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Finance

Marriage And Debt: Important Facts to Know

The relationship between you and your wife can become a more complex one in your marital life if you do not be careful, especially when it comes to finances. The marriage is the result of two independent people deciding to come together. Each person contributes the entirety of who they are to this new creature, including both their positive and negative traits.

Each partner hopes that the good will prevail over the bad and that any bad that does exist can be addressed and defeated more successfully by working together. Simply said, keeping debt a secret from your future spouse is a very bad idea. To make your marital life beautiful, one important thing which you must follow is being transparent. If you hide your debts and current financial condition from your future spouse, you may face many problems after marriage. This can even lead to divorce sometimes.

Discuss with your partner about your current credit cards, your debt, how are you planning to clear it after marriage, and other plans. Whether you are planning to get married or are already married, ensure that you take the decisions related to your finances together. Figure out how both of you are planning to clear the debt. For guidance on how to manage your finances and tax filings, you could contact a tax relief professional. Choose an experienced and licensed tax professional always, if you want the best guidance on managing your finances.

Once both spouses agree about every aspect of money, including how to handle debt, they must “quantify” their goals. Partners must formally agree upon strategies and goals that are expressed in monetary terms. In general, couples who choose to manage their finances like a business are happier. And to do that, you need to create a budget, monitor your income and expenses, pay your bills on time, and frequently balance your checking account.

Maintain the same bank account for your savings and plan everything. Prepare a plan to manage your finances well, and ensure that you stick to it. What many people do is, prepare a plan, but fail to follow it, which is why they often face financial problems.

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Finance

What Is the Difference Between ETFs and Index Funds?

The act of allocating a portion of your monthly income to an investment scheme. This action is taken with the aim of acquiring wealth. But, just investing is not enough. An investment in mutual funds can be divided into two. The types of mutual fund investments are active investments and passive investments. While both types of investments are known for following a common benchmark, they differ in one specific way. The active investing strategy generally aims to outperform the benchmark it is tracking. On the other hand, passive investing instead of outperforming a benchmark aims to replicate its performance. Some of the prominent examples of passive investing are exchange-traded funds and index funds.

Exchange-traded funds:

An example of the passive investment strategy, exchange-traded funds (ETF) can be defined as shared investment funds that both track and replicate an index. Then, the said allocates funds to different asset classes such as equity, gold, and debt. Generally, exchange-traded funds follow the performance of a particular index, commodity, sector, or any other asset. But they differ from mutual funds in one way. The said way is that ETFs can be both bought and sold in an exchange just like the way stocks are traded.

 

What are the benefits associated with signing up for ETFs?

  1. They are known for offering trading flexibility:

Amongst the major benefits of ETFs is that they are known for providing you with trading flexibility. By signing up for these funds, it is possible to take different actions such as intraday trading during market hours. Intraday trading or day trading can be defined as the act of purchasing and selling stocks on the same trading day. Thanks to the flexibility offered by ETFs you can make better use of trading opportunities that arise in a day.

  1. Funds can be easily diversified in ETFs:

ETFs also provide investors with exposure to various asset classes such as equities, bonds, and gold. Each of these asset classes is known for behaving differently and is known for having little to no co-relation when it comes to performance. Furthermore, diversifying investments might help in cushioning the negative performance of a single asset class.

  1. These funds are known for being highly liquid:

Another reason to sign up for an exchange-traded fund is that it does not come with a lock-in period. As there is no lock-in period, it is possible for you to enjoy the benefit of liquidity. The factor of liquidity ensures that you have the freedom to redeem your investments whenever you want.

Index funds:

These funds are a variant of mutual fund schemes where a portfolio is built to match or track the components of a financial market index. These funds are known for coming with features like low operating expenses and low portfolio turnover. These funds track their benchmark index regardless of the state of the markets.

What are the benefits associated with signing up for index funds?

  1. These funds are affordable:

These funds do not require a team of research analysts. Analysts can be defined as the professionals that can help fund managers to pick the right stocks. This results in the low managing cost of an index fund.

  1. It is easy to manage these funds:

Another reason why you should consider signing up for index funds is that they can be managed easily. That’s because the portfolio manager doesn’t need to worry about how the index stocks are performing in the market. In these funds, all that a fund manager needs to do is periodically rebalance the portfolio.

How do ETFs and index funds differ from each other?

Feature ETF Index funds
Fund management style They can be both actively and passively managed However, they are only passively managed
Trading Style They trade like stock because they can be traded on an exchange throughout the day These funds can be purchased and sold only at a price That’s published at the end of each trading day.

While it is true that ETFs are very flexible, index funds simplify many trading decisions that you are required and expected to make. Hence, signing up for index funds might be a prudent choice.

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Finance

How Can I Reduce My Taxable Income?

The proverb states, “A penny saved is a penny earned.” One strategy to reduce taxes and boost your income is through tax preparation. Deductions are allowed by the income tax legislation for various investments, savings, and expenses made by the taxpayer during a specific financial year. We’ll talk about a few ways you can reduce your tax liability.

Health Insurance

By purchasing health insurance, you’ll be able to use section 80D of the tax code to deduct up to Rs 25,000 from your yearly premium payments. If the policyholder or spouse is over 60, the deduction can be doubled to Rs 50,000.

Home Allowance

Employees in India are permitted to receive a House Rent Allowance (HRA), which is taken from their pay. Since HRA can be deducted, persons can reduce their tax obligations. Individuals must show proof that their total annual rent exceeds Rs, such as the house owner’s PAN card, a lease agreement, etc. Additionally, individuals are only permitted to claim the lowest of the following HRA amounts provided by their employer:

  • The employer provided the HRA.
  • 50% of the base wage plus DA (if the employee is in Mumbai, Chennai, Delhi, or Kolkata). 40% of the base wage plus DA (if the employee is in other cities).
  • Ten percent of the basic salary is less than the actual house rent plus DA. 

Education Loan

People can avoid paying taxes by choosing an education loan for further education for themselves, their children, their spouse, etc. People may deduct the amount they paid for paying the loan interest under Section 80E of the Income Tax Act. The total number of deductions they may take is unrestricted. Individual taxpayers are the only ones who may deduct expenses under Section 80E.

Invest In Shares And Mutual Funds

People can reduce their taxable income by investing in shares and mutual funds. Citizens who earn less than Rs. 12 lakhs yearly are entitled to an additional deduction under Section 80CCG of the Income Tax Act if they invest money in the shares of certain corporations and certain designated mutual funds. Under the Rajiv Gandhi Equity Savings Scheme, deductions are permitted.

Donations

Indian citizens can reduce tax liability by claiming deductions for gifts they make to charitable organisations, social causes, or the National Relief Fund. They may claim these deductions in accordance with Section 80G of the Income Tax Act. The Ministry of Finance maintains a list of organisations that taxpayers may support, and whether tax deductions are permitted or not depends on the reason for the donation. For gifts that were given in kind, no tax deductions are allowed. If you donate with cash, you can deduct up to Rs. 10,000 from your taxes; if you donate with checks, you can deduct any amount beyond Rs. 10,000.

Leave Travel Allowance

Taxpayers are eligible for tax-free LTA if they get LTA from their employers. People have a four-year window in which to make two claims. They must travel anyplace in India during their leave to be eligible to get it.

These are a few standard methods people use to reduce their tax obligations. Taxpayers may save significant money if they carefully arrange their income, investments, expenses, and taxes. It is cautioned against using illegal methods to reduce taxes. For instance, if someone tries to avoid paying taxes, that money is regarded as unaccounted for or “black money,” which can cause many issues if discovered.

Bottom Line

How to lower the taxable income is an easy and beneficial question. You can invest your funds with the help of these payments and investments while also saving tax on the payments and contributions you made. In either case, you can gradually save more tax and build up a corpus that you can use to achieve financial stability.

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Finance

Repaying Your Current Personal Loan at High Rates? Get Smart Ways to Tackle it Here!

A personal loan offers access to quick cash. You can use the proceeds for any personal reason, may it be a medical exigency or vacation abroad. The best thing about opting for a personal loan is it does not require any security or collateral. As a personal loan is unsecured in nature, the processing time is low. However, lenders consider it as risky than secured credit options. This translates to a relatively higher personal loan interest rate. Thus, it is necessary to review different personal loan options, especially the offered interest rate, before zeroing on any lender.

Check out ways to lower your personal loan interest rate

For an existing personal loan borrower

  • Choose personal loan balance transfer option

Personal loan balance transfer is a process where you can transfer your outstanding balance of your existing personal loan to another lender. This option is often selected to opt for a lender offering a lower personal loan rate to reduce the overall loan burden.

For example, assume you clicked on the personal loan apply button for a loan of Rs 20 lakh, two years ago at 15 percent per annum for six years with an EMI equaling Rs 42,290. Presently, your outstanding amount for personal loan is Rs 14.96 lakh with the remaining tenure of 4 years. Now, suppose if you take up personal loan balance transfer at 11 percent p.a. for the rest of the tenure i.e., 4 years, your personal loan EMI would fall to Rs 38,665.

You can compute this easily using a personal loan EMI calculator, available online. Upon adding details like loan amount, repayment tenure, personal loan interest rate on the calculator, you can get the results instantly in the form of loan EMI, overall interest payable and overall payment (interest + principal). Note that as personal loan transfer is considered a new loan application, the new balance transfer lender may levy processing charges, administrative fees etc. when processing the loan. Thus, you must consider factoring in the associated costs before availing the personal loan transfer facility. Go for this facility only if your savings on interest considerably outweigh your cost on the balance transfer facility.

For a new applicant

  • Build a good credit score

Your lender checks your credit score to understand your credibility. Lenders usually consider a credit score of 750 and above to be good for approving your loan application at lower personal loan processing fees and interest rate. In case your score is not good, you can fix this. However, you cannot fix this overnight.

Begin by reviewing your credit score, to see if there is any error in your report and get it corrected instantly. Ensure to maintain a CUR (credit utilization ratio) of 30 percent or less on your credit cards. Ensure to pay your EMIs by the due date to keep your score on the higher end. If you are a co-signer or guarantor of a loan, ensure to monitor it for any missed payments. In case of a missed payment, your score will also be impacted.

Make sure to always follow these steps for a good credit score. Having a poor score may either make you an ineligible candidate for loan or allow approval for loan at a higher personal loan interest rate.

Ending note

A personal loan is unsecured in nature; thus, its interest rate tends to be more than secured loans. In case you are looking to place an application for a personal loan or have already an ongoing personal loan but at a higher interest rate, ensure to follow the above-mentioned solutions. While a decrease of 1%-2% rate looks small, this still converts to a significant savings over the long term.

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Finance

What Are the Tax Benefits of Life Insurance In India?

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.

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Finance

ETFs: Basics & Common Myths

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.

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Finance

NPS vs. PPF: Where to save for retirement?

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:

Basis of Difference NPS PPF
Who can contribute? Any Indian citizen between 18 and 60 years can open an NPS account. Any Indian resident, irrespective of age, can open a PPF account. You can also open a PPF account for your minor children to get tax benefits.
NRI investors NRIs can invest in an NPS. NRIs are not allowed to invest in PPF.
Return NPS offers market-linked returns according to the performance of your underlying portfolio investments. PPF offers an assured return according to floating interest rates, currently at 7.1%.
Risk The scheme is regulated by the government, but the returns are subject to the market’s risk of volatility. The scheme is regulated by the government and offers assured returns without any risk of market volatility.
Maturity period There is no fixed maturity period. You can contribute to your NPS account until 60 years, extendable up to 70 years. A PPF account has a fixed maturity period of 15 years. You can extend this period by another five years with or without making any further contribution.
Minimum and maximum investment The minimum contribution limit for NPS is Rs. 6,000. There is no upper contribution limit as long as the sum does not exceed 10% of your salary or 10% of your gross income if you are self-employed. The minimum contribution limit for PPF is Rs. 500 annually. The maximum contribution is Rs. 1.5 lakh. A maximum of 12 contributions are allowed per year.
Tax benefits Like for certain mutual funds online, NPS deposits up to Rs. 1.5 lakh are tax-exempt under Section 80CCD (1) of the Income Tax Act, 1961. You can get an additional Rs. 50,000 tax deduction under Section 80CCD (2). PPF deposits get tax benefits under Section 80C. Further, the accumulated amount and interest are also tax-free at the time of maturity.
Premature withdrawals You can make partial withdrawals from the NPS account after ten years, subject to specific circumstances. However, at the time of retirement, you should provide at least 40% of the accumulated fund to buy a life insurance annuity to get regular income during retirement. Thus, you can withdraw 60% of the money. You can make partial withdrawals after seven years with some restrictions. You can also take loans in the third and sixth year of opening the account, subject to some conditions.

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.

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Finance

Top tips for tracking your personal loan online

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.

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Finance

Section 80TTB of Income Tax Act – Deductions for Senior Citizens

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.

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Finance

Housing Loan Stressing You Out? Well, Here Are Some Amazing Ways to Deal With it!

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.

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