Make your resolution for the financial year ahead today

Source: DNA India

Money grows throughout the year if invested at the start and you can weigh the options well based on taxation, lock-in period, expected returns and maturity taxability

While January may be the time to call resolutions on personal front, April is a good time to resolve for healthy finances. Tax-planning at the eleventh minute, not planning for expenses in time and miscalculating essential recurring payments are mistakes each individual should avoid. An annual check on monetary duties ahead of the new financial year would save you hassles later.

Here is your financial checklist for the year 2015-16:

Essential forms

Starting April 1, 2015, interest payments exceeding Rs 10,000 from recurring deposits and deposits with co-operative banks too would be subject to tax deduction at source. Also, the finance minister has clarified that deposits and interest earnings across all the branches of the same bank would be taken into account to calculate the TDS applicable.
Also, payments by life insurance companies above Rs 1 lakh in a financial year too would come to your accounts only after deducting taxes at 2% (if PAN provided) or 20% (absence of PAN). If your taxable income is below the threshold limit of Rs 2.5 lakh (individual, Rs 3 lakh (senior citizen) or Rs 5 lakh (super senior citizen) then you will have to submit the form 15G/ 15H to the bank or life insurance company.
However, do not submit the Form 15 G/H if you aren’t eligible. “It should be filled only if your income is less than taxable limit. A penalty of Rs 1 lakh is levied if you fill it otherwise,” warns Jayant Vidwans, director, Chaitanya Financial Consultancy.
But if additional taxes have been cut, don’t forget to make a note and claim refunds, while filing taxes.

Bank accounts

Apart from form submissions, you should also ensure enough balance in your account to pay for annual fees such as debit card fee, demat account maintenance, locker charges that automatically get deducted from your bank account.
Starting April 1, 2015, the new RBI guidelines on non-maintenance of minimum balance would come into effect. Though banks wouldn’t be allowed to charge negative balance to customers the services would be restricted if the account goes below the stipulated balance required. Note that many banks have tweaked their calculations from average quarterly balance to average monthly balance and few even take into account the simple day-end balance.
Not just the charges linked to minimum balance, but others such as cheque issuance, courier returns have been jacked up, so find out the new way your bank would be calculating the minimum balance and ensure that it is maintained. The penalty now would be stiffer than earlier. Update all your contact details such as email, phone number and address in case of any change as the non-maintenance notification would be notified either by SMS or email.

Salary structure

You can seek a change in the salary structure following the changes announced by the finance minister in the budget and the Employees Provident Fund Organisation (EPFO) during the past year. This is better done at the start of the year as the investment declaration and tax deduction would be dependent on the salary structure.
Now employees have the option of choosing between New Pension Scheme or EPF. Financial planners such as Vidwans recommend, “NPS is much better than EPF or PPF as equity investments are permitted.” One can invest up to a maximum of 50% in equity under NPS, as compared to EPF, where the investments are into debt assets.
Also, the EPFO has notified corporates that, “Do not force employers to contribute over and above the statutory wage ceiling limit (Rs 15,000 per month). However, an option is available to employees to contribute beyond the statutory wage ceiling, if they so desire.”
As per the Employees Provident Funds Scheme, PF is computed at 12% for both the employer and employee contributions of the basic wages. So if you and your employer had been contributing more than Rs 15,000 there is now an option to ask for alteration in the salary structure and take home additional money. However, if you had been banking on the EPF deduction for your tax planning purposes you will need to make alternative arrangements.

Tax planning

Instead of rushing for tax planning investments toward the fag end of the financial year, decisions are best made during the start. It is proven that investments under PPF and ELSS bulge to a bigger corpus if the investments are made in April instead of Jan-March of the following year as they gain the edge of compounding. Money grows throughout the year if invested at the start and you can weigh the options well based on taxation, lock-in period, expected returns and maturity taxability.

Asset re-balancing

The BSE Sensex has paced up by 22.67% during the financial year as per the closing of Friday March 27, 2015. As a result of the high equity returns you portfolio would be skewed towards equity. If your asset allocation has been skewed as a result of these high equity returns, then you need to invest a little more into debt to set the equation right. “One needs to balance the portfolio in lieu of change in the value of equity after the stock market run-up,” suggests Vidwans.

Nominations

Nominations for various investments and accounts need to be reviewed each year. A lady investor realised during a meeting with her recently-engaged financial planner that her ex-husband’s name was mentioned as nominee for all her investments, even though she had separated five year ago.
Nominations should always be reviewed annually to keep in sync with events such as marriage, divorce, minor turning major, death of nominee. Etc.

Set payment reminders

Have you had to bear the penalty for late payments of insurance premium? Don’t repeat the mistake this year as you could be stripped off your cover if you fail to pay within the grace period. Health declarations or tests too may be required for renewal and revival of lapsed insurance policies. Various personal finance websites and insurance company websites allow you to set payment reminders. Take help of these and ensure timely payments.

Review insurance needs

If you family has grown or the health conditions of members have deteriorated it may be time to enhance the insurance cover for the family. This would protect your income from eroding in times of unforeseen medical expenses, which are rising at the rate of 18% per annum, as per researchers.
A super top-up policy or an increase in sum assured can be sought under the same policy, without buying a new cover.

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