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Financial Planning

2015 India policy changes: impact on your personal finance

11 September 2015
After a six-year wait, the Insurance Laws (Amendment) Act finally received a nod from the Rajya Sabha. Here are some key features of the act that will impact you as a policyholder.
 

Significant policy changes that will influence how you save, invest and safeguard.The provisions introduced by the Indian Government in the Budget 2015 are significant on several counts. The key feature that differentiates this budget from its predecessors is that it is not a populist budget, but a pragmatic and forward-thinking attempt to lay the groundwork for a strong Indian economy in times to come.

Some of the major developments during and after the Union Budget, that will impact your personal finances, are:

  • The Insurance Laws (Amendment) Act, 2015

After a six-year wait, the Insurance Laws (Amendment) Act finally received a nod from the Rajya Sabha. Here are some key features of the act that will impact you as a policyholder:

  • Increase in Foreign Direct Investment

The Foreign Direct Investment (FDI) cap was raised from 26% to 49%. Based on this, an estimated Rs. 20,000 to 25,000 crore of investment will flow into the insurance sector in the next few years. This inflow of foreign investment and expertise will help companies expand aggressively and push the insurance sector towards growth and innovation and more efficient processes.For customers, this would enable faster premium payment and processing, claims processing and settlement,as well as grievance redressal.

This is also likely to introduce new players in the market as domestic companies head towards expansion and consolidation. This will positively affect the lives of the common man, as healthy competition will lead to innovative and cost effective insurance products.

  • Simplified nominee payout

The insurance act will ease out the process of payment to the nominee of the policyholder. As per the new act, your insurance policy cannot be challenged on any ground, including mis-statement of facts etc., after three years from the commencement of the policy. This ensures a smoother claim disbursement process and lesser rejections.

Related: 5 things to know before you buy life insurance

  • Clamps on Mis-selling

The days of caveat emptor (buyers beware) are long gone. Based on the amendments, insurance companies will now be held responsible for mis-selling by its agents. There are now provisions for levying penalties ranging from Rs. 1 crore to 25 crores for various violations, including mis-selling and misrepresentation.

Related: 5 signs your agent is lying to you (and what to do about it)

  • Tax Benefits

Earlier, the deductions for pension schemesof insurance or mutual funds and National Pension Schemes (NPS) were limited to Rs. 1 lakh compared to PPF (Rs. 1.5 Lakhs). Now, pension schemes by insurance companies and AMCs will also be eligible for deductions up to Rs. 1.5 lakh. In addition, if you invest in NPS, you will get a deduction of Rs. 50,000 over and above the Rs. 1.5 Lakhs.

  • Introduction of New Bonds and Schemes
    • Fueling our country%u2019s passion for gold, the government introduced a Gold Monetization Scheme that works like a fixed deposit. You can now deposit your gold in the bank and earn interest on it!
    • The budget also introduced the Sovereign Gold Bond, an alternative to physically purchasing gold. You can redeem the interest earned against the face value of gold at the time of redemption.
    • To encourage the domestic purchase of gold, the government will soon release the Indian coin with the Ashok Chakra.
    • To boost infrastructure spending, the Finance Minister proposed tax-free bonds. Such redeemable non-convertible debentures are ideal for those looking for stable risk-free returns.
  • Other Significant Changes
    • Employees can now choose between National Pension Schemes (NPS) and Employee Provident Fund (EPF). This allows you to make decisions based on your risk appetite instead of investing your money solely in debt-oriented instruments.
    • The NPSLite (Swavalamban) will be replaced with Atal Pension Yojana, which is a pension plan with a regular savings program.
    • The surcharge on Dividend Distribution Tax (DDT) has been increased from 10% to 12%. This means lesser dividends from your debt funds.
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