Finance

When adding a certain element to your financial portfolio, it is vital to look at the various benefits it offers. Some instruments may offer high gains but may prove to be unlucrative due to the high taxation they incur. Some may have lower returns but may bring in substantial tax benefits. A life insurance policy offers not just an insurance cover for life but also the opportunity to avail several tax deductions and exemptions, making it an enviable addition to any portfolio. Life insurance tax benefits are many and can be broadly divided into Section 80C deductions and Section 10 (10D) deductions. Let’s take a look.

What is life insurance and how do tax benefits work on it? 

Life insurance policies are a way of securing the financial future of your family and safeguarding them against life’s uncertainties. If an unfortunate and untimely event leads to your demise, your family may be bereft of financial support. Buying life insurance and paying regular premiums can ensure that your loved ones have a financial backup in such a scenario. If you want to understand how much premium you will have to pay for a particular policy, then you can use the life insurance premium calculator.

Tax benefits on life insurance can work in two ways – deductions and exemptions. While the former means a deduction in your tax liability, the latter means that a particular income amount is not taxed.

Tax deductions and exemptions on life insurance 

• Deduction on life cover premium

When doing your taxes, you can deduct up to Rs 1.5 lakhs from your overall tax liability if you are paying the premiums of your life insurance policy. According to Section 80C of the Income Tax Act, 1961, a policyholder can claim tax deductions of up to Rs 1.5 lakhs against the premium of their life plan.

• Deduction on critical illness rider 

When you buy life insurance, you can also opt for several riders to increase your financial protection. One such rider is the critical illness rider that provides a lump sum pay-out if the insured person suffers a diagnosis of the covered illness. Another benefit of this rider is that it offers the policyholder tax benefits. According to Section 80D of the ITA, the premium paid towards the critical illness insurance add-on is eligible for a tax deduction as well.

A life insurance premium calculator can also help you understand how much more premium you will be paying when you opt for a rider.

• Tax exemption on pay-outs 

The amount that your nominee/s receive/s from the life insurance policy on your passing away is exempted from taxation under Section 10 (10D). Furthermore, some life plans may have a maturity aspect to them wherein the policyholder receives pay-outs if they survive the maturity of the policy. This maturity benefit pay-out, too, is exempted from taxation as per Section 10 (10D). Not only that, if you choose to surrender the policy, the surrender value pay-out, too, is tax-exempted.

Important points to remember about life insurance tax benefits 

• The benefits mentioned above are only applicable if the policy is bought from an insurer that is registered with the IRDAI.

• For policies bought before 1st April 2012, the annual premium of the policy should not exceed 20% of the sum assured to be eligible for Section 80C tax deductions. Policies bought after the given date shall not be eligible for the deduction if the premium goes over 10% of the sum assured amount.

• Section 10 (10D) exemptions are also only eligible if:
• The premium for a life insurance policy bought before 1st April 2012 does not exceed 20% of the sum assured
• The premium for a life insurance policy bought after 1st April 2012 does not exceed 10% of the sum assured

• In the case of deductions, the term ‘sum assured’ refers only to the minimum life cover and does not include bonuses or anything of that kind. In the case of tax exemptions, though, the maturity amount, bonuses, and so on, are also considered.

• Certain benefits may be reversed if the policyholder nullifies the policy only a few years after buying it and accruing these tax benefits.

• These exemptions are valid only for people who have opted for the old tax regime. These tax benefits are not applicable for individuals who are paying tax under the new tax regime.

There are many reasons to buy life insurance, and the list of tax benefits is just one of them. Remember, tax benefits are subject to amendment in tax laws and are dependent on several terms and conditions.

For over a decade, mutual funds have offered benefits like diversification, portfolio management, and convenience to retail investors who lack the required time or means to trade their investment portfolio profitably. Lately, a new sort of mutual fund has been introduced, offering almost the same benefits as conventional open-ended funds with much higher liquidity. Such funds are known as ETFs (exchange traded funds). They trade on the public exchanges and can even be purchased and sold during the market hours, like stocks.

The rise in popularity of such funds, however, has even created several misinformation regarding ETFs. Listed here is a short brief about ETFs and a few common misconceptions surrounding them.

What are ETFs?

ETFs, invest in a basket of stocks that mirror the performance of the underlying index on holding the securities in the same proportion. They are traded throughout the day at a price that differs depending upon demand and supply. The crucial point to consider is that a retail investor requires having a Demat account to sell or purchase ETFs.

What is the minimum limit of investment in an ETF?

Equity ETF: You can buy as low as just 1 unit, at per unit cost. Equity ETF has zero minimum investment limit.

Bond ETF: In bond ETF, the minimum investment can be Rs 1,000, and then in multiples of Rs 1,000.

Gold ETF: In gold ETF, the minimum investment is 1 unit.

Why should you purchase an ETF?

Investors may consider investing in ETF to avail the listed benefits:

Diversification: As ETF can track a basket of securities, investing in it provides the benefit of diversification.

Ease of trade: You can easily sell and purchase an ETF anytime during the trading session throughout the day.

Ease of transaction: As ETF is traded like stocks, the investor can place various order types.

Transparency: Maximum ETFs are indexed in nature, so their constituents are well known.

Cost efficient: ETFs have lower expenses than other investment types.

Debunking common ETF misconceptions

No. 1 myth: ETF just provide broad market exposure

Reality: While few ETFs offer a broad market exposure on tracking the broad market index like Nifty or Sensex, the ETF vertical has evolved greatly to include a broader choice of ETF. It includes pinpointed products targeting sectors (banking), narrower market indices like the midcap, assets (liquid or gold), certain rules or factors like value or low volatility.

No. 2 myth: ETFs do not pay any dividends

Reality: When the constituent stock of an ETF declares a dividend, the announced dividend is added to the ETF’s NAV, which in turn is included in the investor’s wealth.

No. 3 myth: ETFs comes with no liquidity

Reality: Illiquid ETFs were the basic concern in early 2000, at the time when ETFs were introduced. However, with market expansion and the involvement of a higher number of investors in the ETF vertical, liquidity is not a concern anymore.  Note that ETFs derive liquidity from the underlying assets. In an extreme scenario, in the situation of liquidity problems, a retail investor can approach an ETF issuer to redeem the units.

To finally conclude, ETF is one of the simplest routes to get equity market exposure. Novice or first-time investors must select a broad-based ETF to begin their journey with investments. However, the evolved investors mostly prefer investing in smart beta ETFs. Note that smart beta ETF is a fund that uses a mix of passive and active investing. It follows an approach, which is rule based for choosing investments that can be included in your fund portfolio. A smart beta usually chooses its securities depending on numerous factors like volatility expectations, the company’s dividend growth, market capitalization, and overall earnings.

NPS (National Pension Scheme) and PPF (Public Provident Fund) are two of the most popular government-backed retirement savings schemes in India. The objective of both schemes is to secure your post-retirement life by allowing you to create a stable income source. Like mutual funds online, NPS is a market-linked pension savings scheme that allows you to earn market-based returns and create a retirement corpus. Alternatively, PPF is a non-market linked scheme that generates fixed returns, securing your retirement. Both the schemes offer tax advantages under Section 80C.

Read on to understand the difference between NPS and PPF and which scheme is best for retirement:

Conclusion

Both NPS and PPF have unique features and advantages. If you want high returns with no lock-in period, consider NPS. If you want assured retirement income, choose PPF. Alternatively, you could benefit from investing in mutual funds online through the SIP (Systematic Investment Plan) mode. Mutual funds online have a minimum lock-in period of five years and enable you to invest in securities as per your risk tolerance while generating high returns.

Use the Tata Capital Moneyfy app to start your mutual fund investment journey.

A personal loan is a loan that is done to get funds on an urgent basis. Typically, a type of emergency loan to deal with any circumstances may be a travel destination, home renovation, or other events. These loans go on a higher interest rate but are readily available with significantly less documentation. As you can see, a personal loan is a multipurpose loan that can be applied for both online and offline.

Once a person has availed of the loan, they have to constantly track the application and check on the disbursal of the funds or in the rejection of the application form. Let’s find out how to do that –

Online tracking of loans is a much easier process; once you get that loan reference number, you can easily log in and get the loan status, even through a mobile application. Banks have their online loan portals to quickly check the loan application and loan status and repayment schedule.

Features of the online loan application:

1. One can check the loan application status and its disbursal status.
2. Once approved, one can check the repayment schedule.
3. One can also pay the monthly EMI through an online portal
4. It also shows the availability of offers on the loan portal
5. One can also download their interest certificate and repayment schedule through the bank portal.
6. One can also calculate the percentage of the loan and interest through the online personal loan EMI calculator.

At times, a message may appear informing the user of the reason for the delay.

If you forget the reference number, most banks will ask you to enter the following information:

– To begin, enter your name and date of birth.

– Then, from the drop-down menu, select the product. You must select ‘Personal Loan.’

– Next, enter your mobile number. You will also need to enter your PAN number. Finally, click ‘Submit,’ and you will see your results.

There are three ways from which one can track their online loan application

• Mobile Banking
• Net Banking
• Reference number

Through mobile banking:

1. After opening the mobile application, one needs to enter the reference number, after which they receive the OTP (One Time Password)
2. Once approved OTP, one can easily access the portal.
3. In the dashboard, you can open the loan status tab and see the loan application with all the details regarding the date of disbursal and the outstanding balance of the loan.

Through net banking:

1. One can open the website on chrome and open the banking portal.
2. Log in with the loan application number and mobile number where one will receive the OTP.
3. After providing the OTP, one can access the portal regarding personal loan status.

This online portal also lets you calculate the personal loan EMI in the personal loan EMI calculator. One can calculate the loan repayments through the interest rate and the tenure of the loan.

Thus, one can easily track their loan status through the online portal, and this also is very beneficial in emergencies and ensures transparency between the bank and the applicant.

To reduce the tax burden on senior citizens of our country, the Indian Government introduced a new Section 80TTB during the 2018 budget. Read further to understand the available provisions and how it benefits senior citizens.

As we grow old, our health deteriorates naturally, and we become vulnerable to various illnesses. With limited income sources, payment of income tax for senior citizens can be an additional burden. Keeping in mind the well-being of our senior citizens and to keep off their financial obligation to some extent, Section 80TTB was added to the income tax act in the year 2018.

Section 80TTB

As per the provisions under section 80TTB, a taxpayer who is a senior citizen can claim a maximum deduction of ₹50,000 from their gross income in a given financial year. The taxpayer must be at least 60 years of age and a resident Indian to avail of these benefits.

The entire interest income up to ₹50,000 can be claimed fully, or only ₹50,000 can be claimed as a deduction if it exceeds this limit.

For example, suppose a senior citizen is earning ₹5,000 from savings account interest, ₹1,50,000 as interest from fixed deposits and ₹20,000 from other sources. The total gross income of the individual stands here at Rs.1,75,000. The total income from interest is ₹1,55,000, a maximum of ₹50,000 will be deducted under Section 80TTB. Hence, the total taxable income of the individual will be 1,75,000 – 50,000 = ₹1,25,000.

Eligible Deposits

Any interest income earned on deposits with the following entities is eligible for consideration under section 80TTB:

• Banks that fall under the Banking Regulations Act and those referred to in section 51.
• Co-operative banks and societies involved in the banking business.
• Post Offices.

Hence, the interest earned from the saving accounts, fixed deposits, recurring deposits, and other schemes of post offices such as senior citizen savings schemes, post office monthly income schemes, etc., are eligible for deduction.

Any interest received from corporate FDs, bonds, or debentures will not be considered for

deduction under section 80TTB.

Points to Remember

• Section 80TTA allows everyone to claim a maximum deduction of ₹10,000 on interest income earned in a financial year. After introducing section 80TTB, the senior citizens are no longer allowed to claim any deduction under section 80TTA since they can now claim a higher amount (₹50,000) under 80TTB.

• The deduction under 80TTB is available only to senior citizens who are residents. Hence, NRIs are not covered under this section.

A Boon for the Senior Taxpayers

To make the most of the provisions available under section 80TTB, senior citizens can maximize their investments in the eligible deposits to avail the maximum deduction of ₹50,000. Since these deductions are over and above the deductions available under 80C, it can help senior citizens to significantly lower their taxable income.

Opting for a home loan is one of the popular means of meeting your dream of becoming a homeowner. However, the proceeds size and higher repayment tenure consume a sizable portion of your disposable income, which often leaves you with extremely little for meeting your other important goals. Additionally, an upward trajectory of home loan interest rate can hamper your financial stability. Thus, in such cases knowing some tips to lower your home loan burden is an appropriate way to reduce your financial stress.

Have a look at some of the crucial tips to lower your home loan EMI burden:

For existing home loan borrowers:

• Opt for home loan balance transfer option and then an extension in your tenure

As higher repayment tenure results in lower loan EMI, extending your tenure can lead to a reduced burden on your EMI. However, loan repayment tenure extension with existing lenders is known as restructuring, which may negatively affect your credit score and your future credit eligibility. Instead, you must choose the home loan balance transfer route at lower housing interest rate and higher tenure.  For example, suppose you took a home loan of Rs 45 lakh, 5 years back at 8 percent p.a. for a repayment tenure of 20 years with EMI of Rs 37,640. Currently, your home loan account has an outstanding amount of around Rs 39.39 lakh with tenure of 15 years left. Now, if you avail a home loan balance transfer option from another lender at 7 percent p.a. for the rest of the tenure of 15 years, your EMI will be down to Rs 35,405. In case if you avail a higher tenure of 25 years, your EMI will further come down to Rs 27,840.

However, as higher tenure results in higher interest amount outgo, you must try to choose the prepayment option whenever possible on availing surplus funds. Remember that, as the home loan balance transfer request is looked at as a kind of fresh home loan application by the new lender, you may be charged administrative fees, processing fees etc., during the balance transfer processing. Thus, factor in the linked costs before you avail the option for balance transfer. Go for it only if your savings on interest costs is extremely higher than the cost incurred on the balance transfer option.

For new home loan applicants:

• Select higher tenure

Selecting higher tenure for home loan when making your application will not just lower your overall EMI outgo but also result in an enhancement in your home loan eligibility. However, as higher tenure enhances your thorough interest cost on loan, you must consider choosing the prepayment option whenever you avail surplus money in future. Remember that for the floating home loan rate, RBI has disallowed lenders from levying prepayment charges while in the situation of fixed rate home loan, lenders might charge a prepayment fee. Remember to take help of an online home loan EMI calculator to understand your optimum loan EMI and tenure depending upon your capacity to repay.

• Choose higher down payment

As RBI permits lenders to fund up to 90 percent of the value of the property through home loan, you must arrange the remaining amount from your own pocket in the form of down payment. While you may always look to contribute lower down payment for home loan, remember choosing higher down payment is a better choice. Higher down payment results in reduced loan requirement, which results in lower interest outgo and EMI. As opting for higher down payment reduces the lender’s risk, it enhances your approval chances for home loan too. However, you should avoid making higher down payment by sacrificing your emergency fund or important investments. Doing this might propel you to take up expensive loans in future to fund your financial contingencies and life goals.

Conclusion

Applying for a home loan is one of the practical ways to avail adequate funds for buying your dream home. However, just holding appropriate documents required for home loan is not the only criteria to determine your eligibility and repayment capacity. As this loan is a long-term commitment, which spans up to 30 years, your finances may take a toll if you have not planned out in a better manner. The above listed measures aim at reducing your home loan burden, which you should abide by to lower your financial stress.

Retirement planning is not an overnight process, it is a multistep process that requires one to strategically plan their investments so that by the time they reach the age of retirement, they have a commendable corpus in their kitty. Building a financial cushion is necessary as it gives investors an opportunity to remain independent even after their primary income, which is their monthly salary, comes to a standstill.

To start with retirement planning investors first have to think about their financial goals. Then the next step is to determine the time you have in your hand to achieve that goal. Choosing the right type of retirement scheme is equally important is you have several options to choose from. One must choose a retirement plan that suits their investment objective as well as their risk appetite. To grow a decent retirement corpus, investors must invest their savings so that over the time they grow and help them create long term wealth.

Here is your complete guide to retirement planning:

Understand your investment time horizon

The foundation for an effective retirement strategy is entirely based on your current age and the number of years you have in hand before retirement. The more years you have in hand, the higher risks you can take with your investments to achieve a better corpus. For example, if you have 30 years before retirement, you can consider a retirement mutual fund that invests majorly in equity. However, if you have a few years left then you might have to play safe and instead invest in a retirement fund that is more debt oriented with some exposure to equity.

Make a bucket list of your post retirement needs

Investors must be aware that they need to set realistic spending goals when thinking of their post retirement life. If you want to continue to live the same lifestyle that you are currently living, then you may have to increase your investment sums. Do remember that inflation tends to affect the cost of living and by the time your retire, you may have to spend twice as much as you do now to continue leading your current lifestyle. If you feel that you may not have enough financial resources for continuing the same lifestyle, the best thing to do is start getting used to living on a fixed budget. This will ensure that post-retirement you keep all unnecessary expenses at bay.

Invest according to your risk appetite

Retirement planning is the most important financial goal. Do remember that after you retire, the only source of income will be what you have created over the years. You may have some corpus accumulated through Employee Provident Fund or some policies that you invested in, but the investments that you specifically make for a stress-free post retirement life must be able to live up to their expectations. Hence, it is important for investors to consider investing in a retirement scheme that is ideal for their risk appetite. They must not invest in any scheme that does not comply with their risk appetite. Please consider investing in a retirement mutual fund that is managed by an elite team of fund managers with years of experience. Also, investors must consider an AMC that is well established and has earned a reputation over the years. Also, remember that most retirement schemes in mutual funds are hybrid funds that invest in both equity and debt. So your portfolio may get affected by upheavals in the equity market over the short term, but in the long run, they will witness a correction in the portfolio and eventually be able to create wealth.

Over the past couple of years, home loan rates have been on the decline. This is the reason why so many borrowers looking to take advantage of the current rates are applying for home loans. Now, those who have already taken a home loan a few years ago and now find new plans offering lower interest rates can opt for a home loan balance transfer. This involves transferring their existing loan to a new lender that is offering a lower interest rate. Do keep in mind that interest rates are not the only reason that borrowers opt for such a transfer. Other reasons can also include getting a top-up loan, better services, or an extended repayment tenure.

However, before going for a transfer, it is important to consider certain things. Taking any decision regarding your loan without first thinking it through and considering all the expenses can lead to complications. This is why it is important to be aware of the following tactics before opting for a home loan balance transfer:

• Consider the revised interest rate

One of the main reasons why borrowers choose to transfer their home loans is the revised interest rate. Now, it is natural to look for the lowest home loan interest rate while looking for a new lender. Make sure to use a home loan balance transfer EMI calculator to understand the difference between the previous and new EMIs.

• Be aware of the charges levied on the home loan transfer

Most lenders generally include a processing fee for home loan balance transfers. It is very important to count this expense before opting for a home loan transfer. Once you are aware of this charge, look at the amount getting saved by opting to transfer the loan after all the expenses before making the final decision.

• Keep the current loan’s existing tenure in mind

One of the most important factors to focus on is the remaining tenure of the existing home loan. If the tenure is towards its end, going for a home loan transfer might not result in significant savings. This is because the number of remaining monthly instalments is anyways less, which means that the revised interest rate might not make much of a difference. It is better to refinance your home loan if a majority of its repayment is still pending.

• Make sure to have a good credit score

It is always important to have a good credit score, as any lender will review this score while deciding whether to approve a loan application. Now, even if you got a loan approved with an average credit score, it is quite likely that the lender might have charged a high interest rate. With an improved credit score, the new lender can offer a lower interest rate when you opt for a home loan balance transfer.

Lastly, make sure to check with the lender about the documents required for home loan balance transfer. Being aware of this beforehand will help you complete the entire process without any difficulty.

Is your car insurance plan due for renewal anytime soon? If so, you might want to review the coverage you have. If you have a basic third party insurance plan, now might be the time to switch to a comprehensive policy. While a third party car insurance plan offers you the basic coverage you need to legally ply your vehicle, a comprehensive plan can do a whole lot more for you. Let’s take a look at the reasons why you might want to consider switching over to a comprehensive car insurance plan during car insurance renewal.

• You get protection for own damages and third party losses

The main reason why you should consider opting for comprehensive car insurance is that your own damages in an accident get covered as well. A comprehensive car insurance plan will cover you for third party losses and the damages incurred to your vehicle. This way, you get proper financial protection in case of an accident. With a third party car insurance plan, your own vehicle’s damages will not be compensated for by your insurer.

• You stay covered against natural disasters and manmade disasters too

One of the biggest advantages of comprehensive car insurance is that you get covered for losses you incur due to natural disasters and manmade calamities too. This means that you will receive coverage (within policy limits) for losses due to earthquakes, floods, theft, fire, and so on. As all these situations can cause severe – and sometimes complete – loss of your vehicle, comprehensive car insurance can prove to be a much-needed financial support in difficult times. Moreover, if your vehicle is stolen or gets completely damaged beyond repair in an accident, you get the IDV (insured declared value) paid to you. You can use this sum to, perhaps, even afford a new vehicle.

• You can enhance your plan with add-ons

You can also opt to increase the protection of your comprehensive car insurance plan with the help of add-ons or riders. Some of the most popular riders that you might want to consider opting for are zero depreciation cover, consumables cover, roadside assistance, and NCB protector. These riders each bring with them a unique aspect of coverage that can save you a lot of money during a claim. Riders in car insurance are not available with third party insurance; you can only opt in for them if you buy a comprehensive car insurance plan.

So, as we can see, comprehensive car insurance is truly a great choice for any vehicle owner. At an increase in your premium cost, you get far greater protection that your vehicle deserves. These days, you can easily compare comprehensive car insurance plans online and pick the one that suits your needs the best.

Hope that the information in this blog will prove helpful to you during car insurance renewal. Remember that these kinds of benefits are also applicable in comprehensive bike insurance too.

Take care, drive safely, and all the best!