughout the FM’s speech and lot of debate will happen in coming days to find if this was an “aam aadmi budget” or the “corporate friendly”. My main interest was to decode what as investors we got .. directly or indirectly?
So, here we go, highlighting and decoding the budget 2016. Just a bit of caution… Budget is just proposals and lot of details come out when fine prints are read and discussed. So these are not final things until the 2 Houses pass the bill and President puts his signature.
What’s Not Changed
The tax slabs are same:
- Dividend tax: Dividend receipt of over Rs.10 lakh per annum to be taxed at 10% which is over and above DDT. Do not confuse it with dividends from MFs. These are related to dividends received by way of shareholding in corporates.
- Service tax hike: Introduction of Krishi Kalyan Cess of 0.5% on service tax for the welfare of farmers. First it was Swach Bharat and now this one. Effective tax rate will be 15.1%. Be ready for more in coming years.
- Tax sop for NPS subscribers: No tax on lumpsum withdrawal of up to 40% from NPS corpus. The NPS proceeds were taxable and this was a drawback of this scheme. But now 40% of maturity becomes tax-free in hands. A reverse has happened with EPF proceeds. Earlier they were tax-free (if 5 years completed in service), but now only 40% amount will be tax exempt.
- Encouraging real estate investment: First time home buyers to get an additional deduction of Rs.50,000 on interest component of EMI. So now Rs 2.5 lakhs can be deducted from interest on housing loan from the gross total income. Value of such houses should not exceed Rs 50 lakh.
- A VDS Scheme for people having black money. They can legitimise this by paying @ 30% + 7.5% surcharge + 7.5% penalty during 1st June to 30th September 2016. Amnesty provided from scrutiny.
- Infrastructure Cess of 1% on Petrol/LPG/CNG cars, 2.5% on Diesel Cars & 4% on SUVs and 1% on other vehicles above Rs 10 Lakhs.
- TDS of 1% on goods bought or services availed in excess of Rs 2 Lakhs.
- Health, Motor premium to go down: Service tax to be exempted on premium of general insurance policies. That means, health and motor insurance policies will get a bit cheaper.
- Service tax exemption: Service tax to be reduced from 3.5% to 1.5% on premium of single premium annuity policy. (I do not recommend these at all)
- STT hike: Security transaction tax (STT) to be increased from 0.017% to 0.5% in option trading (call option, put option) (I do not recommend these at all)
- LTCG tenure: Tenure of long-term capital gain (LTCG) on transfer of unlisted shares to be reduced from 3 years to 2 years.
- Relaxation for house owners: Deduction amount claimed against rent paid to be increased from 24,000 pa to 60,000 pa. So if employer is not paying HRA, you can get this deduction form gross total income.
- Relief to small taxpayers: Additional rebate of Rs.3,000 for an individual having annual income of up to Rs.5 lakh per annum. Now, such individuals can avail total rebate of Rs.5,000 in an assessment year.
Extra Points to be more informed
- 25,000 crore for bank recapitalization in FY16-17. Banks are currently having a great pressure as their NPAs are mounting. They wanted a way out and they got a bit. But remember, this is tax payers money.
- Government to raise Rs. 15,000 crore through NHAI bonds in FY16-17. Overall 70K Crores for roads. Happy Driving.
- Four public sector general insurance companies to be listed. Government has option to reduce stake in IDBI below 50%. Government is going to get lots of money. Will they use it productively?
- GAAR to be implemented from 1 April 2017. FIIs will love it.
- Fiscal deficit target of 3.5% for FY16-17. Thumbs up… In fact I am waiting for a surplus Budget.
- Voluntary disclosure of income for black money. A bit boost to GDP.
- Department of Disinvestment to be renamed as Department of Investment and Public Asset Management. Hope the new name will evoke more ownership.
- Aadhaar Bill to be introduced in current session of parliament. It is almost giving statutory powers to this So until a formal Social Security System comes, this will get you government care/treatment/subsidies etc.
- No face to face scrutiny. The IT department will do away with calling individuals and CAs to answer. The electronic system will replace this. So corruption will be minimised. Also, enhanced interest on delayed refunds arising out of Appeal Only raised to 9% from 6%. Assessment Officer to be made responsible for additional
- SEBI to come up with new derivative products. (I do not recommend these at all)
As I said more clarity will come when the parliament and experts discuss it in details. Till then, do share your queries and comments in the below section.