7 Changes that Impact Your Financial Plan For FY 2019-20

Planning your finances in advance have various perks. It gives you ample time to make the right investment decisions. This, in turn, allows you to achieve your investment goals that also translate into maximum tax savings. Though your financial plan heavily draws from your personal goals, changes in the economy in general and within the personal finance sphere can have a significant impact too.

As you steer into the new financial year 2019-20, plan your taxes and finances after considering the following 5 major economic changes.

Changes in the repo rate by the RBI

Repo rate is the interest rate at which the RBI lends money to financial institutions. Any change in this rate has a direct bearing on interest rates of loans and deposits offered to you. Thus, an increase in the repo rate pushes up both loan and deposit interest rates and a decrease, on the other hand, brings them down. A hike in the repo rate is bad news for borrowers as it means higher interest rates on loans. In contrast, investors can breathe a sigh of relief, as repo rate hikes signify a hike in interest rates for fixed income options like fixed deposit, provided the issuers follow suit and hike the rates.

The RBI has slashed the repo rate by 25 bps in its recent bi-monthly policy declaration. Going by the above, fixed deposit interest rates can also alter anytime soon. Thus, instead of waiting for any further and investing in a low interest regime, do it now and make the most of the attractive interest rates available at present.

Tax rebate on taxable income of up to Rs.5 lakh

The Interim Budget 2019 has proposed a tax rebate of Rs. 12,500 for taxpayers earning an income of up to Rs.5 lakh annually. If the ruling party accepts this proposal post-election, then that will decrease your tax liability, increasing the quantum for investments. Add to this the standard deduction hike, which has pushed the earlier amount of Rs. 40,000 to Rs. 50,000, and you will be in a position to increase your investments even more. A reduction in your tax liability will give you a chance to reconsider your investment plan, wherein you will have more room to diversify your corpus for wealth creation.

2019 Lok Sabha elections

Experts opine that the post and pre-election phase brings instability. However, once the market settles after the results, you can expect stability. Thus, investing in the stock market now with a short-term perspective will not reap you good returns. Dodge this risk by investing in SIPS keeping the long-term horizon in mind. This way, irrespective of the market position after elections, your investments will not be impacted by temporary volatility. Instead, your folio will give you great returns over time.

TDS limit on FD interest income increased to Rs. 40,000

Issuers of FDs are liable to cut TDS on your FD interest earnings if it exceeds Rs. 10,000. However, the Interim Budget 2019 has proposed to increase this limit to Rs. 40,000 for regular investors. Furthermore, the TDS limit in case of company FDs and for senior citizens remain unchanged at Rs.50,00 and Rs.5,0000 respectively. TDS is cut at 10% in case you have submitted your PAN details to the issuer and 20% if you haven’t. When planning investments, count in this TDS limit increase and invest higher amounts in fixed deposits without worrying about the deduction.

Irrespective of the TDS limits, when looking to invest in FDs, consider investing in company FDs as they offer higher rates than those offered by banks. For instance, Bajaj Finance Fixed Deposit offers FD interest rates of up to 8.75% for regular investors and 9.10% for senior citizens when you choose an FD for at least 36 months, with interest payable at maturity. Apart from this, you can also benefit from an additional interest of 0.25% on FD renewals. What’s more, Bajaj Finance FD is backed by the highest ICRA and CRISIL rating, of MAAA and FAAA respectively, which makes it extremely stable and secure.

Interest rates on loans to be linked to an external benchmark system

Earlier, the interest rates on personal, retail, and MSME loans were linked to an internal benchmark system. However, the RBI, in its bi-monthly policy meet in December 2018, declared that the interest rates on all new floating interest rate loans starting from 1 April 2019 would be linked to an external benchmark. RBI opines that this change will bring about an increased transparency in the interest rates fluctuations.

Keep in mind the above changes when planning your finances. Adapt to rigorous planning right now, so that by the end of the financial year you are ready with ample investment and have the right tax saving instruments in your folio to claim the maximum exemption.

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