Debt as an asset class is set to draw more investors
Even as Finance Ministers have been trying to tone down the limelight on the Union Budgets year after year, it has always been a much awaited policy for the salaried segment. The fact that they choose to unleash their direct tax announcements during the policy document could be blamed for this. As has been the case in the last few years, the expectations on the direct tax front far exceeded the reality.
You could pardon the masses for this year's expectations, as it is just a year away from the Direct Tax Code (DTC). Hence, many expected the tax-free income limit to be in the range of Rs 2 lakhs. In urban India, that has become the threshold for a living, with the inflation and consumption-oriented environment.
Analysts are happy that the Budget didn't tinker with many taxes rather than giving sops. As they say, no news is good news on many counts. To begin with, there is no change in the capital gains tax treatment which means the long-term gains continue to be tax-free. There have been concerns on this count with the DTC proposing slab-based taxation. In addition, the continuation of no tax on dividends is welcome news for many.
The significant change in this year's budget would be the introduction of very senior citizen status. With life expectancy improving, there is a need for this category. Many retired government employees should heave a sigh of relief because their (pension) income levels have gone up in a big way thanks to pay revisions. In fact, many senior citizens enjoy an annual pension income of Rs 4-5 lakhs and if you add the interest component to their earnings, they are on par with many salaried professionals.
Coming back to the options for the salaried class from the next financial year, life continues to be the same except that infrastructure bonds can become an integral part of tax saving. In 2010-11, the activity in this segment picked up only in the last quarter and hence many could make use of this tax-saving scheme. It could be different in the coming year with the government's increased focus on the sector as a whole. The effective reduction in tax component is pretty insignificant as the Finance Minister has left slabs and rates unchanged barring minor tinkering.
But the good news for the investor community is the likely increased action on the debt front as for the first time there is a serious attempt to deepen the debt market. The penetration of retail participation in the debt market has largely focused on the fixed deposit market and time has come for investors to look beyond this traditional market. Lack of awareness has also robbed many of taking advantage of the dynamism in this asset class which is increasingly becoming volatile.
