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Budget 2019 – How does it affect your individual personal financial plan?

Prathiba Girish Budget, Financial Freedom, Financial Planning, Personal Finance, Tax Savings February 7, 2019February 7, 2019Budget 2019, capital gains, impact on personal finances, income tax, investing, personal financial planning, rebate, TDS 0 Comment

The interim budget was presented on 1st Feb 2019 and has already receded to the background in most conversations. Now that the dust has settled as well as clarity obtained on a few new proposals, it is a good time for us to look at and quickly recap how this year’s interim budget weighs upon our personal finances.

The one thing which is usually on every salaried person’s wish list from the budget year after year is tax breaks, and this time we did see some welcome changes. A lot of positive moves for those in lowest tax bracket and some for the mid and high-income category too.

No tax if taxable income below Rs. 5 Lakhs, standard deduction raised from Rs. 40,000 to Rs. 50,000

Rebate of Rs. 12,500 has been given to people with taxable salary of upto 5 lakhs, thereby ensuring that people belonging to this group will pay zero tax. Note that if your taxable income is higher than Rs. 5 lakhs you will continue to pay 5% tax for income from Rs. 2.5 lakhs to Rs. 5 lakhs.

The key word here is taxable income, meaning income after considering all deductions. This means that people with gross incomes higher than Rs 5 lakh, in fact upto Rs 10.35 lakh can end up paying zero tax, assuming the person has made maximum investments basis eligibility.

Sample illustration on how to calculate taxable income post all deductions

The attached table clearly illustrates how a person with gross income of 10.35 lakhs will still avail of the rebate and end up paying no tax. This is for someone with no HRA, donations or education loan, a person having any of the above will end up paying no tax on even higher incomes than Rs 10.35 lakh. The fact that a person earning close to Rs 90,000 a month can end up paying zero tax if she plans her investments is a huge positive.

The standard deduction which was at Rs 40,000 has now been increased to Rs 50,000. This benefit is available to people across all income slabs and not just < Rs 5 lakh pa.

Limit for deduction of tax at source (TDS) for interest on FD has been raised from Rs 10,000 pa to Rs. 40000 pa

This will come as a relief to many pensioners as well as people having FDs as a contingency asset. With lower limits of TDS, one needed to fill forms and submit it on time to avail of non-deduction of TDS. This will be a welcome change making the process hassle free.

No tax on second self-occupied house on notional rent

People having two houses were required to pay tax on notional rent on the second house, even when they choose not to rent out their premises. This is a very thoughtful benefit and has been extended given the fact that the number of working couples who are forced to work in different cities to pursue their careers and build their lives is increasing. Hence going forward, people who have two houses due to various reasons can now breathe a sigh of relief.

You can reinvest your long-term capital gains in two houses instead of one.

If long term capital gains accrued on sale of a house does not exceed Rs. 2 crores, then you can avail capital gains re-investment benefit across two residential houses instead of one under section 54. This benefit is available to an individual only once in a lifetime. This again is a thoughtful benefit extended, keeping in mind inter-generational purchase of houses, due to greater nuclearization of families.

However if the capital gains exceed Rs 2 crore than old rules will still apply and to avail of the benefit you will have to invest in 1 residential house.

In our opinion though, in case one is not obliged to re-purchase a house (to meet familial needs), it will make better sense to invest capital gains in Sect 54 EC bonds for a period of 5 years rather than locking up capital in in low-yielding real estate. Post the lock-in period, one can look at financial assets which have potential to make much higher returns.

Pension for unorganised sector workers

In our opinion one of the highlights of the budget was the pension scheme announced for unorganised sector workers. We all see our maids, drivers and numerous other people struggling to make ends meet and retirement is definitely not on their priority. Pradhan Mantri Shram Yogi Maandhan Yojana promises a minimum pension of INR 3000 pm at age 60 on minimum monthly contributions. A 29 year old, will need to deposit INR 100 a month to avail of this pension. This scheme now provides a much needed social security net for the huge number of unorganized sector workers across the country and each one of us should ensure that our safety nets ie. our domestic helps avail of this scheme so that they too can have their own safety nets.

Finwise is a personal finance solutions firm that helps both residents and NRIs plan for their financial goals, follow their passions and achieve financial independence. For consultations, please reach us at getfinwise@finwise.in or +91 9870702277/9820818007.

8 questions to ponder over if you are an NRI Investor

Prathiba Girish Financial Freedom, Financial Planning, NRI, Personal Finance, Retirement January 31, 2019January 30, 2019financial planning for NRIs, investing for NRIs 0 Comment

While the basic steps of financial planning are similar for most people there are certain situations which are exclusive to NRIs. What I have seen from interactions with a few of them are as follows.

Are you sure about retiring in India?

While most NRIs are very clear that the children will be educated abroad and in all probability, will never return to India, they are unsure about their intentions of settling back in India post retirement. This can be challenging for retirement planning and deciding if it makes sense to hold on to real estate assets accumulated in India.

Have you insured your health adequately?

Most NRIs have huge global cover currently and hence are in a good position to take care of any medical emergencies should they arise. These are typically provided by the company and hence it can be a cause for worry. What would happen in case of a sudden loss of job? It would mean you dip into your savings for medical emergencies.

In most cases, while people are aware of the need for a personal cover, they have put it off till they retire. Health insurance is available only to healthy people. It is possible that by the time you retire, there is some ailment which has crept up. This will make it difficult to get insured or at the least have undesirable exclusions in the policy.

Have you taken Critical Illness insurance?

Health insurance will cover your medical bills. What happens if you are unable to retain employment due to a critical illness? While this is an important insurance for everyone, all the more so for NRIs, since losing income in an alien land can be even more traumatic. Also note that, while this is expensive in India, it may be affordable in other countries. Do check and ensure you take adequate CI cover. For more details on this subject, you can read an earlier blog of mine.

Have you done Estate Planning?

Again, this is true for most clients, since somehow coming to terms with the fact that death is inevitable is never easy. But in the case of NRIs, this is crucial, especially, when you have assets as well as dependents in multiple countries. Do understand that assets in different countries are governed by different laws. Hence, make a will in India for your Indian assets. Separately, consult with specific experts in countries where you have properties and other assets and plan for them as well.

Have you considered tax implications outside India while making Indian Investments?

As an NRI you may be paying tax on your global income. What is tax free in India need not necessarily be tax free in the country where you reside. It is very important therefore to consult with both your Indian advisor and your advisor in the place of your residence. It is important to seek and heed to the advice of both professionals before you decide on a particular investment.

Do you believe investing in India can only be done in INR?

There are attractive options available in India to park currency of your choice. Check what these are and compare return and risk before you choose your instrument of choice.

Have you closed your EPF account on leaving your Indian employment?

Since it is etched into us that EPF investments give tax-free assured-returns, there is a lot of inertia in taking any action on this. In most cases its good and ensures a huge corpus gets accumulated for retirement. But as per new rules, interest paid on EPF accounts once there is no fresh contributions is fully taxable.

Have you taken care of these minor but time-consuming changes?

If you have multiple bank accounts as a resident, you need to review and close them or convert them to NRO or NRE status. Schemes like Sukanya Samruddhi which is available for residents is not for NRIs, hence you will have to look at closing such schemes. It may be a good idea to have a check list of things to be done on your next visit to India and keep adding to it.

Managing all of this remotely on your own can be challenging if you are an NRI and having a trusted financial advisor who can advise you on these matters as well as execute, will help manage the situation.

Image credit: Emre Aliriz on Unsplash.com

So, what does it mean to become Financially Free?

Girish Ganaraj Financial Freedom, Financial Planning, Personal Finance, Retirement January 23, 2019January 23, 2019financial freedom, financial independence, financial planning, retirement 0 Comment

Dear readers, as I said in my last article, the most significant words that I have experienced since becoming an independent adult have been “Become Financially Free”. So, how did these words happen? And what do these words mean?

As I mentioned in my earlier post, early in our careers, (am talking about 1999-2000), like most people our age, we were merrily travelling along life’s highway, earning, spending and salting away a bit for the future, and ticking away at various “achievements” which were largely material acquisitions. But our middle-class genes also automatically built in some caution and I remember that we had started thinking about what should be the financial goal that we should be looking to build to “be comfortable”. At that time, the number “x” seemed both luxurious and unattainable and hence that was the number that we set ourselves a “target” to reach.

Of course, as a few more years passed by (by about 2005-6), the number started looking small! Not because our nest egg was getting closer to the number though, since we had continued to follow a fairly haphazard (in hindsight) approach to building wealth – a second house, some bit in the stock market, some insurance, etc. Just that “x” suddenly seemed both “within reach” and “not enough”. So, the target became larger (about “3x”) and we continued to earn and spend while saving up.

As we entered our middle years (around 2011-12) and our kids started growing up, life began to resemble a treadmill. Just that while the run in itself was enjoyable, the faster we went, the faster the treadmill also seemed to go and the ultimate destination seemed like a mirage. The target again started seeming “not enough”. That’s when we consciously decided to slow down the treadmill and asked ourselves a few questions.

What kind of lifestyle did we desire for ourselves and our children?
How much of a role should debt play in our lives?
What is really the corpus that we wanted to “be comfortable” for the rest of our life?

Our search for answers to these questions helped us fulfil our need for financial security as well as discover the concept of “financial freedom”. Essentially, Being Financially Free in the simplest way meant having enough money that one need not have to work for money for the rest of his or her life. That said, it isn’t as one-dimensional as that. Being Financially Free necessitates the following

Having enough money to ensure that all foreseen (and unforeseen) expenses are taken care of
Still having money post that to take care of all future events/milestones until one’s death
Making sure that assets are in the right form to enable one to live the lifestyle that one has planned for
Last but not the least, making sure that your money is invested wisely enough to ensure that it is not getting eroded by factors such as unplanned expenses, inflation, market cycles, illiquidity, concentration, etc.

This process also helped us recognize the fact that how much people go wrong in their understanding of money and their efforts to build wealth. And 2 reasons stood out

Underestimating the long term – both in terms of inflation as well as asset composition
Lack of direction – Building assets doesn’t necessarily build adequate wealth, unless one knows what are one’s milestones and goals

In our personal case, as we underwent and completed the comprehensive planning exercise for ourselves, we discovered that the “number” we were looking for to be “comfortable”, rather “financially free” was about “10x” from the original number we started with, and that too in current value terms. We now know what is the number we are working towards, and we also have a clear understanding of what are our future financial milestones and how we need to plan for them.

As an aside, our personal experiences with money helped us set up Finwise, a firm that helps busy people achieve their financial goals, grow their wealth substantially and work towards financial freedom. In a way, we ourselves were our first “financial planning” customer!

I hope our story helps you understand what it means to “Be Financially Free”. Do let me know your thoughts at getfinwise@finwise.in.

Finwise is a personal finance solutions firm that helps people plan for their financial goals, follow their passions and achieve financial independence. For advice, please reach us at getfinwise@finwise.in or +91 9870702277/9820818007.

Image credit: Stockified.com, shot by ab-dz

The 3 most important words I have said as an adult

Girish Ganaraj Budget, Financial Freedom, Financial Planning, Personal Finance, Retirement January 9, 2019January 23, 2019 2 Comments

Becoming an adult is one of the biggest thresholds that a human being crosses in his or her life. For a young one on the verge of this threshold (for context, we are talking here about the legal definition of crossing the age of 18 years), it comes with the promises of many excitements and thrills. It is about being an independent person (As Bollywood would say – apne pairon par khada hona), owning a driver’s license, the right to cast a vote, legally marrying a partner and much more. It also comes with the sense of responsibility of having to fend for oneself officially since he or she is no longer on someone’s dependent list. It is also about being responsible about making many important life choices, including partner and career.

So, all of my readers, tell me, which do you think are the most important 3 words that you have ever said since becoming an adult? While I am sure there would be many, am putting down below a few which I would think make the top of the list.

Right at the beginning, there’s the cliched but very important “Mujhse shaadi karogi / karoge”. Arguably one of the biggest decisions that a young adult makes is to select his or her life partner and these three words signify a huge commitment that one makes, one that is expected to last the entire lifetime. These 3 words would count as some of the most important words said, and rightly so.

But there are others. As the early excitement wears off adulthood and responsibilities begin to make themselves felt, 3 more important words are uttered, this time, “Buy a house”. Important because, these signify a long-term financial commitment that the young adult makes from the meagre salary that he or she makes, all for the promise of “apna ghar”.

And then, as the years pass by, either due to personal choices or egged on by familial pressures, the next set of 3 words get uttered, these being “Start a family”. Again important, because, apart from long-term financial commitments, these words also add the responsibility of bringing up new lives in this world, with the right set of values, just as the adult was brought up, many years back.

There may be more, but I would guess the above 3 would largely be the 3 biggest decisions that any adult would take in his or her life, especially in their early adulthood years. I have to admit, I have uttered all the above, and whenever I said them, they felt to me at that time to be the most important words that I have uttered until then.

So then, which of these 3 were my most important words, you ask? Well, while at the time I found each of these to be very important, let me say that my most important 3 words are none of these, especially with the benefit of hindsight. So, what are my most important 3 words?

My most important 3 words were uttered some years back, in what I would like to think was a moment of enlightenment. And they were – “Become financially free”.

Let me explain. Like most adults my age, I was caught up in the race to build assets and fulfil responsibilities, and like all others, went about “ticking” off the various “goals” – namely marriage, first house, second house, children, nice cars, latest gadgets, name it. Thankfully, both me and my spouse Prathiba come from middle-class families and still remember those struggles that our parents went through in bringing us up. Somewhere, as we were zipping along merrily through this “tunnel”, prudence prevailed and we also started looking for the light at the end of it.

It was then (about 8 years back) that Prathiba and me decided that we would become first debt-free and then work towards becoming financially free. We achieved our first goal of becoming completely debt-free about 5 years back and since then are working our way towards achieving financial independence. For us, financial independence means having enough money or assets to take care of our major goals in life, allowing us to work towards one’s passions.

Following this and emboldened by our own experience, Prathiba left a lucrative private sector career and founded and successfully runs a Financial Planning firm called Finwise Personal Finance Solutions some years back, which helps families plan for and achieve financial independence.

As far as I am concerned, I spent a few more years in the corporate world to bolster our financials and have recently left the corporate world to join Prathiba and grow Finwise to the next level. This would have been unthinkable a few years back, but timely planning as well as diligent focus over the last few years has allowed us to take this bold step.

So, now that you have heard my story, what’s yours? Have you discovered 3 new words that seem important to you? Do you wish to get on the path of financial independence? Do write in to me with your thoughts at getfinwise@finwise.in.

Finwise is a personal finance solutions firm that helps people plan for their financial goals, follow their passions and achieve financial independence. For consultations, please reach us at getfinwise@finwise.in or +91 9870702277/9820818007.

Image credit: Unsplash.com, Shot by Victor Rodriguez