I. Direct Equity and Equity Mutual Funds
a. Introduction of Long Term Capital Gains (LTCG) Tax of 10% on cumulative gains of more than Rs. 1 lakh in a financial year (for Direct Equity and Equity Mutual Funds).
b. Dividend Distribution Tax of 10% on equity oriented mutual funds.
• Growth option would be a better avenue than dividend options, as one can plan the exits and benefit from tax efficiency.
• Capital gains up to 31 January, 2018 would be protected. Hence, investors need not exit their equity portfolios in a hurry.
• Clients looking at consolidating their equity portfolio or re-balancing should use this opportunity to exit their equity holdings, before 31st March, 2018.
• Long Term Capital Loses made in equity transactions could be set-off with long term gains, which was not allowed earlier.
• There would be TDS of 10% applicable on LTCG for NRI’s, which could be claimed back in case they do not have taxable income in India. One has to file IT Returns for the same.
• There would be strong case of Dynamic Asset Allocation funds due to tax efficiency and inherent balancing, in comparison to pure equity funds.
• Equity mutual funds would become more tax efficient than Direct Equity and Equity PMS.
• A well managed equity portfolio would continue to give good inflation beating returns, even after considering the impact of above taxation.
II. Senior Citizens
a. Rs. 50,000 interest income from Bank and Postal Deposits would be exempt under Sec 80TTA.
b. No TDS for senior citizens for up to Rs. 50,000 of interest income.
c. Investment limit in Pradhan Manthri Vaya Vandhana Yojana would be doubled from the current Rs. 7.50 lakhs to Rs. 15 lakhs.
d. Medical Insurance deduction under Sec 80D is increased from Rs. 30,000 to Rs. 50,000 and also exemption on treatment of certain specified diseases has been increased from Rs. 60,000 to Rs. 1 lakh.
e. Rs. 40,000 deduction for pensioners as a standard deduction would be allowed.
• Senior Citizen’s could take more exposure in assured returns schemes, especially Postal Monthly Income Scheme (Max. limit of Rs. 9 lakhs jointly, 6 years maturity, 7.6% p.a. payable monthly), Senior Citizen Savings Schemes (Max. limit Rs. 15 lakhs, 5 years extendable by another 3 years maturity, 8.3% p.a. payable quarterly ) and Pradhan Manthri Vaya Vandhana Yojana (Max. limit Rs. 15 lakhs, 10 years maturity, 8.0% p.a.).
• Senior Citizens could invest in better medical insurance plans to cover their medical expenses and to protect their other savings.
III. Other Points
a. Education cess has been increased from 3% to 4% (Health and Education cess). This would increase the tax liability of all tax payers.
b. Rs. 40,000 deduction for salaried in lieu of the existing leave travel allowance and medical allowance.
c. More avenues for investors in debt mutual funds with the deepening of bond market and introduction of Debt ETF.
d. The time horizon for investing proceeds of real estate gains in Capital Gains Bonds (under sec 54EC) is increased from the current 3 years to 5 years.
e. Sec 80C deduction of Rs. 1.50 lakhs and 80CCD (1b) limit of Rs. 50,000 in NPS, apart from the 10% contribution by the employer under Sec 80CCD (2d) have all been retained.
f. Tax brackets remain the same as earlier.
1. The above budget proposals were presented by our Finance Minister on 1st February, 2018. The same would be applicable from 1st April, 2018 post passing of the Finance Bill in the Parliament.
2. The above are our views and are based on the information available as on date.
3. Investors should consult their tax practitioners for a clear view on the above.
4. Past performance of any asset class is not an indicator of future performance.
5. It is very important to consult a professional planner while implementing any of the above ideas.
6. The above are mere suggestions and not Investment Advice as individual cases might differ.
In case, you would like professional financial guidance, than feel free to connect to me at 9845557582 or email@example.com.
Naveen Julian Rego-CFP
SEBI Registered Investment Adviser
06th February, 2018