Month: March 2021

Financial inclusion for women goes beyond banking privileges, and tailor-made investment and insurance products.. Access to assets through inheritance – an area in which women descendants are still not given an equal oppurtunity as men in most cases – too is vital. So is her right to decide who gets her assets beyond her lifetime. We catch up with Neha Pathak, Head of Trust and Estate Planning, Motilal Oswal Private Wealth Management, to know more on inheritance and succession planning for women in India.

The inheritance depends upon testamentary or intestate succession. In the former case, the person (predecessor) would have passed away making a testament (Will) that determines to whom and how the deceased’s assets should be distributed. In the intestate case, in which the person passes away without making a Will, the succession of assets is governed by the respective personal succession laws, such as Indian Succession Act, Hindu Succession Act and Muslim Personal Law.

As per the Hindu Succession Act, upon a male Hindu passing away, the property should be distributed in equal share to his widow, mother and each of the children. In case, any of the child has predeceased, the children and spouse (only if the deceased child is a male) will collectively get his/her share.

On the other hand, for a male Christian passing away without a Will wherein he leaves behind his wife and lineal descendants (i.e., children and grandchildren), the wife has a right of one-third share in the estate of her deceased husband and the remaining two-third shall go to the lineal descendants.

A married woman’s right in her spouse’s family’s assets are through her husband.

She directly will not inherit any asset while the husband is alive. However, on the demise of the husband, she, along with her children (if any) can claim rights over the assets that would have been otherwise be inherited by her husband..

One should also be aware that daughter-in-law can be left out of the share that her husband would inherit. This is when a Will is made saying that in case the son predeceases the person creating the Will, the share in the assets will be given to someone else and not the daughter-in-law.

What rights do women have on assets jointly held with spouse? Does the right change if she ceases to be married or if she hasn’t contributed monetarily to the acquisition of the asset?

When a wife is holding property jointly with her husband, whether she has contributed to the funds or not in the purchase of the property, she is entitled to her share of property as mentioned in the sale agreement. However, in case her husband passes away without a Will his share in the property will be distributed between/among his legal heirs as per the personal succession laws.

In case the woman is divorced from her husband, she may be entitled to maintenance either as decided mutually among husband and wife or as decided by the court of law.. In case she held the property with her husband while she was married, then the portion of the property which is in her name will belong to her. However, the couple can decide on the utilisation or ownership in the terms of divorce.

There have been instances where the couple has been separated and not divorced and the husband has passed away without making a Will. In such an instance, the woman is considered as wife of the deceased and is eligible to claim the assets as the deceased husband’s legal heir.

When a woman passes away without making a Will, the succession of her assets will be based on her religion. For instance, as per the Hindu Succession Act, when a female Hindu passing away without making a Will, class 1 heirs, i.e., husband, son (s) and daughter (s), including children of predeceased son/daughter will inherit the assets. However, when a woman is widow at the time of her demise and she has not created a Will, then her husband’s legal heir may have a right over her assets.

On the other hand, when a Muslim woman passes away, if she has children, then the husband will get 1/4th share in her property. If there are no children, then the husband will have half share in the wife’s property.

In this case a single woman passes away without a Will, her assets – as per the Hindu Succession Act – will benefit her legal heirs, i.e., her kids ; in case she does not have children, then legal heirs from the side of her parents will benefit.

Thus, it is critical for a woman to identify her obligations, be it towards her children or her parents,orcaretaker or charity.It is imperative that a woman makes a Will, unless she wants the personal laws to take effect and guide the process of succession of her assets.

What are the rules to keep in mind while planning one’s succession?

Primarily, one should start with compiling a list of assets and beneficiaries who should benefit from the assets in case you are no more You will have to keep in mind a few things like (1) ensuring the asset is your own (and not bought by you in someone else’s name or already gifted to someone else) (2) in case one of your children is not a beneficiary in the Will or if you are giving extra share to one child over another or giving your entire asset base to an unrelated party, prefer adding in a few clause explaining your intention for the same (3) Nominations and the will should be in sync with each other (4) ensure that the Will is witnessed by 2 witnesses (these witnesses cannot be the beneficiaries (5) keep reviewing the Will on an ongoing basis and (6) let concerned people know where to find your Will

However, over a period of time limitations of the Will crop up and become evident. Hence, one may require a more sophisticated approach to plan their succession. One should create a ‘Private Family Trust’ to achieve the same objectives in a relatively smooth manner.

NPS vs ELSS

Equity-Linked Savings Scheme (ELSS), also known as ELSS, is a tax-saving mutual fund that allows you to save up to Rs 1,50,000 per year under Section 80C. Not only a tax benefit and a lower minimum investment of Rs 500 (either lump sum or SIP) ELSS comes with a short lock-in period of only 3 years. Long-term capital gains (LTCG) of more than Rs 1 lakh is taxed at a rate of 10%. The National Pension System (NPS) is a government-backed scheme in which people contribute during their working years in order to receive a pension after they retire. NPS investments qualify for a tax exemption of Rs 1,50,000 under Section 80C of the Income Tax Act, as well as an additional Rs 50,000 deduction under Section 80CCD (1B). You can withdraw 60% of the NPS corpus tax-free upon maturity, while the remaining 40% (taxable at the current tax rates) is used to purchase annuities. Because ELSS is entirely equity-oriented, it is marginally riskier than NPS. The overall equity allocation in the NPS, on the other side, is limited at 75%. Additionally, NPS enables you to invest in asset classes that are comparatively secure, such as corporate debt and government securities. In the long term, though, equity yields are relatively higher than corporate debt and government securities, those who want a lower tax outgo and to build secure retirement corpus NPS can be a good bet. You can contribute towards ELSS, on the other side, if you want to create a corpus for long-term goals like your children’s higher education, marriage, and so on, while also limiting your tax liability.

NPS vs PPF

Both of these investment vehicles are simple to invest in. By filling out the application form or online, you can open a Public Provident Fund (PPF) account at any registered bank or post office. You can (between the age of 18 to 65), on the other hand, acquire a PRAN application form from any of the Point of Presence – Service Providers (POP-SP) or can even register for NPS at eNPS website (https://enps.nsdl.com/eNPS/NationalPensionSystem.html). Along with partial withdrawal options, PPF comes with a lock-in period of 15 years. After five years from the end of the year in which you made the initial subscription, you can withdraw up to 50% of your PPF balance only once per year. You can save up to Rs 1.5 lakh by claiming deductions under section 80C in a financial year by investing in PPF. PPF has EEE status, which ensures that the money invested, the interest gained, and the amount collected back at maturity are all tax-free. However, regular income earned from annuities purchased with 40% of the NPS corpus, on the other hand, is subject to taxation. PPF can be considered by anyone who wants to receive assured tax-free returns in order to fulfill goals such as higher education for children, marriage and so on. Individuals who are more risk-averse tend to invest in PPF because it has assured returns. PPF interest rates are currently at 7.1 per cent. Even partial withdrawal is permitted under the NPS withdrawal guidelines for specific reasons such as children’s schooling, marriage, or serious illness. Because the interest rate on PPF has been declining in recent years, there is a possibility that NPS will provide you with more decent market-linked returns compared to PPF. While both are attractive retirement savings alternatives, the only way to build a robust retirement corpus in the long-run is to invest in NPS.

NPS vs Tax Saving Fixed Deposits

The returns on tax-saving bank FDs are guaranteed. The interest rates charged to senior citizens are marginally higher than those offered to those under the age of 60. You can withdraw three times from your NPS account over its term, according to certain provisions, however, you can’t close or liquidate a tax-saving bank FD before it reaches maturity, which is usually five years. The interest received on a tax-saving FD is taxable according to the investor’s tax bracket, and if the gross interest earned in a financial year exceeds Rs. 40,000, TDS is applicable. For senior citizens, the quota is Rs. 50,000 respectively. A tax-saving FD can be considered by someone trying to reduce his or her tax outgo. That being said, keep in mind that the maximum amount that can be received as a tax deduction is Rs. 1.5 lakh, which is the limit set by section 80C. It is important to note that in order to qualify for the Section 80C tax benefit, you must invest in this scheme for at least 5 years. On 5-year deposits, one can now get up to an interest rate of 7.5%. Anyone with a low-risk appetite and a need to earn guaranteed returns over the long term can consider 5-year tax-saving FDs over NPS.

NPS vs NSC

You can conveniently invest in National Savings Certificate (NSC) at a post office, and it has a 5-year maturity period. The risks associated with NSC are low since it is a fixed-return instrument. Every quarter, the government sets the rate of return. NSCs are open to all Indian residents and HUFs. It’s worth noting, though, that NSC taxable interest isn’t charged to the investor. It is, though, re-invested, and this amount qualifies for a tax deduction under section 80C. NSC is suitable for investors with a low-risk appetite and a need for guaranteed returns. The NSC has an interest guarantee as well as full capital security. That being said, unlike ELSS and the National Pension System, they are still unable to produce inflation-beating returns. You can invest up to Rs.1.5 lakh in this government-backed tax-saving initiative to receive the benefits of 80C deductions. The current interest rate is 6.8% p.a., with the government revising it every quarter it will be compounded annually and paid out at maturity. If you want to gain tax benefits and get assured returns across the term of 5-years you can consider tax-saving FDs or NSC over NPS.

NPS vs EPF vs VPF

The interest received on employees’ PF contributions of more than Rs 2.5 lakh per year is proposed to be taxed in Budget 2021. This comes as a shock to high-earners who had previously taken advantage of the government’s tax-cut provisions. With tax-free 8.5 per cent returns and a sovereign guarantee, the EPF has proven to be a very profitable investment strategy. Interest is taxable if the Employees’ Provident Fund (EPF) + Voluntary Provident Fund (VPF) contributions surpass more than Rs 2.5 lakh. However, VPF contributions are still a viable choice, as VPF still provides 8.75 per cent by considering the tax bracket of 30%. Although the post-tax rate is not very strong, it is much higher than bank FDs, debt funds, NCDs and so on. Even though interest received on contributions above Rs 2.5 lakh will now be taxable, EPF+VPF returns are enticing considering the current rate cut scenario. That being said, EPF returns are assured, while NPS returns are not, despite the fact that NPS can generate higher returns over EPF in the long-term. Experts claim that investors should invest in both NPS and EPF because they each have their own combination of benefits and drawbacks. Using a blend of appropriate retirement options might be a smart strategy. As a result, by considering taxation on interest and maturity first, employees with higher income status can diversify their portfolio across (EPF+VPF), PPF, and NPS to maximise returns.