Posts Tagged ‘fy 14-15’


For the last 3 weeks, every inch of the media seemed to be focused on what the first Union budget of the government will deliver, very much like all my younger friends and colleagues were eagerly awaiting the release of Humpty Sharma ki Dulhania. Modi Jaitley ki Dulhania ( Indian Union Budget) released on July 10, and opened to packed houses, with everyone eagerly looking for when the Acche Din will emerge.

So was Modi Jaitley ki Dulhania – a hit or a flop ? 

A bit of both actually, in our opinion

Hit: Greater focus on timelines, with the first 15 minutes touching upon all the critical items that were being looked for in the budget.
Impact: Good step to move from a nation of talkers to a nation of doers. 

Flop: Retrospective tax treatment, which foreigners were seeking clarity on, got only partial clarity.
Impact: Greater clarity would have gone a long way in addressing the perception that India is a difficult place to do business in.

Hit: Fiscal deficit targeted to be maintained at 4.1% of GDP for FY15, 3.6% for FY16 and 3% for FY17.
Impact: Whilst the assumptions are definitely aggressive, the positive impact of this effort on controlling inflation and inflationary expectations could be significant. Good news for fixed income investors looking to add duration / longer maturity products to their portfolios.

Flop: Import duties on gold continue.
Impact: Could possibly indicate that there is still a concern on sustaining the lower current account deficit, and thus India is not out of the woods yet on this front. 

Hit:Tax exemption limits hiked for all individuals by Rs 50000. Section 80C limits have been enhanced to Rs.1.5 Lakhs, and PPF limits have also been enhanced to Rs 1.5 lakhs. Exemption on interest on home loans for self occupied property raised to Rs.2 Lakhs.
Impact: By themselves, these are small changes but when seen together, they allow investors earning higher incomes approx Rs 36000 per annum of incremental savings. Treat it like a salary raise, and put it away before it gets spent. The higher PPF limit can be used to enhance tax efficient fixed income exposures.

Flop: Kisan Vikas Patra / National Savings Certificate with insurance cover have been introduced.  A special small savings scheme to cater to the requirements of the girl child’s education and marriage would also be launched.
Impact: Increasing financial savings is a great idea, but don’t we have enough products already to be able to achieve that for small savers?

Hit: Single Demat Account to access and transact all financial assets.
Impact: Great idea – This will help in consolidation of all the financial investments, which facilitates data availability at one place for processes like tax filing, will creation, etc. Lets hope it gets implemented soon.

Flop: Taxation on Debt Mutual Funds/gold funds/international funds changed – Holding period to avail Long Term Capital Gain increased from 12 months to 36 months, 10% without indexation provision is removed for LTCG. Thus what remains is 20% with indexation. This could take effect from 1st April 2015.
Impact: This would result in reduced tax arbitrage for debt fund investors against bank deposits, though the tax arbitrage still remains. Fixed income investors using debt funds may need to revisit their time horizons on debt investments. 

Hit:   Uniform tax treatment for pension Fund (NPS) and retirement linked Mutual Fund schemes. The contributor would get benefit under section 80CCD.
Impact: This could be a great way to channelize long term retirement savings towards mutual funds, but the devil could be in the detail. Clarity awaited.

Flop: Dividend Distribution Tax on Equity Shares and Debt Mutual Funds has been effectively raised by approx. 2.5%.
Impact: Change in methodology likely to have small impact, but significant confusion. Clarity awaited.

Hit: Uniform KYC norms would be introduced, inter usability of KYC records will be across the financial sector.
Impact: This could liberate investors from cumbersome paperwork. Hope we are able to keep it simple for existing investors as well, who needs a KYC process all over again.

Flop: FDI increases have been limited to 49% in most areas.
Impact: To truly reform, a move to enhance FDI to 51% would have sent a much stronger signal for foreign investors.

Hit: Creation of Infrastructure Investment Trust ( InvITs ) and tax clarity of pass through status on Real Estate Investment Trusts ( REITs).
Impact: This should boost investments in both real estate and infrastructure. The investors in these trusts will get similar tax treatment on capital gain as in companies. LTCG would be exempt from tax and STCG would be taxed at 15%.

Hit: Clarity under section 54 and Section 54F on transfer of a long term capital asset – only one home can be claimed as a deduction, and that too in India.
Impact: Good to reduce potential confusion in the tax laws whilst taking tax breaks.

Thus, overall it was a hit and a miss directorial debut, but we need part 2 of Modi Jaitley Ki Dulhania soon. Remember, reforms don’t need to wait for the next budget, and neither does your investment strategy. With the current future valuations of the equity market (BSE SENSEX) at 16.9 times for FY15 and 14.7 for FY 16, equities seem close to fair value. Asset allocation continues to be the key. Stick to it and enjoy “Saturday, Saturday”.

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