Equity Valuation and Outlook for 2015

Every year we look forward to the budget if not for anything but for the changes in the budget on the personal taxation front.  This year, there is an increased expectation and following areas may be considered by the Finance Minister:

1.  Increase in the basic exemption limit – the limit is expected to be raised to Rs3 lakhs.  So, anybody earning less than Rs3 lakhs would not be liable to pay any income tax.

2.  Increase in the medical reimbursement limit – the tax free medical reimbursement currently stands at Rs15,000 per annum and it is expected to be raised to Rs50,000.

3.  Increase in the tax saving investment limit under section 80 C – the 80C limit of Rs150,000 was recently raised in the last budget.  But there has been increased demand from the various financial products manufacturers like Mutual Funds and Insurance companies to create a separate sub-limit focussed towards retirement.  Therefore, the Finance Minister my increase the limit by another Rs50,000 with a specific deduction available if invested in Retirement oriented products.  For example, the Unit Linked Pension Plans, contribution to NPS or retirement linked mutual fund schemes.

4.  Increase in the deduction for health insurance under section 80D – the limit of Rs15,000 per annum for an individual remains constant for many years now.  With rising health insurance premium levels, there is a need to raise the deduction allowed by another Rs5,000 per annum.

5.  Increase in cess or re-introduction of surcharge – to fund the Swaach Bharat Abhiyan program, there is a possibility of increase in the amount of cess from 3% to 6% or reintroduction of surcharge at a lower rate of 5% on Income Tax payable.  It can’t be one-way traffic from Government and they need funds for the development programs.

6.  Widening of tax base – may again be a focus area for the Government.  Out of a country of 1200 million, less than 10% of the population pays any kind of income tax.  Its grossly inadequate to fund the development and there is a crying need to expand the tax base by bringing in new tax payers.  So, I am expecting a mechanism by which more tax payers would be brought within the tax fold.

Let’s wait and watch what out of the above gets looked in to by the Finance Minister.