No big bites out of your money

Changes in taxes and budgetary provisions that affect you and me look more like housekeeping changes this year. A flick of definition here, to correct an anomaly and a slight hike in tax there, to milk a booming sector. There is also an undercurrent threat: comply with the tax regime or else! Those who hid behind ‘‘no Pan number’’ excuse can now be issued one by the assessing officer. Here are the changes and what they mean for you:

Changes that affect your money:

• Service tax rate at 12 per cent and 15 new categories including credit, debit and charge card services, Internet telephony services, transport of goods, transport of non-economy international passengers, maintenance or management. Take into account the earlier services already in the net and there is a slight dip in disposable income this budget.

• Class of Section 80 C has two new boys. To bring a level-playing field in investment products, the budget has included five-year fixed deposits in scheduled banks (all private, public and foreign)—good news for the retired and the low-risk investors. The second product in 80 C are pension products from insurance companies. The earlier limit of Rs 10,000 is now Rs 1 lakh, under the overall Section 80 C limit of Rs 1 lakh. You have the choice of using Section 80 C products like principal of a home loan, school fees, equity linked saving schemes (ELSS) mutual funds or insurance products.

• Superannuation changes: The Fringe Benefit Tax on the employer’s contribution to superannuation contributions up to Rs 1 lakh are tax exempt. This means that your employer will no longer pay any tax for provident fund contributions upto Rs 1 lakh in a year. After that the FBT kicks in. So, if your employer was contributing Rs 90,000 towards your PF, this amount will not be charged to FBT or is tax exempt, but if he contributes Rs 1.1 lakh, Rs 10,000 will be taxed at the FBT rate. This makes the overall deduction limit on gross income Rs 2 lakh.

• Mutual funds: The definition of an equity-oriented fund has changed, now funds with more than 65 per cent assets in stocks will be called ‘‘equity oriented’’ as against 50 per cent earlier. Closed-end equity funds will now pay zero dividend distribution tax, instead of 14.025 per cent. These changes will impact those who invested in balanced funds. Look at the asset allocation of your fund to see if you will end up paying DDT and long-term capital gains taxes in future. If your balanced fund has less than 65 per cent in equity, then you pay 14.025 per cent as a DDT and a 20 per cent long term capital gains tax, as against zero tax on both in a pure equity-oriented fund.

• Securities Transaction Tax (STT) goes up: Instead of 20 paise per Rs 100 of stock market trades, you will pay 25 paise. No big worry when market returns are so good. The mutual fund investors still pay this tax twice and this anomaly has not been addressed in the Budget.

• Cars, ice-cream, aerated drinks, idli mix cheaper: Duty cuts on a whole range of consumer products will give more bang to the rupee.

So, no big changes this year. Expect this trend to continue in the years to come, as the Budget really gets out of all our lives and becomes a macro economic statement, rather like the credit policy.