While lowering of tax rates and lower duties are some of the common expectations of a common citizen, what does the Budget 2012-13 have in store for them? For them, it is a mixed bag as usual. The tax exemption has been increased marginally and medical check-up to R5,000 has been made tax-exempt.
For those who prefer the safety of the bank account (savings) or post office (savings) or a cooperative bank, instead of liquid mutual funds, for parking short-term money, interest up to R10,000, is now exempt from tax.
The interesting part in the Budget was the changes in long-term capital gains tax. Typically, when you sell your house property, to save the capital gains tax, you invest the proceeds into bonds under Section 54EC. Now, you can invest the same into the equity of a ?manufacturing? small and medium enterprise (SME) or in the assets (plant and machinery) of the SME.
One cannot sell the equity or dispose of the assets for a period of five years, from the date of the transaction. Also, if the SME is not able to purchase the plant and machinery within a year, the amount is to be deposited in a special deposit account. This is a very innovative way of generating capital and creating wealth. If used in the right manner, many entrepreneurs can get easier access to capital and also invest their own capital to productive use.
But there is more devil in the detail. Inside the pages of the inance Bill, it states that any proceeds received by an unlisted company in excess of the fair market value would be treated as income and taxed accordingly (Section 56(2)). However, if the proceeds are received through a venture capitalist, the above provisions would not apply. So, all you startups beware! If your friends and families and well-wishers are supporting you through their purses and have an equity stake with valuation in excess of the fair market value, be ready to pay tax.
While on one hand, you have an innovative method of creating accessibility to new means of capital (provision of usage of capital gains on house property), on the other, the Budget brings in clauses, hampering effective usage of capital under Section 56(2).
In the Budget, senior citizens have now got an uniform age ? 60 years. So, if you are paying the premium on health insurance for parents who are 60 years and above, you would get the deduction up to R20,000 per annum, instead of the earlier R15,000 for senior citizens below the age of 65 years.
The securities transaction tax on delivery has been reduced from 0.125% to 0.1 % and will be applicable from July 1, 2012. So, do remember the date. However, for a long-term investor and wealth creator, the yearly Budget mania should be considered as another exercise to check how it suits your long-term investment portfolio.
The writer is founder and managing partner of Zeus WealthWays LLP