Election — Impact on your finances

The election manifestos of various political parties, no doubt, carry ambitious plans for economic development. But what do they have in store for individuals, from a personal finance angle?

No marks for guessing – most large parties promised to make available more money in the hands of people. In other words, low tax and low interest rate regime appears to be the common phrase to attract the voter’s attention.

With the need to keep consumption intact taking centre stage in the ongoing slowdown, Government policies are bound to continue to favour a low-tax regime.

Increasing income levels for individuals combined with the depreciating value of money (as a result of inflation) has ensured that almost any party that comes to power hikes the slab once or even twice during their regime. The UPA too increased the income-tax exemption limit from Rs 1,10,000 to Rs 1,50,000 in February 2008.

Though the Congress manifesto makes no specific promises on tax sops to individuals, it wouldn’t be unreasonable to expect continuity on tax policy – a gradual increase in the exempted tax slab for the salaried class, continuation of newly imposed taxes such as Fringe Benefit Tax, a widening service tax net and a capital gains taxation policy that favours equity investments over debt.

The New Pension Scheme, a unique retirement plan implemented in the UPA regime, may also get a new lease of life with the UPA back in the driving seat.

The scheme seeks to invest a part of the Government’s employee’s savings (the scheme is now available to the public as well) in equity index funds apart from investment avenues such as corporate and Government debt instruments. This may have come under rough weather in any Government with a key role for the CPI(M). The latter has stated that there would be no diversion of provident funds and pension funds to the stock markets, if it had a say in policy.

Tax sops to the salaried class may have been higher under a BJP-led Government, given its focus on the urban middle class. The BJP manifesto vowed to exempt individual income up to Rs 3,00,000 from income-tax, twice the limit of Rs 1,50,000 available at present.

The party’s coming to power would also have meant additional tax relief of Rs 50,000 a year to women and senior citizens. Now, the exemption for women stands at Rs 180,000 while it is Rs 2,25,000 for senior citizens.

The BJP agenda also proposed to exempt income of senior citizens derived by way of pension from income-tax and removing taxes on interest from bank deposits. However, there is nothing that prevents the UPA Government from implementing such measures.

The CPI(M), in its manifesto, also sought to provide income-tax relief for salaried employees, pensioners and senior citizens, although it has not quantified the same.

Going by their election promises, it is the CPI(M) that appears to have had the least stock-market-friendly agenda. The party planned to restore long-term capital gains tax on equities and also hike the securities transaction tax. At present, if a stock has suffered securities transaction tax and is held for over a year, the gain on sale of the security does not suffer capital gains tax. Such an exemption, made effective by the UPA Government in October 2004, was meant to be an incentive for long-term investors looking at capital appreciation.

The CPI(M)’s ascension to power may also have had negative implications for HNIs, given its agenda of increasing wealth tax for the super-rich. The party also had plans to introduce inheritance tax, a levy that has not been in existence so far.