The government and the RBI have come out with a number of relief measures to protect the economy from the adverse impact of the Covid-19 crisis. These entail a large number of announcements that will directly or indirectly benefit the common people.
The government and the Reserve Bank of India have come out with a fiscal stimulus and a number of relief measures to protect the economy from the adverse impact of the ongoing Covid-19 crisis. Now these entail a large number of announcements that will directly or indirectly benefit the common people. The question is: are you aware of those announcements which may make things easier for you and help you in overcoming the prevailing financial challenges?
Read on as I’ve described how some of these announcements can benefit your personal finances, and also a few tips on how to maximise those benefits.
1. Loan Moratorium Extension
To ease the loan repayment obligation amid the lockdown and the economic slowdown, the RBI has further increased the moratorium period on all loan EMIs and credit card dues by another three months, i.e., till August 31, 2020. So, the total moratorium period will be now for six months. People who are not able to clear their debts owing to the Covid-19 setback and related problems can opt for this repayment deferment without defaulting. Non-payment of EMIs during the moratorium period will also not impact their CIBIL scores. Banks have already informed their customers about the process of opting for the moratorium. While some banks are automatically passing the moratorium facility to borrowers who are unable to pay their existing loan EMIs or credit card dues, others have asked their customers to opt for it manually.
However, it’s critical to understand that if you opt for this facility, interest will continue to get accrued on your outstanding dues during the moratorium which could add tens of EMIs to your loan, thus increasing your loan burden considerably. So, if you don’t have a major liquidity issue, you’ll be well-advised to continue with your loan repayments without the help of the moratorium, especially if you’ve just begun repaying a long-term loan like a home loan. And even if you do, ensure you have a solid plan to repay this accumulated interest soon after the moratorium ends with the help of prepayments. Lastly, try your best not to avail of this facility for credit card dues as those involve interest rates in the range of 36-42% p.a.
2. Relaxation On ITR compliance
The government has allowed relaxation to people on Income Tax Returns compliance matters. The last date to file the ITR has been extended to November 30, 2020, from July 31, 2020. The ITR date extension will help a large number of taxpayers whose salaries are getting delayed, and also help such individuals who have liquidity issues to pay the tax amount. However, if you are expecting a TDS refund, it would be wiser to file your ITR well before the extended deadline.
3. Reduction In TDS Rate and Percentage Contribution to EPF
The government has reduced the Tax Deducted at Source rate by 25% for non-salaried taxpayers for March 31, 2021. Meaning, if you are a non-salaried person, you will get a little more income in hand. If you fall in a higher tax bracket, your tax payment will get reduced to the extent of your TDS payment, so if you are getting the relief of 25% in TDS deduction currently, you will have to pay tax from your pocket later. If you don’t have liquidity issues, you may save the excess income due to TDS reduction in your bank account for payment of tax in the future.
The government has also announced to reduce the Employees’ Provident Fund contribution rate from 12% to 10% to allow greater liquidity to the employees and employers. However, taxpayers should keep mind that the reduction in EPF contribution will increase their take-home salary but that additional income will be taxed as per their applicable IT slab rate. The reduction is mandatory, so employees can’t reject it, but they may use excess income to invest in tax-saving instruments to reduce their tax obligation.
4. PMAY Deadline Extension
The Credit Linked Subsidy Scheme under the Pradhan Mantri Awas Yojana allows for an upfront interest subsidy on home loans applied by eligible first-time homebuyers. The government recently announced that middle-class families with annual household income between Rs. 6 lakh and Rs 18 lakh will now get another year (i.e. till March 31, 2021) to avail an interest subsidy of up to Rs. 2.35 lakh under this scheme on their approved home loans. So, if you are planning to buy your first home on loan, this interest subsidy could benefit you. While the Covid-19 crisis can lead to construction delays, this could also help you in getting discounts on properties due to the slowdown in the realty sector.
5. Repo Rate Reduction by the RBI
Now another reason why you might want to go ahead with your home-buying plans is RBI’s decision to cut the repo rate on multiple occasions in the recent past which has led to record-low home loan interest rates. If you’re already servicing a repo-linked home loan, this decision might have already lowered your EMIs. And if you have an MCLR-based loan, you’re also likely to see a reduction in loan EMIs in the near future. So, if your income channels have not been affected due to the ongoing crisis and you’re looking to lessen your loan burden by making prepayments, this might be a great opportunity for you.
However, a reduction in the repo rate would also lead to a fall in fixed deposit rates which might hurt your financial goals. So, you can also explore to spread out your investments to other instruments in line with your financial goals, risk appetite and liquidity requirements. That said, you can also implement techniques like FD laddering to maximise investment benefits as capital protection has become as important as capital appreciation in the current scenario.
6. PMVVY Date Extension
The government has also announced an extension in the investment period for the Pradhan Mantri Vaya Vandana Yojana (PMVVY) until March 31, 2023. PMVVY is an investment product meant for senior citizens (those above 60 years) who can get guaranteed pension payouts for 10 years where the maximum amount allowed for investment is Rs. 15 lakh. Under the extended PMVVY scheme, the rate of interest offered is 7.4% pa. When bank FD rates have fallen below 6%, an investment in PMVVY could offer a lucrative option to senior citizen investors.
I hope my tips would help you make some informed decisions to maximise the benefits of the various government announcements in the recent past. When in doubt, don’t hesitate to consult your financial advisor.
(The author is CEO, BankBazaar.com)