  | | July 04, 2014 | | | | | | | Weekly Facts | | | Close | Change | %Change | | BSE Sensex* | 25,962.06 | 862.14 | 3.43% | | Re/US$ | 59.74 | 0.4 | 0.67% | | Gold Rs/10g | 28,070.00 | -280 | -0.99% | | Crude ($/barrel) | 110.25 | -3.51 | -3.09% | | FD Rates (1-Yr) | 8.00% - 9.00% | Weekly change as on July 03, 2014
*BSE Sensex as on July 04, 2014 | |
Impact 
If you are expecting the finance minister to announce some tax reliefs for individual tax payers in the budget, you might be disappointed. Recently finance minister, Mr Arun Jaitley advocated that there isn't any scope for populist announcements. It seems fiscal prudence would be the lynchpin of this budget.
In June, it was reported by the media that the finance ministry called for a report from Income Tax Department to assess the opportunity to increase the tax exemption limit from Rs 2 lakh to Rs 5 lakh. And now there expectations afloat that Government would indeed introduce 'acche din' to the aam admi by providing some tax sops.
So the expectations are:
- An increase in basic Income-Tax (I-T) exemption limit to at least Rs 3 lakh from Rs 2 lakh at present;
- Re-introduction of a separate and higher basic I-T exemption limit for women (which was removed in the Union Budget 2012-13, presented by the then finance minister, Mr Pranab Mukherjee);
- Doubling the tax deduction limit available under section 80C of the Income Tax Act, 1961 to Rs 2 lakh from Rs 1 lakh at present
- Increasing incentive for home loans (possibly by raising the deduction limit beyond Rs 1.5 lakh for interest amount under section 24(b) of the Income-Tax Act, 1961)
- Increasing the incentive for education (possibly through children education allowance and education loans)
Is this likely?
Earlier, the Parliament Standing Committee on Finance headed by Mr Yashwant Sinha suggested that there shouldn't be any income tax for the income upto Rs 3 lakh. Thereafter too, slabs should be reshuffled. The committee proposed that the 10% slab should be for those earning between Rs 3 lakh to Rs 10 lakh, 20% slab should be for those whose income is between Rs 10 lakh - Rs 20 lakh. Income above 20 lakh should be charged to tax at the rate of 30%. It also said that while we move towards accepting revised Direct Tax Code (DTC), it is still unclear whether the fourth slab for those earning in excess of Rs 10 crore be created.
As per the data available, there are about 2.70 crore tax payers who earn below Rs 10 lakh but above Rs 2 lakh. Total tax collected from them is estimated to be Rs 21,094 crore. There are about 3.35 lakh tax payers that have income between Rs 10 lakh to Rs 20 lakh who collectively pay Rs 10,185 crore as tax as per an estimate. On the other hand, about 1.85 lakh tax payers earning more than Rs 20 lakh collectively pay Rs 53,170 crore. It is estimated that, if income upto Rs 3 lakh is exempted and deduction under section 80C is hiked, there will be a revenue loss of about Rs 60,000 crore.
PersonalFN believes considering the tough choice between raising income tax limits and cutting subsidies, Government may have to think several times before taking any decision pertaining to taxation. Growing inflation and growing fiscal deficit are serious problems that the NDA Government faces. If it keeps income tax slabs and thresholds of deductions unchanged; household budgets may go for a toss. On the contrary, if it provides greater subsidies (which is unlikely) there will be an upside risk to fiscal deficit.
Nevertheless, taking into account that the aam admi is marred by growing vegetable prices, costlier train journeys and escalating fuel prices; PersonalFN is of the view that the Government may announce some tax reliefs to help the common man absorb the price hikes. At the same time it may rationalise the subsidies. PersonalFN believes the focus of the Government may remain on fiscal consolidation.
Do you think Finance Minister may disappoint the common man at union budget? Share your views
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Impact
The current rally in the Indian equity market has helped many to earn impressive returns in mutual fund investments. And tiding the wave of expectation from the Modi-led-NDA Government, the asset base of Indian mutual fund industry has also soared to Rs 10 lakh crore mark recently. But as far as penetration of mutual funds is concerned, it is still very barring the metro cities.
The latest figures suggest that top 10 states contribute to almost 90% of the Asset under Management (AUM) of mutual funds. Out of that 47.5% comes from the Maharashtra alone. The distant second slot goes to New Delhi region which has a share of 8.5% in total assets under. With a share of 6.8% Karnataka comes third and Gujarat which has a share of 5.3% comes fourth. More than 2/3rd of the asset base comes from top 5 states.
Maharashtra also tops the slot even when ranked on equity and gold AUM basis. Out of total equity assets, 36.1% are from Maharashtra alone. Gujarat ranks second with 7.6% share. The contribution of Maharashtra in gold ETFs is the highest at 71.7%. The distant second is Tamil Nadu with 3.4% share. As per a report published by PricewaterhouseCoopers (PwC) India's AUM-GDP ratio is about 7%-8%, which is very low as compared to the global average of 37%. It is noteworthy that the mutual fund industry still gets less than 3% of investible surplus available with households.
PersonalFN is of the view that, commission oriented nature of business, rampant mis-selling, lack of awareness and risk-averse nature of Indian savers are the main reasons of such a low penetration of mutual funds. Mis-selling that happened in the last sustained multi-year bull market of 2003-2008 badly affected the confidence of investors in mutual funds. Post 2008, retail investors turned away from mutual funds believing them to be more risky and less rewarding.
PersonalFN believes performance also plays a dominant role in attracting investors towards mutual funds. Unprecedented surge in New Fund Offers (NFOs) launched by mutual funds is a sad part of the story. Every time when markets ascend mutual funds rollout NFOs to attract more assets. They simply make hay when the sun shines in their race to garner AUM. As a result investors end up buying mutual fund units when the markets are high only to see the value of their assets declining in the subsequent downturn.
PersonalFN has long taken a firm stand that investors need to be educated first and given right guidance. As a part of this, PersonalFN has launched several initiatives in the past. One of this is Moneysimplified.in. It serves as your definitive resource for all things related to your money and provides you an unbiased approach to investing, which has helped investors in their journey of wealth creation.
PersonalFN believes if mutual fund industry wants to grow it has to look beyond top cities and states, for which they need to educate investors for them to come forward and invest.
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Impact 
It is said that poverty in India is declining year after year. A person who earns more than Rs 32 is above poverty line. But food inflation is so high that one can't even buy kitchen staples such as onions, potatoes and tomatoes with Rs 32. Last year, a few political leaders had made statements claiming that Rs 5 and Rs 12 were enough to eat stomach-full meal in Delhi and in Mumbai. But the fact and a stark contrast is that one can't even buy more than a quarter of a kilogram of vegetables with such amounts.
Not only the poor, but even middleclass families are finding it difficult to manage their monthly budgets nowadays. The biggest worry has been escalating food article prices and mad-rise in prices of fruits and vegetables.
Is there a risk of rising food and vegetable prices?
Note: The data points above are from the Consumer Price Index
(Source: MOSPI, PersonalFN Research)
As per the movement of Consumer Price Index (CPI), vegetable and fruit prices are persistently up. Rate of inflation has been above 10% which is a cause of a worry.
Wholesale prices in Vashi market in Mumbai have gone up by about 15%-20% over last fortnight. As a result, you can hardly get any vegetable below Rs 60 in Mumbai these days. Onion and potato prices too are rising. Onion prices have nearly doubled within a month. Moreover, the supply of veggies to Mumbai is affected as trucks carrying veggies to the city of Mumbai have reduced substantially in number. Situation in Maharashtra is grim because, nearly 83% of the farming is rain-fed and rainfall thus far has been scanty.
To read more about this new and the views of PersonalFN's over it, please click here.
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Impact
We are just a few days away from the first budget of Modi-led-NDA Government. It comes at a time when expectations are unimaginably high and macro-economic conditions are extremely challenging. Yet, the Indian equity markets are going strong. The S&P BSE Sensex has rallied nearly +5% over last one month and on a year-to-date basis nearly 22%. And even now as we are writing to you, the markets are sailing in uncharted territory, scaling new all-time highs.
As you know, the performance of the Government has been mix so far. A few bold decisions have been taken and some of them have been controversial as well. It is widely believed that the first budget of this Government will give guidance for coming years. Investors are expecting a budget which will boost economic growth, encourage investments and assure good governance. The finance minister has also hinted that there wouldn't be many populist decisions taken. To build brand India and attract foreign investments, the focus may remain on building sustainable infrastructure; which is expected to provide boost to infrastructure related sectors. Thus on these hopes, infrastructure theme has reemerged and infra stocks have rallied.
To read more about this news and the view of PersonalFN over it, please click here.
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Direct Tax: A tax that is paid directly by an individual or organisation to the imposing entity. A taxpayer pays a direct tax to a government for different purposes, including real property tax, personal property tax, income tax or taxes on assets. Direct taxes are different from indirect taxes, where the tax is levied on one entity, such as a seller, and paid by another, such a sales tax paid by the buyer in a retail setting.
(Source: Investopedia)
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Quote : "It would be wonderful if we could avoid the setbacks with timely exits, but nobody has figured out how to predict them." - Peter Lynch
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