Budget 2023 Decoded: From the Individual's perspective

 

Budget 2023 Decoded: From the Individual's Perspective

The Fifth budget presented by the Finance Minister, Mrs Nirmala Sitharaman,  echoes the themes set by the Government towards taking India to the next level globally and laying the foundation for the next 25 years. Set on the foundation of the 7 priorities or the Saptarishi of Inclusive Development, Infrastructure Development, Green growth, Youth power and boost to the financial sector, the Budget is growth focused high on CAPEX and low on the fiscal deficit targets.

If in the last year's budget, the direct tax payers, particularly the middle class felt left out, this year's budget makes an attempt to make the tax payers smile. As tax payers, the most relevant thing for us is "what is in it for me?" "Does it translate into more tax savings and subsequently more money in my pockets?"

Well, that remains a subjective question depending on which side of the income slab you are, what are your savings and last but not the least, what is your income package!

New or the Old Tax Regime                                                                                               

The New Tax Regime, introduced in 2020, did not find favour with many tax payers and remained the poor second cousin to the old tax regime that offered more tax breaks to tax payers. Following changes have been made to the new regime to make it more attractive:

1. Increase in the threshold limit for taxable income from Rs. 5 lakhs to 7 lakh.  Clearly for individuals in this tax bracket, the New regime is the favoured one!
2. Introduction of the standard deduction of Rs. 50,000 for salaried and pensioners and a deduction of Rs. 15,000 for family pensioners  has brought the New regime at par with the Old one.(earlier these deductions were only allowed if one chose the old regime)
3. For the HNI, who earn above Rs. 5 Crore in a year, a whopping saving is on offer, as the surcharge of 37% earlier has now been trimmed down to 25%. Obviously for them the New Regime is the way to go.

For many, these changes would only make sense once they are translated into actual money terms or possible tax savings. Let us under stand this with the following table:

Clearly, if you are one of those, who has been investing in PF, claiming HRA , have a home loan running, are paying tuition fee for your children, or have bought a medical insurance, you will pay lower taxes in the old regime. However, if you have income more than 5 crore, you would surely benefit from the new regime and pay lower tax. Some may argue that tax savings anyways, were like a complicated maze that few understood let alone be able to traverse to claim all tax breaks. 

It has to be understood that some tax savings like PF, NPS and contributions to medical insurance are something that will continue.  After all if you have already been contributing to your PF or NPS, you will not suddenly strop contributing just so that you can choose the New Regime! Taking a home loan to buy a home still remains a better option than using your own funds, not only for the tax breaks on offer but also because of time value of money. Secondly, in a country where a substantial chunk of savings comes from compulsory tax savings, with no motivation to save under the new regime, the house hold savings may take a hit. 

The pros and cons are there in both. The choice depends on your individual profile and it would be worthwhile to choose what is most beneficial. Meanwhile, do not pre-pay your existing home loans or stop your savings just because you feel that New regime is the better choice.  A Financial consultant can be the best guide on these matter.  And yes, do remember that the New regime will be the default choice for the next FY and unless intimated otherwise, your employer would take it so.  As tax payers you do have the option of switching between the regimes on a yearly basis.  Though please note that if you have business or professional income, you can exercise this option only once.

Higher Tax on Foreign Remittances

If you have to remit money to your child abroad (other than for his education) or if you incur any other outward remittance, be ready to have extra tax collected at source(TCS).  Earlier one could remit money without any deductions up to 7 lakh in a year and pay 5% on remitted amounts over and above 7 lakhs in a year. Now your foreign remittances will attract 20% TCS without any exemptions.  This tax is going to be deducted at time of remittance and will be adjusted in your tax returns against tax due at the time of filing.  As a natural fall out of this, your funds may remain blocked till the time you file your returns and you may also end up forking out a larger amount at the time of remitting.

Increase in Contribution to Senior Citizen Savings Scheme and Monthly Income Scheme

After a series of hikes in the ROI on offer, on popular post office investment schemes, the allowable deposit on Senior Citizen Savings Scheme(SCSS) has been doubled from 15 lakhs to 30 lakhs per individual. For senior citizens who have been dependent on interest income, this is good news. Though remember the interest will remain taxable as per tax slab. The Monthly Income Scheme(MIS) too can accept deposits upto 9 lakh per individual as against 4.5 lakh earlier. In case of joint deposit, this amount stands increased to 15 lakh from existing 9 lakhs. This step would certainly put more money in the pockets of those dependent on interest income. 

Something special for women too!

A special deposit scheme only for women investors will be available for a period of two years at an interest rate of 7.5% on a maximum deposit of Rs. 2 lakh per woman.

Higher Premium Traditional Insurance plans to become taxable

Insurance is primarily for protection in case of a mishap or contingency.  However, most people buy insurance for the wrong reasons.  Insurance plans are pitched as tax saving investment instruments that also give tax free returns. Add a promise of safe and assured returns to this and we have a perfect recipe for the best possible investment... right?  Well it couldn't be further from the truth as such plans not only give very low returns as compared to other instruments but are also low on the sum insured(the primary purpose of this investment). 

Post 1st April 2023, Traditional Insurance plans with premiums that are higher than Rs. 5 lakhs would not be eligible for tax benefits under sections 10(10D). This is a welcome step as it would put a stop to rampant mis selling.  Traditional or Assured return and Money back plans generally offer low returns in the range of 4-6%.  Post Taxation, this would further fall and not be a lucrative option for household savings.

Term Insurance and ULIP's will continue to enjoy the same status as before. (in the budget 2021, maturity amounts on ULIP's with a premium of more than Rs.2.5 Lakhs had been made taxable).  

With a focus on "Aatmanirbhar Bharat" and a 5 trillion economy by 2025, the current Government has  presented a budget that is in line with the vision. It is inclusive, growth oriented and resonates with a promise of something for everyone. Some would say that there is more that could have been done and the the outcomes in the future may not be as rosy but for now the Budget certainly has got a green signal from the financial markets and the people in general.

Anupama Bhargava CFP