A New Year or New Financial Year excites, because it holds hope. Personal finance badly need a strong injection of hope after the setbacks in the last financial year.
Well, it was not so for all. If you happen to be in a business related to healthcare, you are probably doing better than others. If you did not face a salary cut, but saved money by staying at home, you probably have surplus funds for investment.
If you are a borrower paying EMIs in time, you probably benefited from the drop in interest rates.
12 PERSONAL FINANCE CHANGES THAT OCCURRED IN LAST 12 MONTHS
Let us recapitulate the changes impacting your personal finance and money management in 2020-21
1. EMI Moratorium
RBI provided a moratorium on payment of EMIs from 1st March, 2020 to 31st August, 2021. Borrowers of loan amounts less than Rs. 2 crores could ask for restructuring of their loans beyond this date.
2. Waiver of compound interest
The Government waived accumulated compound interest on loans during the moratorium, by absorbing the cost incurred by banks.
3. Health insurance
now covers treatment of Corona Virus Disease, subject to terms and conditions.
4. Standardised health insurance policies
now need to cover mental health problems. Companies have been slow in incorporating changes owing to lack of cost estimates, but will have to fall in line.
5. Hallmarking of gold
is essential if you intend to sell it.
6. Gold prices
touched a new high.
It fired investor imagination, as Bitcoin prices zoomed. The state of Maharashtra offered stamp duty cuts for a short period, leading to registration of many luxury homes. The high-end purchases dominated news platforms for some time.
Electronic payment modes of RTGS/NEFT are now free, and available 24/7.
9. Net-banking failures
In a first, the Supreme Court reprimanded a leading bank facing frequent net banking failures, and asked them to tone up systems.
10. NSE Breakdown
The National Stock Exchange faced operational break down for a couple of hours, but NSE did not access Disaster Recovery services. The cause of failure is still shrouded under mystery. Theories of a Chinese cyber attack abound on both the power grid failure in Maharashtra and the NSE breakdown. However, sufficient data is not available to arrive at conclusions.
11. Bank interest rates
It continued to drop in large measures. No wonder that retired people reeling under the loss of rental income are dismayed by this double hit.
Rolling out of the vaccine injected hope, but the second wave is making things look uncertain again.
WHAT WILL CHANGE FOR YOUR PERSONAL FINANCE IN NEXT FINANCIAL YEAR 2021-22?
1. Stamp Duty in Maharashtra
The Maharashtra government is rolling back the stamp duty cut, and rates will be restored to previous levels.
2. PF Interest Taxable beyond a limit
Interest on EPF and VPF, for a contribution larger than Rs. 2.5 lakhs in a year is taxable.
3. Rates of interest may rise
Bank interest rates look set to rise marginally. ICICI Bank has taken the first step by raising interest rates by 0.25% on term deposits. Other banks may follow suit.
Your home loan EMI will increase again, if the repo rate increases in the next credit policy announcement. Increased inflation at 5.13% will compel RBI to tighten liquidity again. Borrowers have enjoyed rates as low as 6.75% p.a. in the last financial year.
4. New Income Tax Scheme
Those opting for the new income tax scheme will enjoy lower rates of income tax but cannot avail of any deductions.
5. Pre-filled ITR forms
You will get pre-filled ITR forms. It facilitates filing of returns without the help of a chartered accountant.
Submission of information at different stages will also increase, to enable pre-filling of ITR forms. The IT department will get details of investments with Non-banking finance Companies, Post Office etc. directly from the brokers or Post Office. Needless to say, suppression of income will not be an easy task.
6. Drop in interest rates on small savings schemes
Interest rates on small savings schemes look set to drop in the next quarter, as the drama of announcement and roll-back on the last day of the financial year revealed. The roll back appears to be temporary, intended as an appeasement to voters in certain states. Some experts opine that interest rates on small savings schemes are highly subsidised, and not linked to market rates. If the rates are linked to yields on G-secs, they need to be in a lower range.
A drop in interest rates is likely to push more funds to banks and stock markets. Maybe the government sees this as necessary to boost a sagging economy.
But it certainly impacts the personal finance of people soon-to-retire, and others dependent on passive income. Rental income has taken a hit, and this adds to the woes.
7. TDS deduction by Post Office
Post Offices will deduct TDS at the rate of 2% to non-ITR filers, for cash withdrawals exceeding Rs. 20 lakhs, but below Rs. 1 crore in a year.
ITR filers will pay this 2%, if the aggregate amount withdrawn in a year exceeds Rs. 1 crore.
This looks like a move meant to increase filing of income tax returns.
8. Filing of ITR by Senior Citizens
Senior Citizens above 75 years of age, who do not have a pension or interest income need not file income tax returns.
WHAT SHOULD THE ‘AAM AADMI’ DO TO STAY AFLOAT?
- Continue austerity measures from last year.
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2. Always maintain an emergency fund to support survival for 6-12 months.
3. Stop living on credit.
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4. Look at balance transfer options to reduce total interest outgo in a year.
5. Examine new asset classes for investment, learn all about cryptocurrency, but wait for the regulatory framework to become clear.
6. Stick to your financial plan
Don’t get derailed by markets going up or down. If you are investing for a long-term goal, continue to do so. It will make sense in the long term, irrespective of fluctuations in between.