Fourty-two year old Niranjan said as he ruched to office, “I hear the budget would leave me with more money in my pocket.” I would believe so, I replied. “Could you help me plan my finances in the light of the budget announcements?” he asked. The budget speech had just concluded and we could not be absolutely certain on the implications till one goes through the fine print, I said. However, as is known, the income tax slabs have been altered and the minimum taxable limit has been raised. The effect of changing slabs and increasing the minimum taxable limit from Rs 1.10 lakh to Rs 1.50 lakh affects everyone. For a person like Niranjan earning Rs 5 lakh or more per annum, the tax savings would be about Rs 45,000 per annum. It would be prudent for him to increase his investments by at least half this amount in the coming year. He could use it to increase his investments in equities. This would help him achieve his financial goals like funding his child’s education and his retirement more easily. STCG tax raisedBut please do not continue with your speculative stock purchases, I had warned Niranjan. Trying to make money over the short term in the stock market has very rarely worked. The budget had now raised the tax on stock investments that are sold within less than a year. This tax was raised from 10 per cent to 15 per cent. It was a hope that it will encourage investors to take a longer-term view when investing in equity markets. Niranjan looked a little disappointed but knew it was for the best. But there is some more good news for you, I told. Pay for your parents’ mediclaimNiranjan had often in the past complained of the rising cost of health insurance. Every year he pays premium on health insurance for his wife, children and his parents. This typically costs him over Rs 30,000 per annum. Until recently the maximum exemption that he enjoyed under Section 80D was Rs 20,000. The higher exemption (Rs 20,000 instead of Rs 15,000) was because he paid premiums for his parents who are senior citizens. In this budget the finance minister raised the exemption limit by another Rs 15,000, thereby taking the total deduction to Rs 35,000. This is expected to result in an additional saving of Rs 3,000-5,000 annually. He should, therefore, continue to pay the premium on his parents’ mediclaim policy. Reverse mortgage likely to get popularAlso, your parents may now proceed with the reverse mortgage that they have been thinking about, I said. A reverse mortgage is a way of selling your home while you continue to live in it. The bank or finance company pays the owners a regular amount based on the value of their home. An individual may continue to live in his or her home for a lifetime while receiving this annuity. Upon the demise of the owner the finance company takes over the property. Till recently it was unclear if the annuity received from a reverse mortgage would be taxable in the hand of the recipient. With the finance minister declaring in this budget that such annuities are tax free, this product is expected to gain in popularity. Niranjan seemed overjoyed. I cautioned Niranjan that at times conclusions drawn before we go through the fine print might not live up to our initial expectations. He should, therefore, act only after he has gone through the details, which will be available in a few days. Niranjan smiled and left the office, overjoyed with the unexpected windfall that had come his way on budget day.The author is a certified financial planner. Email: CEO @ sardesai.com
