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  • Budget 2019 – Impact on investments – Kotak Securities

    Publish Date: February 01, 2019

    Interim Finance Minister Piyush Goyal on Friday announced the mega pension scheme, along with some additional benefits in NPS and Post Office Deposits...

    Acting finance minister Piyush Goyal announced the Interim Budget on Friday for the fiscal year 2019-20, which begins in April. The Budget presented in front of the parliament was quite an intense one, especially the surprises announced in the end for the middle-class people. On the investment front, the Union Budget 2019 has introduced a major pension scheme, along with some additional benefits in New Pension Scheme and Post Office Deposits.

    Mega Pension Scheme

    As a part of the Union Budget 2019 investments, the government proposed a Mega Pension Scheme, namely Pradhan Mantri Shram Yogi Mandhan (PMSYM) for the unorganised sector.

    Workers in the sector will get Rs 3,000 per month after the age of 60 as a part of the scheme.

    While presenting the Interim Budget for 2019-20 in the Lok Sabha, Mr. Goyal highlighted that, “Half of India's Gross Domestic Production (GDP) comes from the sweat and toil of 42 crore workers in the unorganised sector. We must provide them a social security coverage."

    He mentioned that the mega pension scheme will benefit all workers under the unorganised sector, including agricultural labourers, household helps, rickshaw pullers and beedi workers. The Finance Minister has allocated Rs 500 crore for the scheme.

    A worker joining the scheme at 29 years of age or above will have to contribute Rs. 100 per month, while those joining the at the age of 18 will have to contribute Rs. 55 per month.

    It is said that over 391 million people will benefit from the scheme. Also, for the elimination of black money and seamless transaction, the funds of this scheme will be directly transferred to the bank accounts of the beneficiaries, possibly linked with Aadhaar Card.

    Mr. Goyal mentioned that ‘’It is possible that the scheme might become the world's biggest pension scheme for the unorganized sector in the next 5 years.”

    New Pension Scheme

    In the Union Budget 2019 investments, the govt. has notified the increase in its contribution to central government employees New Pension Scheme accounts from 10% to 14%. This is effective from April 1, 2019. The employees will continue to contribute 10% to their basic salary in NPS.

    For workers and labourers, the New Pension Scheme will come up to ensure an increase in the centre's contribution by 4%. This 4% includes basic pay plus dearness allowance by the government. Apart from this, the pension of these employees has been proposed to increase to Rs 7,000 from Rs 3,500.

    NPS is a long-term investment and is considered to the best retirement plan of the Pension Fund Regulatory and Development Authority (PFRDA) and Central Government. In the NPS, central government employees are needed to invest compulsory, however, it is also open voluntarily for other individuals.

    In the event of the death of a labourer during service, the amount to be paid by EPFO has been enhanced from Rs 2.5 lakh to Rs 6 lakh.

    Further, the Gratuity payment limit has been increased from 10 lakh to 30 lakh.

    These initiatives by the government are to bring improvement in the lives of the employees during their retirement age of 60 years.

    TDS on Post Office Deposits

    In the interim Budget 2019, Mr. Goyal has proposed to raise the limit of Tax Deduction at Source (TDS) threshold to Rs 40,000 from Rs 10,000 currently. This is purposed in order to bring relief to those taxpayers who invest a huge amount of corpus in bank fixed deposits and various post office deposit schemes.

    The interim Budget will essentially be the government's financial plan for the next 3-4 months before the government till the elections. When the new government forms, they will have the freedom to change the Interim Budget proposals when it presents the final Budget.

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    By: Sandhya Kannan, Head – Content

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