Personal Finance: Changes from April 2012

With start of new financial year 2012-13, a lot would change from today in personal finance space. Here is the list.

Good News:

Increased Interest on Small Savings Scheme like PPF, NSC, etc: The government has increased interest rates on post office deposits like PPF, NSC, Fixed Deposit, Recurring Deposit, and Senior citizen Scheme in the range of 0.2% – 0.5%. Check the details here.

Pay less Income Tax: The tax slabs have increased for FY 2012-13 in Budget 2012. It would impact some of people positively as they would now pay lesser taxes. You can download the Tax Calculator for FY 2012-13 here.

Savings Bank Account becomes more tax efficient: Now interest income up to Rs. 10,000 from savings bank account would not be under a new section, 80TTA. Details here.

ELSS scheme to continue: ELSS (Equity Linked Saving Scheme) or Tax Saving Mutual Fund is one of the best investment avenues for tax saving and wealth creation. This benefit was anticipated to go this year but the good news is it’s here for FY 2012-13. So go ahead and start your SIP (Systematic Investment Plan) in a good ELSS.

Rajiv Gandhi Equity Savings Scheme: Budget 2012 has proposed Rajiv Gandhi Equity Savings Scheme (RGESS) for small investors to encourage them to participate in equity markets directly. The details are not out yet but are expected to benefit first time entrants to equity markets.

Security Transaction Tax (STT) reduced: Budget 2012 has reduced STT from 0.125% to 0.1% for cash delivery transaction. This would mean slightly lower transaction cost for equity investors.

Three month validity for cheques and bank draft: Reserve Bank of India (RBI) in a recent notification has reduced the validity period for cheques and bank draft from six months earlier to three months from April 1, 2012. So, if you have a cheque which is more than 3 months old, you would need to get it r- issued.

Bad News:

Life Insurance would be costly: The increase in service tax from 10.3% to 12.36% would impact life insurance premiums. Now you would need to pay at least 2% more in terms of service tax for the same insurance. Traditional Life Insurance plans like endowment plans would be impacted more as the composite rate of service tax has been increased from 1.545% to 3.09%. Details Here.

Returns from Life insurance would decrease further: If you are someone who invested in Life Insurance products for returns, they would come down further. Budget 2012 has proposed the premium should be at least 10% of the sum assured for life insurance. It was 5% till last Financial Year. This would increase your life insurance cover but decrease the returns, especially for people in higher age groups. This is truly not a bad news as considering insurance as investment was never good anyway. Details Here.

Motor Insurance would be costly: with recent changes by IRDA (Insurance Regulatory and Development Authority) regarding Third party motor insurance, the premiums would go up in the range of 6%-8% for two wheelers, 4%-6% for cars and 10%-30% for commercial vehicles.

No Tax Exemption for investment in Infrastructure Bonds: Budget 2012 has done away with Rs. 20,000 tax exemption that was available by investing in infrastructure bonds u/s 80CCF. This means the tax outgo would increase for everyone from Rs. 2,060 to Rs. 6,180 depending on the tax bracket. Details Here.

So brace yourself for these changes and look forward to a prosperous new Financial Year 2012-13!