Have you protected your non-material wealth ?

Most of the investors don’t pay enough heed towards first and most important part of financial planning  / Wealth management process i.e. Wealth Protection . Many times  , it is procrastinated or on ‘things to do’ list but not as a priority or urgency .

You may argue that I don’t have enough wealth . Because , all we focus is on material wealth like car , gold , real estate etc and forget or ignore to look at non-material wealth which is nothing but ‘YOU’ for your family and dear ones .

We are sharing  three real life cases on each of the aspect of Wealth Protection.

Case I :-

Things were really going good for Mr. Sachin Rane ( name changed ) . Sachin was very hard working and earnest young boy from tier III city of Maharashtra . He joined HDFC securities as an executive on contract basis .Both Anil and I worked with him during our HDFC Bank tenure . One day , he came to our office with sweets and was very happy to share that the company promoted him and offered him a job on company pay roll . He then continued to talk on seeking tax savings advice and other investment related guidance  . After understanding his entire personal and family liabilities , we advised him to go for SIP in Tax Saving mutual fund and a pure term plan of Rs 25L with quarterly premium of Rs 1500/- as he had to take care of his retired parents and twin sister marriage expenses . 

Then the tragedy hit to the family . He met with an accident and could not survive. His parents,who shifted to Pune due to his permanent job and for better job opportunities for their daughter, got a shock of their life . They were completely shattered . We found it very difficult to face them during the claim settlement . A mother’s grief for Sachin will last as long as her love does – forever . However , some financial support through term plan got available for Sachin’s old parents and his sister’s marriage which he always concerned for .

Case II :-

Charu Khandal, animator with Shah Rukh Khan’s Red Chillies Entertainment had just celebrated after her team won a national award for the special effects in the movie Ra.One. As she was headed home, she was hit by a speeding car. 

The cervical bones in her neck got fractured and there were severe injuries to the spinal chord. Doctors have termed her as ‘indefinitely paralysed’. Charu was full of life; is extremely talented and loved her job. She didn’t take any breaks while working on Ra.One. Bad things can happen to good people.

Then started the long ordeal of medical bills for Charu & her family . Shah Rukh helped initially but then family had to manage immense financial distress .

She would have taken the accidental disability rider of Rs 50 lakhs which would have costed not more than Rs 620 /- per month . Think about it . We spend Rs 1000 on dinner these days in ordinary restaurant .  If Charu had both mediclaim and PA , she could have claimed for both the policies .

Case III :-

Rohan Hinge ( Name Changed ) , was a branch operational manager at one of the largest private sector bank and achieved good accolades and position in the bank over a period of 10 years . 

But destiny had something else in its mind . He was having some pain in the stomach for which he did regular check up .  However , the pain persisted for couple of months . He then finally decided to do thorough  check up . To his bad luck, he was detected with cancer cells . He had to go through number of painful radiation and chemotherapy treatment . But , the worst part is that Doctor had to remove his body part –Intestine where human wastage is stored. Due to this , he had to give up his full time banking profession and had to take up a job which is paying him much lower than his potential earning caliber . 

However when he took a home loan , the sales person had forcibly sold him a critical illness policy which had actually come to rescue him . He contacted the insurance provider who immediately paid the balance outstanding loan of Rs 23,00,000/- to home loan company and his loan got closed and hence the EMI .It took off huge burden on this head . 

Critical Illness policy helps during the huge medical expenses by paying the beneficiary in advance the lump sum policy sum assured after diagnosis . It takes away significant financial burden off for initial painful period. Again it costs nothing compared to its benefits .

You see lot of such news every day in newspaper but you need to assess the risk and protect it .Lifetime savings meant for a retired life can drain away rapidly with just one such accident.The chances of anything going severely wrong may be minuscule, but if it happens, there is a 100% financial impact.

We, at Pentagraph , strictly follow the financial planning process wherein risk planning comes first and then followed  by tax, retirement and wealth creation planning . 

We believe that it is far better to have personal protection and not need it, than to need it and not have it !

Happy Investing !!!!!

Analysis of Budget 2016

Prima facie Budget 2016 has nothing great to share on the platter . We will attempt to put across positive as well as disadvantageous points which has some relevance to personal finances , its taxes and planning .

Financial Benefits and Advantages

  1. The tax rebate under section 87A has been raised from Rs. 2,000 to Rs. 5,000 for individuals having income below Rs. 5 lakhs. So if someone earns below Rs. 5 lacs, then the person would save Rs. 5000 from the total tax payable.
  2. Increase in interest deduction from Rs. 2 lacs to Rs. 2.5 lacs, for first time home buyers provided loan is less than 35 lacs & home value is below 50 lacs. This is a good incentive considering that a higher amount of interest will be deducted from income . However , accordingly to Pentagraph ,it would been better to make it at 40 lacs considering 20 % down payment requirement by RBI.
  3. Increase the limit of deduction of rent paid under section 80GG from Rs. 24,000 p.a. to Rs. 60,000 p.a., to provide relief to those who live in rented houses. This is for persons who do not own a home and who do not get HRA benefit. This is more of a social initiative then a financial benefit. Hardly creates any impact.
  4. For acquisition or construction of a self-occupied house property,deduction of interest payable on capital borrowed will be allowed if such acquisition or construction is completed within 5 years from the end of financial year in which capital was borrowed. This was 3 years earlier and now extended to 5 years.This has come with sign of relief because delay in construction beyond 3 years is major issue for the real estate investors .
  5. For computing capital gains on immovable property the date of agreement is to be considered as the date of purchase and not the date of registration. There was some confusion earlier and now this is cleared.
  6. Withdrawal up to 40% of the corpus at the time of retirement to be tax exempt in the case of National Pension Scheme (NPS). This makes NPS a little attractive now.
  7. Domestic taxpayers can declare undisclosed income or such income represented in the form of any asset by paying tax at 30%, and surcharge at 7.5% and penalty at 7.5%, which is a total of 45% of the undisclosed income. So if you hold physical cash (black money) you have an opportunity to convert by paying 45% tax.
  8. Redemption of Sovereign Gold Bond Scheme, 2015 not chargeable to capital gain tax and transfer shall be eligible for indexation benefits.Very progressive move
  9. Interest earned on Deposit Certificates issued under Gold Monetisation Scheme, 2015 and capital gains arising from them shall be exempt from tax. This is good if you are holding idle gold – just liquidate it and earn interest plus enjoy appreciation in the value of gold.
  10. Period for getting benefit of long term capital gain regime in case of unlisted companies is proposed to be reduced from three to two years.This is a business booster and a great step considering ESOPs and listing gains.

Financial Disadvantages / Losses / Expenses 

  1. Surcharge to be raised from 12% to 15% on persons, other than companies, firms and cooperative societies having income above Rs. 1 crore.Huge adverse impact on the wealthy and who report income in excess of Rs. 1 crore per annum. Tax rate is now 34.5% for this category of persons.
  2. Service tax is now 15% with introduction of Krishi Kalyan Cess of 0.5%. 
  3. Additional tax at the rate of 10% of gross amount of dividend will be payable by the recipients receiving dividend in excess of Rs. 10 lakhs per annum. So if you hold equity shares above Rs. 5 crores in value, whether listed or unlisted or private holding it is likely that you will have to pay additional 10% tax on such dividends.
  4. Tax to be deducted at source at the rate of 1 % on purchase of luxury cars exceeding value of Rs. 10 lakhs and purchase of goods and services in cash exceeding Rs. 2 lakhs. This is an excellent step. This will ensure that people have enough proof and a strong balance sheet to support the purchase of luxury car. If you use too much cash or deal in too much cash be careful especially while you are spending or buying a luxury car. They are waiting to catch you!
  5. Securities Transaction tax in case of ‘Options’ is proposed to be increased from .017% to .05%. Arbitrage funds will suffer but not of much material impact in the larger scheme of things. Also this impacts you if you are a short term trader.
  6. Penalty rates to be 50% of tax in case of underreporting of income and 200% of tax where there is misreporting of facts. Salaried income earners need to worry more in this space as they are most careless in filing income tax returns. Self-employed and business owners also need to be wary.

Note :

We have not covered taxation on EPF as we are expecting some changes in the budget proposal in terms of modification or roll back .

Happy Investing !!!!