Friday, February 26, 2010

Expert Talk: A positive and individual friendly budget!

The Union Budget 2010 presented by our Finance Minster Pranab Mukerjee has been received positively by the stock market investors. This is evident from the sharp jump in the indices - Sensex and Nifty.

The Biggest Positive
By far the most attractive thing in the Budget 2010 for individuals is the increase in the income tax slab limits. Though the entry level slab for income tax has not been changed from Rs.1.6 lakhs, there is a considerable jump in the other slabs.

The new proposed slabs for the personal income tax are:
  • 10% - Between Rs.1.6 lakhs and 5 lakhs
  • 20% - Between Rs.5 lakhs and 8 lakhs
  • 30% - Above 8 lakhs
As per the words of the Finance Minister, this proposal will bring relief to about 40% of the current tax payers.

Infrastructure Bonds are Back
Rs.20,000/- has been introduced as the additional limit for investment in Infrastructure Bonds. Infrastructure Bonds are thus making a comeback after 5 years as a savings option for tax savers. This will also reduce the tax burden for a few who are interested in traditional savings tools. This Rs.20,000/- will be over and above the current limit of Rs.1,00,000/- in various tax saving schemes.

New Pension Scheme Push
A renewed push has been given to the New Pension Scheme in this Budget. Till now the New Pension Scheme has not found much favour from the common public due to typical teething problems related to its implementation.
Our Finance Minister has proposed to give Rs.1000/- as a starting incentive to all Accounts of NPS opening in the next 3 years. This is a welcome measure, as the NPS is as of now the key Contributory Social Security Scheme in India.

Housing Interest Rate
The Finance Minister has said that the Interest Support of 1% for low cost housing loans will be extended for the next year too. This is a boon for the builders of townships and also the aam aadmi of India who could not afford costly houses. This is a direct form of supporting the recovery of the economy itself.

Support for Rural People
Agriculturists and people livings in rural India can have a breath of relief. The farm loans have been given an extension of 6 months.
Not only that, new loans will be getting a Government support of 2% reduction in interest rates. Effectively this brings down the farm interest rate to 5%. The earlier support was limited to only 1%.
The rural communities in non-arable areas get support from the continuation of the Mahatma Gandhi National Rural Employment Guarantee Scheme. The budget has allotted Rs.40,000/- crores for this scheme, which is now being implemented across the country.

Micro-Finance Support
Recognizing the major change in development brought about by micro-finance companies in India, the Finance Minister has proposed a Micro-Finance Development Fund to support Micro Finance Companies. At Rs.400 crores, the fund size is small but being with right intention, the gesture is one in the right direction.

Banks Loans
Rs.16,500 crores has been budgeted for providing the Tier I capital required for some PSU banks. This will improve the lending capacity of these banks. The Budget 2010 has also made additional provisions of capital for lending to Rural Areas.
These measures will not only stabilize banks but also provide the much needed muscle to improve the loan portfolio of PSU banks.
Additional licenses are being planned for private banks. NBFCs will also get a chance to open banks. The modalities will be discussed in detail shortly.

Overall an Individual Friendly Budget
Based on the above concessions and support for lending and investments, we can conclude that Budget 2010 is very much friendly for the individuals of India. The salaried class may rejoice in their tax out goes coming down in a big way. The Rural Population can cheer over their cash outflows coming down and/or postponed. Banks, housing developers and those buying low cost houses can be happy with the 1% interest support.
A budget at a critical time, but has brought job to most individuals. Pranabji, your magical spell is working.

Thanks and Regards

S&P Wealth Creators

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