Budget 2020 : What’s in it For Me ?

As soon as the budget is presented, We see a deluge of analyses and memes coming our way. However, readers of this blog know that we choose to wait for clarifications and finer details so that readers get the right perspective for themselves.

A Large number of people were left confused because of the 2 Tax Regimes that the Budget talked about. Different People would have different opinions about the budget depending on their own profession and field. However, from investor and taxpayers point of view, we have made an attempt to list down few good things and few not-so-good things about the budget.

What’s Good ?

  1. If you are earning less than Rs. 5 Lakhs p.a. then life has not changed much for you. You can relax.
  2. If you are someone who “hates” to save money, the option of moving to new tax regime is for you. (Provided you earn more than Rs. 5 Lakhs p.a.)
  3. If you are earning more than 20 Lakhs p.a. then the new regime saves some tax outflow for you. So, it could be sensible for you to move to the new regime. (What could be insensible is, you stop saving money)
  4. The Deposit Insurance is increased from Rs. 1 Lakh to Rs. 5 Lakhs. For those who don’t know, this is Rs. 5 Lakhs “per depositor”. Some “smart” people try to make Rs. 5 Lakh FD in different banks so that entire amount is insured. Unfortunately, its not. And if you try to make it in different names, clubbing provisions will be applicable.
  5. Other than above, there have been certain measures taken which would contribute towards overall growth of the economy. This could result in equity markets giving good returns in the long term. Thus, investing systematically in diversified equity could be helpful in wealth creation.

What’s not so good?

  1. If you want to move to the new Tax regime, you have to forego most of the deductions (Like 80C, 80D, HRA, Standard Deduction etc).
  2. If you are earning between Rs. 5 Lakhs p.a. to Rs. 20 Lakhs p.a., life is not that simple for you. There are a various calculations that you might have to do, whether you want to go for old or new tax regime. It will also depend on your preference (or compulsion) to make several tax saving investments. Thus, its better that you spend some time with your advisor (although the FM thought otherwise), and find out what works better for you.

(The Table Shows Old regime and New Regime considering 80C, 80D and Standard Deduction. We have not considered HRA and other deductions in this table as they would differ from person to person. Thus, the decision to choose the regime will differ from person to person even if they have same income.

IMG-20200206-WA0004

3. The new tax regime suggests that there is no need to save for tax saving. There are many people who are happy that now they do not “have” to save. They will save tax anyways. For them, I have few questions.

  • If you ride a bike, why do you wear a helmet? Is it to save fine? Or is it to save your life?
  • Why do you use a pedestrian bridge? Why do you not cross the railway track? Is it to save penalty? Or is it to save your life?

When you invest money for your future, don’t do it just for tax saving. Do it so that you create wealth for your own future.

When you buy a term plan, don’t do it only to save tax. Do it so that your dependents are not left stranded if something unfortunate happens to you.

Tax saving is just an additional incentive given to you for your own good. It does not mean you stop doing your own good, just because the additional incentive is gone.

4. The Dividend Distribution Tax (DDT) is “Abolished”. This is quite tricky. Because it will now be added to the investors income and will be taxable as per their slab.

This needs to be evaluated based on whether it’s a Debt Mutual Fund or Equity Mutual Fund, what is the income slab of the investor and so on.

Those in low tax slabs, will “mathematically” benefit from this. (Psychologically, they will be uncomfortable as now they will feel the tax going from their pocket)

But those in higher tax slabs, evaluation needs to be done on a case-to-case basis. (Again, consulting an advisor might be needed – Something contrary to what the FM had thought).

Also, the DDT is gone, but there will be a TDS on payment of dividend above Rs. 5,000. So, while the cashflows might not improve to a great extent, the onus of tax liability is definitely shifted from the corporates to the recipients (which could be individual investors).

What Should be our Plan of Action ?

We might argue that there could have been a several things which could have done much better in this budget. But as they say, there is no point in crying over spilled milk. Investors now need to tweak their strategies and see how they can benefit (or at least reduce loss).

  1. Saving or Investing money for your future is still important, even if the tax incentive seems to have gone away.
  1. The FM has already hinted that government intends to move into a “No-Exemption, No-Deduction” era. Do not commit yourself to something like an additional home loan, just to save tax. This is because, in future, the tax incentive might go and the loan will still be sitting on your head. In simple words, do not buy a property by taking a home loan, just to save tax.

2. Do not buy random insurance policies, just to save tax. Again, the tax incentive might go away, and you will be “forced” to continue paying the premium. Choose a non-compulsory product like ELSS for your 80C investments.

3. Your decision to buy a Term Plan or a health insurance, should have no dependence on tax saving. Buy them so that you are financially protected from unforeseen mishaps.

All-in-All, the budget comes with a mixed reaction. But that’s how life is. We can’t expect every day to come with a good news. We can only have a positive and receptive mind, which accepts every challenge as an opportunity, and take best possible advantage of the same.

We look forward to your valuable comments and feedback.

 

The Author Prof. Saurabh Bajaj (BE, MBA, FRM, CFGP, CIA, AFGP) is CEO with Nidhi Investments, Mumbai. His articles have a readership from 78 Countries across the Globe. He may be contacted on CEO@nidhiinvestments.com if you have any questions..

(The views mentioned in the article are personal opinion of the author)

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Published by professorbajaj

Prof. Saurabh Bajaj is an Author, Mentor, Motivational Speaker and Wealth Planner. He has done his MBA from Narsee Monjee Institute of Management Studies (NMIMS) Mumbai, one of the top 10 management institutes in India. He holds the prestigious FRM (Financial Risk Manager) degree awarded by Global Association of Risk Professionals (GARP), USA. Till date, there are less than 15,000 professionals in the world, who have been honored with this degree. He has also been awarded CFGP (Chartered Financial Goal Planner) Certification by AAFM (American Academy of Financial Management). After his MBA, he joined J P Morgan, the second largest Investment Bank in the world. He has worked with J P Morgan as Risk Analyst for more than two years. Prof. Bajaj also holds an Advisory certification awarded by AMFI (Association of Mutual Funds of India). During his stint at Bombay Stock Exchange, he has handled Investment Management and Treasury operations of the BSE Corpus. He has set up an entrepreneurship venture in the field of Wealth Planning and Investment Consulting under the name “Nidhi Investments” and holds the profile of CEO. Prof. Bajaj sits on the Expert Panel of CAClubindia.com and MBAClubindia.com as Investment Expert. He is actively involved in investor education through his blog www.professorbajaj.com which has a readership from 78 Countries all over the world. His articles are also regularly published in caclubindia.com , mbaclubindia.com , totalca.com , charteredclub.com, bankbazaar.com and lawyersclubindia.com . He has been awarded the title of “Best Article Writer” from caclubIndia.com in Jan 2012 and has been selected amongst “Top 5 Technical Writers” from all over India in Feb 2013. He has been invited by various TV Channels like SPIN TV, CNBC TV18, UTV Bloomberg Etc for programs like "Expert Advice" , "What Markets Want ", "Budget Analysis" etc. He has been invited by Several organisations like Lions Club, Rotary Club, Agrawal Welfare Foundation, Rajasthan Mandal, Agroha Vikas Trust, Union MF, UTI MF, Arthamitra Gurukulam, Vidyalankar Institute of Technology etc for expert lecture on "Smart Investing", "Life is A Celebration", "Financial Freedom", "The Digital IFA" etc. He was ranked 8th Merit at All India level NMAT which got him selected for MBA programme at NMIMS, Mumbai. He did his MBA with Capital Markets as his specialisation. Soft Skills has become an inevitable part of every selection process and teaching learning process these days. The students from small towns and tier II cities, in spite of being talented and well equipped with technical skills, are seen struggling in the selection process. This is because of their lack of exposure to these soft skills. Mr. Bajaj has a zeal for training candidates to develop these skills and has been imparting the same on since last two years. This zeal and passion inspired him to set up his own firm called “Knowledge Circle” which aims to train candidates for soft skills. Till date, he has trained more than 5000 participants from over 220 organizations across various fields of soft skills. He has been associated with MSBTE (Maharashtra State Board of Technical Education) to conduct Soft skills training workshop for the faculties of Polytechnic Colleges in Entire Maharashtra (Mumbai Region, Pune Region, Aurangabad Region and Nagpur Region) since last 8 years. He has also been associated with ICAI (Institute of Chartered Accountants of India) for training CA Students on various topics related to Communications skills, Group Discussions etc. He was invited by Fr. Agnel Polytechnic College, Vashi for a motivational workshop for faculties. He was also invited by Vivekanad Polytechnic College for "Communication Skills and Email Etiquette" training for non-teaching staff. Apart from these, he has conducted “Capacity Building Soft Skills workshop for Faculties” at ITI Gunj, ITI Pusad, ITI Digras and ITI Umarkhed. This was the first ever soft skills workshop for faculties in the history of ITI’s in Vidarbha. He was also invited by Shivaji Education Society to conduct similar Soft skills workshops for the faculties and office staff of Shivaji Junior College Pusad, Shivaji High School Pusad, Shivaji Vidyalaya Belora and Shivaji Vidyalaya Bhojla. He has conducted training workshop on “Effective Presentation Skills” for the relationship managers of HDFC Mutual Fund, Andheri Branch, Mumbai. He has also been invited at College of Management and Computer Science, Yavatmal, College of Dairy Technology, Warud, B N College of Engineering, Pusad, B D College of Engineering, Wardha, College of Engineering and Technology, Akola, Dr.N.P.Hirani Institute of Polytechnic, Pusad etc. for the Guest lecture on “Developing Interview Skills”.

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