By now, most of us would have a fair idea of the additional cash that is going to be available with you the next financial year, thanks to changes introduced in the Union Budget 2008.
For those who aren’t yet clear, here’s a look-in on some of the major Budget recommendations and their broad impact on the individual investor’s finances:
Income tax slabs revised.
Impact: Positive; will increase liquidity. Move is expected to leave more money in the hands of the salaried class, taking into account inflation.
Short term capital gain tax (u/s 111A/115 AD) hiked.
Impact: Negative; will reduce liquidity. Alarming as the move is for active day traders, this will ultimately go in favour of personal financial planning by reducing the urge to realise short-term gains on the market. Investors will stick to long-term financial goals, rather than go for emotional profit booking.
Tax treatment of income from reverse mortgage changed - henceforth, such income will not be taxable.
Impact: Positive for the elderly; will leave more money in their hands. Move will benefit the elderly who have immovable property but no regular cash inflow.
Section 80 C basket enlarged by adding five-year time deposit in an account under Post Office Time Deposit Rules, 1981 and deposits in an account under Senior Citizens Savings Scheme Rules, 2004 for not less than 5 years.
Impact: Positive; more options for savings. Move will encourage small savings, besides giving the investor more options.
Service tax introduced on asset management services provided under unit-linked insurance plans (Ulips).
Impact: Neutral in short term; negative in long term. This could work against investors accumulating their retirement corpus through Ulips. Over the long term, it has the potential to reduce the corpus significantly.
It is the last point that we will dwell upon at some length. Let us consider its impact on the maturity value of a Rs 10 lakh investment in any Ulip for ‘n’ number of years.
The insurer charges a nominal 1.5 per cent per annum as fund management charges and it is assumed the fund will grow at a compounded growth rate of 12 per cent p.a. The first column projects the maturity value prior to the Budget proposal and the second column projects the maturity value post the proposed introduction of service tax on asset management services at 12.36 per cent of the fund management charges.
As the table shows, the maturity value of the funds invested is significantly eroded following the budgetary changes.
As always, it would be in the interest of investors to understand the possible impact of the changes introduced before settling for any investment option.
For those who aren’t yet clear, here’s a look-in on some of the major Budget recommendations and their broad impact on the individual investor’s finances:
Income tax slabs revised.
Impact: Positive; will increase liquidity. Move is expected to leave more money in the hands of the salaried class, taking into account inflation.
Short term capital gain tax (u/s 111A/115 AD) hiked.
Impact: Negative; will reduce liquidity. Alarming as the move is for active day traders, this will ultimately go in favour of personal financial planning by reducing the urge to realise short-term gains on the market. Investors will stick to long-term financial goals, rather than go for emotional profit booking.
Tax treatment of income from reverse mortgage changed - henceforth, such income will not be taxable.
Impact: Positive for the elderly; will leave more money in their hands. Move will benefit the elderly who have immovable property but no regular cash inflow.
Section 80 C basket enlarged by adding five-year time deposit in an account under Post Office Time Deposit Rules, 1981 and deposits in an account under Senior Citizens Savings Scheme Rules, 2004 for not less than 5 years.
Impact: Positive; more options for savings. Move will encourage small savings, besides giving the investor more options.
Service tax introduced on asset management services provided under unit-linked insurance plans (Ulips).
Impact: Neutral in short term; negative in long term. This could work against investors accumulating their retirement corpus through Ulips. Over the long term, it has the potential to reduce the corpus significantly.
It is the last point that we will dwell upon at some length. Let us consider its impact on the maturity value of a Rs 10 lakh investment in any Ulip for ‘n’ number of years.
The insurer charges a nominal 1.5 per cent per annum as fund management charges and it is assumed the fund will grow at a compounded growth rate of 12 per cent p.a. The first column projects the maturity value prior to the Budget proposal and the second column projects the maturity value post the proposed introduction of service tax on asset management services at 12.36 per cent of the fund management charges.
As the table shows, the maturity value of the funds invested is significantly eroded following the budgetary changes.
As always, it would be in the interest of investors to understand the possible impact of the changes introduced before settling for any investment option.
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