Modi 2.0: 10 policies that affected your savings and investments

Modi 2.0: 10 policies that affected your savings and investments

A year into the second term, how have the Modi government’s decisions impacted your finances? Team Moneycontrol takes stock of some key decisions.

 

It’s been an eventful first year in office for Prime Minister Narendra Modi and his cabinet, sworn in on May 30, 2019, after a thumping win in the General Elections last year. Since then, a series of decisions by the re-elected government has had an impact on our finances.

Here is a handy recap of how money matters have changed across taxes, investments, insurance and loans.

Taxation

 New, but not improved, slab rates

In the first full budget of Modi 2.0 presented in February 2020, finance minister Nirmala Sitharaman introduced a new, optional tax regime. With liberalised slabs and lower tax rates, it was presented as a preferable alternative to the existing system. However, most tax-payers will be better off sticking to the existing current system that offers benefits under section 80C, 80D, standard deduction, house rent allowance and so on. Most popular tax breaks will not be available under the new regime, rendering a switch futile, except for those who detest paperwork or are unable to optimise current tax reliefs. Even for such individuals, it is advisable to make an effort to utilise tax-saver avenues.





“This is one of the biggest taxation measures in recent times, but also one that has left many tax-payers in a quandary. Also, note that senior citizens will not be eligible for the higher basic exemption limit (Rs 3 lakh) available under the existing tax regime,” points out Archit Gupta, Founder and CEO, Cleartax. Not surprisingly, according to SBI Research estimates, less than 10 per cent tax-payers are likely to migrate to the new regime.





Now, pay tax on dividend income





Another dampener in Budget 2020 was the finance minister’s announcement that dividend distribution tax will be abolished; but dividends earned will now be taxable in the hands of investors. For investors who bank on income from dividends, this measure means increased tax as also compliance burden.

 

High salary earners hit

 

The Budget imposed an annual cap of Rs 7.5 lakh on employers’ contribution towards the Employee Provident Fund (EPF), National Pension Scheme (NPS), and approved superannuation funds. Contributions above this limit would now be subject to tax. “This will hurt individuals falling in the higher tax slab, and so will the taxation of dividends in the hands of taxpayers,” says Prableen Bajpai, Founder, FinFix Research & Analytics.

Happy Investing

Source: Moneycintrol.com

Dear real estate players, act on Piyush Goyal’s advice

Dear real estate players, act on Piyush Goyal’s advice

Developers should cut prices, advertise and attract demand. The grand posturing of holding rates is only hurting them.

It is not easy to send India’s real estate industry into shock. The tasks involved in the construction business make most developers thick-skinned and almost insensitive to any feedback. From any quarter.

That changed on June 3. At a webinar hosted by NAREDCO, a real estate association, Railway Minister Piyush Goyal unleashed easily the most audacious take-down of the industry. He bluntly told the developers to cut prices and sell. He dismissed any hope of a bailout for the industry and said, “If any of you feels that the government will be able to finance in such a way that you can hold longer and wait for the market to improve, the market isn’t improving in a hurry. Things are seriously stressed. And your best bet is to sell.” It threw a shocked industry into disarray.

His tough talk almost made the prime minister’s powerful speech on February 13, 2019, to CREDAI appear soft in comparison.

 

In a recent column, I had written that the industry hoping for a government bailout was merely indulging in wishful thinking. The Modi administration has not hidden its dislike for the industry. The reasons are not unjustified. For the longest period, the sector was a wild beast that exploited customers almost at will. The stature of the customer didn’t matter.

Incidentally one of the betrayed customers is Goyal himself. As he mentioned in passing at the webinar “I’ll never buy in an under-construction building. I have suffered so badly.” He is merely echoing the thought of many prospective home buyers. That is the reason why ready apartments conventionally sell at a premium.

Let’s now come to the part about Goyal exhorting the builders to cut rates and sell.

First – A big misconception that exists in the public view is that developers make supernormal profits today. In reality, most of them actually don’t. Government levies, taxes, FSI, etc often account for 30-42 percent of a total project cost for a developer in a location like Mumbai. The biggest gainer from real estate projects is the government and municipal authorities. The state government and municipal bodies have the ability to give a helping hand and it is a tragedy that they have plundered the sector to near death.





Second – Does that mean the developers cannot cut rates? No, it doesn’t.


The inflated cost structure was known to all the developers prior to commencing a project. Inadequate planning and market scoping cannot be an excuse for the failure of a project. The model of doing projects through a ‘Cost +’ structure have to end in locations like Mumbai where affordability is clearly a challenge.



Third – A shakeout is healthy for the industry.


Weaker and inefficient hands have to exit. It is a shame that for a sector of such importance the barrier to entry was almost negligible until a few years back. Only when a limited number of strong players survive, will this industry show maturity in its product.



Fourth – Real estate is almost a commodity today.


Put 10 buildings in front of buyers, most won’t know which is by which developer – with the exception of say, Hiranandani and Oberoi. With no serious effort in architecture and design means that often the only battle is to be fought on pricing.





Fifth – Developers are citing a section of the Income Tax Act as a reason to not cut rates.


The section makes it expensive and complicated for the buyer and developer if a transaction happens at a price below the ready reckoner price. That is a weak argument that will not stand the test of any meaningful scrutiny. In most locations of Mumbai, market rates are well above the ready reckoner rates. There is ample space to cut rates. Even if it is done at a level lower than ready reckoner - it isn’t always complex.

Vinod Shah, advocate and redevelopment consultant says, “the said section clearly allows for 5 percent difference in the transaction value and the ready reckoner rates, and allowance will further increase to 10 percent w.e.f April 2021 as per the new finance bill.”



Will slashing prices by all developers work? No. In cases of developers without a track record who are working on under-construction projects, it’s unlikely that even sharp price cuts will now work. For the rest, holding on to existing prices is only going to lead to a slow death.



Developers should cut prices, advertise and attract demand. The grand posturing of holding rates is only hurting them.

Happy Investing

Source : Moneycontrol.com