IMPACT OF FINANCIAL CHANGES
EFFECTIVE APRIL 1, 2024
Choose life policy carefully, early surrender can cause major losses
Switch credit card if changes in reward structure do not align with your needs with the new financial year commencing on April 1, several changes will come into effect that may impact your financial life. Below, we outline some of the significant ones and offer guidance on how to navigate them effectively.
New regulations on surrender value
The Insurance Regulatory and Development Authority’s (IRDAI) final
regulations on the surrender value of insurance policies will come into force
from April 1. Surrender values are expected to maintain their current levels or
decrease if policies are surrendered within three years. If they are surrendered
between the fourth and the seventh year, surrender values may increase
slightly.
Surrender value is the amount insurers pay when a policyholder
surrenders his or her policy prematurely.
A policy’s surrender value will depend on its tenure: policies
surrendered within the first three years will yield lower surrender values
while longer tenures will result in higher values.
Surrendering a policy, particularly in the initial years, should be
avoided as it entails a loss for the policyholder. He adds that life insurance
policies yield higher returns when kept for longer tenures. Policyholders who
need money should consider taking a loan against their policy rather than
surrendering it.
Changes in credit card rewards
Several credit card issuers have announced changes in their reward terms
and conditions. For instance, that to qualify for complimentary lounge access
during the April-June 2024 quarter, customers must spend a minimum of Rs 35,000
in the January-March 2024 quarter. Similar requirements will apply to
subsequent quarters.
Banks periodically tweak their reward programmes to make them more
relevant to users. Banks like the State Bank of India (SBI), Yes Bank, and Axis
Bank have changed their reward structures. Some credit cards have discontinued
reward points on rent payments, and on
insurance, gold and fuel spends. Some have limited reward points on utility
bills while others have abolished the exemption in annual fees.
Learn about the updated reward structure to maximise its benefits. But
do not alter your spending patterns or overspend to earn rewards. Evaluate your
card’s features periodically. Choose cards that match your spending patterns.
Check minimum spend thresholds for rewards. Finally, if the changes in a card’s
reward terms no longer meet your needs, switch to a new one.
Taxation
While the interim budget announced on February 1, 2024, did not make
major changes to the individual tax regime, here are a few points you must keep
in mind when filing your tax return this year. The new tax regime is the
default regime from 2023-24. Under this regime, tax slabs have been modified
from six to five, and the minimum exemption limit has been hiked from Rs 2.5 to
Rs 3 lakh. The highest surcharge rate has been reduced from 37 per cent to 25
per cent. A standard deduction of Rs 50000 is available to salaried individuals
under the new tax regime as well. A higher portion of your income is
tax-exempt, reducing your taxable income. Individuals will enjoy potential
savings on taxes.
Section 87A of the Income-Tax Act provides a rebate of 100 per cent of
tax liability to an individual whose income does not exceed Rs 5 lakh.
Finance Act 2023 increased this limit to Rs 7 lakh for taxpayers who opt
for the new tax regime. This higher rebate limit offers financial relief to
individuals in the lower and middle-income groups. It effectively reduces their
tax burden, allowing them to retain more of their earnings and utilise the
savings for investments, expenses, or savings. Middle- income groups should
carefully estimate their tax outgo in the new tax regime.
They should opt out only if necessary, as they would not be able to
claim the deduction under Chapter VI-A, house rent allowance, leave travel
allowance, etc, if they stay with the new tax regime.
Factor in Higher TCS when planning overseas travel
- Overseas credit card spends will come under the liberalised remittance scheme (LRS) with an annual limit of $250,000 from April 1.
- Cardholders will pay tax collected at source (TCS) of up to 20 per cent for foreign transactions via credit card. This applies only for amounts above Rs 7 lakh per individual per annum
- Plan outward
remittances to minimise TCS. For multiple outward transfers planned for the
year for foreign travel, the first spend can be towards transactions attracting
a higher TCS rate
- Limit standalone
bookings for overseas accommodation, travel tickets, etc. Instead of bundled
tour packages, as the former will not qualify as an Overseas Tour Programme Package
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