The Recent Developments on the Vaccine Front and Positive Economic Indicators in the Last Few Months Were Given Some Hope of Economic Revival. However, Considering the Supportive Factors of Production I.e. Cheaper Land, Lower Cost of Capital, Plentiful and Cheap Labor, Cheap Raw Material and Low Taxes; We Think That Adequate Government Spending Was Somewhat Missing to Spur Demand and Pricing Power to Pull Up Growth in the Economy. The Finance Minister Announced Measures in Union Budget 2021-22 Clearly Focused on Growth With the Sharp Increase in Capex Allocation (Up ~26% YOY), While Giving Low Importance to Rising Fiscal Deficit, Given the Current Low-interest Scenario. Given the Fact That India Was One of the Worst Impacted in the Pandemic Due to Stringent Lock-downs, a Growth Revival Was of Utmost Importance to Cure the Pain.
On the Disinvestment Front, the Government Has Remained Realistic by Revising Its Target Downwards to Rs. 1.75 Lakh Crore Vs. A Budgeted Target of Rs. 2.1 Lakh Crore for Fy21be. Also, Finance Minister Clearly Announced That Two Public Sector Banks, One Public General Insurer, and Importantly, LIC of India Would Also Form Part of the Fy22 Disinvestment Agenda.
Below Are the Key Budget Highlights Impacting Your Personal Finance –
1. Senior Citizens Who Are Above 75 Years Old and Having Income Only in the Form of Pension and Interest Will Not Have to File Income Tax. The Bank Paying Income to Them Will Deduct Necessary Tax From Their Bank Account.
2. For NRIs, Who Used to Face Issues With Respect to Their Accrued Incomes in Their Foreign Retirement Accounts and Have Difficulties in Getting Credit for Indian Taxes in Foreign Jurisdictions, the Government Has Announced Rules for Removing Incidents of Double Taxation.
3. Focusing on Lower-income Class and Growth of Housing Sector, Finance Minister Has Proposed to Extend the Eligibility Period for a Claiming Additional Deduction for the Interest of Rs 1.5 Lakh Paid for a Loan Taken for the Purchase of an Affordable House to 31st March 2022.
4. The Finance Minister Announced to Extend Social Security Benefits to Gig and Platform Workers. Minimum Wages Will Apply to All Categories of Workers, and They Will All Be Covered by the Employees State Insurance Corporation. Women Will Be Allowed to Work in All Categories and Also in the Night-shifts With Adequate Protection.
5. The Finance Minister Has Proposed Taxing the Interest Income on Provident Fund Contributions of Over ₹2.5 Lakh a Year, Which Are Usually Made on a Voluntary Basis by Employees.
6. Unit Linked Insurance Products (Ulips) With Higher Premium Above Rs. 2.5 Lakh Per Annum Will Be Subject to Tax on Maturity. It Will Bring the Taxation on Higher Value Ulips at Par With Mutual Funds.
7. Time Limit for Reopening of Income Tax Cases Has Been Reduced to Three Years From Six Years Earlier Except for Serious Cases Where It Can Be Re-opened Up to 10 Years.
8. Income Tax Returns Will Be Pre-filled With Capital Gains and Interest From Banks, Post Office, etc. to Ensure Convenience and Prevent Under/non-reporting.
9. In Order to Rescue Bank Deposit Holders, the Finance Minister Has Proposed to Allow Withdrawals to the Extent of the Deposit Insurance Cover I.e. Rs. 5 Lakhs in Troubled Banks.
10. No Major Changes in Income Tax Rates or Slabs for Individuals or Corporates.
Impact on Equity Market:
With Sensex Closing Up by ~5%, Budget 2021 Definitely Has Proposals That Bring Cheer to the Investors. Significant Emphasis is Being Put on the Capital Expenditure Front With a Budgeted Growth Estimate of 30.8% YOY and 26.2% for Fy22. While Revenue Expenditure is Expected to Increase Substantially by 27.4% Fy21 Due to a Sharp Spike in Total Subsidy, the Same is Expected to Contract by 2.7% in Fy22 With Stabilization of the Economy. Since This Budget is Entirely Focused on the Growth of the Economy and the Finance Minister Has Refrained From the Temptation to Levy Taxes Like Covid Tax, Increase in Long-term Capital Gains Tax, Wealth Tax, or Tax on Personal Income as Was Feared by the Market and Investors; We Think That Going Forward Investors Will Take Cues From Corporate Earnings and Economic Indicators While Allocating Funds in Equities Market Instruments.
Accordingly, We Would Suggest Investors Take 50% Lump-sum and 50% Gradual Exposure in a Mix of Large, Mid, and Small-cap Funds/stocks in Line With Their Risk Profile.
Impact on Debt Market:
Bond Yields Have Been Almost Continuously Rising for the Past Few Weeks Since RBI’s Move to Introduce Variable Reverse Repo and Today Has Seen Another Sharp Uptick as Well on Account Budgeted Fiscal Deficit for FY 21 at 9.5% and for FY 22 at 6.8% Are Both Higher Than Market Estimates of 7% and 5.5% Respectively. However, Finance Minister Has Proposed a Permanent Institutional Framework to Purchase Investment-grade Bonds in Stressed Times to Deepen the Corporate Bond Market. This Institution Will Purchase Investment-grade Securities That Are Stressed and Enhance the Secondary Market Liquidity of Corporate Bonds. Debt Mutual Fund Managers Believe That This Move is Positive for Funds Like Corporate Bond Fund, Banking & PSU Debt Funds, and Selectively for Credit Risk Funds.
We Believe That Bond Yields Will Remain Range-bound Due to Higher Fiscal Deficit and Enhanced Liquidity. We Would Suggest Investors Use a Mix of Fixed Interest Rate Bearing Products Along With Short Duration and High Credit Quality Debt Mutual Funds to Manage Near Term Volatility in Yields and the Current Low-interest Environment.
