Budget 2012 – Financial Planning views

Yesterday was very hectic. Almost 30 mails hit my mailbox on the views and opinions on the budget 2012 provisions and almost all of them are saying the same thing, “There’s nothing for the “aam aadmi”, “How will aam aadmi survive in this high inflation scenario?”etc. Though I restricted my opinion on the same and trying to figure out, is it actually that bad? We always say that financial planningis about arrangement of finances keeping in mind the prevalent tax laws and investment scenario to help people achieve their financial goals comfortably. Country’s fiscal budget only provide us with some direction on how should we arrange our finances in the coming year. Looking at the overall economic situation it’s clear that what Finance minister has announced is what he’ s considered good for country. But now is our turn to review on current income and expenses pattern so the changes announced in budget 2012 should not bother our financial planning

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Budget 2012 – provisions impacting our inflow/outflow/taxes

1.      Changes in Income tax slabs: In line with the DTC provisions, the exemption limit for the general category of individual taxpayers has been enhanced from 1.80 lakh to 2 lakh. Also the upper limit of 20% tax slab has been raised from 8 lakh to 10 lakh. No changes in the exemption limit of Senior citizen which is Rs 2.50 lakh. The new income tax slabs will be as follows

 

Individual(Male/Women) (NON SR.)	New Tax slabs
Income up to Rs 2 lakh	NIL
Income above 2 lakh and up to 5 lakh	10    Per cent
Income above 5 lakh and up to 10 lakh	20 Per cent
Income above 10 lakh	30 per cent

 2.      Deduction announced on Interest on saving account up to Rs 10000.

 3.      Deduction of Rs 5000 for preventive health check-up. Though this is within the existing limit of Rs 15000 / Rs 20000 u/s 80D

 4.      Senior citizens who do not have any income from business are proposed to be exempted from payment of advance income tax

 5.      Increase in Service tax and Excise duty from 10% to 12% will increase the expenditure. Now people will have to fork out more money for eating out in restaurants, travelling, on monthly mobile bills, purchasing refrigerators, computers, diesel cars etc.

Budget 2012 – provisions impacting our investments

1.      Securities transaction tax has been reduced from 0.125% to 0.10% for delivery based transaction. This will impact the returns of all the equity investors (direct or through mutual funds)

 2.      Investors with annual income up to Rs 10 lakh can invest up to Rs 50000/- in the designated schemes under “Rajiv Gandhi equity savings scheme” and get tax deduction of 50% of the investment amount. This will be available to new investors only .The schemes will come with 3 years lock in. However still lot of clarity is required on this proposal.

 3.      Life insurance policies: To qualify for the deduction u/s 80C and section 10(10D), your life insurance policy premium should not exceed 10% of the sum assured. This will apply to policies purchased on or after April 1’2012.

 4.      With the increase in service tax rates your life insurance and health insurance premiums will be increased.

 5.      In case of sale of Residential property purchase at the time of making payment or crediting any sum by way of consideration for transfer of immovable property (other than agricultural land), the transferee/purchaser shall deduct tax, at the rate of 1% of such sum, if the consideration paid or payable for the transfer of such property exceeds –
 

(a) fifty lakh rupees in case such property is situated in a specified urban agglomeration; or

(b) twenty lakh rupees in case such property is situated in any other area.

 No property will be registered without the proof submission of this TDS.
 

Budget 2012 and Financial Planning

 So now is the time to understand your finances. You cannot do anything about the provisions announced , so rather than blaming government to have not reduced the tax burden or to not giving any relief in the inflationary environment, it’s better to make some changes in your financial behaviour so that increased cost should not bother your financial goals. Time has arrived for you to come out with your personal fiscal budget. What changes is required in your expenses, investments pattern to make sure that you should not be derailed or go out of focus with your financial planning. Some of the changes I suggest here

 1.      I am sure that you people must be planning or have already planned your summer vacations. Rather than adjusting the saved tax be it Of Rs 2000 or Rs 20000 with the increased Travel expenditure, it’s better to rework the plan and select those locations which should not prove to be a burden on your annual/monthly budget.

 2.      You cannot escape increase in Household or non-discretionary expenditure, but yes you may surely work out on your discretionary expenses like going out for dinner or weekend breaks. I am not saying to stop enjoying but just reducing the frequency to manage the expenses.

 3.      It’s better to delay for a month or 2 the purchasing of your much desired car, so you can save more to come up with the increased prices.

 4.      From April’12 onwards, be doubly sure while purchasing any Life insurance policy for tax saving. Better to stick with the rule of “not mixing insurance with investment” and buy a term plan.

 5.      The equity investments under Rajiv Gandhi savings scheme should be used judiciously and with understanding that 3 years would be the minimum lockin but you should invest with horizon of at least 5 years.Also Read : Union Budget Case study 2012-13

 High inflation with high deficit is a deadly cock tail for any country. Our country is going through this phase. You may not like what finance minister has announced in budget 2012 but that is what he has proposed for the betterment of the country’s overall economy. For our family’s prosperity the onus is on us. Either we can crib on the proposals we didn’t like or manage our expenses and investment pattern to cope up with the proposed changes. My worry is the increase in expenses with the increase in the service tax and excise tax rates. On the face of it 2% doesn’t look to be a huge figure but actually it is 20% increase so has the potential to increase our annual expenses with 20% if not managed properly. As Pranbda had quoted Shakespeare’s hamlet in his budget 2012 speech, I would like to repeat those words, “I must be cruel only to be kind”.