Shubh Mangal Savadhan

It is a marriage season out there. All around people are hopping across marriage venues leaving behind their best wishes for the newly weds for a successful life ahead. After all the efforts back in preparations, planning and co-ordination finally an event has taken shape.The two different individuals are coming together to share their life together. Going forward among the various things that they will share and plan include their personal finances.

a) Understand your cash flow – To begin with it is necessary to make a note of following points:

• Are both the partners are working, if yes, then cash flow doubles else the couple have to survive on single income.
• Make a list of necessary expenses which are likely to increase with two people living together including living ,conveyance or lifestyle expenses.
• In case of home contribution, work out the likely increase in it.
• Understand the likely emergency provisions to survive for any contingency.
• Also make sure, if you have committed any funds to your respective parents, your spouse is made aware of it.

b) Distribute your monetary responsibilities – For a successful marriage, it is best to distribute your responsibilities along with your funds. Similarly even in personal finance, it is best to understand,who is going to perform what role. You can divide your bills clearances and payments versus spending in line with the budget. It ensures clarity of funds movement. This will give you full freedom of doing your work and to learn from your own mistakes.

c) Sync your savings – Prior to your marriage, if you have been making savings it could be in line with your goals and income. However, going forward, you have to sync your goals as a couple and rework your priorities. So, now the savings are suppose to be in line with your goals as a couple. Also, the previous savings should be now utilized to clear off your joint liabilities and outstanding.

d) Update your records – It is necessary to update all your nominations, contact details and all required documents including PAN card, Passport ( if you wish to), ration card and even your voters card. These records are basic and should be corrected under any circumstances. Get the process in motion at earliest.

These are few beginning points to bring your personal finances in place. Once, the wheels of personal finance are set, it is recommended to get your financial plan devised to improvise it further.

Life Planning – A step ahead of Financial Planning

The HDFC Life ad always reminds us life beyond just survival. It talks about living our dreams to the fullest, leading a self reliant life. But the stark reality remains we always measure our achievement with our bank balance. We compare it with our fleet of cars and number of social clubs membership we have gained. Do we always want to stay stuck with the thought “that I am financially ready for anything in life or after it” or we want to beyond it.

A Financial Planner always starts to probe client's needs and wants in the ascending format of pyramid.If the client has made a provision for all of his goals, he believes that he doesn't need any further help except for review. Most of planners leave their role at this juncture considering that the client has met or planned for all his life.But that is a misconception. We need to probe a little ahead and actually make them realize about their bottled aspirations and dreams. Move on Financial Planning – lets look at Life Planning.

Life Planning is to achieve towards those unfilled wishes which are left incomplete due to either our own phobias, time commitments or family responsibilities. So, have we all identified such desires which are deep down in our heart and unfulfilled? Most of time when I raise this question to any client , they rather listens to us with all rapt attention but are unsure about their reply. The first thing that they mentions is “I donate annually some amount to XYZ charitable trust” or “I pay for my servant's son's education fees”. WE MIX LIFE PLANNING WITH CHARITY. It is not the right way to interpret Life Planning.

Life Planning can be understood in following points:

a) Life Planning is not limited to economic achievements it is about emotional satisfaction. It is not always wealth accumulation sometimes its even giving away. Share your work knowledge to the novice in the industry. Help them build contacts. A charitable trust to sponsor local talent in sports, education or even helping with expensive medical equipment.

b) It can be measured with the joy of attempting something without fear of loosing something. Something like setting up a school for local street kids and teach them.

c) It is about living your entire life as if there is just a single day. Hosting a party for all your friends, families and loved ones to thank them for all their efforts and support.

d) Life Planning is attempting to do what you couldn't do till now. It could be as simple as creating a song album for yourself or watching a live jazz performance in Manhattan.

The concept of Life Planning tells us that we should retire from our active work life and not from simple joys of your life. Till now, we have lived every moment as a responsibility or as our duty for our family. Its now time to do what our heart intends to do. As it is rightfully said, we relive our childhood in our sixties. ”Pachpan mein Bachpan”. So,don't limit your planning let it evolve.. never let a dream just fade away.

 

New Year Resolutions for Personal Finance

To ensure that your loved ones enjoy a good, healthy life it is necessary to follow the below mentioned simple mantras of Personal Finance

1. Keep a monthly home budget and track your daily expenses.
2. Keep your life insurance cover adequate to match your earnings to support your family well being after you.
3. Invest in assets you have good understanding about. Avoid all un-neccessary loans.
4. Prepare a personal asset list (balance sheet) with its latest market value from time to time.
5. Keep a list of all your bank accounts and lockers.
6. Keep all life insurance policies intact and store in one safe place. Also, maintain all paid premium receipts it is required for claims. Keep all contact details of your policy advisor available with your family.
7. Involve your spouse / parents in all your financial investments.
8. Keep a nominee to all your investments, insurance policies and assets.
9. Clear all personal liabilities or mortgages at earliest.
10. Keep your financial planner aware of your financial decisions time and daily.
11. Do not leave any paper work incomplete and keep an up to date records of your regulatory requirements.
12. Plan your estate distribution at appropriate time to avoid disputes ahead.

Make the most of your Festival Sale

It is festival time and all our newspapers, emails are filled with all kind of attractive discounts and buy back schemes enticing us to buy the most of things on display. Now with the eCommerce sites vying for the maximum buy around the festival times, the discount wars have shifted its gears from offline to online markets. With the GOSF, spreading its reach even tier 2 and tier 3 city are now shopping online.

The banks are also an active participant in this bandwagon giving impetus to festival buying and increase use of credit money.Some of the popular ways you can make the most of your purchases are:

a)Buy back schemes – It has been one of the most successful method to entice the customer especially for consumer durable even in olden times, where buying an electronic good was a big event for any family. The scheme would attract customers to replace their old appliances with a new model and get a good amount of reduction in the purchase price. Although its a popular new purchase method even today, but now the value of replacement is limited and makes hardly any reduction in the purchase cost. There is a minimal reduction due to ever changing technology and cut throat competition. To make the maximum of this deal always compare two- three big vendors beyond your local seller.

b)Cash back schemes – These schemes are mostly an offering of banks with their specific tie – ups with exclusive stores or brands. It is a successful method to make the consumer use his credit/ debit card and also to make expensive shopping. Generally the cash back is around 5% of the value credited in your account in 60 days time frame . If it a bank offer it gets credited around your bill cycle. They are more or less like our old days cash discounts.

c) Free Shipping – This is an easy way to attract customers especially in an online shopping spree. Usually shopping beyond a certain money value is given free shipping. The cost of paying for transportation acts a deterrent to revisit the website.So, to make the value of shopping more the free shipping acts a good attraction. Websites like Ferns N Petals charge a premium to deliver their goods at specific hours or midnight making it an additional cost. So, if you have not planned your purchase well in advance, it is better to route your purchase from one single website to waive these charges.

d)Supplementary gifts – A small additional gift received along with the purchase of your expensive good always make you attracted to this format. It is mostly found that if make a purchase Rs 1 lakh you are given a gift of Rs.5,000 or so. So, its wise to make your purchase only if you find the attached gift worth your utilization. Sometimes, in jewellery, the making charges are waived off.

e)Privilege Points – The most interesting and attractive way to make your purchases is to earn privilege points. These points are easy way to make a future purchase. Some times, an airline adds to points on your credit/debit card and redeemed to buy tickets.

So go ahead and splurge this festive season ahead. Just be sure that whatever you spend is worth the value. Don't be attracted towards the attached strings but the actual worth of purchase made.

Which loan do we Repay first -Home or Personal?

Although in all our previous post we have been advocating the fact that loans should be utilized only when extremely necessary, taking loan has become the way of life. Many might deny the fact that we don't have any sort of loan or EMI payment on ourselves, but what they ignore is that using their credit card indiscriminately is also kind of a loan. So, to lead a loan free life it is essential that we schedule repayment of our loans at regular time intervals. It boosts our monthly surplus as well as give a peaceful mind.

We have been discussing few asset based loans in previous few posts(refer to our November 2015 posts for more information at www.saarthifp.blogspot.in). Considering the above and the traditional other loans, we should prioritize the loan repayments in the following order:

Priority 1: Personal loans

Target your repayment with this short term but high on interest Personal loans. The loan is given based on the credit history of borrower and his repayment capacity i.e. Income. The end use of the loan is not defined and is usually preferred for splurging on more of wants rather than wants of individuals. It is an unsecured loan thus , they are often offered at a higher interest rate with higher EMI payments. Similarly is the credit card repayment which needs to be equally prioritised.

 

ROI	13.00%
Period of loan	4 years
Amount of loan	6,00,000
EMI	16,096
Total repayment made in 4 years	7,72,632

Priority 2: Asset based loans

The asset based loans like gold loans, loan against property, loan against fixed deposits and insurance policies are usually borrowed for some unplanned requirements. Such loans should be looked to be repaid as they are just have an additional interest burden. Although, the amount of loan in gold and property is determined on basis of asset value and it is just acts like an overdraft facility for actual funds used. (Read more about the features at our previous blogs at www.saarthifp.blogspot.in ). In all the earning capacity of these assets is not more then the charged interest rates, hence they should be repaid after any Personal loan.

Priority 3: Home loan

Although ,Home loan is one of the commonly availed loans, we recommend to get rid of it at every possible opportunity. For years people have been harping the tax benefits associated with it but the truth is that the tax benefit is a very short term benefit versus a lost opportunity to invest the EMI savings elsewhere. The exit strategy for home loan also differs based on the tenure and type of house. in the housing loans, in the initial few years, most of the EMI payments are towards the interest payments and its only during the last few years of loan tenure that they account for principal repayments. Look to repay the loan in first ten years tenure of loan as the deduction for principal repayment is under usually crowded 80C whereas there is no limit for second home (for self occupied home limit is Rs 200000). So, as and when you get huge amounts or windfalls, plan to route it for home loan repayment.

ROI	9.55%
Period of loan	20 years
Amount of loan	25,03,000
EMI	23,413
Total repayment made in 10 years	28,09,563
Total repayment made in 20 years	56,19,127

Conclusion

It is very necessary that you analyze the pros and cons of whether to opt for an investment or to use the funds to repay the existing loan. It is necessary to decide your exit point for any loan and not make any emotional attachment to it.

Tax Return for a Deceased Person

It is not unusual if somebody files tax return on behalf of himself or his family member. However, we have come across situations where people are misguided regarding the fact that tax returns for a deceased member are not required to be filed.Families are usually under emotional distress for sometime following the death of a near one and can hardly think of anything else but to revive their lifestyle.

So,on inquiry by few of our friends and clients, we would like to share that a deceased person might stop existing physically but his investments earnings and income for the last financial year is still tagged to his name till the attached will/ estate distribution takes place. So, as per the rules under IT act, tax returns for a deceased person needs to be filed like any other ordinary man. Today, we will discuss in short about the basic outline of this process.

How is the income calculated for deceased person?

For the previous year the total income is divided in two sections:

a) beginning of previous year (i.e. From 1^st April) till the date of death.

b) from the date of death till the end of previous year (up to 31^st Mar).

Who is liable to file tax return for deceased person?

As per section 159 of IT Act 1961, a legal representative of the deceased is responsible for filing tax return. Usually, the spouse or any close relative of the deceased takes charge as the legal representative. In case of will, of the taxpayer who has passed away, the executor or any one mentioned in the will is held responsible. In case of multiple legal heir (in case of more than 1 child) it is always preferred to get a written agreement between all regarding the tax return filing.The IT act mentions the list of documents to be filed for legal heir is as follows:

https://incometaxindiaefiling.gov.in/eFiling/Portal/StaticPDF/Register_Legal_Heir.pdf

Who is liable for tax liability of deceased person?

Although, the legal representative / heir makes the required return payment, he is not responsible for liability clearance from his own funds until the assets are actually distributed. He can claim the amount in case of penalties or any other advance tax payments made from the estate of the deceased. If the executor is responsible for making the required tax return, he can claim the amount from the estate income. 

Accordingly, in case of any refund cheque received, it is to be deposited in joint account held with the deceased person. If there is no such account, then the registered bank account's nominee needs to present Succession certificate, death certificate etc to court.

In case of further queries, we would request you to contact us at saarthifp@gmail.com to get a personalized response to your particular situation.

All about Hindu Undivided Family

For long time,we have been getting request to discuss the concept of Hindu Undivided Family. The concept which has for years been linked to our joint family system is often misunderstood just as another separate entity created to save taxes. However, the structure and norms of an HUF are very complex and with proper guidance be a preferred way to create a pool of family assets.

A HUF is a entity created by family members up to four generations i.e. lineal ascendants or descendants of Hindus, Buddhists, Jains and Sikhs. There is no mention of any formal definition of HUF in the IT laws. The HUF follows the Mitakshara School of Law.

To start an HUF, an married individual with a child can start a HUF. The HUF needs to be formed by a male member.Some of common terms associated with HUF:

a)Co-parcerners – Members of a family who acquire right in the property of HUF by birth i.e. Father,son and daughters. The wife of the person forming the HUF is not a co-parcerner but a simple member.

b)Non Co-parcerners- Members of family who are part of HUF but cannot ask for partition or break down of HUF property. They can only claim maintenance expenses. A smaller HUF can also form a part of the bigger HUF.

c)Karta- The elder most male member of the family is declared as the Karta of the family. In case of his death, the responsibilities of a Karta needs to be fulfilled by next elder male son or if there is no son , the eldest daughter becomes the Karta.

d) Property under HUF – Any property which is received from ancestors by way of partition or way of gift through Will, additions to the existing properties, blended or properties thrown in common pool of HUF property. An individual can add his individual properties in the HUF. It then looses the individual ownership character. Any co-parcerner can add property to the HUF pool. Any member can also receive any gift for its co-parcerners ,members or any outsiders.

e) Partition – It is process of severance of the status of HUF under tax laws. As per tax requirements, the partition needs to be physical and not just notional. It can be partial or complete. In case of complete partition, the entire HUF ceases to exist. It can be partial where some members or properties go out with partition. Even on death of a co-parcener can only distribute the assets of his share and not the entire property.

f) Taxation -Since the HUF leads to creation of additional tax entity, there is a separate PAN card allocated for HUF. This gives the benefit to push the income slab lower to the level of individual incomes. For example, if in a family , husband has annual income of Rs 12 lakhs, wife of Rs 8 lakhs and a rental income of Rs 6 lakhs from a family home, then there are 3 possibilities: 

 

a) Rental Income gets added to husband's name and is taxed @30% tax slab.

b) Rental Income gets added to wife's name and is taxed @20% tax slab.

c) Create a HUF for family, add the ancestral property to it and the income is taxed on a separate entity for Rs.5.5 lakhs (after exemption limit of Rs 2.5 lakhs).

Thus HUF has much more benefit then just the tax angle associated with it. We would recommend that if required, you too can avail of it. For more information email us at saarthifp@gmail.com for a personalized advise.