Wednesday March 6, 12:20 PM
Budget impact on fixed income instruments |
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By Personalfn.com
Union Budget 2003 has been punishing on the taxpayers. That is the general consensus. How have you been affected by it? Find out over here.
Some of the tax-related changes were really harsh and that's mainly why the budget has been termed as `punishing' on taxpayers.
Below we have outlined some of the tax-related changes.
Section 88
There have been some major changes in this section. Earlier there was a 20% tax rebate for all taxpayers. Now the rebate has been scaled down to 10% and this will only be available to taxpayers whose taxable income is in the region of Rs 150,000 - 500,000 p. a. Taxpayers whose annual taxable income exceeds Rs 500,000 p.a. will not be able to avail of a tax rebate under this section.
Section 54EC
This section allows taxpayers to invest across several instruments to reduce their capital gains liability. Post-budget, the investment avenues under this section have has been enhanced. Earlier there were 3 options - NABARD (National Board of Agricultural and Rural Development), REC (Rural Electrification Corporation) and NHAI (National Highways and Authorities of India). Now there are 2 more investment avenues - SIDBI (Small Industries Development Bank of India) and National Housing Bank.
Savings Rate
The interest rate on small savings (public provident fund, post office schemes, Relief Bonds) were administered all this time. Under the provisions of the budget, they will now be benchmarked to the average annual yield of government securities of the same maturities. The interest rates on government savings schemes will see a cut by 50 basis points from Mach 1, 2002. The interest rates on various small savings instruments will henceforth be reset on an annual basis to the yields on the government securities of the same maturity.
Relief Bonds
The finance minister has imposed a ceiling of Rs 200,000 p.a. for investments in the Government of India Relief Bonds. (Earlier there was no limit on investments in these bonds) The interest rate of 8.5% p.a. on these bonds has been brought down to 8% p.a. effective from March 1, 2002.
With interest rates falling and being linked to the yield on government securities, this will have a significant impact on small savings, fixed income instruments. A 10-year government security yields just over 7%, and the interest income will be taxable in the hands of investor.
Going forward, as the fiscal deficit balloons, interest rates are expected to go down further. Investors planning for long-term investment should invest now, as the small saving rate on offer now are still very attractive and investors are unlikely to see these rates in future. So don't brood over the budget, on the contrary, invest while you can and lock your yield while you can.
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