Manage your Wealth Smartly

In the current busy life many of us are so much occupied with our routine work that we keep on postponing the decisions related to our own wealth and money.  The pending nomination in the demat account; the incomplete change of address request; the matured deposits that are hopefully renewing or so many investments without properly tracking them are some of the issues which are very common with many of us.

It is very common to not to take any decision fearing it could be a wrong decision. Sometime multiple choices actually result into not opting for any and we keep on postponing. So what could be some action points so as to come out of this, let’s discuss them here:

1. Keep it Simple and Straight:

We should try to limit the number of saving accounts, Demat accounts etc. Now with PAN and Aadhar linked with all accounts it does not makes sense to have so many accounts. It is better to have one or two saving accounts (one for expenses and income and one for investments etc). For Demat accounts also its better to have one until unless we need other for some specific purpose. Make sure that nominees, address, email and mobile no is always updated.

2. Optimize Not Over diversify

We should optimize our assets/investments with limited no of stocks/bonds/mutual funds. There is no need to have a long list of investments to create big wealth in fact it could be counterproductive. As if good investments aren’t sizeable they won’t make any big difference, and bad investments will keep dragging the portfolio down. Keeping hundreds of stocks in small-small quantities won’t serve any purpose and will be difficult to track and manage also.

3. Plan when we won’t be here

We don’t know what will happen tomorrow. It is better to plan the things when we are in right shape of mind and body.  We should write a will so that there won’t be disputes later on. It is not required to identify each item of our wealth and list it. We can primarily indicate who will get what (beneficiaries) and who should ensure that the distribution is made according to the will (executor). The executor will take up the tasks of probating your will, making the lists, completing the paperwork, and ensuring that everything is settled as indicated.

4. Take an Expert’s help

We cannot do everything even if we have time as we may lack the expertise. So it is always better to take some expert’s help to get full picture of our assets/investments. Now days we can get consolidated statements from NSDL which could be useful to get a full and clear picture.

These simple and easy steps can actually make our life easy and simple for managing our wealth if done properly.

New Budget and New tax Planning

Recently announced budget gives lot of relief to those who are in middle income having annual income in the range of ₹ 7-10 Lakhs. Let us understand the same in more detail.

The additional Relief:

This budget has increased the limit under section 87A to give relief who are earning upto ₹ 5 lakhs. Till now, those earning up to ₹ 3.5 lakh a year were eligible for a tax rebate of ₹ 2,500. This year’s proposal has hiked this to ₹ 12,500 and raised the eligibility to ₹ 5 lakh.

However to get this relief we need to do some smart tax planning and need to plan the things in advance. Below are some fine prints regarding the same.

1. Plan Carefully: The proposal of this Budget needs to be carefully watched for as if a person’s income increases even a single rupee from 5 lakhs he is required to pay the entire tax and will not get any tax rebate.  Right now, anybody with an annual taxable income of up to ₹3.5 lakh is eligible for a tax rebate of ₹2,500 under Section 87A.

2. Consider all Income: Further all the taxpayers should know that the interest from fixed deposits, bonds and small savings schemes (except PPF) are fully taxable. It is added to the income of the taxpayer and taxed at the normal rate. If a person skips declaring this income in their return and claim the rebate they may get a shock if the addition of this interest takes their total income above the ₹5 lakh threshold and makes them ineligible for the rebate. Hence people have to plan in advance so that they actually are eligible for the rebate.

3. There is further Scope:  Budget proposals also encourages taxpayers to save aggressively in tax saving options. For instance, apart from the NPS benefit available under 80CCD(1) there is another Section 80CCD(2) which can further reduce the taxable income significantly. Under this, up to 10% of the basic pay of the employee put in the NPS by the employer is tax deductible. Further it makes sense to use the pension scheme for saving tax now as 60% of the maturity corpus of NPS is tax free and one can also withdraw for emergencies,

4. Benefit on TDS:  As per the new budget no TDS will be deducted from the interest income up to ₹ 40,000. A higher limit of ₹ 40,000 means that TDS will not be deducted till your interest income from bank FDs and post office deposit schemes crosses this limit. However, these interest incomes will still be taxable as per current income tax laws." If the bank fixed deposit holder does not have taxable income, he can declare so by submitting Form 15G or Form15H applicable. For example an individual with total income of less than ₹ 2.5 lakh in a financial year can submit Form 15G clearly stating his income and the interest received to avoid the TDS. 

5. Some other Deductions: If we also consider the deductions available on Housing Loan & Education loan interest, HRA and Standard deduction for employees and mediclaim benefits available to self and parents, an Individual having income at around 10 lakhs can manage to be zero tax payer, If planned smartly.

Yes; even if we are earning more than 10 lakhs a year we don't need to pay any tax but for that we need to plan properly and in advance so that there are no surprises.