How Budget 2012 enhances your savings kitty

NEW DELHI: By now, you know that it is a status quo Budget when it comes to tax planning, save for a bit of tinkering. So, go ahead with your old tax planning measures in the coming year, too, as the implementation of the Direct Taxes Code (DTC) has been postponed yet again.

The two additional tax breaks extended by the budget are: one, if your annual income is below Rs 10 lakh, you can invest up to Rs 50,000 in stocks through Rajiv Gandhi Equity Savings Scheme. Two, you can claim a tax deduction of up to Rs 5,000 for preventive health check-ups. However, you need to wait for a few days for more clarity on these two proposals.

And, how can one forget the enhanced new tax slabs and exemption limit that would help you save some more money! But, don't look for ways to splurge as you may end up spending more on your bills due to the hike in service taxes and duties.

While your investments should be based solely on your goal-oriented financial plan, you can always make use of some budgetary measures to enhance their value.

Savings Bank Really Helps You Save

Typically, financial planners recommend setting aside an amount equal to six months' expenses in a fixed deposit or a liquid mutual fund. "Now, however, there is a reason to direct these funds to savings bank account instead," says Prerana Salaskar-Apte, chartered accountant and certified financial planner, The Tipping Point. For, the Budget proposes to leave savings bank interest up to Rs 10,000 per year out of the tax net.

"This, combined with the post-deregulation savings rate of 6-7% offered by some banks, makes savings bank account a good avenue for parking short-term funds meant for contingency needs," Prerana adds.

The exemption may also force you to change your habit of simply channelising any surplus money into fixed deposits. "As interest from fixed deposit is taxable, it will be a good idea to evaluate the net impact of keeping money in fixed deposit vis-a-vis saving bank account, and the latter may be preferable because of liquidity," adds Vineet Agarwal, director, KPMG.

Think Before You Spend

"If at all there is a toss-up between saving and consuming, I would prefer to consume less and channelise the amount into one of the myriad investment options available. However, the impact of increased tax-saving will differ based on the slab that you are in," says Jayant Pai, CFP and head, marketing, PPFAS Asset Management.

For a person in the 10% slab, life is virtually unchanged. But those who fall under the other two slabs may see some savings due to lower taxes.

Investing In Equity To Save Taxes

The finance minister has announced the Rajiv Gandhi Equity Savings Scheme that will allow deduction of 50% to new retail investors with an annual income of less than Rs 10 lakh. To claim the same, they will have to invest up to Rs 50,000 directly in equities, with the maximum deduction amounting to Rs 25,000. However, experts say the scheme needs some clarity.

"The new retail investors would mean those who have not opened a demat account so far," says Rajiv Bajaj, vice-chairman and MD, Bajaj Capital.

"It would not be a very bright idea to avail of this scheme if it is restricted only to direct equity investments and not to equity mutual funds, as the ability of retail investors to choose good stocks (and that too with a three year lock-in) is doubtful," says Jayant Pai.

Also, in the next financial year, both ELSS (equity-linked savings scheme) and RGESS may be available depending upon the final DTC guidelines.

"Considering that the RGESS is restricted to those earning less than Rs 10 lakh per annum, it is unlikely that they may have enough savings to invest in both these options (after availing of other tax benefits u/s80C, 80D etc)," Pai adds.

Till 2011-12, risk-averse tax-payers had an additional tax-saving instrument in infrastructure bonds that promised deduction up to Rs 20,000 under 80CCF. The year 2012-13 onwards, you may not be able to claim this benefit as the deduction receives no mention in the Finance Bill. Opinion, though, is divided on whether this tax relief will continue to be available next year and you will have to wait for clarity to emerge in the coming days (the adjoining table does not include this deduction while computing taxsavings).

In any case, you can still consider investing in other infrastructure bonds - the FM has proposed to raise Rs 60,000 crore in 2012-13 for financing infrastructure projects. "They can look at investing in taxfree infra bonds that the FM has announced. While these will not qualify for deductions, they will fetch tax-free returns of 8.2-8.3% per annum, which look attractive," says Suresh Surana, founder, RSM Astute Consulting Group.