Choose life policy carefully; early surrender can cause major losses

Switch credit card if changes in reward structure do not align with your needs

With the new financial year commencing on April 1, several changes will come into effect that may impact your financial life. Below, we outline some of the significant changes and offer guidance on how to navigate them effectively.

New regulations on surrender value 

The Insurance Regulatory and Development Authority’s (IRDAI) final regulations on the surrender value of insurance policies will come into force from April 1. Surrender values are expected to maintain their current levels or decrease if policies are surrendered within three years. If they are surrendered between the fourth and the seventh year, surrender values may increase slightly.
 

Surrender value is the amount insurers pay when a policyholder surrenders his or her policy prematurely.

“A policy’s surrender value will depend on its tenure: policies surrendered within the first three years will yield lower surrender values while longer tenures will result in higher values,” says Naval Goel, chief executive officer (CEO), PolicyX.

Goel suggests that surrendering a policy, particularly in the initial years, should be avoided as it entails a loss for the policyholder. He adds that life insurance policies yield higher returns when kept for longer tenures.

Policyholders who need money should consider taking a loan against their policy rather than surrendering it.

Changes in credit card rewards

Several credit card issuers have announced changes in their reward terms and conditions. ICICI Bank’s website, for instance, says that to qualify for complimentary lounge access during the April-June 2024 quarter, customers must spend a minimum of approximately Rs 35,000 in the January-March 2024 quarter. Similar requirements will apply to subsequent quarters.

“Banks periodically tweak their reward programmes to make them more relevant to users,” says Adhil Shetty, CEO, Bankbazaar.

Banks like the State Bank of India (SBI), Yes Bank, and Axis Bank have changed their reward structures. Some credit cards have discontinued reward points on rent payments, and on insurance, gold and fuel spends. Some have limited reward points on utility bills while others have abolished the exemption in annual fees.

“Learn about the updated reward structure to maximise its benefits. But do not alter your spending patterns or overspend to earn rewards. Evaluate your card’s features periodically,” says Shetty. 

Choose cards that match your spending patterns. Check minimum spend thresholds for rewards. Finally, if the changes in a card’s reward terms no longer meet your needs, switch to a new one.

Taxation 
 

While the interim budget announced on February 1, 2024, did not make major changes to the individual tax regime, here are a few points you must keep in mind when filing your tax return this year.

The new tax regime is the default regime from 2023-24.

Under this regime, tax slabs have been modified from six to five, and the minimum exemption limit has been hiked from Rs 2.5 to Rs 3 lakh. The highest surcharge rate has been reduced from 37 per cent to 25 per cent.

A standard deduction of Rs 50,000 is available to salaried individuals under the new tax regime as well. 

“A higher portion of your income is tax-exempt, reducing your taxable income. Individuals will enjoy potential savings on taxes,” says Anant Singh Ubeja, senior associate, SKV Law Offices.

Section 87A of the Income-Tax Act provides a rebate of 100 per cent of tax liability to an individual whose income does not exceed Rs 5 lakh.

Finance Act 2023 increased this limit to Rs 7 lakh for taxpayers who opt for the new tax regime. 

“This higher rebate limit offers financial relief to individuals in the lower and middle-income groups. It effectively reduces their tax burden, allowing them to retain more of their earnings and utilise the savings for investments, expenses, or savings,” says Nikhil Varma, managing partner, MVAC.

Middle-income groups should carefully estimate their tax outgo in the new tax regime.

“They should opt out only if necessary, as they would not be able to claim the deductions under Chapter VI-A, house rent allowance, leave travel allowance, etc. if they stay with the new tax regime,” says SR Patnaik, partner, Cyril Amarchand Mangaldas.  

Factor in higher TCS when planning overseas travel

• Overseas credit card spends will come under the liberalised remittance scheme (LRS) with an annual limit of $250,000 from April 1
   
• Cardholders will pay tax collected at source (TCS) of up to 20 per cent for foreign transactions via credit card. This applies only for amounts above Rs 7 lakh per individual per annum
   
• Plan outward remittances to minimise TCS. For multiple outward transfers planned for the year for foreign travel, the first spend can be towards transactions attracting a higher TCS rate
   
• Limit your total expenses to Rs 7 lakh to optimise your trip expenses
   
• Make standalone bookings for overseas accommodation, travel tickets, etc. instead of bundled tour packages, as the former will not qualify as an Overseas Tour Programme Package