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Business News/ Politics / Policy/  The budget’s impact on households
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The budget’s impact on households

Bringing greater social security and shifting savings from physical assets to financial ones were two key household-related themes in the Union budget

(From left) CNK and Associates’ Gautam Nayak, ICICI Prudential Life Insurance’s Sandeep Batra, Kotak Mahindra Asset Management Co.’s Nilesh Shah, International Money Matters’s Lovaii Navlakhi, and DSP Merrill Lynch’s Atul Singh at Budget 2015: Remaking India, a Mint post-budget analysis conference. Photo: MintPremium
(From left) CNK and Associates’ Gautam Nayak, ICICI Prudential Life Insurance’s Sandeep Batra, Kotak Mahindra Asset Management Co.’s Nilesh Shah, International Money Matters’s Lovaii Navlakhi, and DSP Merrill Lynch’s Atul Singh at Budget 2015: Remaking India, a Mint post-budget analysis conference. Photo: Mint

Mumbai: Bringing greater social security and shifting savings from physical assets to financial ones were two key household-related themes in the Union budget, as identified by speakers at Budget 2015: Remaking India, a recent Mint conclave.

In his keynote address, Hemant Contractor, chairman, Pension Fund Regulatory and Development Authority, PFRDA, spoke about the importance of social security in a country witnessing rising longevity and crumbling joint family systems. “In 15 years, India will have about 200 million people over the age of 60 and by 2050, this number would be 300 million. If we don’t provide for social security, then the consequences could be staggering. We need to make sure that India’s aging population is able to manage a decent income," he said.

According to Contractor, the pension regulator is keen to know about the steps being taken to address social security concerns.

The Union budget proposed to bring about universal social security through two insurance schemes and one defined benefit pension scheme. In insurance, the Pradhan Mantri Suraksha Bima Yojna will cover accidental death risk of 2 lakh for a premium of 12 per year paid by individuals, whereas the Pradhan Mantri Jeevan Jyoti Bima Yojana will cover both natural and accidental death to up to 2 lakh for a premium of 330 per year for those in the 18-50 age group. The Atal Pension Yojana will provide a defined benefit pension plan of 1,000-5,000 per month. This benefit will be linked to the amount and the period of contribution. For non-income taxpayers, the government will contribute 50% of the subscriber’s contribution up to a maximum of 1,000 every year for a period of five years and on accounts that open before 31 December 2015. The scheme will be launched on 1 June and will be administered by PFRDA. Existing subscribers of Swavalamban scheme, a defined contribution pension scheme for the poor, again with some co-contribution from the government, would automatically migrate to the Atal Pension Yojana, unless they opt out. “The Atal Pension Yojana is an improvement over the Swavalamban scheme because it defines the pension amount. Knowing what you will get is very important for people," Contractor said.

He also welcomed the extra tax deduction of 50,000 allowed on contributions made to the National Pension System (NPS). “The budget gave a direct incentive to the investors through the extra tax deduction and this will help promote the habit of long-term saving," Contractor added.

Under section 80CCD of the Income tax Act, 10% of the salary contributed to the NPS is eligible for a tax deduction up to 1.5 lakh. Over and above this, you get an additional deduction of 50,000, but there still seems to be some confusion. “The way it’s worded, it’s not clear if this additional deduction is available only when you exhaust the 10% limit," said Gautam Nayak, partner, CNK & Associates LLP, at the panel discussion Beyond the Budget: My Money in 2015-16.

However, there is a feeling that tax benefits on contributions alone may not help. “Annuity is right now taxable. Unless you correct it, you may not see many opting for it," said Sandeep Batra, executive director, ICICI Prudential Life Insurance and a panellist at the conclave. Annuity is a pension product that gives periodic income. “We can’t really say if NPS will gain traction in a big way just yet. There will be an initial euphoria and we need to see if it will last," said Nayak.

The gold bonds and gold monetization proposed in the budget too came up for discussion. The gold bonds will seek to replace physical gold. The gold deposit scheme is a scheme for households that hold physical gold to deposit it with a bank and earn a rate of interest on an asset that otherwise does not give any interest. The idea is to reduce imports of gold. “The thought of gold bonds is noble. However, I hope it doesn’t get diluted like the RGESS (Rajiv Gandhi Equity Savings Scheme) did. The government should consider issuing draft guidelines and get feedback similar to what regulators such as Sebi and RBI does," said Nilesh Shah, managing director, Kotak Mahindra Asset Management Co. Ltd.

These gold bonds will earn a fixed rate of interest and are redeemable on the face value of gold during redemption. “We would like to know whether the interest earned from this product will attract tax," said Nayak. Panellists unanimously welcomed the Budget 2015 move to set up a Financial Redress Agency (FRA) which will address grievances across all financial products and financial sector regulators.

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Published: 30 Mar 2015, 01:11 AM IST
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