Impact of Union Budget 2017 on Mutual Funds, Real Estate and Investment

Impact of Union Budget 2017 on Mutual Funds, Real Estate and Investment

Roboadviso     Economy     Posted On, Thu 2nd February, 2017     1 comment
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 Union-Budget-2017 mutual fund investment

The finance minister Arun Jaitley presented the Union Budget 2017-18, with impetus on prompting digital economy and affordable housing. He also ensured that equity oriented investments like long-term equity-based mutual funds remained unchanged from tax perspective.

The finance minister in no uncertain terms, stated that India is largely a tax non-compliant society.  He added that the ubiquitous nature of cash made it easy for tax evasion, until the demonetization drive. Post demonetization, 1.09 lakh bank accounts received deposits from Rs. 2 lakh up to Rs. 80 lakhs. He added that net tax revenue was 17 percent higher for second year in succession, while Advance tax in personal category moved up by 34.8 percent.

Digitization gets a boost

The finance minister made it clear that he wanted to step up India’s tryst to go digital, as a way to infuse financial discipline and weed out corruption. To promote digital transactions, he said that he would launch BHIM app along with two more schemes – cash-back and referral bonus schemes for the country to go cashless. As of now, 125 lakh people are already using BHIM (Bharat Interface for Money) app.  There is a commitment to add another 10 lakh POS terminals in 2017. The digital payment infrastructure is set to get a boost with Aadhar Pay.   Optical fiber-driven internet is to be laid out, with a target of 1.5 lakh panchayats to be served with high-speed broadband connections. 

Recapitalization of PSU Banks

Rs. 10000 crore will be allocated for recapitalization of PSU banks. The sum however is not much when considering that there is a requirement of Rs. 1. 8 lakh crore as recapitalization amount for 2018-19.  Non-performing assets or loans that do not give any returns has been increasing steadily.  While the gross NPA of state banks in March 2016 was Rs. 5.02 lakh crore, it moved to Rs. 5.59 lakh crore in June 2016. There is still no concrete statement on specific measures which would be taken to bring down the level of bad loans. There are talks of setting up a centralized PARA or Public Sector Rehabilitation Agency to focus on toughest and largest NPA-related cases.

Impact of Budget 2017 on Real Estate

Rural housing is set to get a boost with lowered interest rates.  The National Housing Bank is entrusted with refinancing Rs. 20,000 crore loans.  Agricultural is poised to grow at 4.1 percent this fiscal, according to the finance minister.

Affordable housing has been given the ‘infrastructure’ status.  Due to this, developers will be able to avail foreign funds at cheaper rates and also stand to benefit through priority lending status, from banks.

There is a target to create 1 crore lakh houses by 2019. The total allocation for the infrastructure sector is pegged at 3,96,135 crore, with Rs. 2.41 lakh crore for transportation and Rs. 64,000 crore for transportation.  Real estate developers stand to benefit from tax relief for unsold stock as liability to pay capital gains tax will come up, only in the year, a project is completed.

What will cost more and cost less in budget 2017-2018

In a nutshell, the Finance Minister Arun Jaitley continued cracking the whip on tobacco and cigarettes by proposing to increase their prices.  The shift is towards clean energy sources, as the FM sought to cut duties on fuel-cell driven power generating systems, wind operated energy generators and solar tempered glass.

The following is a list of items that will turn costlier:

  • Cigarettes, pan masala, cigar, beedis, tobacco, etc.
  • Printed circuit board used in making mobile phones
  • LED lamp components
  • Cashew nuts (roasted and salted)
  • Aluminum ores and concentrates
  • Silver coins and medallions
  • Polymer coated MS tapes used in manufacturing of optical fibers

 Things that will turn cheaper

  • LNG (Liquefied Natural Gas) – the customs duty is to be reduced to 2.5% from 5%.
  • Booking railway tickets online
  • RO membrane elements for household usage
  • Solar tempered glass used in solar panels
  • Fuel cell based power generating systems
  • Wind operated energy generator
  • Vegetable tanning extracts used in making leather products
  • POS machines card and fingerprint readers
  • Group insurance for Defence services

Notable features of Budget 2017-2018

  • Cash transactions above Rs. 3 lakh is banned. The limit of cash donations by charitable trusts has been reduced from the previous Rs. 10000 to Rs. 2000.
  • The 2017-18 budget also proposed Aadhar based health card for senior citizens.  There is assured pension for senior citizens in the form of 8 percent assured returns.
  • For the FY 18, the total expenditure has been placed at Rs. 21.47 lakh crore.  Compared to Rs. 3 lakh crore in the previous year, Rs. 4,11,000 crore will be transferred to States
  • The focus will be on capital expenditure, which will be 25.4 %.
  • Expenditure for science and technology is Rs. 37,435 crore.
  • The defence sector gets an allocation of Rs. 2.74,114 crore.
  • The maximum amount of cash donation for a political party will be Rs. 2,000 from any single source.
  • Fiscal deficit of 2017-18 is pegged at 3.2% of the GDP, while revenue deficit is at 2.1 percent.  The net borrowing is to be at Rs. 3.48 lakh crore, lesser than Rs. 4.38 lakh crore in the previous year.

Impact of Budget 2017 on Income Tax

The income tax has been halved to 5 percent for those who have annual earnings between Rs. 2.5 lakh and Rs. 5 lakh. All other categories of tax payers in subsequent brackets will get a benefit of Rs 12,500.

There is a 10 percent surcharge on individual income above Rs. 50 lakh and up to Rs. 1 crore to compensate for the Rs. 15000 crore loss due to cut in personal income tax rate.  The 15 percent surcharge on income above Rs. 1 crore is to be continued as it was.

The finance minister also stated that there would be a cut in tax rates for small and medium sized companies as a part of the previously made assurance to progressively reduce corporate tax rates. The tax rate for companies with an annual turnover of up to Rs. 50 crore has been reduced to 25 percent from the earlier 30 percent.  As per the finance minister, 96 percent of the companies stand to be benefit from this move.

In the course of the budget speech, Jaitley also proposed to decrease the duration for revising an income tax return to 12 months from the completion of the financial year.  He also proposed to reduce the time for completion of scrutiny assessments to 18 months from the previous 21 months, for Assessment Year 2018-19 and further to 12 months for Assessment Year 2019-20 and thereafter.

In a bid to expand the tax net, the government is considering having a simple one page form to be filled as income tax return for people having taxable income up to Rs. 5 lakh, other than business income. Jaitley also said that a person who files income tax for the first time will not have to through scrutiny in the first year, unless there is specific information about high value transaction, which warrants the tax department to do so.

Impact of Budget 2017 on Mutual Funds

The Union Budget for 2017-18 has not affected the long-term capital gains tax on equity investment, in anyway. Any profit attainable by selling a security asset is called capital gain. Presently, gains from buying or selling of shares or equity mutual funds for less than 12 months are considered short-term capital gains and attract 15 percent capital gains tax. Long term capital gains on equity mutual funds and stocks (more than 12 months) are not taxed.  In case of debt mutual funds, both short-term and long-term gains are taxed. Short term capital gains on debt mutual funds are taxed according to the individual prevailing income tax slab, while long-term capital gains are taxed at 20 percent with indexation.

With a flush of funds to be allocated for infrastructure, some investor may look for investing in infrastructure funds. Though it is good news that the sector is getting a financial boost, what is more important is the commitment and monitoring to ensure that money invested is justified by dedicated work. It makes prudent sense to stick to equity diversified funds rather than thematic or sectoral funds.

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