Budget From The Lens of Financial Planning

Financial planning is a long-term process wherein we plan for our immediate goals as well as for goals which are decades away, whereas the budget is a short-term view of how things are expected to be in the next one or couple of years. It is foolhardy to make drastic changes in your financial planning just because of a few temporary changes in the budget. Still, it would also be naïve to ignore subtle changes which can make significant differences in the financial plan over the next few years. Bachhat has tried to simplify a few pointers from the latest budget which can affect your savings, investments and financial goals.

  • Old tax regime is dead, well almost. Before the budget, the old regime was beneficial for taxpayers who had outstanding home loans and paid EMIs on the same. However, with the recent increase in tax slabs in the new tax regime, the old tax regime shall be beneficial only if the total of all deductions claimed are more than Rs 5.18 Lakhs to Rs 8 Lakhs depending on the total income which is rarely the case for any taxpayer. check out how budget impacts the old tax regime.
  • Increase in tax slabs will lead to more money in the hands of the taxpayers (up to Rs 1,10,000 for those having income more than Rs. 24 Lakhs). It will be wise to use this additional money to fund the financial goals. At times, we are unable to fund certain goals adequately due to a shortage of savings. This is a good time to reduce such shortfall.
  • There has been a misnomer going on that you will be better off earning Rs 12,00,000 instead of earning Rs 12,00,001 since your tax liability will be zero for Rs 12 lakhs earnings and will become Rs. 60,000 even if your income increases by 1 rupee above Rs 12 lakhs. However, this is not true. The rebate under Section 87A has provisions to ensure such situations are taken care of.
     
  • Post-tax returns from certain ULIPs will be higher after the amendment in the budget treating them in line with equity-oriented mutual funds. Till now there was no adequate clarity on the treatment of money received from ULIPs where the annual premium amount was more than Rs. 2.5 Lakhs.  Few were treating the profit as capital gains whereas few were of the opinion that it is income from other sources which could lead to higher taxes. This budget has ensured that gains from certain ULIPs should be taxed as capital gains at the same rate as for equity mutual funds and shares.
  • Earlier, if an individual had two house properties in a same city, the second one was deemed to be given on rent, even if actually not and was taxed at notional market rent, unless it could be proved that the individual cannot live in that house property due to business, employment or professional reasons. This budget has removed the burden of proving that the reason is due to business, employment or profession and stated that any reason is valid for not staying in such second house property and such property will not be taxed at assumed market rent.
  • At present any perquisite received by an employee from his employer more than Rs. 50,000 is taxable. The Budget has recognised that this limit is inadequate and has empowered the tax department to revise this limit upwards.  We should expect this to happen soon leading to additional tax savings for the salaried class.  Further, any expenditure incurred by the employer for foreign travel outside of India on the medical treatment of the employee or his family member will not be treated as perquisite and hence not taxable.
  • There have been a bunch of benefits provided to NPS Vatsalya, which was introduced in the last budget (NPS for minor children wherein the child receives the money after a certain age). The tax benefits of regular NPS have been extended to NPS Vatsalya. However, we at Bachhat, continue to believe that NPS Vatsalya is not the right product for investing in goals relating to children.
  • Limits to deduct TDS have been increased in various cases. For example: The limit for interest from banks has been increased from Rs. 40,000 to Rs 50,000 for all (except for senior citizens where the limit has been increased from Rs. 50,000 to Rs 1,00,000). It does not impact you if you are anyhow paying taxes on such interest while filing your return. However, if your total income is less than Rs 12 lakhs, then this move helps you with higher money in your hands instead of claiming it as a refund while filing income tax returns.
  • A minor change, but which may have potential implications is changes made in TDS on rent. Erstwhile, rent amounts more than Rs. 2,40,000 p.a. were subject to TDS. This has been changed to rent more than Rs. 50,000 per month. Though indirectly, the annual limit for TDS has been increased to Rs 6,00,00, but any monthly rentals more than Rs 50,000 even if it is for just one month will fall under the TDS net now.
  • Of late, various taxpayers have received messages that certain deductions claimed by them (for e.g. Donations) may be incorrect and urging them to rectify that mistake by updating their tax return. As per current law, the returns can be updated only for 2 years from the end of the assessment year. For eg: The return for Financial Year 2021-22 could be updated till 31st March 2025, whereas the return for FY 2020-21 could not be updated since the due date of 31st March 2024 has already passed. Now the timelines have been extended by another 2 years, enabling taxpayers to update the return for FY 2020-21. This will help taxpayers who had claimed incorrect deductions on account of donations in their earlier returns to file the updated returns.

Bachhat’s Take

Cutting all the hubris around the budget, we should ensure that the additional money in hand due to the changes in the budget should be invested wisely for our financial goals. Bachhat recommends staying on course of one’s financial journey and continuing investing for your financial goals as per the plan.

By: Vishal Shah, SEBI Registered Investment Advisor and founder of Bachhat

Feb 2, 2025

(Disclaimer: This is not a financial advice and the readers should reach out to registered investment advisors for any financial advice.  Registration granted by SEBI, membership of BASL and certification from National Institute of Securities Markets (NISM) in no way guarantee performance of the intermediary or provide any assurance of returns to investors. Investment in securities market are subject to market risks. Read all the related documents carefully before investing.)