DIGITAL

ASSIGNMENT - 3
Managing Personal Finance

Submitted To: Submitted By:

Prof. Manoharan. M Monashree Satheesh Babu
VIT Business School 19BBA0047
VIT Vellore
1. Debt management is an important component in Personal finance, discuss.

The act of managing debts is known as debt management. Consumers have a

variety of choices for decreasing their credit card debts, including debt
management. Individuals might attempt to handle their debts on their own.
Consumers should keep track of how much money they spend each month, not
only to pay off their numerous debts, but also for day-to-day and cost-of-living
expenses, according to financial experts. They may be able to find methods to
save money on pleasures and other purchases this way, even before making more
drastic decisions.

Debt must be properly managed in order to have the least amount of negative
impact on personal finances. If left unchecked, debt can grow out of control,
resulting in negative ramifications for your credit score. Bad debt can make it
difficult for a person to find work or rent an apartment, leading to even more
financial instability.

2. Elaborately discuss (with examples) systematic investment plan.

A Systematic Investment Plan (SIP), often known as a SIP, is a mutual fund

facility that allows customers to invest in a disciplined manner. The SIP function
allows an investor to invest a set amount of money in a mutual fund scheme at
pre-determined periods. The fixed amount can be as low as Rs. 500, with pre-
determined SIP intervals of weekly, monthly, quarterly, semi-annually, or
annually. By investing in a SIP, the investor invests in a time-bound manner
without having to worry about market fluctuations, and stands to benefit in the
long run owing to average costs and compounding power.

When you make a SIP investment in a mutual fund scheme, you buy a particular
number of fund units equal to the amount you put in. When you invest in a SIP,
you don't have to timing the markets because you gain from both bullish and
negative market trends.
When the markets are down, you buy more fund units, whereas when the markets
are up, you buy less. Because all mutual fund NAVs are adjusted daily, the cost
of buying may differ from one SIP instalment to the next. The cost of buying
averages out over time and turns out to be on the low end. Rupee cost averaging
is the term for this. When you invest a lump sum, you don't get this benefit.

3. Section 80C of Income tax act provides various tax exemptions

/concessions-

Section 80 Deductions For financial year 2020-21, AY 2021-22:

Section 80C – Deductions on Investments

Section 80C is one of the most popular and favourite sections amongst the
taxpayers as it allows to reduce taxable income by making tax saving investments
or incurring eligible expenses. It allows a maximum deduction of Rs 1.5 lakh
every year from the taxpayer’s total income. The benefit of this deduction can be
availed by Individuals and HUFs. Companies, partnership firms, LLPs cannot
avail the benefit of this deduction.
Section 80C includes subsections, 80CCC, 80CCD (1), 80CCD (1b) and 80CCD
(2)
 The following investments and payments are eligible for deduction under Section
80C of the Income Tax Act, 1961:

• Life Insurance: Premiums paid toward all life insurance policies are eligible for
tax benefits under Section 80C. This deduction can be claimed for premiums paid
towards insuring self, spouse, dependent children and any member of Hindu
Undivided Family. An important point to be noted is that if the policy is issued
on or prior to March 31, 2012, annual premium up to a maximum of 20% of the
sum assured becomes tax deductible. For insurance policies issued on or after
April 1, 2012, annual premium up to a maximum of 10% of the sum assured is
tax deductible.

• Sukanya Sam Riddhi Yojana: Investments made in Sukanya Samriddhi Yojana,

which is a saving scheme for the girl child, are eligible for tax deduction under
Section 80C of the Income Tax Act, 1961. A parent or legal guardian of a girl
child, who has not reached the age of 10 years, can open this account. Sukanya
Samriddhi Yojana account can be opened for two girl children (one account per
girl child) and can be extended to a third if twins are involved.

• Public Provident Fund: Public Provident Fund (PPF) contributions are eligible
for tax deductions under Section 80C. PPF accounts have a maximum deposit
limit of Rs. 1,50,000 per year, therefore, all deposits made to your PPF account
can be claimed as deductions under Section 80C. The money that you put into a
PPF account will be locked-in for a period of 15 years. Partial withdrawals are
permitted after 7 years.

• Equity Linked Saving Scheme : Investments in equity linked savings scheme

qualify for tax deduction under section 80C of the Income Tax Act. Now, an
essential point to be noted about equity linked savings scheme is that they have a
mandatory lock-in period of three years from the date of investment. If you are
considering investing in this scheme, make sure to invest for longer periods like
 five to seven years as they are equity schemes. Equity schemes are an ideal option
for wealth creation over a long period.

• Five Year Bank Deposit: Most banking institutions offer tax saving fixed deposits
where deductions can be claimed under Section 80C of the Income Tax Act. The
condition associated with tax saver fixed deposits is that they come with a lock-
in period of 5 years. Premature withdrawal is not allowed under this investment.
Interest earned on tax saver fixed deposits, however, are taxable and will be
deducted at source.

• Stamp Duty and Registration Charges: While buying a property, one of the largest
expenses you will have to bear is the stamp duty and registration charges. To give
taxpayers some relief, the government has included these expenses under Section
80C of the Income Tax Act, 1961. The deduction can only be claimed once the
property construction is complete and you have legal possession of the house.

• Senior Citizens Savings Scheme: Investments in Senior Citizens Saving Scheme,

which as the name would suggest is suitable for senior citizens, qualify for
deduction under Section 80C of the Income Tax Act. This scheme has a tenure of
5 years. To participate in the Senior Citizens Saving Scheme, an individual has
to be at least 60 years of age. Those who have taken VRS (voluntary retirement
scheme) can opt for it after the age of 55.

• National Savings Certificate: To encourage taxpayers to park their money in

National Savings Certificate scheme, the government has allowed tax deductions
to be claimed under Section 80C on the investments made in it. Interest earned
on National Savings Certificates are liable to tax. However, if this interest is
reinvested, it will be eligible for deduction under Section 80C. The interest rate
on this scheme is similar to that of tax savings fixed deposits, PPF and other fixed
income earning instruments.

• Home Loan Principal Repayment: The amount that goes into repaying the
principal on a home loan is eligible for deduction under Section 80C. To claim
this tax benefit, construction of the property should be complete. If you transfer
the property before the end of 5 years from the year you had taken its possession,
no tax benefits will be awarded. Additionally, the amount claimed as deduction
in the earlier years shall become taxable in the year that the property is
transferred.

4. Write short note on

i. CIBIL score

A consumer's credit score is known as a CIBIL Score. Simply explained, a credit

score is a three-digit numerical summary of a person's credit history and a
representation of their credit profile. This is based on previous credit behaviour,
such as borrowing and repayment practises, as reported to CIBIL on a regular
basis by banks and lenders (details of which may be seen in the consumer's CIBIL
Report).

A person's past conduct is used to predict his or her future actions, and the CIBIL
Score demonstrates a consumer's credit worthiness. When a person applies for a
credit card or a loan, for example, one of the critical factors that lenders consider
is the person's credit profile, as represented by the CIBIL Score.

ii. PPF-Public Provident fund

In India, the Public Provident Fund (PPF) was established in 1968 with the goal
of mobilising small savings in the form of investment with a return. It's also
known as a savings-cumulative-tax savings investment vehicle since it allows you
to create a retirement fund while lowering your annual taxes.

The Public Provident Fund (PPF) programme is a long-term investment option

with a competitive rate of interest and returns on investment. The interest and
returns earned are not taxable under the Income Tax Act. Under this system, one
must create a PPF account, and the amount contributed during the year will be
claimed as a deduction under section 80C.
iii. Home loans and tax exemptions

A home loan is a sum of money borrowed from a bank or money lending

organisation at a fixed interest rate that must be paid with the EMI each month.
The money lending organisation uses the property as collateral for the Home
Loan.
iv. Insurance and tax exemptions
Insurance is a contract in which an individual or entity receives financial
protection or compensation from an insurance firm in the form of a policy. The
firm pooled the risks of its clients to make payments more reasonable to the
insured.
Tax Benefits on life Insurance Pay-out
The single, most important role of a life insurance policy is to provide a death
benefit to the policy holder’s nominees. The death benefit is the sum assured
under a policy and paid to the registered beneficiaries in case the unfortunate
happens during the policy tenure. The death benefit is mostly paid out after the
claim is registered, helping them carry out their day-to-day expenses.
Apart from providing financial security to your loved ones, the other great benefit
of a life insurance policy is the deduction from the Total income of the premiums
paid. However, most people are not aware that a term plan offers tax benefits on
the death benefits received too.
Tax benefit on the benefit pay-out received
The sum received as death benefit under an insurance policy is fully exempt from
tax under Section 10(10D) of the Income Tax Act. In other words, the proceeds
from the insurance policy are tax-free.
While normal term insurance plans pay the death benefit during the policy tenure,
there is a return of premium term plan that refunds the premium paid after
maturity, when the insured survives through the policy term. Even this premium
refund is treated as tax-free under Section 10(10D).
The death benefit received under the following circumstances would not qualify
for an exemption –
• Any benefit received under Section 80 DD (3) or sub-section (3) of section
80DDA
• Any sum received under a Keyman insurance policy
Term insurance income tax benefit under Section 80C
Section 80C of the Income Tax Act is the most popular tool used for tax-saving
by individuals. This Section offers a maximum deduction of Rs.1.5 lakh for all
the listed investments and instruments put together. It includes a number of
instruments like PPF, EPF, ULIP, ELSS, and payments like repayment of home
loan, children’s tuition fees, life insurance premium, etc.
Under this Section, the premium paid for a term life insurance is also eligible for
deduction up to Rs.1.5 lakhs (total of all investments and payments under this
Section). The conditions to avail term insurance tax benefit under Section 80C
include:
• The yearly premiums paid should not exceed 10% of the sum assured. If
the premiums do exceed 10%, deductions will be applied proportionately.
• For policies issued before 31st March 2012, the deduction will be
applicable only if the yearly premium does not exceed 20% of the sum
assured.
• As per Section 80C(5), in the case of a policy that is voluntarily
surrendered or terminated before two years from the beginning of the
policy, the policyholder won’t receive Section 80C tax benefits on
premium payments.
Term insurance tax benefit 80D
Traditionally, Section is reserved only for health insurance policies. If offers a
deduction on health insurance policies taken for self, spouse, children, or parents
with different deduction limits under different conditions.
However, certain term plans can also avail the tax benefits under Section 80D.
Policyholders who have opted for a health-related rider (such as Critical Illness,
Surgical Care, Hospital Care Rider) with their term insurance policy, can also
avail deductions. Conditions for term insurance benefit 80D include:
• Deductions under Section 80D can be availed for an amount that doesn’t
exceed Rs. 25,000.
 • If you have taken an insurance policy for your parents, you can avail
additional deductions of Rs. 25,000.
• If your parents are senior citizens, the deduction limit goes up to Rs.
50,000.
Term insurance tax exemption under Section 10(10D)
As per Section 10(10D) of the Income Tax Act, the sum assured received on
maturity or surrender of a policy or upon the policyholder’s death is completely
tax-free. Bonuses received with such amount are also exempt under Section
10(10D).
Conditions for term insurance tax exemption under Section 10(10D):
• Term plan tax benefit under Section 10(10D) is applicable if the premium
is less than 10 percent of the sum assured or the sum assured is at least 10
times the premium.
• If the pay-out exceeds Rs.1,00,000, and the policyholder’s PAN is
available to the insurer, a TDS (Tax Deducted at Source) of 1% is applied.
In order to avail all the tax benefits that come with a term plan, Canara HSBC
Oriental Bank of Commerce Life Insurance’s iSelect Star Term Plan proves to be
a lucrative option. Policyholders can take their pick of the various riders available
- Accidental Death Benefit, Accidental Total and Permanent Disability Benefit
or even the Child Support Benefit.
They can also customize their pay-out options and choose to receive their pay-
out in the form of a lump sum, a monthly income or a part lump sum-part monthly
income. They choose from 3 plan variants, which, each, offer unique benefits
like return of premiums, spousal cover and more. Thus, in addition to tax benefits,
policyholders can benefit from a whole bunch of advantages by opting for a term
plan.
Are there any situations when the beneficiary might still have to pay tax?
One such situation where the benefit amount may attract tax is when the
policyholder chooses not to have the benefit paid out immediately. In this case,
the amount is held by the insurance company until paid out, and the amount is
paid out after a period of interest accumulation. This accumulated portion of
interest is usually liable to taxes.
Who is eligible to claim Term insurance premium tax benefit?
Tax benefits on term insurance can be claimed by individuals and Hindu
Undivided Family (HUFs) by claiming deduction on the premiums paid for a term
insurance policy.