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Budget below market expectations, but good for economy from long-term perspective
September, 12th 2014

The Budget for 2014-15 took a practical approach to the issues plaguing the country, with a focus on fiscal consolidation, social sector, and boosting the infrastructure sector, among other things.

There have not been any expected 'big bang' measures announced, but have taken steps which may help lay a strong foundation for a long-term growth. The infrastructure & power sectors have been core areas of focus, with several incentives given to assist in recovering the pace of growth.

We believe that the key to growth lies in a bottom up approach, and we believe that the budgetary measures directs towards the same. Also, by increasing customs duty for flat rolled steel will give impetus to domestic companies.

There is good news for retail investors in terms of tax breaks, with the base for personal income tax increased from Rs. 2 lakh to Rs. 2.5 lakh for male and female assessee and for senior citizens the base has been enhanced to Rs. 3 lakh from the present Rs. 2.5 lakh.

The exemption under Section 80C has been increased to Rs. 1.5 lakh compared to Rs 1 lakh earlier. Saving instruments such as housing loan repayment (principal), five-year and above tenure fixed deposits, provident funds (PFs) and life insurance policy premiums are some investment vehicles that qualify for tax exemption under Section 80C of the Income Tax Act.

However, the tax rates remain the same, and we believe that the additional Rs. 1 lakh that the retail investor saves on tax will be a big boost for personal income levels, and in turn the liquidity in the economy. The contribution to PPF has been increased to Rs. 1.5 lakh from current Rs 1 lakh.

Other tax benefits such as increase in permissible deductions for housing loan interest from Rs. 1.5 lakh to Rs. 2 lakh have also been announced. The finance minister has also announced a single KYC policy for all investments across the board, which is likely to improve the ease of investing in various asset classes.

One's demat account will also become unified across various investment - e.g. stocks, mutual funds, bonds, insurance, etc. The finance minister also announced that a special small saving scheme will be introduced for the education of girl child.

Some imported electronic goods might become more expensive with the government introducing a cess on these to boost domestic production, but in turn domestic TV's etc. are set to become cheaper due to SOPs given out.

Another significant announcement is that the PF body will be making the accounts unified, simplifying the procedure for the retail investor.

However, there is a significant negative for retail investors, in that debt funds which were taxed at a long term capital gains of 10% after a holding period of 1 year, have come under the finance ministry scanner, and in an effort to equate the debt funds with bank deposits, the finance minister has increased the long term capital gain on debt funds to 20%, and made the minimum holding period as 36 months.

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