Here are eight lesser-known, but important budget 2018 proposals. I have now updated the three budget articles posted yesterday. Please do have a look:
1 Credit risk in Ulips, mutual funds (incl NPS) could go up!
In his speech, the finance minister said:
Corporate bonds rated ‘BBB’ or equivalent are investment grade. In India, most regulators permit bonds with the ‘AA’ rating only as eligible for investment. It is now time to move from ‘AA’ to ‘A’ grade ratings. The government and concerned regulators will take necessary action. SEBI will also consider mandating, beginning with large Corporates, to meet about one-fourth of their financing needs from the bond market
I am not sure if debt fund managers would agree about BBB being investment grade! The corporate bond market is not deep and once a bond has been degraded a couple of times, it may be difficult to sell it or “get out money back”. Let us wait and watch where this leads.
2 Merger of PSU general Insurers
Three public sector general insurance companies National Insurance Company Ltd., United India Assurance Company Limited and Oriental India Insurance Company Limited will be merged into a single insurance entity and will be subsequently listed.
General Insurance Corporation of India (GIC Re) and New India Assurance are already listed and now we have this! United India and National Insurance policyholders can expect a steep increase in health insurance premiums!! Oriental premiums were recently hiked by a huge amount.
Why? Because once listed, the shareholders will not allow them to underwrite losses as they have been doing.
3 Want to save tax after selling real estate? Wait for 5 years after buying section 54 EC bonds
It is proposed to rationalise the existing provision relating to investment in capital gain bonds by providing that the exemption shall be available only in respect of long-term capital gains arising out of a sale of immovable property and investment in the bond shall be for a minimum period of 5 year from the existing 3 years.
Earlier you could avoid tax on capital gains from the sale of real estate by buying bonds issued by NHAI or REC (up to 50 Lakh) and holding it for 3 years. Now you will have to do for 5 years.
4 Pensioners can deduct Rs. 40,000 from their taxable income
In order to provide relief to salaried taxpayers, I propose to allow a standard deduction of `40,000/- in lieu of the present exemption in respect of transport allowance and reimbursement of miscellaneous medical expenses. However, the transport allowance at enhanced rate shall continue to be available to differently abled persons. Also other medical reimbursement benefits in case of hospitalization etc., for all employees shall continue. This decision to allow standard deduction shall significantly benefit the pensioners also, who normally do not enjoy any allowance on account of transport and medical expenses.
It is a small benefit but should be welcomed by pensioners.
5 Those who file income tax returns after the due date will not get the benefit of all the deductions in section IVA Removed. See comment by Gaurav Nayyar below
6 Now all subscribers of the NPS can withdraw up to 40% of the corpus tax free. Earlier only employees could do so.
7 If you have a health insurance policy that provides cover for more than a year, you can claim 80D in each year by dividing the premium over the period. I assume it can be done equally. That is a 10,000 premium over 2 years can be shown as 5,000 each year under 80D. This is my understanding of:
It is proposed to provide that in a case where the premium for health insurance for multiple years has been paid in one year, the deduction shall be allowed proportionately over the years for which the benefit of health insurance is available.
8 It is proposed to provide similar tax regime as available to equity-oriented funds to Fund of Funds investing only in exchange-traded
funds which only invest in listed equity shares of domestic companies.
Pity they should have also included funds that invest in other equity-oriented funds.
Credit: The brilliant Ashal Jauhari (admin, FB group Asan Ideas for Wealth)
Budget 2018 FAQ
1: Should I now sell my equity holdings and re-buy on April 1st 2018?
That would be useless as there would be no additional benefit. The CG up to Jan 31st 2018 is anyway always tax free.
2: Should I book profits up to 1L LTCG each year?
You can (assuming you can calculate it right!), but as far as I am concerned there is no big benefit other as physiological over the long-term. The calculation is pretty complex as the age of each unit or stock has to be taken into account. I will post a simple example in the next post
3: Is NPS better now?
NO! Only 40% of NPS corpus is tax free. Rest is effectively locked up in annuity or taxable as per slab
4: Are ULIPS better now?
Buying Ulips to save tax on equity would be like using chemotherapy to shave our heads (Robin Williams on how Micheal Jackson used painkillers to sleep!
5: Are ELSS funds tax-free on exit?
No. They too are subject to 10% tax on LTCG.
6: What about arbitrage funds now?
When compared to debt funds at least for less than 3Y, they attract less tax. I wil write a detailed post on this. For now, I see nothing against using arbitrage funds
Any more questions or post ideas?
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