Union budget might appear as a distant national level event that doesn’t affect your finances – why not work towards something productive instead of wasting time listening to the national budget announcements and analysing them? While the budget pertains to the national economy as a whole, there are a number of components to the budget that affect your financial life in bigger ways than you might be aware of.
In fact, the union budget brings some key news that can help you take some defining financial decisions over the course of the coming year. That’s why, we have brought to you, 5 key announcements that you should pay attention to on the budget day. Check them out!
1. Income tax slabs
If you are an earning citizen, you are probably aware of the fact that you have to pay income tax depending on the amount of money that you make. When the budget is announced, the government also rolls out new income tax slabs that respond better to the existing economic conditions. While these new taxation rules might not always be beneficial to you, it is definitely important to know how the new tax rules will affect your income, your savings and consequently, how you will manage your money in the coming year.
In the last budget, the government had introduced a new regime in which there will be 3 tax slabs, where the previously applicable deductions will not hold meaning. While this scheme was beneficial to some taxpayers, others who were earning above 15 lakhs a year did not see any benefits from the revised tax slabs. In the coming year, tax slabs are unlikely to undergo major revisions according to the analysts.
2. Incentives to make investments lucrative
Currently, the government incentivizes the common citizens to invest money by offering tax savings on up to Rs 1.5 lakhs worth investments in select vehicles annually under section 80C. However, some analysts predict that in the upcoming Budget 2021, this limit might be increased to Rs. 3 lakhs as per the recommendations given by non-governmental entities.
A boost in investments can lead to short-term growth in aggregate demand – which can act as a positive stimulus given the government’s pro-spending outlook in the upcoming Budget 2021. If this recommendation is taken, markets will see a capital boost, thereby leading to some economic stimulus after the slowdown caused by the 2020 pandemic. In addition – this will be a good news for you, since an increased exemption under Section 80C would mean that you will now get rewarded for saving towards your long-term goals!
3. Do you hear ‘affordable housing’?
A number of recommendations for the annual budget have talked about stimulating infrastructure growth – India INC might therefore see greater incentives for first time house buyers. This is because home loan rates might see some relief, and higher tax rebates might be provided on home loan repayments.
Currently, under Section 24 of the Income Tax Act, the deductions on tax for house loan repayment for a property on which you reside is at 2 lakhs. Thought leaders have recommended increasing this limit to at least 4 lakhs – this will not only fuel capital into the real estate markets – leading to faster completion of housing projects, but might also make it easier to buy a new house in the coming year.
4. What about your health policies?
The pandemic has highlighted the need for better access to healthcare. While the government has made multiple attempts at improving the health infrastructure, not much has been changed with regards to individual healthcare finances. In the last budget, a new health cess was introduced on sale of medtech devices, to improve the healthcare infrastructure in the country.
This year, it is possible that you will see an increase in the mediclaim premium limit provided under section 80D. Currently at Rs. 25,000 rupees, analysts recommend increasing this limit to Rs 50,000 – this will make better healthcare accessible to many without spending further taxes on your healthcare related expenses.
5. More on investments
The recommendation to incentivize investments can potentially benefit the national economy in a lot of ways. At the same time, to meet it’s disinvestment targets and fund the deficit gap, retail investors can also benefit from tracking PSUs that might be offered through IPOs this year. In fact, the first PSU to go public this year was IFRC.
Rumours around the massive LIC Corp being offered in one of the biggest IPOs of Indian stock market history can already be seen on the internet. While the date for this IPO is not fixed yet, investors might see some good chances for clocking listing day wins and long term value by keeping these offerings in their radar.
Another recommendation related to investments comes on dividends – last year, the tax liability of profits through dividends was shifted to the party at the receiving end. Analysts have suggested scrapping dividend distribution tax altogether – if this happens, the market will see a comeback of dividends in the coming fiscal year.
So these are some of the key announcements that you should watch out for as you prepare for the respective day of Budget 2021. As you might have already noticed – despite being a top-level planning imperative, the union budget can help you understand the context in which your finances take shape over time. That’s why, we recommend that you not miss it – join us in our efforts to decode #BudgetKaMatlab, and don’t forget to check out our take on the new Budget 2021. For more information, visit https://www.angelone.in/unionbudget-2021