A matter of personal interest

The overhang of demonetisation and falling interest rates on deposits notwithstanding, borrowers, savers/investors and taxpayers have had quite a bit to take home in 2017. Lending rates dipped, the government launched an assured return product for senior citizens, sweetened the deal for NPS subscribers and gave the EPF a facelift in some ways.

Taxpayers were faced with more disclosures and higher scrutiny; but goodies in the form of reduction in tax rate for the lowest slab and measures to ensure early refunds were doled out. SEBI’s clean-up act on classification of mutual funds raised hopes of a more investor-friendly avatar for mutual funds in 2018.

Here’s a detailed recap of significant moves on the personal finance front in 2017:

Headwinds for savings

Like in 2016, interest rates on the good old bank deposits continued to move downwards in 2017. The fall was further accelerated due to the excess liquidity in the banking system arising from the note ban. The note ban triggered deposit rate fall by a substantial 50-100 basis points across banks between November 2016 and February this year.

After that too, many banks have continued to cut deposit rates, shaving them off by as much as 50-75 basis points in recent months. Today, the rates of interest offered for one to five-year deposits by public and private sector banks are predominantly only in the 6 -7.2 per cent range, with the exception of a few.

Post office small savings schemes lost their lustre too. Rates were revised downwards twice in fiscal 2016-17. For this fiscal too, rates have been revised downwards in each of the first two quarters.

While the PPF boasted of an interest rate of 8.7 per cent in 2015-16, today the return offered on this popular product is only 7.8 per cent. Only the Sukanya Samriddhi Scheme for the girl child and the Senior Citizens Savings Scheme offer over 8 per cent. Even this is a far cry from the 9.2-9.3 per cent offered in 2015-16.

To add to the woes of savers, weak loan growth and sharp cuts in lending rates saw banks chop savings bank rates to manage margins. In end-July this year, SBI reduced its savings deposit interest rates by 50 basis points to 3.5 per cent for deposits of ₹1 crore and below.

Following SBI’s move, interest rates on savings bank account were trimmed by several banks such as Axis Bank, Bank of Baroda, Karnataka Bank, etc., for different categories of account holders.

With interest rates taking a dive across the board, savers looking for safe avenues to park their money were left high and dry. However, keeping in mind that senior citizens need a steady income without fluctuation in rates, the government launched the Pradhan Mantri Vaya Vandhana Yojana. This is an immediate annuity product offering a fixed income of 8 per cent for 10 years for those above 60 years of age. This scheme is open for subscription until May 3, 2018.

While savers went through tough times, borrowers made merry in 2017. SBI slashed its benchmark lending rate by 90 basis points in January this year. Other banks followed suit, cutting their lending rates by 70-80 basis points. Since August (when the RBI last cut rates), a few banks have cut benchmark lending rates by a notable 20-30 bps. Others have trimmed MCLR by 5-10 basis points.

While there have been issues with transmission of RBI’s rate cuts in the form of lower interest rates on loans, borrowers nevertheless had things going their way in 2017.

Cheer news for retirees

In the last few years, the government has frequently been doling out carrots to make the National Pension System (NPS) more attractive. The year 2017 was no different. Budget 2017 sweetened the deal for NPS subscribers.

Since mid-2015, you are allowed to withdraw up to 25 per cent of your contribution for specified expenses such as child’s education, illness, etc., if you have been with the NPS for at least 10 years. From assessment year 2018-19 onwards, this partial withdrawal up to 25 per cent of employee’s contribution will be exempt from tax.

Secondly, Budget 2017 also brought about uniformity in the cap on deduction under Sec 80 CCD for contribution to NPS for the salaried and non-salaried class. So, from assessment year 2018-19 onwards, for both an employee and individuals other than employees (or self-employed individuals) the deduction under Sec 80CCD for contribution to NPS is available up to 20 per cent of salary/gross total income.

Earlier, the salaried class had a higher cap of 20 per cent (10 per cent of employee’s contribution + 10 per cent of employer’s contribution) while non-salaried had a lower cap (10 per cent of gross total income).

Three, in November 2017, the joining age for NPS was raised to 65 years from 60 years for private sector employees.

This move will benefit subscribers who are at the fag end of employment and expecting lumpsum amount at the time of retirement. If they don’t want regular income immediately, they can leave the corpus received in the hands of professional fund managers for some years to fetch better returns.

Not only the NPS, the Employee Provident Fund (EPF) too saw a slew of investor-friendly moves in 2017. The EPFO simplified the existing procedures for final settlements on retirement/death, partial withdrawals and pension claims.

The forms to be filled up for making these claims were overhauled. The requirement of supporting documents was done away with in some cases of part-withdrawals. The process of requesting for transfer of EPF account from one employer to another was moved online.

Payments of benefits, pension and claims through electronic and digital means were introduced. A new mobile app ‘UMANG’ was brought in, providing, amongst others, services such as viewing passbook, raising and tracking claims.

Through the seeding of Aadhaar, PAN and bank account details with the UAN, the EPFO has also enabled easy portability of the account when an employee changes jobs.

With portability of EPF monies to the NPS announced earlier this year, steps were also taken to set up a procedure for the same. The government added more cheer by clarifying that any sum withdrawn from the EPF for the purpose of investing in the NPS will be tax-free.

The icing on the cake was the Cabinet approval for improving gratuity benefits. In September this year, the Cabinet approved doubling the maximum limit on gratuity payment from ₹10 lakh to ₹20 lakh.

Clean-up for mutual funds

With markets comfortably scaling new peaks, the year saw record inflows into mutual funds. Yet, with over 800 open-ended schemes available for subscription, investors are often at sea trying to navigate the multitude of choices and their overlapping mandates and investment styles.

This prompted market regulator SEBI to bring out rules to streamline various open-ended schemes. The regulator created five buckets for schemes — equity, debt, hybrid, solution-oriented (retirement, children’s future, etc) and others (exchange traded funds (ETFs), index funds, fund of funds).

In each of these buckets, sub-categories and clear definitions of the composition of the portfolio of the scheme eligible to fall in each of the categories were provided. Based on these rules, fund houses are expected to re-jig their offerings in consultation with SEBI.

Thus, in 2018, investors can look forward to navigating fund choices with more ease. These changes will bring down the number of schemes as all offerings will now have to compulsorily fall under any of these buckets/categories and only one scheme per category will be allowed (barring index funds, ETFs, fund of funds and sector funds).

It will also make it easier to compare the performances of similar funds. The merger of similar schemes implies consolidation of their assets under one roof and a consequent increase in the size of the continuing fund. This could lead to lower expense, which would indirectly boost returns over the long term.

Another smaller clean-up act is the winding down of the RGESS scheme. Under this scheme, deduction under section 80CCG for three consecutive assessment years is allowed up to ₹25,000 for first-time investments made in listed equity shares or equity-oriented fund, subject to fulfilment of certain conditions.

Considering the fact that this deduction was not popular with investors even after tweaks to make it more attractive, it was proposed to be phased out from assessment year 2018-19 onwards.

Mixed bag for personal taxation

The carry-over effect of demonetisation and, consequently, greater scrutiny of income by tax authorities remained. IT return forms were altered to capture new information. Details (IFSC Code, name of bank, account number) of cash deposited in the bank during the demonetisation period (9.11.2016– 30.12.2016 ) were required to be disclosed, if it aggregated to above ₹2 lakh.

In forms such as ITR 2, entries under the head ‘Income from Other Sources’ required unexplained/undisclosed investments, unexplained money, unexplained expenses, etc., to be shown separately. ‘Operation Clean Money’ also unsettled tax payers by asking for more information on deposits during the demonetisation period.

Mandatory fee for late filing, i.e for filing return after the due date, ranging from ₹5,000 to ₹10,000 was introduced for assessment year 2018-19 onwards.

But the year also saw some moves to make life easier for taxpayers. Budget 2017 lightened the burden for individual taxpayers, especially those in the lowest tax slab. Tax rate for those in the ₹2.5 lakh to ₹5 lakh income slab was reduced from 10 per cent to 5 per cent.

But then, the tax rebate benefit was cut — from ₹5,000 for those with incomes up to ₹5 lakh to ₹2,500 for those with incomes up to ₹3.5 lakh. Essentially, these changes imply that from assessment year 2018-19 onwards, there will be no tax for those with income up to ₹3 lakh.

The department also simplified the ITR 1 form (return) bringing down the number of pages to just one now from seven in the previous year

Next, the department stood up for issuing early refunds.

Beginning with assessment year 2017-18, returns can be processed and refunds issued even in such cases where the officers have taken them up for a detailed study, randomly or otherwise. In other words, unlike earlier, refunds will not be withheld simply because the return has been taken up for scrutiny.

To appeal to gen next, the ‘Aaykar Setu’ app was introduced. This app addresses various queries that taxpayers may have or services that they may need relating to returns, PAN/TAN, TDS, refund, rectification, etc. It also helps assessees access a Tax Return Preparer if necessary and enables payment of taxes online. A live chat facility is available here too.

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