The biggest announcement in the financial sector is only hours away. There has been no end to the speculation among analysts and investors. But you could get lost in the overflow of information during the budget announcement. Let us point out the major changes expected in the budget. As investors, you should keep an eye on these.
Increase in income tax exemption limit
The individual tax exemption limit currently stands at Rs 2.5 lakh per annum. This limit has not changed for the past three years. So, a major expectation is that the Finance Ministry may increase the limit to at least Rs 3 lakh.
Analysts are also hoping for a change in the tax exemption limit for senior citizens. At present, it stands at Rs 3 lakh and Rs 5 lakh per annum for senior citizens and super senior citizens. This limit could increase to Rs 3.5 lakh and Rs 5.5 lakh, respectively.
Many also expect that the government could increase the amount of tax deductions currently available from Rs 2 lakh to more.
Tax incentives on home loans
Prospective home buyers might be in for some good news. Experts believe the budget will offer benefits to home buyers in the form of tax incentives. For instance, investors may expect a rise in the tax deduction limit from Rs 2 lakh to Rs 3 lakh. The current amount is quite insignificant in major cities. Here a large number of properties are within the price bracket of Rs 1 crore or more.
Long-term capital gains tax
Investors can expect a change in the long-term capital gains (LTCG) tax regime. This is likely given a statement made by the Prime Minister at a SEBI event on 25 December 2016. During the speech, he stressed the need for an increase in the taxation on profits from stock markets.
Experts believe the government is unlikely to increase taxation on capital gains. But they also expect an increase in the holding period for stocks to qualify for LTCG tax exemption. Currently, a long-term investment is any investment held for more than 12 months. This time period may increase to two or three years in the coming budget.
Taxation on dividend income
So far, only dividend income greater than Rs 10 lakh was taxable. This might change when the new budget is proposed in the coming month. Experts believe the government might impose a dividend tax on dividend income that is less than Rs 10 lakh.
A reduction in corporate tax might be in the offing too. The government has already charted out the process to bring down the corporate tax rate. It should reduce to 25% over the next four years. This sends out a very positive message. It could increase the investment sentiment. The budget might also offer incentives to businesses to embrace the digital way. This would fuel progress towards a cashless economy. While this may not affect you directly, it could benefit the companies you may have invested in (either through stocks or Mutual Funds).
The bottom line
The annual budget covers various aspects of Indian finance for the coming year but these are few of the expectations.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.