Mumbai: How is the Union Budget 2007 going to impact your savings and investments? Will you have to pay more for medical care and education? Personal Finance , a special show on CNN-IBN, discussed how the Budget will impact the individual. Vivek Law, Editor, Consumer Affairs, for CNBC TV18, sought answers from a panel of experts comprising:

Subhash Lakkhotia, a leading Income Tax consultant with more than 30 years of experience.

Pankaj Razdan, MD of Prudential ICICI Mutual Funds.

Anuj Puri, MD of Tramell Crow Meghraj.

Shikha Sharma, CEO and MD of ICICI Prudential Life Insurance.

Medical bill
The new budget has increased tax relief in lieu of medical insurance to Rs 20,000 for senior citizens and Rs 15,000 for others.

Shikha Sharma called this a positive step, as India does not have a social security system. “It was critical for us as a country to give people ability to put aside money so that they can take care of their health costs.” She would have been happier if the increment for senior citizens was raised up to Rs 25,000.

Income Tax shock
The Government is under immense pressure to bring down inflation, and Finance Minister P Chidambaram was expected to do so by giving tax breaks.

Chidambaram has proposed a marginal Rs 10,000 increase in threshold tax exemption limit, while putting an additional one per cent education cess on taxpayers. The threshold limit now stands at Rs 1,10,000 against Rs 1,00,000 earlier.

His tax proposals didn’t impress the panel. Lakhotia said because of the inflation taxpayers expected that the minimum exemption limit would be hiked up to Rs 1,50,000.

Lakhotia said the education cess was unfair on taxpayers. “It is going to pinch them”.

The Dividend Distribution Tax has been increased from 12.5 per cent to 25 per cent, but Rajdan believes this should not worry mutual fund investors.

But will the Budget bring down inflation? Puri thinks it may because the massive investment in infrastructure that has been promised.

“If you look out of the box, inflation will decrease. The reason for that is that there is a huge thrust for infrastructure which has been given,” said Puri.

Smaller cities will develop because of infrastructure development and land price, which is now soaring, will come down in Metros.

A senior citizen wanted to know from the panel how should she invest her income and protect it from taxes. Lakhotia suggested that she invest in new equity issues.

He said senior citizens must not put all their money in Fixed Bank Deposits but go for mutual funds and new equities.

Senior citizens expected that the Government would increase the interest rate for RBI Savings Bond, 2003, but instead now tax will deducted at source if income from the scheme is more than Rs 10,000 per annum.

The panel thought this would actually do good, as people will now have to think other avenues for investing money than savings. “I would be very happy if more and more investors come for the mutual funds arena. An economy, which wants to sustain a growth of 8-9 per cent, has to move from savings to investments,” said Puri.

“I think Government is just trying to lay the road to ensure that those structural reforms are taking place.” Puri, however, asked investors to be cautious and allocate funds in debt and equity properly.

Senior citizens
The new Budget gives a Rs-20,000 tax break to senior citizens for medical expenses. How should they use this?

“Medical insurance is usually costlier for older people, but the health insurance market is opening up and there are lots of schemes in the market. If you want to protect your parents from emergencies, then you might be better of buying a Hospital Cash type of products If you want to give them a comprehensive medical cover, Mediclaim may be the way to go,” said Sharma.

The Income Tax Department consider persons 65 and above as senior citizens. Sharma reckoned that health insurance companies do not provide schemes to people above 65 but the new tax break may lead to them changing their policy.

Dividend Distribution Tax
The Dividend Distribution Tax has been hiked but the Income Tax exemption limit has only increased by Rs 10,000. What should investors do?

Rajdan’s suggestion: the Dividend Distribution Tax on equity is still free but it applies to the debt market. So invest in such a way that you get tax-free dividend from equity and also avail the long-term capital gain from debt market.
Fringe Benefit
On the issue of Fringe Benefit Tax (FBT) on Employees Stock Option Plan (ESOP), Lakhotia said, till today there is no tax on ESOP either by employer or by the employee.

It only amounts to long-term or short-term capital gain tax only when the employee sells it. But the budget has put FBT of about 7 per cent on ESOP, which by the way of CTC concept, will become a burden on the employee.

On the issue of non-extension of 80IB, Puri said that on the excess liquidity in the property market, it was quite clear that the Government was not going to extend the tax holiday. But the service tax on the commercial lease rent will make the real estate for offices expensive by 12 per cent. And the increase in price of cement will also raise the property prices.

Against the apprehension from a member of audience that many of new equities are flops, and how it is advisable to invest in new equities, Rajdan said, “When you are entering into a new equity, please enter into it with a mind set of three to five years. Keep patience, statistics have shown that equity has outpaced all kind of asset class, but you have to give time for that.”