Budget 2014: Hits & Misses for a Retail Investor

by Shiv Kukreja on July 11, 2014

in Uncategorized

This post is written by Shiv Kukreja, who is a Certified Financial Planner and runs a financial planning firm, Ojas Capital in Delhi/NCR. He can be reached at skukreja@investitude.co.in

It was Modi Government’s first budget on Thursday and it made the investors sit on a roller-coaster ride in the stock markets. Some must have enjoyed the ride, but some would have found themselves caught at a higher level even after having a so called “Excellent Budget”.

Before we find out why the markets fell even after having a good budget, let’s first look at some of the hits and misses of Budget 2014 from a retail investor’s perspective.


* Basic tax exemption limit has been increased to Rs. 2.5 lakhs as against Rs. 2 lakhs earlier – The proposal will help you save Rs. 5,150 in tax irrespective of the tax bracket you are in.


For Senior citizens, the limit has been hiked to Rs. 3 lakhs from Rs. 2.5 lakhs earlier. So, even if you are a Senior citizen or a taxpayer in the 30% tax bracket, the benefit will be of Rs. 5,150 only.

* Exemption under section 80C has been increased to Rs. 1.5 lakhs as against Rs. 1 lakh earlier – The proposal will help you save Rs. 5,150 if you are in the 10% tax bracket, Rs. 10,300 if you are in the 20% tax bracket and Rs. 15,450 if you are in the 30% tax bracket.

* Exemption limit under section 24 on account of interest on home loan in respect of self-occupied property has been increased to Rs. 2 lakhs as against Rs. 1.5 lakhs earlier – If you have taken a home loan and the property is a self-occupied property, then this proposal will help you save another Rs. 5,150, Rs. 10,300 and Rs. 15,450, if you are in the 10%, 20% and 30% tax brackets respectively.

* Investment limit in PPF has been hiked to Rs. 1.5 lakhs as against Rs. 1 lakh earlier – The proposal will help the Senior citizens or investors who are saving for their retirement years or the conservative investors in building up a healthier corpus for achieving their financial goals.


* LTCG Period & Tax Rate on Debt Mutual Funds Hiked – This is one bad news for the debt fund investors, especially the fixed maturity plan (FMP) investors. April 1, 2014 onwards, your investment in a debt mutual fund will have to wait for 36 months (or 3 years) to qualify for the status of a long term capital asset as against the 12 months period earlier.

Though the step has been taken to stop the corporate investors from using these debt fund schemes as a tax arbitrage opportunity, this proposal is definitely going to reduce retail participation in debt mutual funds in a substantial manner. Overall, it is going to hit the mutual fund industry very badly as they have majority of their assets under the debt category.

Moreover, this financial year onwards, the tax rate has also been hiked to 20% from 10% earlier. So, it will be a double blow for the debt fund investors.

* RIP Tax-Free Bonds – In his budget speech, Finance Minister Arun Jaitley did not mention anything about tax-free bonds which got extremely popular with the investors in the last 2-3 years. So, like Infra Bonds which used to carry tax exemption u/s 80CCF till a couple of years back, I think fresh issuance of tax-free bonds has also been discontinued now. So, now onwards, the investors will have to explore some other investment opportunities which could earn them a tax free income.

* RGESS Left Untouched – UPA’s fractured investment scheme, Rajiv Gandhi Equity Savings Scheme (RGESS), got no treatment from the NDA either. In fact, Arun Jaitley did not even mention the scheme in his budget speech. So, all those investors, who were expecting the Finance Minister to make some changes in this scheme, got nothing but a big disappointment.

* Infrastructure Bonds u/s 80CCF Not Reintroduced – After getting ignored by the former Finance Ministers, investors were hoping for a revival of exemption for infrastructure bonds which used to give Rs. 20,000 exemption under section 80CCF or a new investment opportunity with a separate tax exemption. But, their hopes were dashed by Mr. Jaitley as no new exemption got introduced by the new Finance Minister.

So, why the stock markets fell even after having the so called “Excellent Budget”?

It is not the budget disappointment which caused our markets to fall equally sharply after zooming up 475 points intraday, it was the fear & fall in the European markets which caused such a panic selling by the smart money here.

The panic was caused due to concerns of a possible default by the Espírito Santo Group and a sharp fall in the share price of Banco Espirito Santo, Portugal’s leading financial institution, which later got suspended for trading.

Most of the European stock indices were trading lower when our markets got closed for trading at 3:30 p.m.

Coming back to our budget, I think, with no tax-free bonds around this year and a quite unfavorable tax treatment for the debt mutual funds, the investors will find it very unattractive to deploy their money in some of the fixed income investments. Also, as it is termed as a progressive budget by most of the market experts, it was the best that Finance Minister Arun Jaitley could have done for the economy in such a short period of time.

Every clue is guiding the investors to invest their money in equities this year, what we need is a smiling Rain God. So, after a very long time, will the markets oblige with some healthy and steady returns this year? Only the time will tell.

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