Financial Cocktail Samosas: Bitesized Money Morsels For You, 19/04/2023

Key Changes That May Impact Your Finances In New Financial Year 2023-24

The start of a new financial year is a good time to reassess your finances and look into possible improvements that can help you save tax and maximize your wealth. The season of increments is about to begin. While higher pay is always good news, it comes with the kicker of higher taxes. To optimize the tax, one needs to rejig one’s income and investments so that all available tax deductions and exemptions are utilized to the maximum permissible limits.

Here are the key changes that may impact your finances in the financial year 2023-24:

  1. Change in Tax Slab There have been changes in the tax slab as income up to Rs 7.5 lakhs under the new tax regime will not be taxable taking into the account standard deduction of Rs 50,000. For those who do not claim major deductions and exemptions, the new regime may be beneficial. The government has reduced the surcharge of the highest rate from 37% to 25% in the new tax regime.
  2. New Tax Regime to be Default – The new tax regime will be the default regime unless the person states that he/she wants to go ahead with the old regime. However, somebody without any business income can switch between the old and new tax regimes every financial year, if he/she so wishes.
  3. Standard deduction – The standard deduction of Rs 50,000 under the old regime remains unchanged and has been also introduced to the new regime. Earlier, it was not available in the new regime.
  4. Insurance Policies will be taxable – Proceeds from life insurance policies over an annual premium of Rs 5 lakhs that are issued after April 1, 2023, will be taxable.
  5. Increase in the limit of SCSS and POMIS – In the Senior Citizen Savings Scheme (SCSS), the maximum limit has been enhanced to 30L from the current 15L, and under Post Office Monthly Income Scheme (POMIS), the new limit will be ₹9 lakh from ₹4.5 lakh for a single account and ₹15 lakh from ₹9 lakh for joint account holders.

(Contributed by Yogesh Gola, Financial Planner, Team Vikrant, Hum Fauji Initiatives)

Prepay your Home Loan or Invest that money?

Should you prepay your loan or put it to better use by investing it to earn more money? This is a puzzling question and there are many answers to it. But the broad question remains, how do you decide what will be the best use for your surplus money?

  1. Tax Benefits – Your Principal and interest payments on your home loan are tax deductible under the old regime. You can take advantage of a tax benefit of up to Rs 1.5 lakhs on the principal part and up to Rs 2 lakhs on the loan’s interest in a given fiscal year.
  2. Returns on Investment- If your planned investment is generating higher returns than the current interest rate on your loan, you should consider remaining invested rather than pre-paying. However, remember that the markets are unpredictable, and you should have a clear idea of the time horizon and discipline in investing.
  3. If you have a Floating Interest rate – Prepay your home loan if your interest rate is high and charges of shifting to a lower rate are also likely to be high. Remember that the interest rates of your loan will generally trend down slower than your FDs and other interest based investments.
  4. Loan Tenure and EMI option- Prepaying the loan in the early days may lower the overall interest expenses because, in the earlier days, the interest component is higher in the EMI. However, if your loan has already paid off for half of its term, repaying might not be a good option because the interest component has significantly decreased and you may have already paid the larger part of your overall interest payable.
  5. Lastly, think about your life and financial planning. For example, if your retirement is coming up, then pre-pay and do not carry a liability into your retirement. Of course, you have to carefully consider that loan prepayment should not jeopardise any of your important future requirements like education, marriages, house or renovation etc.

Your decision to pre-pay or focus on investments should be arrived at after considering each of the above factors carefully.

(Contributed by Sweta Kumari, Financial Planner, Team Arjun, Hum Fauji Initiatives)

Make the Succession Simpler

In India, the tradition of passing down property rights from one generation to the next has been in practice since the Vedic era. The Hindu Succession Act of 1956 and similar other laws outline how the assets of an individual should be bestowed upon their legal heirs. However, it is not uncommon to see disputes over the distribution of ancestral property among siblings or relatives, ultimately leading to protracted legal interventions.

By drafting a will, one can dictate a process, under the guidance of experts, can be a quibble-free transition of wealth to one’s legal heirs, with every significant aspect included in the will.

A Will has the following essential characteristics:

  1. It takes effect only after the testator’s (the one writing the Will) death.
  2. A Will is a form of the legal declaration of testator’s intentions.
  3. The declaration must involve the manner of disposal of the property.
  4. The Will can be revoked or altered during the lifetime of the testator.
  5. Will has no specific format and should suit the testator’s preference.

What should you include in the Will?

  1. While writing the will, the testator’s entire details should be mentioned.
  1. Declaration that the testator is of sound mind and free from coercion at the time of writing the will.
  2. Entire details of beneficiaries should be mentioned along with the relation with testator
  3. An Executor should be appointed to ensure that the will is carried out according to the directions provided by the testator.
  4. Details of all the assets and properties that the testator has should be included in the will. Additionally, he or she may list any particular assets that are likely to be available in future.
  5. The share that each beneficiary has on the property be listed in full detail. If the asset is to be given to a minor, then a custodian for the minor should also be listed in the will.
  6. There should be a signature by the testator in the presence of at least 2 witnesses. The witnesses do not need to know the details of the Will – they just verify that the signature by the testator was done before them.
  7. The testator should sign with the date on the will after the last statement.

(Contributed by Ujjwal Dubey, Associate Financial Planner, Team Prithvi, Hum Fauji Initiatives)

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