Personal finance: what changed in the last five years

The 16th Lok Sabha is nearing the end of its five-year term. It was an action-filled term where quite a lot changed for the common man. Money-wise, things have changed dramatically. The arrival of MCLR, the Unified Payment Interface (UPI), the shake-up caused by demonetisation, changes in taxation norms, encouragement for home buyers… a lot has changed in these five years.

Let’s take a look at some of the most impactful changes to managing our money.

Taxation: gains for low-income groups only

In the last five years, we’ve seen the lowest tax slabs expand. The tax-exempt income limit in 2013-14 was Rs. 200,000. As of 2019-20, income up to Rs. 500,000 is effectively tax-free due to waivers, even though the 0 percent slab itself is still at Rs. 250,000. We also saw abolition of the 10 percent slab in favour of the 5 percent slab. The tax cuts have benefitted lower income groups. But though those in the 20 percent and 30 percent slabs would feel aggrieved.

The upper end of the 20 percent slab (which is also the lower end of the 30 percent slab) is stuck at Rs. 10 lakh since 2012-13. It has not moved a single rupee in these five years. The middle class would feel aggrieved because the slabs haven’t kept pace with inflation. They would also feel aggrieved that a 10 percent tax on long-term equity gains from 2018-19 – making an equity investment, where long-term gains were so far tax-exempt, a little unattractive. 

Digital payments

Demonetisation sucked the cash out of the economy. During those trying days, Indians had no choice but to opt for digital payments. Now, cash levels in the economy are at an all-time high. But a good thing to come out of that phase was the United Payments Interface (UPI) in early 2016. With most banks getting on the UPI bandwagon right away and with several tech companies entering the fray as well, it’s never been easier for consumers to transact using their own bank account, which is more convenient than using prepaid e-wallets.

Transparency in interest rates

The transmission of interest rate cuts to the common man has been a matter of concern for the Reserve Bank of India (RBI). The apex bank may reduce the policy rate, but the cuts don’t get passed on to retail customers in an efficient manner. Therefore in 2016, RBI mandated banks to migrate from the base rate regime to the MCLR regime. This ensured timely, automatic revisions of interest rates in line with the repo rate. But it still didn’t solve the problem of full transmission of rate cuts. So in 2018, the apex bank announced that all banks will now link their loan rates to an external benchmark such as the repo rate. While this new regime was to kick off from April 1, banks have asked for more time for consultation and implementation. Therefore, this remains a work in progress and its efficacy needs to be seen in the long-term.

PMAY

Housing For All has been one of the rallying cries of the current administration. The Modi government has made it marginally easier for middle income and low income groups to finance their home purchase. Under the Pradhan Mantri Awas Yojana, eligible residential properties are allowed an interest rate subsidy on home loans, which reduces the cost of home ownership. In October 2018, it was reported that credit-linked subsidy worth Rs 5008 crore had been distributed to 2.3 lakh beneficiaries.

The PMAY subsidy scheme has now been renewed for another year till March 31, 2020. The subsidy, coupled with the arrival of RERA, and a lowering of interest rates due to inflation remaining under control made it a good period for home buyers.

Benefits for senior citizens

Along with low-income groups, senior citizens had a lot to cheer in these last five years. While little changed for them in terms of tax slabs, they were provided deductions in other spheres of their finances. Interest income up to Rs. 50,000 earned from fixed deposits is now exempt for them. They can now deduct up to Rs. 50,000 towards deductions for health insurance premiums, up 66 percent from the earlier limit of Rs. 30,000. With the Vaya Vandana Yojana, seniors can now earn 8 percent guaranteed returns on their pension funds allowing them to earn Rs. 10,000 a month. 

Weeding out tax evaders & fraud

With the arrival of Aadhaar and its linkage to PAN and tax records, tax norms have changed dramatically. It is no longer possible to defraud the system through multiple PANs, nor is it going to be easy to evade taxes, carry out fraudulent transactions, or open fake accounts. This is one of the most significant developments of the last five years.

Aadhaar and its ability to uniquely verify identity for the purpose of opening accounts is a game-changing event for India – one that will surely allow hundreds of millions of people the chance to access the formal institutions of finance in order to save, borrow, invest and insure through regulated and legitimate means.

Safety nets for the poor

One of the biggest achievements of the current administration is the arrival of the PM-Jan Awas Yojana, which is a much-required healthcare plan for India’s poorest. A whopping 50 crore people from India’s 10 crore poorest families are eligible for this scheme where they will receive healthcare coverage of up to Rs. 5 lakh per annum per family. This is in line with other offerings to the economically weak – such as the PM Suraksha Bima Yojana and the Jeevan Jyoti Yojana, which offers life and disability insurance at low costs.

Going digital, cashless, paperless

Under this administration, we saw a bigger push towards digitisation of finance. The arrival of UPI, the linkage of Aadhaar, amendments to information technology, money laundering and telegraph laws have made it possible to open bank accounts digitally.

Instead of lugging your xeroxed set of documents to the nearest bank, you can open your account simply through online submission, and you can complete your e-KYC through the many means available to you, including via an Aadhaar-based OTP. This will help Indians in the deepest geographies of the country not serviced by bank branches.

With one billion cellphones and Aadhaar IDs, the future of finance in India is cashless, paperless and presence-less.

(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of YourStory.)