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Union Budget and Your Financial Plan?

Honorable Financial Minister Piyush Goyal presented this year’s Interim Budget on 1st February 2019. Every Year, on the day of the budget announcement, you can see almost every individual glued on to their Television or mobiles to check the budget updates with much excitement. Sometimes the Budget announcements cheer us and sometimes they make us sad as we think that there are not many benefits being offered for individuals in our tax slab.

Budget is also referred as Annual Financial Statement as it contains an extensive account of the Government’s finances i.e. Government’s revenue and expenditure for the fiscal year. How relevant is this budget when it comes to our personal financial savings? Should we wait for the Budget to be announced and then start our investments or should we do our investments without any relevance to the Budget? Let’s discuss this in detail.

Budget helps in Tax Planning

Budget surely helps in planning the taxes for the next financial year. Budget is presented on 1st of February every year and contains tax proposals to be implemented for the new financial year. For e.g. this year’s budget gave rebate U/S 87 A for taxpayers having taxable income up to Rs. 5 lakh. The Government also announced a rebate for salaried individuals by increasing Standard Deduction from Rs. 40,000 to Rs. 50,000. Such announcements in the Budget help us analyze our financial situation for the next financial year and we can make changes to our financial portfolio accordingly so that we benefit the most post implementation of these tax proposals.

Budget helps in Real Estate Investment Decisions 

In our Country, due to parental and societal pressures, Real Estate is considered as a must-have. Other than buying a property to live in, people also buy real estate for investment purpose as most of us assume that real estate gives the best returns across all asset classes (It is a myth). We also used to get the full tax benefit on the interest portion of the loan repayment of the 2nd house as the buyer could set off the entire loss from house property. This limit got restricted to Rs. 2 lakhs in the Finance Bill 2017.  This year’s budget has again given benefit to the middle-income group by making second self-occupied property tax free (no notional rent) and by extending benefits U/S 54 to two properties (once in a lifetime benefit). Such proposals again bring clarity with regards to our real estate investment decisions for the next financial year.

Budget and Saving Money on Taxable Investments

Budget sometimes also impacts the choice of our investment instruments/products. Until last year there was no Long-Term Capital Gain (LTCG) on Equity shares and Equity Oriented Mutual Funds. But Budget 2018 proposed LTCG of 10% on the gains in excess of Rs. 1 lakh on both of these which made new investors a little wary of the equity investments. Similarly, this year TDS (Tax Deduction at Source) threshold for the banks and post office fixed deposits has been increased from Rs. 10,000/- to Rs. 40,000/- (though the income is not exempt and remains taxable). This might induce some investors to move towards these traditional investments.

The mindset of an investor who is not seasoned enough to understand the benefits of long-term equity investments might get changed once he/she sees Budget proposals which impact his equity investments. But equity investments depend upon many other parameters like tenure of your financial goals, your risk appetite, your risk-taking capacity depending upon your income, etc. Hence, one should not take hasty decisions when it comes to investments.

Budget is not a show stopper when it comes to Investments

Though Budget helps us in deciding upon various investment choices but is it the final deciding factor when it comes to our investments? No, it should not be. Yes, we should make changes to our portfolio as per the budget proposals and do proper tax planning, but stopping our investments or not starting with the investments due to the forthcoming budget is not recommended.

Heraclitus, a pre-Socratic Greek philosopher said, “The only constant in life is Change”. Similar to the changes we face in our lives every day – be it on the personal front or professional front. We should not get hassled by the yearly budget and keep investing as these disciplined investments in accordance to our financial plan and financial goals will take us long way rather than making changes to our portfolio now and then.

Charu Hastir, CFPCM is the founder of Rite plan is an online financial planning portal created to achieve a single objective of providing easy and Do It Yourself Financial Planning to netizens. Rite Plan is wholly owned by Tikkun Olam Financial Planning Services LLP. Please visit:


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