The highlight of this budget was the continued push on infrastructure development, income tax relief to the middle-income group, and the focus on strengthening the Government’s finances / balance sheet. Even though it was the last ‘full budget’ before the 2024 Lok Sabha elections, the Government did not push any populist measures or announce any ‘freebies’. This budget continued the same path as the last two.
For four years running, the Government’s spending on infrastructure will increase by more than 25% on a year-to-year basis. Infrastructure has a multiplier effect on the economy as it enhances trade, improves mobility, generates greater employment opportunities, and boosts overall economic productivity
The material changes to the new tax regime will increase its adoptions and an overwhelming majority of taxpayers will now opt for it. This will give higher disposable income to the middle-income group through reduced tax outflow, but will also reduce their savings, which were necessitated by section 80C of the old tax regime.
The impact of this budget on various sectors is summarized below
Critical impact on personal finance:
A. Insurance:
The Insurance policies with moderate premiums and large amounts both are affected in the following ways:
a. The insurance premium paid is deductible u/s 80C up to Rs. 150,000/- which was the anchor selling point for the insurance providers for ULIPs and money-back policies. However, in the new tax regime (which will now be more widely adopted), deductions u/s 80C are not allowed and so these policies will lose their anchor selling point.
b. The insurance products were used by the rich class to save taxes on maturity proceeds. However, the amended rule states that the maturity proceeds from the policies with premiums of more than Rs. 5 Lakhs, will now be taxed (except in case of death).
B. Reinvestment of Capital Gains:
The capital gain was exempt in case of specified reinvestment (u/s 54 series) on proceeds from the sale of real estate. With the amended rule, tax exemptions will be limited to capital gains of Rs. 10 Crores only.
C. TCS on LRS:
Indians remitted more than $150 Billion last year under LRS (Liberalized Remittance Scheme) and about $50 Billions in foreign travel. The government was unable to track the funds. TCS (Tax Collected at Source) of 20% is now required to be deposited with every LRS remittance and overseas touring package. Please join our webinar on 11th February, Saturday for a deep dive into the budget’s impact on your finances and investments.
