Tax Planning? Time to Revisit the Idea
Tax Planning? Time to Revisit the Idea
Every last quarter of any financial year, we find a deluge of articles focussing on tax planning. Where there is smoke, there must be some fire too. With years of messaging, we do believe that the investor approach to tax planning would have improved. However, the entire concept of tax-planning itself needs to be repainted in a very different light. In this article, we will attempt to deviate from the traditional approach to tax planning and adopt a fresh look.
The idea of making financial decisions purely from the perspective of saving taxes is very outdated idea. Perhaps the definition of tax planning itself needs to be revised. Traditionally, tax planning would mean an exercise to minimize tax liability by investing in tax-saving avenues. However, the problem with this is the lack of focus on the selection of the right products which fit your need. Rather, the focus is on how tax liability can be minimized.
A contemporary definition of tax planning would be to “ensure tax-saving opportunities are optimally utilized while choosing the right mix of investment/saving products that match your needs/financial objectives”. Here, we bring back the focus to the person rather than the tax sections.
Traditionally, the tax planning process will include an assessment of the extent of your tax liability first. It will help you to ascertain how much would be your tax liability at the end of the year, and accordingly, you can fine-tune your tax-saving investment steps during the year. Next, which tax avenues are already exploited and which are still available for use will need to be assessed. This should serve just as a reference point and should not influence you into buying /exploiting the remaining avenues.
While we cannot find any fault with this process, the entire exercise sounds like an accounting exercise and perhaps rarely one would be following them. We need a change in our approach. Tax planning should be an outcome or by-product of other important things.
The entire process should start at the beginning of the financial year. After identification of your financial goals and investment objectives, a clear investment and insurance portfolio should be designed. Selection of the investment products should be based on the parameters like your risk profile, financial objective, liquidity needs, the risk-return trade-off, etc. For insurance, a proper assessment of needs for the entire family should be considered and the right product should be selected after consulting your insurance advisor.
Exploring the best options available for tax saving within these boundaries should be the last step. If your financial situation permits, and if you have tax avenues remaining unused, you may choose to do product shopping, but this too has to be with proper due diligence. The best tax-savings instruments enjoy the exempt-exempt-exempt (EEE) tax status. EEE means an individual gets tax benefit on investment, on accrual, and at the time of redemption. Similarly, EET would mean that the product will be taxable at the time of maturity /redemption. Investment products generally come with a lock-in period which may extend to even 15 years (PPF) which also needs to be considered while making the final decision. Equity-linked saving schemes (ELSS) of mutual funds are a better option in terms of liquidity as it has the lowest lock-in of three years. However, the returns are market-linked and not guaranteed like that of government-backed products like EPF, PPF, etc.
Here are the simple guiding rules on how any tax planning exercise should be undertaken...
  • Spend /Buy only if you had done the same if there was no tax saving advantage. In other words, you should have a clear necessity /requirement of the product, independent of tax savings potential. Obviously, the product itself should be great and should pass the scrutiny test based on your needs. There is no need to think only of the 33% of the tax-saving while turning a blind eye and letting go of 66% of your portfolio into a wrong product which you will be stuck with for many years.
  • Do not spend more than what is required. There can be two ways people can err here - going beyond the tax savings required by you and/or going beyond the upper limit permitted under the the IT Act. However, since the focus is on the right mix of products, one may go overboard here. For e.g., an insurance product based on your needs may be beyond the upper limit under the tax laws. This would not mean you compromise on your need and limit the premium only to the extent permitted.
  • Do not over-diversify and blindly invest in every available tax saving avenue. Sometimes, smart sales guys make the last-ditch effort to sale during the January to March quarter when the urgency of tax planning is highest amongst a certain section of investors. Do not let your guard down and be gullible to such sales tactics and messaging.
  • Do not make a last-minute decision. Ideally, the investment /insurance portfolio evaluation should start at the beginning of the financial year. Tax advantage should not be the core element while deciding any such portfolio but a by-product. For e.g., if you have planned to start a SIP of Rs.30,000 in equity mutual funds, Rs.10,000 may be allocated to say ELSS portfolio to take advantage of section 80C.
We, humans, have a tendency to procrastinate our work, be it at the office or at the home. Tax planning is no exception. Many of us wait till the end of the financial year to start tax planning. Unfortunately, this approach is not good, it is recommended that tax planning should be done right at the beginning of the financial year, as earlier discussed. Here are the reasons to avoid last-minute tax planning.
The most common mistake that many people commit in a hurry to complete the tax-saving exercise is choosing the wrong product, without weighing the pros and cons properly. One may end up choosing a product just for tax-saving reasons.
When you are investing last minute you may not fully examine the various investment avenues available to you. You may even miss out on better products that may not offer tax benefits.
This will help you avoid the urgent pressures on your finances during the last few months. It would be great is the investments are planned in advance, and you spread the investments throughout the year. This may also put pressure on your monthly incomes due to the immediate outflow of money and may cause unnecessary stress.
When you are investing last minute, there are chances you might make operational mistakes while investing. There have been instances where last-minute applications rejections resulted in failure to meet the 31st March deadline. Not only does your effort go to waste, but you also lose out on the tax-break just because you waited till the last day.
Tax planning simply cannot be considered as a year-end exercise in numbers. It goes much further. We have to somewhere change our traditional thinking when it comes to the word ‘tax’. Tax planning is not the domain of your chartered accounts but of financial product experts /advisors /distributors who can create that perfect fit for you as per your needs. We wish you save tax but much more than that, we wish that you earn a lot more, create wealth, prosper and enjoy financial well-being.
NJ E-wealth
Empowering Women Through Financial Inclusion:
Empowering Women Through Financial Inclusion:
There is no doubt that women command a special status in Hinduism. Just like the three major gods, we also worship the “Tridevi”, the triad of the prominent goddess, Saraswati, Lakshmi and Parvati or Kali. Saraswati is the goddess of learning, knowledge and arts, Lakshmi the goddess of wealth, prosperity and glory while Parvati or Kali is the goddess of war, power and love. Needless to say, although we revere different forms of goddesses, how we treat them in real life leaves a lot to be desired.
The biggest question we need to ask is whether women in today’s era enjoy the same level of financial autonomy and independence as men do. Are women being heard? Do they have the same say in the financial matters of the family? The answer is likely to be a ‘No’. Even in cases where women are earning and financially independent, we find the men either taking financial decisions or influencing the same on behalf of the women. Most of us do not trust our wife, sister and mother to make smart financial decisions. We believe they need to be protected and guided. Isn’t this contrary to the goddesses we worship? Unfortunately, this is the same story across the globe in all cultures, even in developed economies, except maybe a few pockets/communities.
Almost every government and international bodies recognize that women’s economic empowerment is central to realizing women’s rights and gender equality. There is a disproportionate impact on a country’s health, literacy and GDP growth when women learn and work. Without painting everyone with the same colour, we should accept that there still exists different levels of discrimination against women in our homes.
Let us let the women of our country fly higher and encourage them to realize their own dreams and true potential. Let them learn from mistakes and gain the confidence of standing up after falling down. As a nation, we have many women who became the inspiration of millions as PM, President, top CEOs of multi-national companies, scientists, artists, astronauts and sports personalities. Today, we are proud to be amongst the very few countries with women flying fighter jets in combat roles. There is no office to big or sky too high for them. Let us be the change we want to see. Let us take the small steps we should be taken long ago.
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The question is, how we can begin at home and stop any sort of discrimination in financial and business matters. Remove all such restrictions which cut their dreams and aspirations and stop them from realizing their own potential. Here is what we can do...
Financial literacy should be one of the very core learnings we should share. Share with them your learnings on how the banking system, the financial markets, the asset classes, the financial products, the key concepts and terms and so on. Let them learn through experience rather than words. Get them introduced and interested in wealth management. These valuable lessons will perhaps be their greatest asset for their entire life.
We should treat the girls and women on par with the boys and the men when it comes to financial matters. Let them also participate equally in all financial matters and decision-making process. Make them stakeholders where possible. If you are running a business, there is a great opportunity to also train them for business. Let them also handle clients, orders, finance, and even negotiate, when ready. Surely, we can trust them to bargain hard and argue smartly. As head of the family, it is also critical that you share details of all your investments and accounts and key relationships with your spouse.
With financial literacy and greater involvement, let the women of the home assume ownership beyond just household budgets. Put them on the path to complete financial independence and freedom. Begin by opening their independent banks, having a separate investment account, having their own health and life policies, and so on.
Finally, it all comes down to trust. The real test would be to fully trust the women in our homes to make decisions on their own. Surely, we can share our experience and knowledge, but only as inputs to their decisions, if asked for. These decisions can be w.r.t. education, career and money. Trusting that even if any mistakes are made, they would learn from the same and emerge wiser and stronger is perhaps the most important element of trust.
If the adult female members of the family, these are the immediate things you need to do.
Every important member of the family should have a term and health insurance, especially earning members, irrespective of gender. Ensure that you do a holistic insurance portfolio evaluation with the help of your insurance advisor. Term, health, personal accident and critical illness insurance must be within this scope.
Open an NJ E-Wealth Account or any investment account as per your choice. Introduce them to mutual funds, SIPs and all relevant investment products. Let them also learn how to use the desk and reports on their own.
After opening the accounts, identify financial goals /objectives towards which savings can be done. This can simply be long-term wealth creation, emergency fund, holidays, etc. Let them start their first SIP and start saving towards these goals.
The above things become even more crucial if you have female members who are also earning. Let them enjoy and save their money as per their wishes. Let them also start direct and independent conversations with your NJ Wealth Partner /financial product distributors.
Enough has been said on heavy topics like women empowerment, gender equality, financial literacy and so on. As we start a new decade, we should shelve our old, retro thinking. Our dream of a new, confident, ‘atma-nirbhar’ or self-reliant India won’t be possible until 50% of the population is also ‘atma-nirbhar’. Let them dream, fly, fall and fly higher again. And let us begin at home.
NJ E-wealth
POPULAR RIDERS IN LIFE INSURANCE
POPULAR RIDERS IN LIFE INSURANCE
Choosing a right life insurance plan is one of the crucial decisions we make. However, merely opting for the right life coverage may not cover all risks.
Suppose, you are the only bread-earner of your family and if you become disabled due to an accident or otherwise, it may leave you out of work, thus, impacting your earning capacity. A vanilla life insurance plan does not cover the bread-earner’s loss of income due to disability. So, in this situation how are you going to cover up the household expenses?
This is where life insurance riders come to your rescue.
Riders are the optional features or add-ons of life insurance policies, which offers the advantage of extra financial protection, which a regular life insurance policy may not cover. They allow you to customize a policy to meet your specific needs. Moreover, the right choice of life insurance riders would help you and your family at the time of any unfortunate event. Riders can be bought at the time of policy purchase or even during the policy term, depending on the insurer.
There are many kinds of life insurance riders and their availability can vary depending on the life insurance company. In this article we will discuss the most common life insurance riders:
With this rider, the insured gets an extra amount, in addition to the sum assured, if the insured dies due to an accident during the policy term. Normally, the extra amount paid out is equivalent to the face amount of the original policy cover, which doubles the death benefit. However, this is not the case in all policies, and it may vary from company to company.
A common misconception among insurance buyers regarding this rider is that the insured will get sum assured, only if the cause of death is an accident. It is not true. Whatever the cause is, the insured will get the sum assured in the event of unfortunate death. However, if the cause of death is an accident then the insured will get an additional amount specified in the rider of the life insurance policy. For example: If the basic sum assured is Rs. 50 lakhs and the policyholder has attached an ADB rider of Rs. 15 lakhs, then the total claim amount will be Rs. 65 lakhs in case of accidental death and Rs. 50 lakhs in case of death not caused by accident.
Under this rider, the insured receives a lump sum amount if he/she is diagnosed with one of the critical illnesses specified in the insurance policy, such as cancer, heart attack, stroke, kidney failure and others. After detection of the critical illness, the policy may either terminate or continue as per the policy terms and conditions. This rider provides money to be used for any purpose during the course of treatment, instead of reimbursing you for medical expenses, the way health insurance does.
In case of a vanilla life insurance plan, if the insured suffers any disability due to which he/she is unable to pay any future premiums, the policy will expire and no death benefit will be paid due to non-payment of due premiums. Thus, in such cases “Waiver of Premium” rider will be beneficial. Under this rider, the insured is not required to pay future premiums on the policy if the insured becomes permanently disabled due to injury or illness and is unable to work.
If the insured becomes permanently total or partial disabled due to an accident, he/she is entitled to receive an additional lump sum amount or regular instalments for the next 5 / 10 years following the accident which caused disability, in a certain percentage of sum assured (e.g. 10% of Sum Assured per year for next 10 years). Please note that this rider is applicable only if the disability is caused by an accident.
Insurance needs change as one grows older. With a significant change in life circumstances, such as the birth of a child, marriage, or an increase in income, one may want to enhance one's life cover. The GI rider comes handy in such a situation. Adding the GI rider allows you to purchase additional insurance coverage in the stated period without the need for further medical examination. Guaranteed insurability riders may end at a certain age.
Apart from the above key riders, there may be several other riders on offer such as
  • Accelerated Death Benefit Rider: In a case where the life insured is diagnosed with a terminal illness, which shortens the lifespan, a part of the sum assured or a one-time lump sum payout on diagnosis can be opted for.
  • Term Rider: offers lump-sum or monthly income to the nominee that can be equal to the base plan coverage or a pre-determined value, defined in the life insurance policy.
  • Hospital Cash Rider: offers a fixed benefit per day of hospitalization paid in case of hospitalization.
  • Surgical Care Rider: offers a lump sum benefit for an unavoidable surgery in India.
Although riders may sound you appealing, they come at an extra cos on top of the premiums for the policy because of the extra benefit associated with it.
Buying multiple policies takes time and efforts where you undergo the entire process each and every time. This may include undergoing medicals, as required. A single policy with riders is often much easier to apply and can be done without any additional troubles.
Generally speaking, the additional premium on many riders is comparatively low because relatively little underwriting is required.
Many stand-alone general insurance products have premiums which increase over time. When buying a rider, typically your total premium will remain constant for the term of the life insurance plan. However, please check this before you opt for any rider.
Having stand-alone, multiple products often makes it difficult to manage the policies. The premiums date differ and the renewals also happen at different times. A single policy with riders can make it easier to manage the entire thing.
Having listed all the possible benefits, the choice for selection of riders to a life insurance policy is not an automatic one. Opting for a rider should be based on your specific needs. Here are a few points to consider...
While generally, the riders are cheaper, it may not be the case always. Please evaluate this factor before making the decision.
Often the fine print of a rider differs from that of a stand-alone policy. A stand-alone policy may offer a wider coverage, flexibilities and a better deal, which may be more suited to you even if it comes at an extra cost.
Often, there is limited choice when it comes to riders. Stand-alone policies will offer a greater choice and may come with a variety of offerings.
Having a single policy for multiple needs may look like putting all eggs in a single basket to some. If anything were to happen to your policy, all the additional covers will also be compromised.
Many of us may already have existing stand-alone policies. Even though a rider may come justified, there may not be actually any need for the same.
In conclusion, it is important for you to know and understand the riders your insurer offers along with your policy in detail, its associated benefits, all inclusions and exclusions so that you can take advantage of the affordable add-on benefits. Buying riders can be a great thing, but it should be a considered decision. Please consult your insurance advisor to guide you further on this.
Fund Manager INTERVIEW
FUND MANAGER INTERVIEW
Mr. Neelotpal Sahai
Head of Equities & Fund Manager
HSBC Asset Management, India
Neelotpal Sahai is currently Head of Equities and Fund Manager since September 2017. He has been a Senior Vice President and Portfolio Manager in the Onshore India Equity team in Mumbai since 2013, when he joined HSBC. Neelotpal is responsible for managing three HSBC Mutual Fund equity funds.
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Kotak Deepak Amrutlal (ARN-127784)
AMFI REGISTERED MUTUAL FUND DISTRIBUTOR

Deepak A Kotak
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"We have taken due care and caution in compilation of this E Newsletter. The information has been obtained from various reliable sources. However it does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions of the results obtained from the use of such information. Investors should seek proper financial advise regarding the appropriateness of investing in any of the schemes stated, discussed or recommended in this newsletter and should realise that the statements regarding future prospects may or may not realise. Mutual fund investments are subject to market risks. Please read the offer document carefully before investing. Past performance is for indicative purpose only and is not necessarily a guide to the future performance."

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