Ways to Handle Income Tax Reforms to Secure Long term Financial Objectives!

Taxes, as well as increases in tax rates, are inevitable. Changes in tax rates will wreak havoc on your long-term savings goals. Following demands from the banking industry for tax parity between bank fixed deposits (FDs) and debt mutual funds, the holding period for long-term capital gains for non-equity funds was increased from 12 to 36 months.

After mutual funds demanded a level playing field, the tax was imposed on ULIPs with annual contributions of more than Rs 2.5 lakh.

There is no tax on the death benefit of insurance plans in India, as is the case across the world, but the government has recently levied a tax on ULIPs with annual maturity premiums of more than Rs 2.5 lakh. Experts say it’s not out of the question that traditional plans will be added to the list in the coming years. Banks continue to campaign for favourable conditions in the form of indexation incentives for debt funds. Since capital gains are expected to be taxed on the wealthy, long-term capital gains on all goods will rise in the future.

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When it comes to implementing tax reforms, the grandfathering clause comes to the rescue. Long Term Capital Gains (LTCG) of 10% on equities is only applicable to investments made after January 31, 2018. From April 1, 2021, the new tax on EPF interest will be limited to amounts invested over Rs 2.5 lakh per annum. Additionally, the amount invested in ULIPs prior to the deadline would be exempt from this levy. There have been instances where grandfathering has been disregarded. The concept of a long-term debt fund, for example, was modified from one year to three years without grandfathering. As a result, investors who invested in a one-year debt FMP were taxed.

Long-Term Financial Objectives

What goals come to mind when you think of long-term goals or goals that are significant but not urgent in your life? Here are a few examples that you may find useful:

  • Investing in your first home (home-ownership)
  • The aim of a child’s higher education
  • The aim of a child’s marriage
  • Retirement aspiration

The retirement target remains an exception to the investment planning approach, despite all the targets you might add to the list. As a result, we should make an effort to keep retirement planning apart from other objectives.


Long-Term Financial Goals Planning

Before we go into how to use ULIPs, you should have a firm grasp on your financial objectives. Defining your target in the following terms is the easiest way to create a strong vision for it:

  • The time it will take you to reach your target is estimated.
  • The goal’s current cost as well as its potential benefit
  • You can use your current savings to help you achieve this aim.
  • For example, if your child’s higher education target is to accumulate Rs. 50 lakh in 15 years, with a current allocation of Rs. 1 lakh, you might describe it as – Accumulate Rs. 50 lakh in 15 years, with a current allocation of Rs. 1 lakh.

Due to the government’s fiscal stress, it is highly likely that tax rates will be revised, and the latter will want to include more investment goods in the taxation ambit.