Budget 2011: I-T impact marginal; push for NPS, MFs

From a personal taxation and investment perspective, the Union Budget 2011 makes only a handful of changes, the impact of which is likely to be marginal and mostly along expected lines. The main change is that the exemption limit has been raised from the current 1.6 lakh to 1.8 lakh.

This was widely anticipated but the hike has been small. Over the years, finance ministers doled out these paltry increases as though they were some largesse. What would actually be fair would be to make these increases automated, based on some inflation-linked index.

It is not a new concept; it is followed in the case of longterm capital gains. It is ironic that capital gains—generally earned by the rich—are automatically adjusted for inflation every year while salary-earners have to make do with these handouts.

The other major change the finance minister has made is in the definition of senior citizen, following the example of his colleague from Bengal, Mamata Banerjee. Now, tax laws will consider you to be ‘old’ at the age of 60 instead of 65.

This is interesting because in many jobs, retirement comes after the age of 60. The last two or four years of many taxpayers’ working career will get a welcome income boost. The finance minister also went one step beyond the railway minister in creating a ‘very senior citizen’ category. We await the creation of ‘super senior’ citizens and ‘ultra senior’ citizens in the years to come.

And 100 years and 120 years would be the appropriate age limits for these new categories. The revenue impact of the concessions will surely be minimal. The Budget has done some commendable work on consolidating the New Pension System (NPS), as in the Budgets of the previous years.

The Swalamban scheme, which gives what is effectively a subsidy for small depositors to join the NPS, was extended and made more beneficial. Getting members from the unorganised sector to join the NPS will need continuous attention, and it’s great to see that the government is not wavering in its effort to make the NPS a success. There is also a change that will allow employers’ NPS contributions to be classified as business expense, something that wasn’t done earlier. There isn’t any change for mutual fund investors.

Of course, the fund industry can now try and get investors from abroad, something that should bring cheer to the AMCs as well as the markets. Funds’ business could suffer a minor setback because the taxation on debt funds for corporate investors has been brought on a par with bank deposits, which takes away one of the selling point of these funds

Source;ET