The Finance Minister Mr P Chidambaram has unveiled the Union Budget 2013-14.
This year, the finance minister has not given any negative surprise but there is no eye sparkling announcement either. Given the high expectations from budget and constrained room, the finance minister had no leeway in policy making and allocations; the budget 2013-14 has failed to impress markets. Here we bring to you the highlights of the budget and also shed light on how would the announcements affect your investments and your day to day life.

The finance minister had a difficult job of improving macro-economic indicators such as growth numbers, fiscal and current account deficit situation etc. without hurting the micros such as personal incomes and household savings to name a few. On the backdrop of lower growth in domestic economy, chronically high inflation at consumer level, high interest rate and tough economic conditions across the globe; the Union Budget 2013-14 aimed at attaining sustained and inclusive growth in the coming fiscal.

While the government has successfully contained fiscal deficit for FY 2012-13 at 5.2% against the estimated number of 5.3%; it has failed to address the problem of growing current account deficit which had reached to a record high of 5.4% in the second quarter of current fiscal. To bridge this gap in current account deficit; India would need to attract approximately 75 billion USD over next 2 years. India would therefore, depend on large inflows from Foreign Institutional Investors (FIIs), Foreign Direct Investments (FDIs) and also on External Commercial Borrowings (ECBs).

In order to reign in twin deficit, the government needs to raise more resources. This being a reason there have been very few incentives given to economically strong groups of society and to attain inclusivity, key social schemes have been incrementally funded. Budgetary provisions are expected to affect consumption and savings patterns of individuals. Let’s look at them one by one.
 

1. Consumption side
   
   Articles/ Services that may cost you more in FY 2013-14:
    
   • SUVs, high end imported cars and motor bikes - Excise duty on SUVs is raised from 27% to 30% while custom duty on high end luxury cars (costing more than 40,000 USD or with engine capacity of 3000 cc in case of petrol car and 2500 cc in case of Diesel cars) is hiked from 75% to 100%, while for motor bikes over 800 cc it has been hiked from 60% to 75%.
      
   • Mobile Phones- Excise duty on mobile phones costing more than Rs 2,000 would be hiked to 6% from current 1%
      
   • Marble Tiles- Excise duty on marble is doubled from current Rs 30 per square meter to Rs 60 per square meter.
      
   • Cigarettes, cigars, cheroots and cigarillos - Specific Excise duty is increased by about 18%
      
   • Eating out in an air conditioned restaurant- All air-conditioned non-alcohol serving restaurants would come under the purview of service tax
      
   • Silk apparels- Customs duty on raw silk has been raised from 5% to 10%
     
      
   Articles/ Services that may cost you less in FY 2013-14:
    
   • Readymade garment (Cotton) - No excise duty at fiber stage
      
   • Handmade carpets and textile floor coverings of coir and jute - Total exemption from excise duty
      
   • Spare-parts of electric and hybrid vehicles (prices may remain unchanged) - Concessions in custom duty have been extended upto 31 March 2015
      
   • Imported Gold bought on foreign travels - Limit of duty free gold has been raised to Rs 50,000 in case of a male passenger and Rs 1 lac in case of a female passenger
      
   • On your high end flats: For homes and flats with a carpet area of 2,000 sq.ft. or more or of a value of Rs 1 crore or more, which are high-end constructions, where the component of services is greater, the rate of abatement has been reduced from 75% to 70%
     
      
2. Savings
    
   1. Taxation
       
      • The personal income tax slabs and tax rates have been kept unchanged however as to provide marginal incentives to people falling in the 10% tax slab; the credit of Rs 2,000 has been given by raising the base limit from Rs 2,00,000 to Rs 2,20,000 only for individuals having total income of upto Rs 5 lac. Education Cess remains unchanged at 3%.
         
      • Tax on Superrich: There have been only about 42,000 tax payers whose reported income is above Rs 1 crore. Those with income levels of 1 crore and above would have to pay an additional 10% surcharge.
        
         
   2. Investments
       
      • Instruments protecting savings from inflation would be introduced: Inflation linked savings instruments would protect the real rate of returns and minimise the impact of inflation
         
      • Incentive to first time investors (in equity markets): The scope of Rajiv Gandhi Equity Savings Scheme (RGESS) would be extended. The scheme has been extended to individuals with annual income of Rs 12 lac from earlier limit of Rs 10 lac. To add it up, the benefits can now be claimed for 3 successive years by contributing in each year.
         
      • More Tax Free Bonds: The budget has proposed to issue Tax free infrastructure bonds worth Rs 50,000 crore in FY 2013-14
         
      • Affordable Housing has been encouraged: Provides for an additional deduction of interest upto Rs 1 lac (over and above Rs 1.5 lacs) for a person taking his first home loan not exceeding Rs 25 lac. If the limit remains unexhausted, it can be utilised in FY 2014-15.
         
      • More IPOs/ FPOs from PSEs: The government has set a disinvestment target of Rs 40,000 crore as against the target of Rs 30,000 core set for the current fiscal, which means more IPOs and FPOs from PSEs
         
      • Transactions in capital markets to cost less: Security Transaction Tax (STT) in futures segment of equity has been lowered from current 0.017% to 0.01%. On the other hand, For Mutual Funds and Exchange Traded Funds (ETFs), STT at the time of redemption would be charged at 0.001% which is 0.25% at present. Transactions of Mutual Funds and ETFs on stock exchanges would attract STT of 0.001% which lowers from the current rate of 0.125%.
         
      • Your Dividend income may fall: Dividend Distribution tax on debt oriented mutual funds is increased from 12.5% to 25% for individuals and HUFs. Furthermore, surcharge on dividend distribution tax has been also raised from 5% to 10%.
         
      • Getting Insurance cover is easier than before: KYC will not be a hurdle for getting insurance. The KYC submitted to banks would be sufficient to get you a new insurance cover.
        
         

Given above are just few of announcements made in the Union Budget 2013-14 which can have direct impact on you as an individual. We think the budget is more segmented towards providing socio-economic relief, while charging the super-rich on their luxurious life style.

Await our detailed note expounding on different aspects of the budget.

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