The Indira Gandhi National Old Age Pension Scheme (IGNOAPS) is a social welfare scheme launched by the Government of India in 1995. It is aimed at providing financial assistance to senior citizens who are aged 60 years or above and are living below the poverty line.
Indira Gandhi National Old Age Pension Scheme
Under the scheme, eligible beneficiaries receive a monthly pension of Rs. 200 to Rs. 500, depending on the state they reside in. The pension amount is fixed by the state governments, which implement the scheme in their respective states.
Do help a senior citizen by assisting him/ her to secure the IGNOAPS pension, refer to – https://nsap.nic.in/login/cbtMainPage.html
To be eligible for the scheme, the applicant must be aged 60 years or above, must belong to a BPL (Below Poverty Line) family, and should not be receiving any other pension or financial assistance from the government. The beneficiary should also be a resident of the state where they are applying for the pension.
The application process for the scheme varies from state to state. Generally, the application form can be obtained from the local authorities, and the applicant needs to submit proof of age, BPL status, and residence along with the application form.
The pension amount is directly credited to the beneficiary’s bank account on a monthly basis. The scheme is funded by the central and state governments in a 75:25 ratio.
Overall, the IGNOAPS is a useful scheme for senior citizens who are living below the poverty line and do not have any other source of income or financial assistance. It provides them with a regular income to meet their basic needs and lead a dignified life.
How to Apply for the Indira Gandhi National Old Age Pension Scheme
To apply for the Indira Gandhi National Old Age Pension Scheme (IGNOAPS), one needs to follow the steps given below:
Check Eligibility: First, check if you meet the eligibility criteria for the scheme. You must be aged 60 years or above and belong to a BPL (Below Poverty Line) family.
Obtain Application Form: The application form for the scheme can be obtained from the local authorities, such as the Gram Panchayat, Municipality, or Block Development Office, depending on the state you reside in.
Fill the Application Form: Fill the application form with accurate and complete details. You will be required to provide information about your personal details, such as name, age, gender, and address, along with proof of age, BPL status, and residence.
Submit the Application Form: Once you have filled the application form, submit it along with the necessary documents to the local authorities.
Verification: The local authorities will verify the details provided in the application form and the documents submitted.
Approval: If your application is approved, you will start receiving the pension amount on a monthly basis directly in your bank account.
Follow Up: In case of any delay or issues in receiving the pension amount, you can follow up with the local authorities or the bank where your account is held.
It is important to note that the application process and documentation requirements may vary from state to state. It is advisable to check the specific requirements for your state before applying for the scheme.
The National Savings Certificate (NSC) is still a popular investment scheme offered by the Indian Government. It is a fixed-income investment that offers attractive interest rates and tax benefits to Indian investors. Here are some benefits of investing in NSC:
National Savings Certificate
Guaranteed Returns: NSC offers a fixed rate of interest that is guaranteed by the Indian Government. The interest rate is decided by the government and is revised periodically. The current rate of interest is 6.8% per annum (as of February 2023). This means that investors can earn a fixed return on their investment.
Tax Benefits: NSC investments are eligible for tax deductions under Section 80C of the Income Tax Act, 1961. The amount invested in NSC up to Rs.1.5 lakh can be claimed as a deduction from the investor’s taxable income. However, the interest earned on NSC is taxable.
Low Risk: NSC is a government-backed investment scheme, which means that the risk involved is low. The investment is not affected by market fluctuations and is a safe option for investors who do not want to take risks.
Easy to Invest: Investing in NSC is easy and convenient. Investors can open an account at any post office or authorized banks. The minimum investment amount is Rs.100 and there is no maximum limit.
Maturity Benefits: NSC has a maturity period of five years. At maturity, investors receive the invested amount along with the accrued interest. The maturity amount is paid out to the investor in the form of a lump sum.
Whether or not to invest in NSC depends on your financial goals and risk appetite. NSC is a safe investment option that offers guaranteed returns and tax benefits, making it a suitable choice for investors who prefer low-risk investments. If you are looking for a fixed-income investment option with low risk and tax benefits, NSC can be a good investment option.
However, if you are looking for higher returns and are willing to take risks, you may consider other investment options such as mutual funds or stocks. It is important to assess your financial goals, risk appetite, and investment horizon before making any investment decisions.
Additionally, keep in mind that NSC has a lock-in period of five years and premature withdrawals are not allowed. Therefore, if you have a short-term investment horizon or require liquidity, NSC may not be the best investment option for you.
It is always advisable to consult a financial advisor before making any investment decisions to ensure that your investments align with your financial goals and risk profile.
Retired life can be comfortable and fun with a little bit of planning
This blog is for anyone who is retired, looking at retirement in next few years, or have retired parents. Golden years should be relaxed, comfortable and fun. It needs a little bit of planning earlier years,, also little bit of relook at the changing priorities can help set goals and allocate resources and budget towards the same.
Here are some ideas on how they can senior citizen plan their post-retirement finances, to ensure senior living is comfortable:
Determine your expenses: Start by identifying your monthly and annual expenses, including basic needs like food, housing, healthcare, and transportation, as well as discretionary expenses like travel and entertainment.
Assess the income sources: Consider all potential sources of income, including pensions, Social Security, retirement savings, and other investments. Determine how much you can expect to receive from each source.
Create a budget: Based on your expenses and income, create a budget that will allow you to live comfortably within your means. Be sure to leave some wiggle room for unexpected expenses.
Manage debt: Pay off any outstanding debt as soon as possible, as it can be a significant burden on your retirement finances.
Invest wisely: If you have savings or investments, make sure they are diversified and appropriate for your risk tolerance. Consider working with a financial advisor to help manage your investments.
Consider downsizing: If your home is too large or expensive for your current needs, consider downsizing to a smaller home or apartment. This can significantly reduce your expenses and free up funds for other uses.
Plan for healthcare costs: Healthcare costs can be a significant burden in retirement, so it’s important to plan ahead. Consider purchasing long-term care insurance or a Medicare supplement policy to help cover these costs.
Stay involved: Finally, stay engaged and involved in your community. Participating in social and volunteer activities can help keep you active and engaged while also providing opportunities to connect with others and reduce expenses.
Remember, it’s never too early or too late to start planning for retirement. By taking the time to carefully plan your finances, you can help ensure a secure and enjoyable retirement.
Did you know you can earn money on your idle portfolio stocks without increasing risk? Yes! BSE and NSE empanelled brokers allows SLBM facilities for their customers such facility, which allows investors to earn extra income on their long term portfolio. Let us understand the nuances of it, points to consider and other details in this blog.
What is stock lending and borrowing & how it works?
SLBM is stock lending and borrowing mechanism used by future and option traders, also for arbitrage opportunities. This facility allows stock investors to access the stock lending and borrowing opportunity. To avail SLBM, investors need to connect with their stock brokers from the stock portal/ application/ email the broker to activate this facility.
Both BSE and NSE allows this mechanism. Unlike other developed nations, in India, stock exchange clearing units take the responsibility of fulfilling the contract obligations.
What is the process of stock trading mechanism?
In India, stock lending and borrowing is a mechanism through which investors can lend their securities to other investors who wish to borrow stocks for a specified period of time. This process is facilitated by intermediaries known as Securities Lending and Borrowing (SLB) agents who operate under the guidelines issued by the Securities and Exchange Board of India (SEBI).
Link to NSE Active SLBM Page – https://www.nseindia.com/market-data/securities-lending-and-borrowing
Here’s how the stock lending and borrowing mechanism operates in India:
Borrower places a request: The borrower (usually a trader or a short seller) places a request with the SLB agent to borrow a specific quantity of securities for a certain period of time. The request is then matched with a lender who is willing to lend the securities.
Agreement between lender and borrower: The lender and borrower enter into an agreement, which specifies the quantity and type of securities being lent, the duration of the loan, the lending fee, and other terms and conditions.
Securities are transferred to borrower: The lender transfers the securities to the borrower’s demat account, and the borrower provides collateral (usually cash or bank guarantee) to the lender.
Lender receives lending fee: The lender receives a lending fee from the borrower for lending the securities. The lending fee is usually a percentage of the market value of the securities being lent, and it is calculated on a daily basis.
Return of securities and collateral: At the end of the loan period, the borrower returns the securities to the lender, and the lender returns the collateral to the borrower. If the borrower fails to return the securities or collateral, the lender has the right to sell the collateral to recover their securities.
The stock lending and borrowing mechanism in India has provided investors with an additional avenue to generate revenue from their securities. The mechanism also provides liquidity to the market by allowing short sellers to borrow securities and sell them, which can help stabilize market prices.
Benefits for stock lenders
Benefits for stock borrowers
Additional source of revenue: SLBM provides an additional source of revenue for stock lenders. By lending their securities, they can earn a lending fee, which is usually a percentage of the market value of the securities being lent. This fee can be an attractive source of income, especially for long-term investors who are not actively trading their securities.
Diversification of portfolio: Stock lending can help stock lenders diversify their portfolio. By lending their securities, they can invest the lending fee earned from stock lending into other investments, which can help them spread their risk.
Risk mitigation: Stock lending can help mitigate the risk of holding securities. By lending their securities, stock lenders can reduce the risk of losses due to market fluctuations, as they continue to earn a lending fee during the loan period. This can help protect their investments and minimize potential losses.
Flexibility and control: Stock lenders have the flexibility to choose which securities to lend and for how long, giving them greater control over their investments. They also have the right to recall their securities at any time, which can provide added security and control over their assets.
Short selling: Stock borrowing allows stock borrowers to short sell securities that they do not own. Short selling involves selling borrowed securities in the hope of buying them back at a lower price and profiting from the price difference. This can be an effective strategy for traders who anticipate a decline in the market or a particular stock.
Liquidity: Stock borrowing can help increase market liquidity by allowing traders to borrow securities and sell them, which can help stabilize market prices. This can also benefit stock borrowers by providing them with access to a wider range of securities to trade, potentially leading to better returns.
Flexibility: Stock borrowers have the flexibility to borrow securities for a specified period of time, which can help them manage their trading positions more effectively. They can choose the quantity and type of securities to borrow, and can also recall the securities at any time if they wish to exit their positions.
Lower costs: Stock borrowing can be a cost-effective way to access securities than purchasing them outright. Borrowing fees are typically lower than the cost of buying the securities in the market, which can help to reduce trading costs
How Safe is SLBM Transactions?
In India, the stock lending and borrowing mechanism (SLBM) transactions and closures are guaranteed by the National Securities Clearing Corporation Limited (NSCCL). NSCCL is a subsidiary of the National Stock Exchange (NSE) and is responsible for clearing and settling all trades executed on the NSE and other exchanges where it provides clearing services.
NSCCL acts as a central counterparty (CCP) for SLBM transactions, which means that it becomes the buyer to every seller and the seller to every buyer.
NSCCL ensures that SLBM transactions are settled on time by providing a settlement guarantee, which requires members to maintain sufficient collateral with the clearing corporation. The collateral acts as a buffer against potential losses and helps to ensure that the settlement process runs smoothly.
In summary, NSCCL is the entity that guarantees the SLBM transactions and closures in India. Its role is critical in ensuring the smooth functioning of the SLBM mechanism and maintaining investor confidence in the market.
Eligible securities for SLBM Mechanism: All F&O Stocks, eligible Non-F&O stocks and eligible index ETFs
Who can participate in SLBM? Following are the participants who can opt for SLBM facilities Retail investors, HNI, FIIs Mutual Funds, Insurance, FPI
Do remember:
The fee is per share unit and not priced like bank interest rates, so be mindful while quoting the fee per unit. SLBM is best utilised for stocks lying in the long term portfolio and do not wish to sell in short-term
Series B will have better liquidity than Series A securities.
In my opinion, for retail investors, Lending stocks are a good option to generate some income over idle portfolio. With lending stock, you retain to the right to get the bonus, dividend benefits and added fee income (on avg 5-10%) on the stocks.
Borrowing stock is a much for complicated process and are used by seasoned option traders, institutional desks for arbitrage opportunities etc.
Overall, stock lending can be a valuable tool for stock lenders, providing them with additional income, risk mitigation, and greater control over their investments.
What is it in the Union budget you looked out for?
In one sentence – It is a wake-up call for Aam Aadmi ! I know! I know! you’d say, everyone is an economist today and has a view on budget. But, incidentally, I am not here to rant or praise the nuances of the great ‘Amrit Kal announcements’.
Today, I saw a different government, different minister who carefully announced the budget perfecting the texture and contouring ‘vibrant and confident India’. FM didn’t lure with tax sops for investing more in mutual funds, insurance and PPF. Today, she addressed the budget for ‘Young India’ who wants freedom of choice, options on platter and decide ‘who they are’ and ‘what they want’. —FM did take a note of the inflation and doubled the senior citizen deposits and monthly income schemes to reduce the frown lines of the pensioners. — Announced Mahila Samman Savings certificate for 2 years – likely to improve savings habit in women — FM raised tax slab limit to 7 lakhs who choose the nex-tax regime, while making it a default option.
This third announcement is what I found ‘remarkable’. Though it is definitely to lure and woo the salaried class to get into the next tax regime. But, moreover, this is a statement for the ‘aam nagrik’, a paradigm shift in the government’s approach. It is the decision to ‘choose what you want to do with your money’. Save/ invest/ spend on luxury. ‘It is not govt’s burden to coax you into savings, but its your choice – you want to live for today or save for tomorrow’. ‘You are mature, you vote, you earn, you live as you like.’
To summarise, for me, Union Budget 2023 was [voice of GOI 😉 ] ‘There are many opportunities at your disposal, we have taught and nurtured you for years on what is good for you. Today, You are grown up Indian, your well-being is your responsibility,’.
‘If you are illiterate, blame parents n govt, but, if you are financially illiterate, you yourself are to be blamed.’
Indira Vikas Patra, initiated by the Indian government, encourages small investments. The scheme was initially meant for farmers, hence the name Kisan Vikas Patra (KVP). Later on, this investment became open to all.
Over time, the term Kisan Vikas Patra has been used predominantly over Indira Vikas Patra. To increase user understanding of the scheme, the term KVP will be used in the article. This article will cover its eligibility, types, interest rates, features, and benefits.
Know who can invest and how
What is Indira Vikas Patra or Kisan Vikas Patra or KVP?
Kisan Vikas Patra (KVP) is a small tax saving deposit scheme for inculcating a savings habit amongst rural people. Launched in 1988, it promises returns of double the amount invested in a specified period.
Presently, that period is 124 months or ten years and four months, if initiated in quarter 1 of FY21. Open to all investors, the scheme helps to keep surplus money in a safe investment. The applicable interest rate is 6.9% per annum, compounded annually by the government.
Who May Invest in KVP?
The Indian government backs the scheme. Hence, it ensures safe investment for risk-averse investors in rural and urban areas. Being a long-term investment scheme, it suits long-term financial goals. Thereby, they keep earning risk-free returns on investment.
How to Invest in KVP?
Individuals may open a KVP account with registered bank or post office accounts. For the scheme enrollment, investors may directly fill up form A from a bank or post office.
Likewise, the investors may download and fill up from online bank or post office websites. Upon filling it, they can submit it to their nearest registered providers. Documents necessary for this are-
Passport-size photograph.
ID proof, Address proof.
Income proof for investments of INR 10 lacs and above.
PAN card details for investments of INR 50,000 and above.
Eligibility Criteria for KVP
The investor must be an Indian resident of age 18 years and above.
Parents or guardians may invest on behalf of minors or disabled individuals.
No NRIs and HUFs are eligible for this scheme.
Types of KVP accounts
Primarily, three types of KVP investment accounts are available.
A single account: Issued to an adult for self or on behalf of any minor.
Joint A account: This account can be issued jointly with a maximum of 3 adult members. All holders are entitled to receive the maturity amount.
Joint B account: Jointly issued with a maximum of 3 adult members. However, a single holder or survivor receives the matured amount.
Core Features and Benefits of KVP
Any Indian resident aged 18 years and above can open a KVP account. Up to 3 members may hold a joint KVP account, given they have registered post office or bank accounts.
An individual can make a single high-interest deposit on a KVP account. The minimum amount for investment is INR 1000, with no upper investment limits.
To prevent money laundering activities, investments above INR 50,000 require PAN card details of the investor. Investments above INR 10 lacs require income source disclosures.
Investments made in the June quarter at 6.9% are compounded annually. The design doubles the returns upon completing 124 months. If no withdrawal occurs, the post office accrues. The maturity period is, however, subject to revisions.
The fixed deposit for a senior citizen or a salaried or self-employed individual is not eligible for tax deductions under Section 80C.
Easy transfer from one post office branch to another or an individual registered bank. The account is transferable under specified conditions. The users can fill up form B for a transfer request.
For premature withdrawal, here are the rules:
Withdrawal within a year will offer no interest on returns, following the payability of an additional penalty amount.
For withdrawals within 2,5 years, there are low-interest calculations with no penalties.
Withdrawals after 2.5 years will not cut any interest or penalty.
Individuals may nominate a family member by filing Form C and providing necessary documents. The account holders may cancel or make nominee variations by filling form D.
To conclude No tax exemptions are possible with the KVP scheme. However, the returns on investment are double the original deposit. This is what makes this government scheme popular among rural people. Not only does it save money, but it also helps users to get eligible loans against a KVP account. Now that you know about KVP, it’s time to invest wisely for a better future.
—- Choose a fee based financial planer to re align financial goals
Nobody knows how long anybody will live, but the covid 19 pandemic has made the situation extremely painful. We did not see death so closely before this. This year I have seen and known death of too many young people, between 30- 40 years, having small children. In some unfortunate situations, young couple died leaving young children.
In this hour of uncertainties, I am compelled to write this post dedicated to people who lost a young member in their families. This is a vulnerable time, however, we need to show resilience for the sake of the young children, senior citizen parents and other dependents.
I am writing this post assuming the deceased had a life insurance policy, some financial investments or enrolled under some employee benefits.
The right of handing the finances remains with the legal heirs and nominees
Keep Aadhaar card, Pan card, death certificates in one place and make a few copies for official purposes
Incase the deceased was an employee, connect with the HR team or reporting manager to check and understand the death benefits of employee and understand the processes to collect the same.
Speak to your life insurance agent seek help in filing death claims
Speak with health insurance agent to seek help in filing health insurance incase the deceased was hospitalized and eligible for health insurance claims
Mutual fund advisors and Bank home branches to get assistance to source Bank statements and further investment details may be retrieved
Make a diary to note down the investment details of stocks and mutual funds
When a working person passes away, financial void is created because of non credit of monthly salary. So, the first and most important thing one should do is create a system for monthly income to support family expenses, children education and healthcare.
Few monthly income options available are – Post office monthly income schemes, Bank fixed deposit month interest income.
One can also consider Annuity income plans from life insurance company. One can also choose a Systematic Withdrawal Plan on mutual fund schemes.
A good fee only financial planner should be consulted.
As the family steps into a new way of life, it will take some time to adjust the lifestyle. so, keeping six months expense in Bank savings account should be kept. This amount will come handy and work as a financial cushion.
One may need to relook at the entire ongoing financial planning for buying home, children higher education entirely. So, after securing a monthly cash flow, it is advisable to sit with a good financial adviser to plan financial future from here in new circumstances and changed life goals.
Hoping life will look up for everybody!
This is a evolving post, idea is to add and accommodate as much as relevant information one may need, so please share your suggestions, thoughts and ideas to make this post more useful for every one who may need it.
Are you asking these questions to yourself off-late? – How to deploy the retirement cash for stable and regular income? How to generate steady income after retirement?
How to invest the retirement money? What are the best investment for retirement lumpsum? How do I get a pension? Then this post is for you!
We hear many investment ideas during our working years – what should be done in 20s, 30s, and 40s etc. to save a good corpus as a retirement planning for good retired life. In this post we will aim to discuss the pressing points on what should we do with our retirement money. We will try to create a financial plan for regular incomepost retirement and contingency plan for a comfortable retired life, especially if you don’t have an adequate pension plan. Let us answer the pressing points first.
What to do with the retirement payout you get from EPF, Gratuity, ex-gratia and leave encashments?
If we are talking about your entire financial assets here, we should get into a simple financial planning. a) Regular Monthly income b) Emergency Funds c) Health Insurance premium d) kitty for travel/leisure activities, – the four pillars of after retirement financial planning.
After retirement there would be some shift in your cashflow arrangement, you won’t be earning a salary in your account, your working medical benefits from employer may not sustain post retirement. With longer life expectancy, you are likely to live a longer retired life. Longer life however, doesn’t promise a healthy life, hence, medical cost likely to increase. Though there is a threat of increased medical cost, health insurer will charge you higher premium for lesser insurance coverage.
On the balance, you may not have any Home loan to pay, Child education would be covered. So, you should plan vacations, leisure activities too as per your income and retirement kitty.
Image by mohamed Hassan from Pixabay
So, it is wise to set aside at least a years’ expense in a liquid instrument like FD/ Liquid Mutual Fund etc. to cover any such emergency which may arise. After emergency planning, we can create a stream of regular income through planning your financial portfolio with following tools for a safe avenue and income. Let us look at the avenues to earn regular income post–retirement. Some of the post retirement investment options are as follows
Immediate Annuity policy/ schemes – Annuity schemes are available with all the life insurance companies in India. It offers slightly better rates than Fixed deposit rates. However, taxed as per income slab. One can buy it after retirement and choose a income term. There are a few options on income and maturity, it can be compared at a insurance aggregator site like policy bazaar.
Senior citizen Saving Scheme (SCSS) – This is a five year fixed deposit scheme available with Bank, this offers higher interest income compared to Bank deposit, a steady income scheme, having a lock-infor 5 years and interest income is tax-free.
Pradhan Mantri Vaya Vandana Yojana – Launched in Mid 2017, this scheme has a extended window till 2023. Under this scheme, retirees over 60 years can buy PMVVY. This is a one time premium. One can buy this scheme with LIC and opt for monthly, quarterly, half yearly or annual payout. It is a guaranteed income scheme with 10 years tenure, on investments made in the FY 20-21 till March 31, 2021, the interest rate of 7.4 per cent payable monthly i.e. 7.66 per cent per annum for the entire duration of ten years. It has a minimum investment requirement of Rs. 1.56 lakhs. The maximum premium can be Rs. 15 lakhs per person, The investment varies depending on the interest payment frequency. However, there is no tax benefit on this. Income will be taxed as per income slab.
Liquid Mutual Fund (Debt Fund) through Systematic Withdrawal Plan – This can be a option. Within debt mutual funds, this is considered to be the safest category of fund. One can put a lumpsumamount in a good liquid mutual funds scheme and opt for monthly/ Quarterly/ Half-yearly SWP. One can choose particular Units / fixed amount to be withdrawn in a given frequency. It can generate a fixed income. This scheme offers return at par with short-term fixed deposits or savings schemes but it is tax efficient compared to FDs. As the name goes, this is the most flexible deposit scheme and can be withdrawn or redeemed at any given point. This option can be used for keeping emergency fund as well. Mutual Funds also offers various Monthly Income Plans in debt and Hybrid category.
Monthly Income plans – Post office offers MIS scheme, many good NBFC Companies also offers monthly income schemes and offer higher interest rates for senior citizens. But you should be aware and comfortable with the scheme, it is a good idea to check with your financial planner/ advisor to opt for such schemes.
There are many Post retirement investment options, but there is no requirement of continuing the life insurance unless and until you have any financial commitments and responsibilities, but health insurance take priority here. With growing life expectancy and sky-rocketing medical expenses, having health insurance is must. The health insurance companies offer various insurance plans for senior citizen, you should choose carefully.
The best time to start your retirement is as early as you can, to accumulate maximum wealth – National Pension Scheme – NPS is one of thee best scheme available to support your future pension needs if you contribute regularly. However, it is never too late. There are many financial products available to secure your retirement, however, it is important to do some research, plan according to your requirement.
There is nothing called best investment, you need to plan your investment to best suit your financial needs. It is wise to take help or guidance of an financial advisor to make a solid plan for your financial well being.
Finance Minister Ms. Nirmala Sitharaman presented the Union Budget 2021-2022 on 1st Feb, many analysis, news reports have been published since then. So, what is new here, here I have noted down points which nobody will tell you otherwise ‘for individual tax payers’.
This union budget has been special in many ways, especially after Covid-19 pandemic which saw unprecedented economic shocks and health hazards across the globe. India suffered big blow with negative growth in the first half of the budget included many announcements to push economic recovery.
But in this post, I would like to bring forth the points which matters to all the salaried citizens of India. The blog post would cover the salient points of the budget, brief analysis – which is not covered in news reports, key take away of the budget or as we prefer calling it – ‘Call to action. ’
Key points for Indian Tax payers –
1. There is no change in the income tax slab from the past year (Last year Government introduced a category for individuals which is for people who do not want to claim tax benefits under Section 80C -)
2. Introduction of taxation on interest earned on EPF for a contribution more than 2.5 lakh in a financial year.
3. Introduction of tax on maturity for life insurance policies at 10% (like mutual funds) with premium more than Rs. 2.5 lakh premium
4. Simplification in tax return filing for senior citizen
So what is the issue with these announcements?
The issue is not with the individual announcement itself, but the trend which is being set for past few years. While government is taking a lot of initiatives of financial inclusion and social security to protect the poor, and various tax benefits to accommodate the entrepreneurs and industries, it is the salaried section which is getting excluded from benefits gradually but surely.
– The budget gradually have bucketed the individuals in three categories – low income, mid income and high income. The more you grow up the ladder in the income through salary segment, the more tax you need to pay.
Will government lower the taxes?
Well, I don’t know. However, looking at the trend, it will only be done to adjust to inflation or major economic disasters.
Image by Steve Buissinne from Pixabay.com
Is government Cruel to taxpayers?
Union Budget is about strengthening balance sheet of government, identifying the loopholes and opportunities to keep-up the income for government to create a balance, growth and inclusion in the society. People with a steady, secured job and growing salary is not on government’s priority list. Government needs to keep a focus on feeding the under-privileged, creating enough job opportunities, securing the borders, so on and so forth. So, tax payers are much better placed with employer benefits and steady monthly income compared to larger society and on the least on priority for government welfare.
Why Government is unlikely to increase the tax benefits under section 80C and 80D?
There is no incremental tax incentives for FY 2021-2022. we may consider as one off year, where government encourage to spend the money to speed up economic recovery. But these tax incentives will be less and less significant in future, with time and growing salary, 80C and 80D will make up for a very small portion of our overall financial planning. Government introduced various small savings schemes and investment avenues to build a savings habit and self-sustaining financial positions for citizens with such schemes. These tax incentives on equity investments, PPF, life insurance has forced many tax payers to get into a financial discipline.
Over decades, the income has improved to average $2000 per capita annually in India, government is focusing its efforts towards individuals belonging to lower income bracket. Government over the decades with tax incentives has created markets for Indian equity, insurance and mutual funds and insurance industry. Now the market is maturing and government will take its share of the revenue with taxes.
Now, capital gain tax of 10% introduced for all long-term capital gain tax on equity mutual funds over 1 Lakh, GST on health and life insurance premiums too in recent past. ULIP income coming out of Insurance premium over 2.5 lakh will be taxed at 10% like equity mutual funds.
For deposit schemes, by introducing small savings schemes, government borrowed money from the individual citizens offering marginally higher interest than Bank deposits. However, with lowering interest rates and various avenues to raise funds for its expenses, PPF, EPF, Sukanya Yojana are high cost loans for government, presently only avenues which offer triple tax exemption. So, government will limit this exposure too.
In the process, we have also accumulated wealth. But, tax incentives will not and should not last forever.
So, do we not have a solution to the issues of increasing tax burden? And how?
We should learn these from the rich people. Taxes are first created for the rich, then it trickled down to the middle class. Lower income group, thanks to the new initiatives will be protected by various social security schemes. Rich don’t pay as much tax as middle class in percentage term of their income. Rich learns the methods and ways to reduce the tax payout by choosing the assets their income coming from.
Food for thought – What to learn from the rich?
Here I am not talking about the highly paid salaried individuals with low financial skills.
– We need to use all the avenues of tax savings under section 80C, extra 50 thousand rupees for NPS over and above Rs. 1.5 lakh, health insurance for self, parents
– Buying adequate life and health insurance even if we don’t get tax benefits on it.
– We need to remember long term capital gain on equity over 1 Lakh is still only 10% and short-term at 15%, much lower than highest tax slab of 35%, so equity based investment is still lucrative
– Fixed deposit is paying lesser interest but above 10 thousand, still taxes at salary tax slab
– One should avail home loan when the interest rate is low and yet the home loan has all tax deduction benefits
– Our financial health should depend on the tax incentives provided by the government
– Most important lesson we need to remind ourselves, “A Business pays taxes after deducting all its expenses and Employee pays tax first and buys everything with their highly taxed income”
Last but not the least, you may not get any tax benefits by up skilling yourself and reading good books, but you will accumulate enough information and get educated about how to make the tax laws work in your favor and live a rich life!
Education offers exponential and infinite returns.
Politics aside, I admire the pace at which Indian Government have been implementing financial inclusion and social security schemes. In my earlier Blogs and Vlogs I have mentioned key features of the PMJJBY, PMSBY etc. Many of these products were for aimed to include the citizens who were completely excluded from the formal financial system, however others were allowed to take the benefit. We should learn about the schemes and benefit from them.
In its latest move to include lower middle class, middle class, workers and entrepreneurs of informal sectors, people with extreme sports hobby, fire officials etc. IRDA issued guidelines for a standardized life-insurance/ term-insurance products , every life insurance company were mandated to take it live or atleast apply for approval from IRDA by Jan 1, 2021. However, the deadline could not be met and life insurance companies are likely to launch the Saral Jeevan Bima policy in the month of February 2021.
What is proposed in Saral Jeevan Bima?
Life Insurance Sum Insured – Rs. 5 Lakhs to 25 Lakhs
Minimum – Maximum age for entry – 18 years – 65 years
Tenure – 5 years to 40 years
Premium paymentfrequency – Single / limited pay/ Regular pay
Policy Lapse – For monthly/ quarterly/ semi-annual premium grace period is 15 days, for yearly payment, grace period is 30 days
Maturity Benefit – None
Death benefit – Sum insured to be paid to nominee
Waiting period – 45 days
Riders – Accidental death and permanent disability rider available
Saral Jeevan Bima is a standard life term insurance plan where the nominee gets the sum insured incase of demise of the policy holder during the policy term. The premium may vary company to company but the contract will be same – i.e. standardised, Hence, the policy premium per lakh may be expensive than the present term products of the company. If you are one of them who is still have apprehension about Term insurance, or your salary don’t allow you to get 50 lakh term plan, this plan would be a perfect product to protect your family or loved ones from sudden misery on untimely demise.
It has no maturity benefit. This likely to be much cheaper than ULIP , guaranteed insurance plan etc as the premium is only on life risk, not investment.
In existing Term plans have host of common exclusions like – pre-exiting illness, sportsmen, firemen etc, and death circumstances, Saral Jeevan Bima likely to be more inclusive. Saral Jeevan Bima will be available with all life insurance companies including LIC, HDFC Life, SBI Life, ICICI Prudential Life Insurance, Aegon, Edelweiss Tokio and so on.
As companies yet launch the policies, the exact terms and conditions etc are yet to be known. Hopefully by February will know more, and will update you soon.
