Personal Finance: March 2025

Term Insurance

In recent years, numerous online platforms have aggressively promoted life insurance policies, often using claims such as "secure a life cover of ₹1 Crore for just ₹525 per month." Advertisements during major cricket tournaments like the World Cup and IPL/WPL frequently depict a widow lamenting her deceased husband's lack of term insurance, with his garlanded portrait serving as a somber backdrop. These campaigns have significantly increased public awareness of term insurance policies. Life insurance companies have likely experienced a substantial surge in sales, particularly through mobile applications and online websites.

This blog post examines why term insurance can be a better option than traditional insurance.

Affordable Premiums: Term insurance is known for its affordability when compared to traditional insurance. This is because term insurance offers pure protection with no savings component. The premiums for term insurance policies are much lower compared to traditional insurance policies, as the coverage is provided only for a specific period of time. Traditional insurance policies, on the other hand, come with a savings or investment component, which means higher premiums.

Flexible Coverage: Term insurance policies offer flexible coverage options to policyholders. They can choose the coverage amount and the policy term according to their needs. If individuals have dependents who are financially dependent on them, they can choose a higher coverage amount to ensure that their financial needs are met even if they are no longer alive. Additionally, they can choose the policy term based on their current age and financial commitments.

No Hidden Charges: Traditional insurance policies often come with several hidden charges such as policy administration fees, premium allocation charges, and fund management charges. These charges can significantly reduce the returns on the investment. Term insurance policies, on the other hand, have no hidden charges, and the entire premium paid goes towards providing life coverage.

Easy to Understand: Term insurance policies are easy to understand and are transparent in their terms and conditions. Unlike traditional insurance policies, which can be complex and difficult to understand, term insurance policies are straightforward and easy to comprehend. This means that policyholders can make informed decisions based on their needs and financial goals.

Tax Benefits: The death benefit received by the nominee in case of term insurance policies is tax-free under Section 10(10D) of the Income Tax Act 1961.

No Medical Examination: Most term insurance policies do not require a medical examination for individuals under a certain age and sum assured. This means that individuals can get a term insurance policy without having to undergo any medical tests, which makes the process of buying insurance easier and faster.

Online Purchase: Term insurance policies can be purchased online, which makes the process of buying insurance faster and more convenient. Individuals can compare different policies, calculate the premium, and purchase a policy online without having to visit the insurance company's office.

To sum up, term insurance offers essential financial protection at an affordable cost. By prioritizing coverage over investment, it ensures a family's security, making it a prudent choice for those seeking pure life insurance benefits.

The content made available in this article is for general informational purposes only. While every effort has been made to ensure the accuracy and completeness of the content, it should not be considered as a substitute for professional consultation.

About the Author

From Paper to Pixels (faceless income tax assessments)

Early last week, Gopalam & I, visited Praful, a former colleague who was unwell. Praful was a couple of years senior to me during my "articleship training," the mandatory three-year practical training for aspiring Chartered Accountants. Gopalam, another senior colleague had recently retired at 58.

As we reminisced about the "good old days," our conversation covered various topics, with a significant focus on professional matters. One point we all agreed on was the drastic transformation of tax assessment procedures in recent years.

Since Praful and Gopalam hadn't been involved in these matters towards the end of their careers, I had the opportunity to explain the "faceless" aspect of tax assessments. During our discussion, I realized that many outside the profession are unaware of how this process works, hence this post.

Income Tax Scrutiny under Faceless Assessments

Income tax scrutiny is a detailed examination of a taxpayer's return by the Income Tax Department to verify its accuracy and ensure compliance with tax laws. With the introduction of faceless assessments in India, the scrutiny process has undergone a transformative shift, becoming more transparent, efficient, and objective.

The Concept of Faceless Assessments

Faceless assessments, introduced as part of the Taxpayers’ Charter, aim to eliminate physical interface between taxpayers and tax officials, ensuring impartiality. The process leverages technology and data analytics to streamline the scrutiny process while maintaining confidentiality and reducing human intervention. The system operates through the National Faceless Assessment Centre (NaFAC).

Steps in Income Tax Scrutiny under Faceless Assessments

Selection for Scrutiny:

Returns are selected for scrutiny normally using risk-based parameters or random allocation. Notices are issued under relevant section of the Income Tax Act, and delivered electronically to the taxpayer’s registered account or email.

Issuance of Questionnaire:

The assessing officer sends a detailed questionnaire and requests specific documents or information to address discrepancies or issues identified in the return.

Submission of Response:

Taxpayers are required to upload the requested documents and explanations on the e-filing portal within the stipulated time frame. Non-compliance or delay may result in an adverse order.

Processing of Information:

The submitted information is reviewed by designated assessment units. These units analyze the data and may seek additional clarifications or documents, if necessary. Complex matters may involve verification or technical units for further evaluation.

Draft Assessment Order:

Based on the findings, the assessing officer prepares a draft order, which is reviewed by a review unit. Recommendations for modifications, if any, are incorporated to ensure accuracy and fairness.

Communication of Final Order:

After the review, the final assessment order is issued electronically to the taxpayer. If additional tax liabilities are determined, the taxpayer is notified and must settle the amount within the prescribed timeline.

Advantages of Faceless Assessments

Impartial assessments, Efficient Online assessments, Transparency, data driven accurate scrutiny.

Challenges for Taxpayers

Digital literacy required, complex documentation is burdensome, lack direct taxpayer-officer interaction.

To sum up, faceless assessments represent a paradigm shift in India’s tax administration and fosters a taxpayer-friendly ecosystem. While the process demands precision and timely compliance, it offers convenience and fairness. Proactive record-keeping and professional help are crucial for navigating faceless tax assessments, a step towards a modern tax regime.

About the Author

Book Summary - Psychology of Money

Morgan Housel in his "The Psychology of Money" explores the complex relationship between humans and money. The author delves into the behavioral aspects that influence our financial decisions, providing valuable insights that can reshape our approach to wealth.

Housel starts with a basic point. Being smart does not guarantee money success. Our feelings control many money choices. Our actions and thoughts about money matter. He says we must understand how our minds work with money. This helps us make good money decisions.

Housel discusses the importance of time in wealth accumulation. He emphasizes long-term thinking and patience. He explains that consistent, small actions contribute to financial growth over time. He highlights the power of compounding, which allows small amounts to grow significantly. He advises against seeking quick financial gains and encourages a patient, disciplined investment approach.

The book also examines risk. It explores how people see risk. This affects their money choices. Housel changes the usual view of risk. He says risk is not just about bad chances. It is also about how bad the results could be. Knowing this difference helps people take better risks. People can make balanced choices.

Housel studies how people's behaviors change money choices. People don't always think clearly about money. He talks about common mistakes. These include being too sure of oneself, focusing only on recent events, and fearing missing out. He gives examples. These examples show how these mistakes can cause money problems. If people see these mistakes, they can make better choices. They can be more logical and fair.

The author also talks about luck. He explains how luck impacts money success. Housel says skill and hard work are important. But, luck also matters. Luck helps decide what happens. If people admit luck is a factor, they become humble. They are also thankful.

Housel tells several stories in his book. These stories make the complex money topic easier to understand. He tells stories of rich investors. He points out their different ways of doing things. He points out what people can learn from them. These stories make the ideas easy to understand.

The book also emphasizes that people must change money plans for their own lives. Housel says people should not just follow general money advice. Everyone's money path is different. He advises people to know their own goals. They should know what they value. They should understand how much risk they can take. This helps them make a money plan that works for them.

Housel also talks about wealth. He says wealth is a tool. It is not the final goal. He says money goals should match what people value. They should also match what makes them happy. He believes money should help people live good lives. He says people should value experiences and relationships. They should value them more than things. This helps people have a balanced and meaningful view of wealth.

To sum up, "The Psychology of Money" by Morgan Housel makes people think about money. It looks at how minds affect money choices. Housel uses stories and examples. He explains useful ideas. The book helps people understand money and behavior. It tells people to be patient. It tells them to learn. It tells them to make their own plans. This helps them succeed with money. It also helps them live a better life.

About the Author

Navigating a Bear Market

In the past few weeks, lunchtime conversations in most offices have revolved around the stock market, particularly the sharp decline in Indian equity markets. Participants often discuss how much their portfolios have shrunk or the losses they've incurred on specific stocks. A bear market, marked by falling stock prices and negative investor sentiment, can be particularly challenging for investors.

However, it also presents opportunities for those who approach it with caution and strategy. Seasoned investors who have seen the ups & downs of the equity markets are aware that such phases when the market is down is actually a good time to invest in the market for some real long-term growth.

Precautions Investors Need to Take When Investing in a Bear Market

Here are some key precautions investors should take when navigating a bear market:

Assess Risk Tolerance and Investment Goals

Before making any further investment decisions, investors should evaluate their risk tolerance and long-term financial goals. A bear market can test an investor’s patience and emotional resilience, making it crucial to align investments with their ability to withstand volatility.

Diversify the Portfolio

Diversification is a key strategy in mitigating risks. Investors should avoid putting all their money into a single asset class or sector. Instead, they should spread their investments across stocks, bonds and other assets to reduce the impact of market downturns.

Focus on Quality Stocks

During a bear market, weaker companies often struggle, while fundamentally strong companies with solid balance sheets, low debt, and consistent cash flow tend to recover faster. Investors should focus on high-quality stocks, particularly in defensive sectors like healthcare, consumer staples, and utilities.

Avoid Panic Selling

Emotional reactions to falling stock prices can lead to panic selling, which often results in losses. Investors should stay calm, avoid impulsive decisions, and remind themselves that markets move in cycles. Selling during a downturn could mean missing out on future recoveries.

Maintain Liquidity

Having an emergency fund or sufficient cash reserves is essential during a bear market. This liquidity provides flexibility to take advantage of investment opportunities without the pressure to sell assets at a loss during market downturns.

Monitor Economic Indicators

Investors should keep an eye on key economic indicators such as interest rates, inflation, and corporate earnings reports. These factors influence market sentiment and can provide insights into when a market turnaround might occur.

Rebalance the Portfolio

A bear market can shift an investor’s asset allocation. Regularly reviewing and rebalancing the portfolio ensures that it stays aligned with the investor’s risk tolerance and financial goals.

Seek Professional Advice

If uncertain about investment decisions, consulting a financial advisor can help investors make informed choices and develop a strategy tailored to their financial situation.

To sum up, investing in a bear market requires discipline, patience, and a well-thought-out strategy. While market downturns can be unsettling, they also present opportunities for long-term investors. By following these precautions, investors can minimize risks and position themselves for potential gains when the market recovers.

About the Author