Author: Naveen Kukreja

Follow these practical steps to increase your credit card limit

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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 Increasing your credit card limit comes with a host of benefits. It increases your ability to access instant credit limit and even help in improving your credit score through reduced credit utilisation ratio. It can also get you a bigger ‘loan against credit card’ for meeting financial shortfalls or exigencies.

If you too are contemplating to increase your credit limit, here is how you can go about it:

Improve your credit score

Your credit score is a three-digit numerical representation of your creditworthiness. Credit bureaus calculate credit score on the basis of your past debt repayment. A credit score of 750 and above are considered as ‘good’ by banks and other financial institutions. Those with lower credit scores usually have a history of poor debt management. As credit card limit is nothing but a pre-sanctioned line of credit, card issuers usually desist from increasing the credit limit of those having a low credit score.

The first step towards increasing your credit limit is to improve or maintain your credit score. The best way to do so is to fetch your credit report from credit bureaus or financial marketplaces at regular intervals. Doing so will allow you to take corrective steps to improve your credit score and thereby clear one of the crucial eligibility criteria used by banks for evaluating candidates for credit limit increase.

To steadily improve your credit score, ensure you repay EMIs and credit card bills by the due date, avoid multiple loan or credit card applications within a short span and maintain your credit utilisation ratio within 30 percent.

Wait for credit limit enhancement offer

Most banks usually extend pre-approved credit limit increase offers to credit cardholders on the basis of their internal risk policy. Eligible customers are informed about their credit limit increase offer through e-mail, SMS and net-banking login. Cardholder wishing to accept the offer can do so by replying to the SMS or e-mail or by accepting it through their internet banking or mobile banking app. The approval is usually instant and does not require any additional documentation.

Request credit limit increase by yourself

Credit cardholders can also approach existing banks for increasing their credit card limit. Card issuers evaluate eligibility on the basis of your past repayment history, monthly income, present employer, credit score, etc. For example, your credit card issuer might be unaware of the increase in your income and may still be offering credit limit on the basis of your past income data. In this scenario, you can approach your bank to increase the limit available on your card and submit the latest income proof for pushing your case. If the bank is convinced, it will accept your request for credit limit enhancement.

Apply for a new credit card

Apply for a new credit card in case your existing card issuer refuses to increase your credit limit. However, before applying for a new card, make sure to fetch your credit report from credit bureaus or online financial marketplaces. Those with a credit score of 750 and above have higher chances of new credit card approval. Remember that card issuers consider your monthly income, employer profile and job profile while evaluating card application.

Naveen Kukreja is the CEO and Co-founder of Paisabazaar.com.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Budget 2020 initiatives decoded: A mixed bag of hits and misses

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Budget 2020 was primarily aimed at providing relief to the middle class and MSMEs. From the proposal of the new personal tax regime to the continuation of LTCG tax on equities and equity mutual funds, this year’s Budget had its fair share of both hits and misses. Let’s look at some of the major hits and misses for this year’s Budget.

 Hits

 Section 80EEA benefits extended to financial year 2020-21

As expected, Budget 2020 provided the much-needed boost to the housing sector by extending the benefit of additional deduction under section 80EEA to FY21. The extension will help in achieving the government’s aim of ‘Housing for All by 2022’.

Under section 80EEA, first-time homebuyers purchasing housing property with a stamp duty value of up to Rs 45 lakh through home loan would be eligible to claim this additional deduction of Rs 1.5 lakh for home loan interest repayment. This deduction is over and above the Rs 2 lakh deduction available under Section 24b.

Deposit insurance coverage increased from Rs 1 lakh to Rs 5 lakh

Another major proposal in Budget 2020 was the decision to hike deposit insurance from Rs 1 lakh to Rs 5 lakh per depositor. This decision will help in restoring consumer confidence in the banking sector, especially in the light of recent events in some co-operative banks. Under the Deposit Insurance and Credit Guarantee Corporation (DICGC), deposits in scheduled banks including fixed deposit, recurring deposit, savings account and current account would be insured up to Rs 5 lakh.

 Improved ease of doing business for MSMEs

Budget 2020 announced several initiatives to incentivise MSMEs, with the decision to allow NBFCs to offer invoice financing to MSMEs being the crucial one. This decision will enhance the credit supply to MSMEs. Another decision aimed at improving cash flow management of the MSMEs has been the app-based invoice financing loan products. The Budget also announced an increase in the turnover threshold for audit, from the existing Rs 1 crore to Rs 5 crore. This announcement is expected to improve the ease of doing business for the MSMEs. Additionally, the decision to restrict the increased limit to businesses carrying out less than 5% of their transactions in cash will incentivise MSMEs to adopt digital payments.

Misses

 Continuation of LTCG tax on equities and equity mutual funds

A major disappointment in Budget 2020 was a continuation of LTCG tax on equities and equity mutual funds. Scrapping this tax would have improved the overall market sentiment while bringing tax parity between equity mutual funds and ULIPs.

Given that the equity market plays a vital role in capital formation as well as the overall development of the economy, the removal of LTCG tax would have increased retail investor participation in equity markets and also encourage them towards long-term investment in equity-oriented mutual funds.

Strong disincentive for long-term savings

The government proposed a new personal tax regime in Budget 2020, which may negatively impact the long-term financial health of individuals. This requires taxpayers to forgo various deductions and exemptions available on tax-saving mutual funds, ULIPs, life insurance, medical insurance and retirement solutions. These deductions and exemptions act as a strong incentive for taxpayers, especially those lacking financial discipline, to buy financial products crucial for their long-term financial security. With the option of availing lower tax rates in exchange for forgoing these tax exemptions and deductions, taxpayers lacking financial discipline will have no reason for buying these financial products. This will negatively impact the demand for life insurance, tax-saving mutual funds, medical insurance and retirement products.

No incentive towards increasing insurance penetration

The primary objective of buying a life insurance policy should always be to provide replacement income to the dependents in case of the untimely demise of the insured. Since most people confuse insurance with investment and end up buying life policies that provide inadequate life cover, the introduction of a separate section for term insurance outside Section 80C would have incentivised people to buy a term policy and thereby, get themselves adequate life cover.

Naveen Kukreja is CEO and Co-founder of Paisabazaar.com.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Budget 2020 Wishlist: Improved access to credit and incentives for digital payments, housing, and long-term wealth generation

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Budget 2020 will be presented amid stiff economic challenges in the form of consumption slowdown, low credit off-take, stagnant private investment and lack of demand for the housing and MSME segments. Hence, Budget 2020 should announce measures for promoting digital payments, improving credit access, reviving housing demand and incentivising investments for long term wealth creation.

Here is my wish-list for Budget 2020:

 Loans to first-time borrowers in the banks’ PSL target

Lenders usually prefer lending to those with a good credit score (750 and above) and monthly in-hand income of Rs 30,000 and more. This criterion often ends up leaving out those in the lower-income groups with no prior credit history.

You may argue that small finance banks and micro-finance institutions extend credit to these under-banked segments, but the cost of credit, in this case, is much higher. This year’s budget should announce the inclusion of unsecured loans to these segments in the bank’s PSL. Apart from improving credit penetration, higher credit flow from commercial banks to the under-banked and subprime segments will also decrease their credit cost.

Extension of Section 80EEA deduction to FY21

Budget 2019 introduced Section 80EEA to stimulate demand in affordable housing. It allows an additional deduction of Rs 1.5 lakh on home loan interest component, over and above the deduction available under Section 24b. However, Section 80EEA is only applicable on home loans availed by first time home buyers in the current financial year for purchasing housing properties with a stamp duty value of up to Rs 45 lakhs. With the continuing slump in the housing sector, extending Section 80EEA to FY21 can play a major role in reviving demand in the housing sector.

Redefine equity LTCG to 3 years and make it tax-exempt

LTCG tax exemption on equities played a huge role in increasing retail investors’ participation in equity markets. When it comes to wealth creation, equity as an asset class beats other asset classes by a wide margin in the long run. Budget 2020 should re-introduce this exemption to further encourage retail investor participation in equities and thereby, boost market sentiment and wealth creation. Budget 2020 should also change the definition of ‘long term’ in LTCG for equities, from the existing 1 year to 3 years. This will encourage long-term investment by retail investors in equity-oriented mutual funds.

Separate deduction for term insurance plans

The prime objective of purchasing a life insurance policy is to have a replacement income for dependents in the event of the insured’s untimely demise. Ideally, one’s life cover should equal 10-15 times of his annual income. Buying a term insurance policy is the best way to get such large life covers as their premiums are very low. However, most people confuse insurance with investment and thereby, buy life insurance policies with very little cover.

Budget 2020 should introduce a separate section for term insurance plans outside Section 80C. A separate section will incentivise taxpayers to buy term policies and thereby, get themselves adequately covered.

Aadhar (OTP) based eKYC for all financial products

The withdrawal of Aadhar-based e-KYC has adversely impacted the customer on-boarding process in the financial sector. Currently, Aadhar-based e-KYC is only allowed for opening bank accounts. The return to paper-based offline KYC for availing other financial products has increased both the turnaround time and customer acquisition cost. The increased turnaround time is especially impacting those requiring loans to meet their financial emergencies. Hence, this year’s budget should make some policy announcements towards allowing Aadhar-based eKYC for customer on-boarding of loans, mutual funds, credit cards, insurance, etc. This will ensure seamless access to financial products and expedite financial inclusion.

2% GST concession on digital payments

The decision to waive off MDR charges on UPI and RuPay payments was aimed at promoting digital transactions. The cost associated with digital payments is proving to be the main obstacle in the widespread adoption of digital transactions by small traders and the informal sector. However, transactions through other payment gateways are still attracting steep MDR charges. Hence, I would like Budget 2020 to announce two percent GST concession to merchants accepting digital payments. Doing so would create a strong incentive for merchants and traders to adopt digital payments and also ensure a more level playing field in the digital payment ecosystem.

Naveen Kukreja is the CEO and Co-founder of Paisabazaar.com.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Five signs that you are using credit cards the wrong way

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The role credit cards play in your life depends entirely on how you use them. If used smartly in a disciplined manner, they can provide a wide range of benefits and even bail you out of financial exigency. On the other hand, sloppy usage can at worse land you into a debt trap along with hefty charges and penalties.

Explained below are some crucial signs that you are using credit cards the wrong way:

Rolling over credit card debt by paying minimum dues

More often than not, credit cardholders who are unable to fully repay their credit card bills on time, find an easy way out by opting to repay just the minimum due amount. However, on the flip side, the rest of the outstanding credit card bill amount continues to accrue interest in the form of finance charges, which may go as high as 47-48 percent per annum.

Moreover, getting habituated in repaying just the minimum amount due can even be a sign of approaching a debt trap, as this practice of rolling over your credit card debt by paying just the minimum due per month would attract hefty charges in the form of high finance charges.

Hence, in case you are indeed facing difficulty in repaying your credit card dues, consider options such as the conversion of the entire outstanding balance amount into EMIs; credit card balance transfer, or get big-ticket spends converted into EMIs. You can also consider liquidating your low-yield investments to repay credit card bills, or leverage your long term investments by taking a loan against securities, as the associated interest cost is much lower than the finance charges levied on a credit card, and your long-term financial goals are also not compromised upon.

Maintaining credit utilisation ratio over 30 percent

This ratio refers to the proportion of total credit card limit utilised by you. As bureaus usually consider credit utilisation ratio of over 30 percent as a sign of credit hungriness, make sure you restrict your spending within this limit. Upon breaching this mark, credit bureaus can pull down your credit score by a few points. If your credit utilisation ratio tends to frequently breach this mark, either consider requesting your card issuer to increase your credit limit, or opt for another credit card. Doing so would assist in lowering your credit utilization ratio, provided you don’t hike your spending upon getting access to a higher limit or additional credit card.

 Not making the most of interest-free period

Failing to make the most of the interest-free period available on credit cards is another aspect of smart credit card usage which most cardholders tend to miss out on. An interest-free period refers to the period between the date of the credit card transaction and the due date of payment. During this period, the credit card issuer does not charge any interest on your transactions, as long as you can timely repay the entire credit card dues. Usually, this period ranges anywhere between 18 days to 55 days, depending on the date of your transactions.

To make the most of this interest-free period, you should time your major credit card spends at the beginning of your billing cycle, to get more interest-free days to repay them. Whereas in case you have multiple cards with different due dates, consider spreading your transactions amongst them in such a way that the majority of those transactions fall at the beginning of their respective billing cycle.

Withdrawing cash through credit card

Another significant mistake cardholders commit while using credit cards is the withdrawal of cash via them. Not only do such withdrawals attract cash advance fee as high as 2.5-3.5 percent of the withdrawn amount, but they also attract finance charges right from the day of such withdrawal till the date of repayment. Hence, withdrawing cash through a credit card should always be your last resort. And in case this becomes unavoidable, make sure you repay the entire withdrawn amount as soon as possible, to avoid piling up finance charges as well as a cash advance fee. 

Letting your accumulated reward points expire

Apart from offers like annual fee waiver, complimentary lounge access at airports and free movie tickets, one of the major benefits that credit card issuers highlight while pushing their products is the availability of rewards. Upon accumulation of reward points, you can redeem them in many ways, such as conversion into air miles or gift vouchers.

However, while using your credit card and accumulating reward points, remember that most credit cards involve a predetermined expiry period for these points, usually between 2-3 years. Once these reward points expire, you cannot redeem them, and hence end up missing out on benefits that could have been availed upon their redemption. Therefore, make sure they go through the terms and conditions of the chosen credit card’s reward point programme, and ensure redemption before expiry.

Naveen Kukreja is the CEO and Co-founder of Paisabazaar.com.

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Festive season spending: Here are a few tips to maintain your financial fitness

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Festive season is considered as an auspicious time for home renovation and making big ticket purchases like buying car, home electronic appliances, etc. To tap the increased demand, financial institutions and retailers come up with enticing offers and discounts on their products. However, a little bit of carelessness or compromise in your financial discipline may have severe impact on your overall financial health.

Keeping in mind following do’s and don’ts can help make most of this festive season without compromising your financial fitness.

Do’s

Budget your expenses

Prepare a list of various spends that you plan to make this festive season and fix spending limit for each of them. A list prepared in advance will give you more time to look out for catchy discounts and cash back offers available on both online and offline platforms. However,  do not allow yourself to be carried away by alluring festive sale offers and purchase goods that you don’t require. It may lead you to exceed set budget and may even harm your financial health.

Use debit/credit cards for transactions

Most banks offer special discounts and cash-back offers on debit and credit cards. Hence, visit the offer section of your debit and credit cards and find retail outlets or online platforms where such offers and discounts are valid.

Even if you fail to avail an offer, try to use your credit or debit cards for festive spends to the extent possible for earning higher rewards. If possible, try to redeem accumulated rewards for your festive buys as most banks have set expiry period for reward points.

Compare various finance options

An unavoidable big-ticket spend or last-minute addition to your festive list may force you to avail loan facility. In such cases, opt for the credit option offering the best in terms of loan tenure, interest rate, EMI amount, down payment and processing fee and time. For instance, if you are a home loan borrower, a top-up home loan may be the best option in terms of interest rate and tenure for financing your big ticket spends. For others, availing a personal loan is usually the best option. For credit card users confident of paying outstanding dues within 3-12 months, a loan against credit card or a credit card EMI would be more convenient for financing small ticket purchases.

Before zeroing on any particular lender, visit online financial marketplaces to find out the best deal available, depending on your credit score, monthly income and other criterion. Use online EMI calculators to find out the interest cost and monthly EMI options. Remember to factor in processing fee as many lenders try to make up for the reduced interest rates during festive season by charging higher processing fee.

Put festive bonus to good use to improve financial fitness

Public sector employees as well as many in private sector usually receive hefty bonuses during the festive season. As a sizeable portion would be used for festive shopping, the left-over portion can be used to strengthen your financial health. For example, existing home loan borrower can use his surplus bonuses to part-pay or prepay his outstanding debts and reduce interest cost. Others can invest the surplus bonus in mutual funds to meet their financial goals.

Don’ts:

Exceed 30 percent of your CUR

Your credit utilisation ratio (CUR) is the proportion of total credit limit availed by you. Those having CUR above 30 percent are considered as credit hungry by lenders and hence, credit bureaus too reduce the credit score on breaching this limit. If you are closer to breaching 30 percent CUR in this festive season, request your existing card issuers to increase your credit limit or route some of the transactions through your debit cards.

Spending beyond repayment capacity

Remember to keep track of your spends during this festive season as unhindered consumption may land you in a debt trap. Keep in mind your repayment capacity while swiping your credit card or availing loans for festive season. Remember that failure to repay your credit card outstanding by the due date will cost hefty finance charges of up to 47 percent p.a. Failure to repay the minimum amount due would additionally cost you late payment fee while reducing your credit score at the same time.

Naveen Kukreja is the CEO and Co-founder of Paisabazaar.com.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

DIY guide to filing income tax: Here is a list of crucial do’s and don’ts

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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While a large section of taxpayers seek assistance of tax consultants while filing their ITR, many still prefer a D-I-Y approach to their tax filings. With the filing of tax returns getting increasingly complex, those who aren’t exactly familiar with the concepts of income tax have a high probability of making mistakes while filing their returns. Unless rectified through revised ITRs, these mistakes can invite scrutiny from IT department and delay in receiving refunds.

Here is a list of crucial do’s and don’ts while filing your ITR.

Do’s

Gather all the required documents

Filing tax returns require various details, such as income receipts, investment receipts, old tax receipts, form 16, form 26AS, etc. Ensure to keep all these documents ready before filing tax returns. Also, ensure to keep these documents in a safe and organised manner even after filing your returns as these may be required later in case of any scrutiny by the income tax department in future.

Choose the correct ITR form

The ITR form would depend upon the type and source of your income. For example, ITR 1 or SAHAJ form is meant for those having total income within Rs 50 lakh through salary, pension, one house property and other sources. Whereas ITR 3 has to be filed by individual or a Hindu Undivided Family having profits or gains from business or profession but not eligible to file Form ITR-1 (Sahaj), ITR-2 or ITR-4 (Sugam).

On filing an incorrect ITR form, your ITR would be termed as defective and lead you to submit a revised form within 15 days of receiving a notice under Section 139(9).

Recheck before final submission

Before the final submission of your ITR form, recheck the calculations, personal information, income details, etc. Make sure that it matches with the details mentioned in your Form 16 as any wrong information, incorrect calculation would attract a notice from the IT department. In case of discrepancies, you would again be required to submit revised return as per the issued notice. Prefer e-filing as that eliminates the chances of errors.

Verify the details in Form 26AS

Form 26AS is an annual consolidated statement containing details of tax refunds to the taxpayer and tax deducted at source on behalf of him by the deductors, collectors, etc. You can easily access the Form 26AS from the ITR filing website and verify the taxes paid on your behalf by the deductor, generally the bank or employer. To confirm reporting of complete income and avoid any notices from the IT department, make sure to match the tax details in your returns with the TDS details mentioned in form 26AS. Furthermore, as tax authorities consider form 26AS as the only proof of taxes paid by you, make sure to notify the deductor of the discrepancies, if any, and get them rectified on priority.

Club the income from previous employers

Salaried employees often fail to report salary income earned from their previous employers after switching jobs. However, one’s tax liability can change drastically on clubbing of income from previous employers. If your new employer is not aware of the income earned from your previous job, their tax computation too would be inaccurate. Moreover, minimum income exemption and various tax deductions may have been allowed by more than one employer while calculating tax. Therefore, reconcile all the details and file correct figures as failing to do so may lead to scrutiny. Those with higher income would also have TDS deducted by the previous employer. Therefore, reconcile all details to pay the correct amount of taxes while filing the return.

Don’ts

Avoid missing out on disclosure of any income

Make sure to disclose all your income, regardless of its type and source, while filing your ITR. Not disclosing other income sources, such as interest income from deposits, income from previous employer, etc can attract IT notice under Section 148 for incomplete reporting of taxable income. Also ensure to include incomes coming under the exempted income category while filing your return to avoid any notices or inquiries from the tax department in the future.

Not claiming deductions

Income Tax Act offers a host of tax deductions under various sections on various investments and payments, which help in reducing the overall tax liability. Filing of income tax returns provides taxpayers a second chance to claim these deductions if they have failed to furnish the proof of such payments or investments with their employer. However, once you file your tax returns without claiming any of these deductions, you will not be able to claim them in the subsequent ITR filings. They can only be claimed by filing revised ITR within the same assessment year. Hence, make sure to factor in all the deductions while filing your ITR.

Naveen Kukreja is the CEO and Co-founder of Paisabazaar.com 

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Budget 2019 Analysis: The major hits & misses

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The first budget of Modi 2.0 government primarily focused on stimulating growth, incentivising digital economy and promoting affordable housing.  Its proposal to provide additional tax deduction of Rs 1.5 lakh on interest payment of affordable housing loan should revive demand in the housing industry. The decision to recapitalise PSU banks and provide partial credit guarantee to PSU banks to purchase high rated pooled assets of NBFCs will increase liquidity in the NBFC segment and credit flow to the MSMEs.

Here is a list of major hits and misses of Budget 2019:

HITS

NPS: Tax-exempt maturity proceeds for all and increased tax deduction for central government employees

With the perspective to enable pensioners to have more disposable income, the budget has notified the earlier Cabinet decision to fully tax-exempt lumpsum withdrawals of NPS maturity proceeds. The proposal was approved by the Union Cabinet in December 2018 but was not notified in the Interim Budget. Additionally, Budget 2019 also provided incentives to central government employees by increasing tax deduction for employer’s contribution from the current 10 percent to 14 percent of the salary and by including the employee’s contribution to NPS Tier II account under Section 80C.   

MSMEs: Higher credit flow 

The MSME segment plays a crucial role in the economy by contributing around 29 percent to the GDP and providing employment to around 12 crore people. However, this sector has always been plagued by insufficient credit flow from the banking sector.

While NBFCs were successful to an extent in bridging the gap in the credit supply, the recent liquidity crisis in the NBFC segment have adversely affected their capacity to lend to the MSME sector. This year’s Budget has tried to address this issue through two proposals. First is to inject Rs 70,000 crore as capital in PSU banks and then by providing partial credit guarantee to the PSU banks for purchasing high-rated pooled assets of strong NBFCs.

While the partial credit guarantee will directly improve liquidity of NBFCs, the recapitalisation of PSU banks will increase their capacity to lend to both MSMEs as well as the NBFCs, some of which will flow to the MSMEs as well. Additionally, an interest subvention of 2 percent for all GST registered MSMEs on the fresh and incremental loans will provide a boost to the MSME segment by reducing their credit cost.

 Affordable housing: Higher tax deduction to boost demand

Continuing with its aim to achieve the goal of “Housing for all” by the year 2022, Budget 2019 has proposed a major tax benefit for incentivising home buyers in the affordable housing and thereby, revive the demand in the housing sector. As per the proposal, Section 80EEA has been inserted, which will allow an additional deduction of Rs 1.5 lakh on the interest component paid on housing loans priced up to Rs. 45 lakhs. However, this deduction will be available only on housing units purchased from April 2019 to 31st March 2020.

 MISSES

LTCG tax: Non-exemption of equities and equity mutual funds

Equity market plays a crucial role in capital formation and overall economic development of a country. The erstwhile exemption of LTCG on equities played a crucial role in the deepening our equity market and increasing the retail investor participation in it. Hence, the restoration of tax exemption of LTCG tax on equities would have helped in further increasing the participation of retail investors in equities. Additionally, this would have also brought in tax parity of equity mutual funds with other equity linked instruments, such as NPS and ULIPs, which are still exempt from LTCG tax on equities.

Section 80C: No increase in its upper limit

Section 80C is crowded with numerous mandatory pay outs like children’s tuition fee, home loan principal repayment, life insurance premium, etc. This lead taxpayers to easily breach Rs 1.5 lakh limit, leaving no incentive for taxpayers to save and invest in tax saving FDs, PPF, NPS, ELSS, etc.  A higher limit would have provided a strong incentive to the taxpayers to save taxes through long-term investment in financial assets and thereby, enhance their long-term financial security.

Naveen Kukreja is CEO & Co-founder, Paisabazaar.com.

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Union Budget 2019: Here’s a wishlist for increasing private consumption, investments and housing demand

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Union Budget 2019 set to be presented on July 5 will be the first budget of Modi 2.0 government. The landslide victory in the general elections and various tax sops for individual taxpayers in the interim Budget have increased the expectations for more tax sops for the middle class. The recent slowdown in the economy requires proactive steps to put more money in the hands of the taxpayers for increasing private consumption and investments. The liquidity crisis faced by the housing finance companies also demands budgetary aid for increasing housing demand and liquidity in the sector.

Reinstate long-term capital gains (LTCG) tax exemption on equities to increase retail investor participation

The LTCG tax exemption played a key role in increasing the participation of retail investor segment in the equity markets, especially through mutual funds. Hence, restoring this exemption would help in further increasing the penetration of equities among retail investors. Moreover, while LTCG tax was reintroduced on equity and equity mutual funds in Budget 2018, other equity-related investment instruments, such as  Unit Linked Insurance Plans (ULIPs) and National Pension Scheme (NPS) continued to remain exempt. Thus, reinstating LTCG exemption on equities and equity mutual funds will also restore tax parity with other equity-oriented schemes like ULIPs and NPS.

Make NPS lump sum withdrawals on maturity completely tax free

The government approved the proposal of making lump sum withdrawals of NPS post-maturity completely tax free in December 2018. Currently, up to 60 percent of the accumulated corpus can be withdrawn lump sum on maturity while the rest has to be used for purchasing annuities. While 40 percent of the accumulated corpus withdrawn lump sum is tax exempt, the rest of the amount withdrawn is taxable. The portion of the corpus used for purchasing annuity is tax free; however, returns are taxable. Hence, Budget 2019 should notify the proposal to completely tax exempt NPS withdrawals on maturity to bring tax parity with other competing retirement solutions like PPF and EPF.

Reintroduce Section 80EE deduction to incentivise first-time home buyers

Section 88EE allows deduction of up to Rs 50,000 on interest payments on home loans of up to Rs 35 lakh for house properties valued up to Rs 50 lakh. The deduction is over and above Rs 2 lakh deduction on interest payments available under Section 24b. However, this deduction is only available on home loans sanctioned to first time home buyers between FY2016-17. Budget 2019 should reintroduce Section 80EE deduction to incentivise first-time home buyers and thereby, boost demand in the housing industry.

Increase 80C deduction limit to Rs 3 lakh to incentivise long term savings

Many taxpayers breach the upper limit of Rs 1.5 lakh under Section 80C through wide range of qualifying expenses and mandatory contributions, such as employee’s contribution to EPF, life insurance premiums, home loan principal repayment, children’s tuition fee and payment of registration fee and stamp duty incurred on the construction or purchase of home property. These leave taxpayers without any incentive to save taxes by investing for the long term through equity linked savings schemes (ELSS), public provident fund (PPF), etc. Budget 2019 should increase the Section 80C deduction limit to Rs 3 lakh to encourage middle class taxpayers to invest more in long term investment instruments and thereby, improve their financial security.

Promote term insurance by creating a separate section for it

Term insurance policies allow people buying life cover of up to 10–15 times of one’s annual income at very low premiums. However, most confuse insurance with investment and buy life insurance policies that provide inadequate life cover. A separate section for term insurance policies would incentivise taxpayers to buy term insurance policies and ensure financial security for their dependents.

Promote affordable housing by increasing the refinancing facility from National Housing Bank (NHB)

Budget 2019 should increase the affordable housing fund with NHB from Rs 30,000 crore to at least Rs. 60,000 crore with the objective of providing refinance to affordable housing finance companies. There is a huge latent demand for housing among those belonging to the lower income groups. Considering the liquidity shortage and the government’s objective of achieving ‘housing for all’, a larger pool for refinancing will give a huge boost to the affordable housing sector.

Naveen Kukreja  is  CEO and co-founder of Paisabazaar.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Do you have an irregular income? Here are 5 key financial tips for you

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

Listen to the Article (6 Minutes)

Self-employed individuals lack uniform cash inflows unlike their salaried counterparts. This often leads them to park substantial amount of surplus for meeting their expenditures during lean periods or investing in their business/profession for future growth. Moreover, being devoid of Employee Provident Fund (EPF) and other employment-linked pension benefits, they are completely on their own to ensure their post-retirement financial security. Hence, financial planning becomes even more vital for self-employed individuals.

Here are some smart financial moves for ensuring the financial fitness of those with irregular income:

Maintain adequate emergency fund

An emergency fund of at least six months of monthly expenses is advised for salaried individuals. But for self-employed individuals earning irregular income, the fund must be on the higher end of this range. Try to maintain a contingency fund covering at least nine to 12 months of your mandatory monthly expenses. This should also include your existing EMIs, insurance premiums and monthly SIP. Without adequate emergency fund, you may end up using your investments to deal with unforeseen financial crisis arising out of severe illness, accident, etc., and hence, thus compromise on your long term financial goals. As the name suggests, you might need to make instant withdrawals from the fund. Hence, park your contributions for this fund in high yield savings account and ultra-short duration debt funds. These instruments generate higher returns than regular savings account while offering higher level of liquidity and capital protection features than other debt funds.

Purchase adequate term and health insurance

The next step after the creation of emergency fund is to purchase adequate term and health insurance. Buy a term insurance amounting to at least 15 times your average annual income. Doing this will secure your family financially by providing them a replacement income in your absence. The proceeds of your term insurance plan can help your family in repaying your existing loans and meeting important life goals like meeting your child’s higher education or wedding expenses.

Apart from this, progressive rise in medical cost has created the need to buy a health insurance for covering the medical expenses of you and your family. Moreover, having adequate health insurance for self-employed is even more crucial as they are not covered by employer’s group health policy. In the absence of a health policy, a single incident of hospitalisation can eradicate your lifelong investments and savings. Married individuals should opt for  a family floater plan as that can get their parents, children and spouse covered at much lower costs.

Create a financial plan

Financial planning is comprehensive money management strategy created for achieving your financial goals based on your risk appetite, investment horizon and cash flows. Apart from providing a proper direction to your investments, it also ensures an appropriate asset allocation for attaining your life goals. Begin by estimating the amount required to meet each of your financial goals, the time horizon left to attain them and an assumed inflation rate. Once you have calculated the size of your financial goal, take the assistance of SIP calculators to know the monthly contributions required to attain the financial corpus.

Consider appropriate asset allocation strategy

Asset allocation is the process of diversifying your investments across various asset classes, such as equities, debt, gold, cash equivalents, fixed income securities etc. The objective is to balance your portfolio’s risk and rewards according to the risk appetite and investment horizon of your financial goals. For instance, as equities can be highly volatile in medium and short term, investors should invest in short term debt funds and high yield fixed deposits for financial goals maturing within three years because of their higher income certainty and  capital protection features.

For medium term goals maturing between three and five years, investors can consider hybrid funds. Similarly, investment for long term goals (five years and above) should be invested in equities as they outperform other asset classes and inflation by a wide margin over long term.

Use credit card to build your credit score

A good credit score is considered an essential financial asset today. Lenders not only consider your credit score when approving your loan and credit card applications, they also offer lower rate of interest to those with higher credit scores.  Thus, those without credit history have lower chances of loan approval. However, taking a loan to just build your credit history is also not advisable as that would include paying interest cost and processing fee. Instead, opt for credit card to build your credit score. Transactions made through credit cards are reported to the credit bureaus, which factor them in to calculate your credit score. Additionally, choosing the right credit card will also save you money in the form of cashbacks, discounts, reward points, joining benefits, etc.

If you are denied credit cards due to lack of credit history, insufficient income, unserviceable locations, etc, opt for secured credit cards to build your credit history. These cards have similar features as regular credit cards except for the fact that they are sanctioned against the collateral fixed deposits. Transactions made through secured credit cards are also reported to the credit bureaus, which are then used to calculate your credit score.

Naveen Kukreja is CEO and co-founder, Paisabazaar.com.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

When to redeem your mutual fund investment? Take note of these five trigger points

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

Listen to the Article (6 Minutes)

We practise due diligence while investing in mutual funds, but seldom do we pay attention to factors that warrant redemption of mutual fund investment. Although it’s true that timely and disciplined investments in mutual funds can help achieve financial goals, taking a call on whether or not to sell investment can be challenging for most of the investors.

Let’s look at some of the scenarios wherein you may choose to exit your mutual fund investments:

Achieving desired financial goal: Always align mutual fund investment with your financial goals such as accumulating funds for home loan down payment, children’s higher education or your post retirement life. Redeem your investment if the set goal has already been achieved. If your financial goal is still a couple of years away and the mutual fund investments meant for it has already reached or surpassed the target corpus, consider shifting your equity fund investment into less risky instruments such as liquid funds or high yield savings accounts. Doing so would protect your accumulated corpus from short term volatility, and also provide higher degree of liquidity and capital protection.

Consistent under-performance of fund or sector/theme: A mutual fund is considered to be good only if it consistently beats its peer funds and benchmark indices, in terms of returns generated. Consider redeeming your investment if your existing mutual fund/scheme fails to do so for more than 3-4 consecutive quarters.

At times, thematic and sectoral funds can underperform due to adverse changes in business cycle of the fund’s constituent instruments. You may opt out of such funds in case you are sure that it would continue to underperform for a long time.

Portfolio re-balancing: Investors often find alterations in their asset mix owing to varying returns generated by different asset class. For instance, an investor’s portfolio has debt-equity allocation of 40:60, in favour of equities. But a bull market leads to extraordinary returns from equity funds, resulting in equities appreciating rapidly and now accounting for 80 percent of the portfolio. You may choose to rebalance your portfolio if any changes in asset mix alters your risk exposure to a great extent. Instead, invest the proceeds in underweight asset class (debt, in this case), to maintain debt-equity ratio of 40:60.

Fund’s investment objective is changed: Each mutual fund scheme declares its investment and asset allocation strategy. This helps us in finding out whether the fund’s strategy would suit our financial goal and risk appetite. Since any change in fund’s investment objective can have implications on your financial goal, you may choose to redeem your investment if the existing scheme is no longer in sync with your goals and risk appetite.

For example, if you had invested in a multi-cap fund, which has now changed itself into a mid-cap fund involving higher risk than your comfort level, you should redeem that fund for another multi-cap fund which suits your risk appetite.

Your risk profile has changed: Reasons such as unforeseen financial exigencies, changes in financial goals or income can alter your risk appetite, which may leave your existing portfolio with a mismatched risk profile. Such abrupt changes in risk profile may necessitate the need to redeem your existing mutual fund investments. For instance, the portfolio of an investor possessing aggressive risk profile, is skewed towards equity fund investments. But an unforeseen financial exigency can lead him to a conservative risk profile, implying that he needs to redeem a proportion of equity investments and invest in less riskier instruments such as debt funds.

Naveen Kukreja is CEO and Co-founder of Paisabazaar.com.

Read Naveen Kukreja’s columns here.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow