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bonus 4

Anxious times lie ahead for employees across India as the season for the annual bonus starts in full swing. People often consider bonuses as “money found” rather than “money gained” and therefore almost always consider using these pots of income for discretionary expenses such as gadgets and treats and vacations. While there’s nothing wrong in indulging oneself, it is also equally important to have the big financial picture in mind.

And whilst the list of to-do items can be endless, we at Plan Ahead Wealth Advisors have distilled that list into a few essential options.

  1. Payoff those Debts: As crucial as it can get, reducing those crushing debts can go a long way to ensuring long term financial happiness. With that thought in mind, one should ideally those pay the ballooning credit card and personal loans which have very high interest cost. This could be followed by any car or educational loans, though do remember that an educational Loan has certain tax benefits. If nothing else, prepaying your home loan should also be considered though the pros and cons of prepaying the loan might be best arrived at after consulting with a registered investment advisor.
  1. Replenish Emergency Funds: Keeping funds aside for unforeseen events is a handy tool. And ensuring that tool is always at optimal levels is critical. Therefore, if you had dipped in those funds previously, the bonus is a good opportunity to return them to their originally intended levels. Ideally, anywhere between 3-6 months of expenses, including any EMI or insurance premiums, should be available in such funds.
  1. Revisit your Insurance Needs: Speaking of insurance premiums, it is common knowledge that with age, insurance requirements change. Chances are high that as you age, your health insurance premium might be bumped up or that you realize that your life cover is inadequate and needs an increase. Using your bonus for such needs is a prudent way to utilize the same.
  1. Pay attention to your unfunded Financial Goals: There may be certain milestones that may not have been attended to by you earlier. Some may be upcoming in the next year, while others could be years away. Earning a bonus is always a great time to re look at those goals and use the bonus to bridge any gaps that may be there to fund such items. This could also be, but not limited to, ensuring adequate investments into tax saving instruments as appropriate.
  1. Invest in yourself: They say the biggest asset anyone can have is himself/herself. Therefore, using the bonus to upgrade your skills/knowledge can be a rewarding decision for the future either by increasing your prospects for that next big professional leap or even increasing your earning capabilities.

While the above are some of the “to-do” items with bonuses, there are also certain “do nots” that one should look out for, such as:

  1. Although quite common, never over spend beforehand, especially with credit cards, with the assumption that you will receive adequate bonuses in time to cover for the same.
  1. Money in savings accounts usually vanishes quicker than one expects. So, don’t wait too long on deciding what to do with that bonus. You may find out that by the time you decide what to do with it, it has already been spent somewhere unknowingly.

Bonuses are the result of your hard work throughout the year, so ensuring that your bonus works as hard as you have, can go a long way to a financially secure future. By considering the items listed above, you are more likely to arrive at the right choice of what to do with your bonus. And if you are still confused, it is always advisable to bring on board professional advice to ensure that you are on the correct path.

 

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Your money matters – Simple steps to take charge of your money matters

1In today’s world, women are equal to men in most ways. Women have achieved high accolades and are doing very well in modern Indian, sometimes even better than their male counterparts!

However, when it comes to financial planning for their family, most times they take the back seat, leaving the details for the husband to handle. Financial planners are unanimous in saying that when it comes to making investment decisions, women rarely take an initiative. A study commissioned by DSP BlackRock Investment Managers Pvt. Ltd and conducted by global research agency Nielsen across 14 cities in India in July 2013, found that only 23% of working women make their own investment decisions.The reason often is that the complexity of products and the mathematics involved in financial planning makes it seem puzzling.

However, women should take control of their finances. Here’s what the empowered women should do when it comes to financial planning for herself and her family.

Create Self Awareness and Get Involved:The first step would be to involve oneself and start discussing these aspects actively with family. Women face different changes in life which affects their finances – be it marriage, child birth, divorce or death of spouse. If you are a single mother, the financial responsibility of raising a child needs to be planned. If you are just married, understanding the outlook of the spouse and jointly planning the future finances should be a top priority. Therefore, it is important to increase the financial awareness when all is well and to be prepared for adversities. Things to do:

  • Read articles / blogs / personal finance books
  • Discussing and take active interest along with spouse
  • Take the help of a financial planner or advisor
  • Attending personal finance sessions

Take advantage of various incentives provided for women:Both the private and public sector institutions provide financial incentives for women, most of which go under the radar. (1) Banks offer customized savings accounts with cash backs and rewards for women who spend using bank’s debit card on shopping, food, etc. Some banks also offer discounts on medical tests required by women like thyroid tests, etc. To save for their kid’s education, mothers can open a ‘Junior/Kid Account’ with the waiver of monthly account balance requirement if it is linked to a Recurring Deposit (RD) Account or a Systematic Investment Plan (SIP). (2) While buying an insurance policy, women receive a benefit on the premium paid as compared to their male counterparts. Traditionally, women pay less premium than men for the same sum insured when it comes to buying a life insurance policy. (3) Many banks offer lower interest rates on home loans if a woman is applying for it or if she is the first applicant for a joint loan. The same goes for car loans too. (4) Some state governments provide certain exemptions with respect to stamp duty and transfer duty in case of sale deeds, conveyance deeds and gift deeds if the property is in the name of a woman.

  • Learn and know the available benefits available for women when buying products / availing loans

Cover Risk and Contingency:All the planning you do could be ruined in case of any emergency. Therefore, contingency planning comes before any investment planning. Such contingencies could be risk to life, health, hospitalisation or any unforseen emergency which may require her to step in financially. If you are a working couple or a single earning member family with a loan, having adequate life insurance ensures that dependants will not have to compromise on their finances in the income earner’s In regards to health, various medical research reports say that women live longer and may have more health issues compared to men. Therefore the need for health cover for women.

  • Have a contingency fund for your family
  • Understand and create enough life cover and health coverfor spouse and you

 Plan for Retirement/ Sabbaticals: For you, retirement can either mean retiring at the end of your working age, usually 60; or when you have children and decide to not work anymore. Various studies show that as women usually live much longer than men, therefore they may outlive their spouses. So, in order to have a secure retirement, it is essential to plan for it well in advance. Factors such as inflation, lifestyle, providing for dependants need to be synced together efficiently.

  • Understand the funds that you may need in retirement (with spouse and without spouse) and invest towards it
  • In case of sabbatical / pause in work, understand the income loss you may face from such a decision and work towards providing a buffer for it

 Investing: While women are known to be great savers, saving in itself becomes futile if savings are not deployed to grow. Women need to get involved in such aspects and contribute actively. Working women should also understand these nuances rather than letting the husband or father decide about her money and investments.

  • Involve yourself in investment decisions, slowly and steadily, to grow confidence and understanding of the subject

 Legacy Planning:– In case of wills, the voice for women to register their own wills is growing louder. Now, more than ever, women have assets in their names which if left without proper will/nominations, can inadvertently end up in the hands of a person for whom the asset was not envisaged. Women may also inherit their parents’ assets. Even in the case of the husband’s will, the wife needs to be informed of the existence and details of such a w Dealing with the loss of a loved one is challenging but can become easy if there is awareness and the lady of the family is prepared and informed.

  • Understand and be part of the will making process

 

From the above, you would have gathered how important it is for women to get started on money awareness. Getting women to manage money requires a mindset shift and the above steps, we hope, will give you some pointers on how to start managing your money matters. After all it is your money and it matters.

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budget2016

 

Reams of paper have probably been dedicated to the Union Budget already, but here is a detailed analysis after going through the fine print in terms of Budget 2016 and its impact on your personal finances.

Your Income

  1. House Rent Allowance change: This has been hitherto a lesser used deduction as it comes with multiple conditions. Section 80GG allows individuals to claim a deduction in respect of house rent paid. The limit has gone up from Rs 24,000 previously to Rs 60,000 subject to following conditions:

a.If the person is either self-employed or salaried but does not receive deduction for       HRA from the employer

b.Does not own a residential property in the city in which he is staying on rent.

c.If the tax payer owns property at any place other than the one mentioned above, he        should not be claiming benefit of the property as self occupied. That property should be deemed to be let out.

To claim this deduction the tax payer has to furnish a declaration in Form 10 BA

The deduction allowed under section 80GG for payment of rent shall be least of the following:

  1. 5,000 per month
  2. Rent paid less 10% of the total income
  3. 25% of the total income of the tax payer for the year.

Your Expenses

  1. Tax collection at Source introduced – TCS of 1% on purchase of luxury cars of value greater than Rs. 10 lakhs and purchase of goods and services in cash exceeding Rs. 2 lakhs is now being levied. This does not change the price of the product but will create a trail of transactions in cash of high values, targeting cash usage.
  2. Increase in service tax – Service tax has been increased by 0.5% on all taxable services, with effect from 1 June 2016. As a result, expect the costs of all services to go up.
  3. Infrastructure cess- 1% on small petrol, LPG, CNG cars, 2.5% on diesel cars and 4% on high engine capacity vehicles and SUVs, will mean that cars will become more expensive.
  4. Excise duty on branded ready made garments – garments with a retail price of Rs. 1000 and above has changed from Nil to 2% without input tax credit. Thus, expect garments to become a wee bit more expensive.
  5. Excise duty on tobacco hiked – expect cigarettes to be more expensive as a result.

Your Investments

  1. Long Term Capital Gains tax on equities and debt investments did not see any change – This is positive for investors, as there were fears around tax being introduced on equities or the holding period for equities being changed. Status quo is good news.
  2. New Pension Scheme (NPS) – There are 3 types of withdrawals currently allowed under the NPS.
  3. Normal Superannuation – Lump sum withdrawal on retirement, which was 60% earlier has been changed to 40% now. Earlier this withdrawal was taxable. Now the government has proposed withdrawal upto 40% to be tax free. The balance 60% can be used  for purchasing annuities, to make the annuity portion tax free as well. Thus, the NPS is far more attractive as an instrument to be used for your retirement goals now, especially as its ability to permit equity exposure enables you to get the wealth creation benefit of equities over the long term.
  4. Upon death- The entire 100% would be paid to the nominee/ legal heir and there won’t be any purchase of annuity. These entire 100% proceeds are tax free.
  5. Exit before normal superannuation( 60 years) – At least 80% of the acculturated pension wealth of the subscriber should be utilized for purchase of an annuity and remaining 20% can be withdrawn as lump sum. Considering that this is a long term retirement product, be sure to use the NPS to fund your retirement goals, as early withdrawals make it less flexible.
  6. Other pension products like EPF and superannuation – There has been an attempt to bring all pension products on the same page in terms of taxation. Therefore, EPF and superannuation will also permit 40% of the corpus withdrawn to be tax free. The interest earned on the balance 60% of the contributions made post April 1, 2016 will be subject to tax unless it is used to purchase an annuity.

There is also proposed a monetary limit for contribution of employers to a recognized Provident and superannuation fund of Rs. 1.50 Lakh per annum or 12% of employer contribution, whichever is less, beyond which the same will be taxable in the hand of the employee. You could see smaller contributions towards the EPF from employers going forward as a result, and voluntary Provident Fund contributions could also reduce as a result.

  1. REITS (Real Estate Investment Trusts) and InvITs ( Infrastructure Investment Trust) – Real Estate Investment trusts are listed entities that primarily invest in leased office and real assets allowing developers to raise funds by selling completed buildings to investors and listing them as a trust. Previously REITs did not take off due to taxation challenges. This budget has done away with Dividend Distribution Tax, thus enabling exposure to commercial real estate at lower values.

Expect Infrastructure Investment Trusts to also take off as a result of this change in dividend distribution tax provisions.

  1. Gold Bonds- Long term capital gains from the sale of gold bonds will continue to be taxable but now eligible for indexation benefits. This facilitates taking exposure to gold in a paper form.

The budget has also proposed to make interest and capital gains from the gold monetization scheme tax free. Thus yields from gold are possibly now more attractive than rental yields from residential real estate, considering that the returns are tax free.

  1. Measures for deepening of corporate Bond Market-

a. LICof india will setup a dedicated fund to provide credit enhancement to infrastructure projects. The fund will help in raising credit rating of bonds floated by infrastructure companies.

b.Development of an online auction platform for development of private placement market in corporate bonds.

c.A complete information repository for corporate bonds covering both primary and     secondary market segments will be developed jointly by SEBI and RBI.

d.A framework for an electronic platform for Repo market in corporate bonds will be    developed by RBI.

This will enable investors to invest in corporate bonds and give them another option to add fixed income exposure to their portfolio.

  1. Fiscal target to be maintained at 3.5% – With the government sticking to its target of 3.5% of GDP for FY 17, fiscal discipline has been adhered to for now. This could lead to drop in bond yields and could be particularly positive for duration funds or portfolios having longer duration bonds. Transmission of falling interest rates could finally be a reality.

Your Taxes

  1. There has been no major change in income tax slabs , for individuals earning upto Rs 1 crore.
  2. Surcharge- There has been an increase in Surcharge on income above Rs. 1 Crore from 12% to 15%.

For an individual below 60 years with an income above 1 Crore ( eg. 1.1 Crore), he will end up paying approximately Rs 91,000 more due to the 3% increase in Surcharge.

  1. Rebate- Under Section 87A, for individuals with income not exceeding Rs. 5 lakhs, the rebate has increased from Rs. 2,000 earlier to Rs. 5,000.
  1. Dividend Distribution Tax- The amendment in dividend distribution tax law is applicable to dividend declared under Section 115O. The section is applicable to domestic companies and it is proposed to amend the Income-tax Act so as to provide that any income by way of dividend in excess of Rs. 10 lakh declared by such domestic company shall be chargeable to tax at the rate of 10%.The above amendment will have no impact on the dividends received by the Mutual Fund unit holders as dividend paid by a mutual fund scheme to a unit holder is covered under Section 115R of the The Income tax Act, 1961. This will hit investors drawing higher dividends but since it is not applicable to dividends from mutual funds it’s a relief.
  2. Presumptive Tax – This scheme is available for small and medium enterprises with turnover not exceeding 1 crore rupees. These were free from getting audited and maintaining detailed books of account and could pay tax at 8% .This turnover limit has increased to Rs. 2 Crore.

Also under the presumptive taxation for professionals with gross receipts up to Rs. 50          Lakh, the presumption of profits has been introduced to 50% of gross receipts.

This should result in significant time saving and costs for professionals and small business owners. However, remember to read the fine print on this clause.

  1. Reduction in tax slabs for companies with business income upto Rs 5 crores – The path to reduction of corporate tax rates has begun with a 1% reduction in tax rates for smaller businesses. Expect more to follow going forward.
  2. Undisclosed income – A window from 01 June 2016 to 30 Sep 2016 has been introduced for people to pay 45% on their undisclosed domestic income. This undisclosed income will not be subject to any scrutiny if done within this window. This is an attempt to garner additional revenues and solve the challenges of black money.

Your Loans

  1. Additional deduction of Rs. 50,000- For first time home buyers an additional deduction of Rs.50,000 on top of already existing Rs. 2 lakh has been proposed for loans upto Rs. 35 lakh sanctioned during the next financial year subject to the value of property not exceeding Rs. 50 lakh.

All in all, it’s a budget that will probably not change your money life significantly – but it has a little here and a little there. “Fortunately, there is a sane equilibrium in the character of nations. As there is in that of men.”

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