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| March 01, 2013 |
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| Weekly Facts |
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Close |
Change |
%Change |
| BSE Sensex* |
18,918.52 |
(398.5) |
-2.06% |
| Re/US$ |
54.36 |
(0.9) |
-1.65% |
| Gold Rs/10g |
29,693.00 |
473.0 |
1.62% |
| Crude ($/barrel) |
111.38 |
(4.1) |
-3.52% |
| FD Rates (1-Yr) |
7.25% - 9.00% |
Weekly change as on February 28, 2013
*BSE Sensex as on March 01, 2013
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Impact 
India's Direct Tax-GDP ratio of 5.5% is one of the lowest by international standards. In the current economic scenario, there is a little room to cut tax rates or revise tax slabs. Lower tax rates would mean lower revenue generation and tax slab revision would make the base of taxpayers narrower. Furthermore, the current tax slabs were introduced only last year. In Union Budget 2013-14, the Finance Minister has tried to provide some relief by tweaking the base tax slab only for those whose income is below Rs 5 lac. There are approximately 1.8 crore taxpayers falling under the 10% tax slab of Rs2, 00,001-Rs 5, 00,000 which has been proposed to revise to Rs 2,20,001-Rs 5,00,000. This would result in saving of Rs 2,000 in the base tax liability. To do the balancing act, and raise its revenue tax collection, the finance minister has proposed to charge additional surcharge of 10% to the tax payers whose reported earnings are more than Rs 1 crore. However, the proposed surcharge is applicable for the Financial Year (FY) 2013-14 only i.e. just for a year.
Marginal Relief at the Bottom of the Hierarchy and slight pinch at the Top
| Your Total Income |
Tax (As per exisiting Provisions) |
New Tax (As per Proposed changes) |
Saving |
| Rs 5,00,000 |
30,900 |
28,840 |
2,060 |
| Rs 10,00,000 |
1,33,900 |
1,33,900 |
0 |
| Rs 1,00,00,000 |
29,14,900 |
29,14,900 |
0 |
| Rs 1,10,00,000 |
32,23,900 |
35,46,290 |
-3,22,390 |
(Source: Union Budget 2013-14, PersonalFN Research)
We are of the view that, the benefits offered to those in the minimum tax bracket are nominal. But since maximum tax payers (nearly half) fall in this category; the finance ministry was constrained to offer higher concessions. On the other hand, those earning more than Rs 20 lac pay nearly 2/3rd of the total income tax collected from individuals. This restricted the scope to further burden these strata to raise tax collection. Within limitation, the government has not disappointed completely as it has offered at least some incentives to many and has charged a little more to affluent.
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Impact
The first time home loan borrowers will get an additional deduction upto Rs 1 lac. At present, the deduction of Rs 1.5 lac from the taxable income is available for the payment made towards interest on home loan on self-occupied properties. To avail the benefit of additional deduction, one must take the loan during FY 20013-14 and the value of the property should not exceed Rs 40 lac. The New section 80EE is proposed to be introduced to Income Tax Act which would grant assessee to avail aforesaid deduction. Those who would not utilise the limit in FY 2013-14 may carry forward the residual limit over FY 2014-15. For example, if an assessee claims the deduction of Rs 2,35,000 in FY 2014-15 (Rs1.5 lac under section 24and 85,000 under section 80EE); he may carry forward the unutilised limit of Rs 15,000 over FY 2014-15. This limit may be treated as the limit over and above the limit of Rs 1.5 lac available for utilisation in FY 2014-15.
We are of the view that, the finance minister has tried to give tax concessions to individual tax payers without putting much of strain on revenue stream of the government. Also, by granting deductions from taxable income upto additional Rs 1 lac, the government aims to attain growth in sectors such as housing, financing and allied sectors. This trickle down impact may generate more jobs in these sectors. However, given that the benefits under section 80EE would be available only for 2 financial years, there would be a limited positive impact.
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Impact
After years of delay, the Reserve Bank of India (RBI) has finally spelt out norms for granting new banking licenses, in support of Government's agenda of inclusive banking. The final rules permit companies from any sector to apply for new bank licenses, thereby dropping the language in the earlier draft which ruled out entries to brokerage houses and companies in the real estate business. Thus by doing so, the RBI seems to have honoured the finance ministry view that the aforesaid business should be considered eligible for setting up new banks. But on the other hand the new guidelines have enough subjectivity for the central bank to reject an application on the grounds of unsuitability for banking business.
To read more about this news and to know our view over it, please click here.
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Impact
In a move that can be a step ahead in protecting the interest of investors in mutual funds, the capital market regulator – Securities and Exchange Board of India (SEBI) has showed its desire to limit the rights of the asset managers to charge fund management fees, for which they can be eligible only if they are able to perform. This move can stop money losing mutual fund schemes from charging fees to the investors who might have already lost a portion of their money by being invested in underperforming funds.
To read more about this news and to know our view over it, please click here.
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- Dividend distribution tax on debt oriented mutual funds is set to go up from current 12.5% to 25% for dividend payment by a mutual fund to individuals and HUFs and all other assessee classified under similar head. This action is expected to make growth options of debt oriented funds more attractive especially for those falling under 10% and 20% tax slabs.
We are of the view that, that such a move will discourage investors to invest in hybrid funds such as Monthly Income Plans (MIPs) which is regularly announce dividend. Moreover, such funds are sought after by investors as dividends under MIPs provide them a source of regular income post retirement. These funds may lose their sheen. Also, the liquid plus funds which are near best substitute to liquid funds would also become unattractive. At present, dividend distribution tax on liquid funds is 25%. Similarly, Systematic Transfer plan (STP) would become unattractive than before.
- The government has proposed to establish India's first Women Only bank that too in the public sector. This is a novel approach to women empowerment. The said bank is likely to commence its operations in October and would have the initial capital of Rs 1,ooo crore.
We are of the view that, this is a politically motivated move of the government to woo women voters keeping in mind General election of 2014.
- The Employees' Provident Fund Organisation (EPFO) would pay interest of 8.5% for 2012-13 which is 0.25% higher than the interest paid in FY 2011-12. The board considered the possibility of paying interest at 8.6% but it would have resulted in deficit of Rs 240.49 crore with EPFO. The payment of interest at 8.5% would leave the modest surplus of Rs 4.13 crore. However, had the EPFO paid the interest at 8.25%, the surplus would have jumped to about Rs 615 crore.
We are of the view that, the EPFO has offered one of the most competitive rates to tax payers seeking to save taxes by investing in debt instruments which do not attract any tax liability at maturity and interest earned on them is also tax free.
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Dividend Distribution Tax (DDT): Companies and mutual funds distributing dividends, pay tax at the specified rate on the amount of dividend before distributing them to shareholders / investors. Dividend income is free in the hands of investors.
Source: Investopedia
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Quote : "You shouldn't own common stocks if a 50 per cent decrease in their value in a short period of time would cause you acute distress." - Warren Buffett
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