Status quo seems to be the key take away

Budget 2007-08 has focused on several initiatives in agricultural, education and healthcare, but has practically nothing for personal finance.

Budget 2007-08 has focused on several initiatives in agricultural, education and healthcare, but has practically nothing for personal finance. While the FM says he’s pleased with better tax compliance by the aam admi, he has not tinkered with basic income tax rates but has provided certain concessions in the form of enhanced income exemption limits and has enhanced the limit of medical insurance premium eligible for deduction under Section 80D. The downside, though, is the hike education cess from 2 per cent to 3 per cent.

He has also left capital gains tax and STT unchangedm, which is good news really, as the expectations in this department were not those that inspired optimism. The bad news, of course, is the hiking of dividend distribution tax from 12.5 per cent to 15 per cent. The increase in DDT on money market mutual funds has been even sharper having doubled from 12.5 per cent to 25 per cent, thereby reducing the tax arbitrage that was available between such funds and bank deposits. This will make liquid funds less attractive than they currently are to individuals.

Fringe benefit tax on ESOPs will force some employers to revisit this as a tool of quality human resource retention till there is some clarity on the issue.

Story continues below this ad

So what has been ignored? There was neither any mention about the EET tax regime nor that of decreasing the threshold age for qualifying as a senior citizens from 65 to 60. Most people retire at 58 or 60 but the ‘benefits’ of being elderly only start trickling from age 65.

It was hoped that there would be an enhanced limit under Section 80C from Rs 1 lakh to around Rs 1.5-2 lakh. Instead, all we got was a measly ‘increment’ in annual take homes, courtesy the enhanced limit under Section 80D with respect to medical premium payments.

Right, so teh FM hasn’t touched long-term capital gains, but equity-oriented Fund of Funds are treated on par with debt funds. This makes FoFs less attractive as you have to pay 10 per cent long term capital gains and 30 per cent short term capital gains tax even on equity FOFs. Similarly funds that invest more than 35 per cent of their corpus in foreign stocks would be classified as debt funds even though they may hold 100 per cent equity (foreign stocks). This acts as a disincentive and hence very few fund houses have launched global equity products even though the investment limits in foreign stocks has been continually enhanced. Additionally the anomaly of double Incidence of STT on Mutual Fund units and the underlying share purchases were not addressed.

It was hoped capital gains treatment for equity and debt funds would be brought at par. Instead liquid funds were subject to a higher dividend distribution tax of 25 per cent plus surcharge and cess.

Story continues below this ad

Considering the strong interest in the realty sector, there were expectations that real estate mutual funds would find some mention in the budget. But there were none. The proposed — and long overdue Pension Bill was also given the go by.

Well if wishes were horses, beggars would ride. All in all, this budget was more of a report card, and an accounting exercise as far as the personal finance space is concerned.