Just Three Sure Shots: Debt, Taxes & Dogfood

• The increase in threshold limits will be offset by the additional one per cent rise in education cess
  
• Senior citizens gain the most due to benefits like medical insurance and a new reverse mortgage product
  
• Long-term capital gains tax remain zero for equity, but the bump comes through a higher dividend tax
  
• Ban on forward trading in wheat and rice to curb prices; a panel to look into a possible ban on such trading of all food items
  
• Peak import duty cut to 10%, which may bring down prices
  
• Hints that a new Income Tax Code will be introduced in Parliament this year; that’s why the FM didn’t tinker with existing tax rates
  
• The expected reduction in corporate tax rate didn’t happen; industry not happy

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But the annual budget statement of a country results in a popular and media frenzy in India—newspapers beginning to plan the budget coverage way back from October or aam aadmi clips on TV asking for tax cuts, price cuts, more job opportunities, better law and order.... Clearly, there are unrealistic and uneducated expectations from the Indian budget—from getting onions to stay on the ground to making individuals rich. The historical reason for the frenzy are there—in a closed, top-down economy, everything from pickle prices to steel was a matter of grave government attention. But that was more than 10 years ago and the budget today is largely a statement of account with some policy measures thrown in.

Such thrills as they hold will still take some years to peter out, and then India’s budget will be no more exciting to the individual than say the US budget is to the average American. The budget is still relevant for us and, if we cut the noise, we get a basic roadmap for our personal finances from the annual budget statement in our three personas: the earner, the investor and the consumer. An earner is concerned about the direct income taxes he has to pay. An investor wants to know the relative attractiveness of various asset classes and products, the sectoral impact of the budget and is concerned about corporate profits. The consumer is concerned with indirect taxes to the extent they impact final prices.

I, the Earner

The biggest fixation of the urban middle-class families remains with income tax. What we got this year was a build-up of expectations of a decrease in tax liability riding on the back of a buoyant tax system, with the tax to GDP ratio climbing to 11.4 per cent. But as one seer said, "Expectations kill joy." Our expectations of the threshold income tax level getting bumped up to Rs 1.5 lakh (from the current Rs 1 lakh) were tempered and we got to just the Rs 1.1 lakh mark (Rs 1.45 for women and Rs 1.95 lakh for senior citizens). Our expectation on the removal of the 10 per cent surcharge on taxable income of over Rs 10 lakh was frustrated. The hike of one per cent in the education cess means that the little bit of tax relief given with one hand is taken away by the other. Only the males below 65 years of age with incomes less than Rs 5.1 lakh and under-65 women with incomes less than Rs 5.22 lakh benefit marginally, rest all lose.

The only category to actually benefit has been the 65-plus generation who now gain from the increased tax threshold all the way up to Rs 8.92 lakh of gross income. They also got promises of medical insurance polices aimed specifically at them and the green signal to the reverse mortgage product that will allow the cash-poor-house-rich generation to live with dignity.

I, the Investor

As an investor, we got none of the scary changes that were predicted—the good thing is that the bad things did not happen. Long-term capital gains continue to be tax-free for equity and the bump-up in the dividend distribution tax in liquid and money market funds to an effective 28.325 per cent will largely hit the arbitrage in income tax for the institutions. It does not concern the retail investor, who is still unable to see the merit of this really smart, liquid and efficient product for short-term parking of money.

I, the Consumer

As a consumer, we get some prices that are going down, but in an overall inflationary regime of commodity prices, India’s budget can do little to hold the price line down. The banning of forward trading in foodgrains is more populist than economic. Also, as the average incomes of the urban Indians rise, the proportion they spend on food and basic necessities goes down from about 60-70 per cent to less than 30 per cent of the annual living cost.

And the controversial pet food issue? Merely a red herring our FM is so adroit at throwing to keep the cats busy. Just watch the feeding frenzy on the channels!

(Monika Halan is the editor of Outlook Money.)