What’s changed
An increase in basic tax exemption limit and a raising of tax slabs is the usual expectation of the aam aadmi. While this did not come by, the Budget has helped us either save more or pay less taxes in other ways. For one, tax-free infrastructure bonds are back. Two, the Sukanya Samriddhi Scheme for the girl child has become more attractive. Three, transport allowance for the salaried have been doubled and four, the premium paid under the Varishta Bima Pension Yojana, LIC’s immediate annuity plan for senior citizens, is exempt from service tax.
The tax incentives make them among the most competitive option in their respective categories. For those who don’t like the vagaries of the stock market, fixed deposits from banks and NBFCs and Non-convertible debentures (NCDs) are the options that are predominantly available right now. But the interest earned is subject to tax at the person’s respective slab rates, which brings down the effective return. Doubly so, when interest rates are being revised downwards as is happening currently. Tax-free bonds will help overcome this drawback.
Similarly, on payment of a one-time premium of upto Rs 6,66,665, LIC’s Varishtha Pension Bima Yojana currently offers around 9-9.38 per cent return on monthy/quarterly/ half-yearly/annual pension payouts for senior citizens. With the removal of the service tax component of around 3-3.5 per cent on the premium, the returns may inch up a bit higher. This helps it surpass many of the fixed deposit options for seniors, more so, as interest rates head downwards. Return on some of the payout options may even better the post-office Senior Citizens’ Scheme, which is currently offering 9.2 per cent.
Tax benefit on initial investment, tax-free interest and maturity payments on the Sukanya Samriddhi Scheme for the girl child make this among the safest debt options to save for your daughter’s future. It currently offers 9.1 per cent interest. Other choices such as child ULIPs which invest mainly in debt instruments and cover the life of the parent, are highly expensive. A PPF account in your child’s name, have similar exemptions but offer lower interest of 8.7 per cent.
Finally, although the standard deduction for the salaried class doesn’t seem to have a second innings, a doubling of transport allowance to Rs 1,600 per month will help you breathe easy.
The verdict
Great things indeed come in small packages. Introduction of tax-free infra bonds, no tax on initial investment, interest and maturity proceeds for Sukanya Samriddhi scheme and doubling of transport allowance will make the common man plough more money in to saving.