INDIA BUDGET 2013 :PC NETS BIG FISH

Not so long ago, India appeared to be cruising towards superpowerdom. Then bad weather struck, at home and abroad. With elections looming on the horizon, Chidambaram faces a twin challenge: Keep Congress hopes afloat while steering the economy out of choppy waters. He's soaked the rich, made a splash for women, and sought to shore up investments

Shankar Raghuraman | TIMES NEWS NETWORK 

    Budgets presented in the run-up to elections, whether in the preor post-reforms era, have tended to showcase how much the government is doing for the common man. What's changed post-reforms is that the 'pro-poor rhetoric' has not been accompanied by a 'soak-the-rich' posture. Finance minister P Chidambaram on Thursday bucked that trend. 
    While announcing a tax rebate of up to Rs 2,000 for those with incomes of not more than Rs 5 lakh, the FM imposed a 10% surcharge on income tax for crorepatis, who officially number a mere 42,800, and for domestic and foreign firms with taxable income above Rs 10 crore, which would leave out only small enterprises. 
    In a similar vein, he has hiked customs duty on all mobile phone handsets costing more than Rs 2,000. And has increased excise duty on SUVs—which the fine print of the Budget suggests have been defined in a manner that includes several sedans too. The duty on imported high-end automobiles and yachts has been upped too. Those buying homes and flats with a carpet area of 2,000 square feet or more, or a value of Rs 1 crore or more, will now effectively pay service tax on 30% of the value of the property, while cheaper ones will continue to pay 25% of the value. As Chidambaram himself put it in his speech, "When I need to raise resources, who can I go to except those who are relatively well placed in society?" 
    The 'pro-poor, anti-rich' stance apart, the FM was at pains to show how much the government cares for women and their empowerment. Among the many proposals directed at women was a Nirbhaya Fund for their security and empowerment, and India's first women's bank. 
    For the taxpayer, there will be an additional Rs 1 lakh available for deductions on home loan interest payments, though again only for relatively modestly-priced homes and first-time owners. There were promises too of inflation-linked savings instruments, though the details are to be worked out by the RBI. 
    For corporates, there is an incentive to invest, with 15% of spending of over Rs 100 crore on new plant and machinery in the next two years qualifying for a deduction. For the markets, there was some relief in the form of lower rates of tax on securities transactions and easier procedures for foreign portfolio investors. Against this was a fresh levy, equivalent to the tax on securities transactions, on non-agricultural commodity futures. 
AUR FOR AURAT 
One of the recurring themes of this Budget was women. TOI has long campaigned for a better economic deal for women; this is a good beginning. The FM also announced the setting up of a 1,000cr "Nirbhaya Fund" for the "dignity and safety of women". In the days following the brutal rape of a 23-year-old girl (who later died) in Delhi, TOI named her Nirbhaya (Fearless One). Other women-centric measures include: 
    First women's bank to be set up in public sector with capital of 1,000cr. Will lend to businesses that are run by women, employ women, and support women's SHGs, livelihoods 
    200cr to end "gender discrimination"; to help "vulnerable groups" like single women & widows ARE YOU SINKING OR SWIMMING? TOI HELPS YOU NAVIGATE 
    The biggest gainers from the new income tax proposals are those whose income is between Rs 2.2 lakh and Rs 5 lakh per annum. Everyone in this category saves exactly Rs 2,060 in their tax bill (including the 3% education cess). The only exception are those aged above 80, who are already tax-exempt till Rs 5 lakh and those aged between 60 and 80 who are exempt till Rs 2.5 lakh.Those with incomes between Rs 2 lakh and Rs 2.2 lakh will not have to pay any tax for next year, but how much they save depends on what their income is. A person with an income of just above Rs 2 lakh, for instance, will save almost nothing, while someone who earns Rs 2.1 lakh saves only Rs 1,030. Between Rs 5 lakh and Rs 1 crore, you neither gain nor lose in tax liability. Beyond Rs 1 crore, the extra tax bill mounts rapidly. At Rs 1.5 crore, the additional burden is Rs 4,45,990, at Rs 2 crore it is Rs 6,00,490 and at Rs 5 crore it becomes Rs 15,27,490. 
This is because the 10% surcharge applies to your entire tax bill and not just the portion over Rs 1 crore. 
    While you gain nothing from the Rs 2,000 tax rebate if your income is above Rs 5 lakh, you can still avail of the enhanced benefit on home loan interest payments. So far, interest payments up to Rs 1.5 lakh were deductible from your taxable income. The FM has now said that another Rs 1 lakh of interest payments will be allowed as a tax deduction provided your home loan does not exceed Rs 25 lakh, the value of the property is not more than Rs 40 lakh and it is your first home. If you meet these criteria, you can now 
save Rs 10,300 or Rs 20,600 or Rs 30,900 from your tax bill depending on whether you are in the 10%, 20% or 30% tax bracket. 
    While the formal IT exemption limit remains at Rs 2 lakh, you can avoid tax even with much higher incomes under certain circumstances. If you can use the exemptions for PF contributions, insurance premia etc up to Rs 1 lakh under Sec 80C, the home loan interest deduction under Sec 24 up to Rs 2.5 lakh, the exemption on savings bank account interest up to Rs 10,000 and the Mediclaim premia exemption up to Rs 20,000, you could theoretically have an income of Rs 6 lakh and be tax-free. Of course, whether all 
this is practically possible at such income levels is debatable. 
    As a consumer, your next mobile handset will become costlier as customs duty has been raised from 1% to 6% for all handsets costing more than Rs 2,000. If you are a smoker, the FM's decided you must pay more for your sin. So the excise duty on cigarettes has been hiked by about 18%. Similar hikes will apply to cigars, cheroots and cigarillos. 
SUV prices set to soar, even some sedans will cost more 
    With customs duty up from 75% to 100%, importing a Lamborghini could set you back by Rs 60 lakh, and a Land Cruiser by Rs 15 lakh. Excise duty on SUVs is also up, so even M&M's Scorpio and Toyota's Innova will cost Rs 15,000 to Rs 55,000 more. Worse, the definition of SUVs also covers Honda Civic, Toyota Altis and Maruti SX4, whose prices are set to rise by Rs 16,500 to Rs 40,000 | P 7 Tax changes to yield an extra 13k crore in direct taxes A nother change was to stipulate that where a foreign investor's equity holdings in a firm are over 10%, it would be treated as FDI, while below that threshold it would be FII investment. 
    The net effect of the tax changes is estimated to yield an extra Rs 13,300 crore in direct taxes and Rs 4,700 crore in indirect taxes. The total additional resource mobilisation of Rs 18,000 crore pales in comparison to the Rs 41,440 crore Pranab Mukherjee had proposed to raise last year. Despite the relatively modest tax mopup, the FM has managed to present a budget that apparently hikes outlays on key areas like education, health and the social sector by significant amounts—and yet contains the fiscal deficit at 4.8% of GDP. 
    There is a bit of smoke and mirrors in that image, though. Chidambaram constantly referred to how big the jumps in outlays were relative to the revised estimates for 2012-13, but chose not to dwell on the fact that when compared with the budget estimates for the same year, the increases were most often modest. 
    He is also clearly banking on being able to cut subsidies by a significant amount–next year's estimates for combined food, fertiliser and petro product subsidies is almost Rs 27,000 crore less than the revised estimates for 2012-13. Is that a sign that the government really means it when it says that fuel prices will be periodically revised? We'll have to wait and see. To be fair to the FM, he is, like Pi in Ang Lee's multi Oscar-winning film, faced with the onerous task of surviving a destructive storm and taking both the economy and his party-–not necessarily in that order—to shore. A little bit of fantasizing and optimism in such a situation is perhaps anecessary condition for survival. We can only hope it will be sufficient too.

New India Assurance, the country’s largest non-life insurer, is planning to come out with householder insurance products

HOPING FOR TAX BREAKS

New India mulls householder products

TNN & AGENCIES 

Mumbai: New India Assurance, the country's largest non-life insurer, is planning to come out with householder insurance products in anticipation that the government might come out with some kind of tax breaks. 
    "We are coming out with simple, easy to understand policies for households as we expect that there could be some tax breaks in the budget," said G Srinivasan, chairman, New India Assurance. In a recent meeting with the finance minister, non-life insurers had sought tax breaks for householdersinsurance to increase the penetration of non-life in the country. Insurers said that despite opening of the industry and the presence of nearly two dozeninsurance companies, the penetration of health insurance continued to be only around 0.7% of the gross domestic product. 
    According to Srinivasan, there was no reason why individuals should not be purchasing cover for household assets considering the low cost of cover. He also denied that claims process is cumbersome and requires documents to prove ownership. "Nobody maintains bills for several years after purchase. If insured household items are stolen, all that we will be requiring is a police complaint," he said. 
    Having put in place a core insurance solution, New India has opened 500 micro-insurance offices which can be manned by only one employee who can use systems to issue all policies. The increased investment in branches comesat a time when the company has turned around and reported a net profit of Rs 517 crore as against a loss of Rs 177 crore in the corresponding quarter last year. The company recorded a rise in profit following a hardening of premium rates. 
    Premium income grew by 18.18% to around Rs 8,500 crore in the first nine months of this fiscal. "We plan to reach premium target of Rs 12,000 crore by the end of this fiscal with Rs 10,000 crore coming from domestic operations and rest from overseas," Srinivasan told reporters here. On the focus areas, Srinivasan said that the company would focus on all lines of business with special emphasis on retail, SME and personal line of business. "We are going to launch our online services soon," Srinivasan said adding that the company is also increasing its agent strength to enhance its penetration 
    Srinivasan also said the company, which had reported a loss ratio of 97% in the health insurance sector, aims to reduce it to 92-93% by March, 2013. The company has sought an increase in rates in health insurance for which clearance is awaited. 
    "We have seen sound increase in the investment income during this period owing to the improved market conditions. We hope this trend to continue in the fourth quarter of this fiscal," Srinivasan said.

Soon, diabetics to get a tailor-made med policy

Mumbai: A public sector insurance company plans to launch a policy that would cover the cost of treating diabetics and diabetes-related ailments soon after the client buys the cover. Presently, diabetics can file a claim for diabetes-related treatment only if the treatment is received at least four years after the patient takes the policy. The Oriental Insurance Company 

(OIC) now wants to enable a diabetic to avail of insurance cover a month after the policy is issued. 
    India is considered the diabetes capital of the world as one in five diabetics in the world is an Indian. The current policies in the market classify diabetes as a pre-existing ailment, hence the four-year waiting period. The diabetic is expected to declare his or her condition at the time of enrolling for the policy. Such policy holders pay for hospitalization from their own pockets during the waiting period. 
    "The new policy will be tailor-made for diabetics. Premiums, terms and conditions are yet to be finalized," said Amitabh Mitra, chief regional manager, OIC. 
SWEET TIDINGS 

• Currently, insurance cos classify diabetes as a pre-existing disease 

• Diabetics can file a claim for diabetes-related treatment only if the treatment is received at least four years after a policy is issued 

• Many diabetics hide their condition while acquiring a medical policy— only to be caught out later 

• Oriental Insurance Company will launch a medical policy that will provide a diabetic insurance cover starting a month after the policy is issued Spl policy will get quality treatment for diabetics 
Mumbai: Presently, several diabetics hide their condition when taking a medical insurance policy so that they don't have to wait four years before filing a claim. "Many patients are unaware that hiding their diabetes can lead to repudiation of a claim," said OIC health manager Bipin Navsariwala. "A claims investigator eventually comes to know the truth on the basis of medical case history, medical reports and the medicines used to control sugar levels. For this reason, insurance firms are apprehensive of providing cover to patients with diabetes." 
    Dr Ajay Thakkar, chairman and managing director, Jupiter Lifeline Hospitals, Thane, said, "It is high time that a policy takes into account the interest of diabetics. Almost 20% of patients over 45 who are admitted in our hospital are diabetics." 
    Diabetics require special medical care because of various factors. For example, heavy fluctuation in sugar levels due to hypoglycaemia can render a patient unconscious, which can also lead to brain damage. Retinopathy could lead to blindness due to damage to the retina. Urinary infection is also common and wounds take a longer time to heal. In such cases, doctors prescribe higher doses of antibiotics, which can make treatment expensive, Thakkar added. 
    "In diabetics, high bloodsugar damages and weakens blood vessels, causing them to narrow," Thakkar said. "This mainly affects the legs. This disease is categorized as peripheral vascular disease, in which amputation of the leg cannot be ruled out. Healing of wounds is prolonged in cases where people have this ailment. A special policy for diabetics would help the patient get quality treatment." 
    Cardiologist Dr Bhaskar Shah said, "Diabetes is one of the risk factors for cardiovascular disease. Heart patients with diabetes take more time to recuperate as compared to others." 
    Parth Bhatt, director, Medsol Plus Pvt Ltd, a wellness firm, said, "There is an increase in demand for diabetic awareness counselling sessions as family members of such patients undergo psychological and financial stress. The first thing they ask is whether any insurance policy is available in the market to cover the cost of treatment."

Avoid these common mistakes

 Most retail investors plan to grow their savings via investments, but most of them fail to grow the investments to their full potential. You can blame this on the common mistakes that retail investors make during the investment period. Here are some of them: 

t Lack of planning: Investments are made indiscriminately across asset classes, overlooking the investment objective or risk appetite. A strong investment or financial plan addresses the goals or objectives to be achieved after a specific period of time. Here, if one is not well-versed with the nuances of financial planning, he/she should consult a financial planner. 
t Lack of diversification: Often, investors put money only in one asset class, thereby losing the opportunity to benefit from better performing asset classes. For instance, in India, portfolios of most retail investors are locked in bank fixed deposits (FDs) instead of having a mix of mutual funds and FDs. The table here shows a diversified mutual fund portfolio of equity, debt and gold that provides higher returns than bank FDs over a 10-year period. 
t Impact of inflation: Investors often ignore the effect of rising prices or inflation on their portfolio. This is especially important in a highgrowth and high-inflation economy such as India. For instance, if a bank FD gives 8% returns in a year when the inflation rate is 7% (average), the real rate of return for the investor is just 1% (8%-7%), which is insignificant. Investors can beat inflation only by investing in diversified products across the asset class spectrum. 
t Not starting early: The adage 'early bird catches the worm' holds true in case of investing also. If a person starts investing early, he/she will be able to reap the benefits of compounding of returns to the maximum. For instance, Rs 1 lakh invested at the age of 35 years at the rate 10% per annum would grow to Rs 6.73 lakh in 20 years (55 years). However, the same amount if invested at the age of 25 at the same rate of interest would have grown to Rs 17.45 lakh. This is three times the growth seen from the money invested 10 years later. This is nothing but the power of compounding, which works to the advantage of those who start saving early. 
t Timing the market: Financial markets tend to move in cycles — equities have a far shorter cycle compared to debt or other asset classes. A big mistake that investors make, especially in equities, is trying to time the market. However, the risk of loss is very high if calculations go wrong. 
t Investments based on tax planning: As the financial year-end draws near, tax benefits overshadow pragmatic investment needs. Investors do not invest based on any goal or plan but only to save on tax. Investors must align their tax-saving investments according to their long-term investment plan. For instance, for young and relatively risk-averse investors, equity-linked savings schemes are a better alternative than debt instruments as equities have outperformed debt over the long term. 
t Lack of review and rebalancing: Retail investors fail to review and rebalance their portfolios. They should track their investments at regular intervals to gauge the performance. Further, portfolios must be rebalanced to match the pre-defined asset allocation. Reviewing also helps to weed out non-performers in the portfolio. 
t Lack of insurance: Insurance, both life and medical/health, should be an integral part of an investor's financial planning. This is because exigencies come unannounced and could be costly. A term plan may be preferred to an endowment or a money-back plan. 
What are behavioural biases of retail investors? Swatantra Kumar explains: Behavioural biases are the typical traits that are observed among investors. They are not always based on sound logic and often lead to overreaction in terms of their investment decisions. One of the most common investor biases is called the disposition effect where investors hold on to those stocks that are losers in the hope of future returns, while selling off the winners quickly. The other common behavioural bias is the overconfidence about their portfolio. 
MYTH BUSTER 
MYTH | Most investors think they can manage their portfolios better than fund managers 
REALITY | Research shows that such behaviour is based on overconfidence and lack of knowledge on the part of investors. A recent study on retail investors' behaviour pointed out that, on average, each active investor loses about Rs 83,000 a year because of their disposition biases. Investment decisions by most retail investors are driven by their feelings about profit and loss, rather than careful calculations, while fund managers are able to make rational decisions. 
The author is director, funds & fixed income research, Crisil Research