Good News!!! 20 lakh is the new Ceiling On Tax-Free Gratuity

On 22nd March 2018 Parliament passed “The Payment of Gratuity (Amendment) Bill 2017” which was passed by Lok Sabha 15th March 2018.

So what is “The Payment of Gratuity (Amendment) Bill 2017”?

  • As per “The Payment of Gratuity Act, 1972” which was passed in the year 2010, the ceiling of gratuity to employees was Ten Lakhs. With this new bill, the words “Ten Lakh Rupees” is being substitute with the words “such amount as may be notified by the Central Government from time to time”. The explanation given for such change is, considering the inflation and wage increase even in case of employees engaged in private and public sector, the entitlement of gratuity is also required to be revised for employees who are covered under the Act. Hence Central Government can revise the limit time to time keeping in view the increase in wage and inflation and future Pay Commissions.
  • After the implementation of the 7th Pay Commission, the ceiling of gratuity amount for central government employees was doubled to 20 lakh. Hence with the new bill, government will be able to enhance the ceiling of tax free gratuity to Rs. 20 lakh for the employees falling under the Payment of Gratuity Act.
  • The maximum maternity leave under the Maternity Benefit Act, 1961 has been enhanced from Twelve Weeks to Twenty-Six weeks by the Maternity Benefit (Amendment) Act, 2017. Hence the present bill is to remove the reference of 12 weeks and empowers the government to notify the maximum maternity leave.

Who are eligible for Gratuity?

The Payment of Gratuity Act, 1972 (the Act) was enacted to provide for a scheme for the payment of gratuity to employees engaged in factories, mines, oilfields, plantations, ports, railway companies, shops or other establishments who have rendered a minimum five years of continuous service with the establishment employing ten or more persons.

How gratuity is calculated?

The calculation of gratuity amount is based on a formula, which is fifteen days of wages for each year of completed service, subject to a ceiling.

Top 5 Retirement Investment Myths

Below are Top 5 Retirement Investment Myths:

Myth #1: It’s too early to think about Retirement

If you are still thinking the old way that you will pay the home loan, kid’s education, kid’s marriage and then start saving for your retirement then you have to postpone your retirement by 15 more years. The rocket high inflation,  our increasing wants, new gadgets, buying car every 5-7 years, it is impossible to meet the post Retirement financial requirement if you start late.

Let’s say your current household and other important expenditure is Rs 75,000 per month and you will retire after 20 years. Your monthly expenditure will be Rs. 4,50,687 on the 20th year, if we take average inflation rate as 9%.

You always think that you will start your Retirement investment from your next salary increment, but somehow you can’t. This is because with your salary hike, your expenditure also gets an increment. Again you postpone your Retirement investment and you put your post Retirement finance at risk.

Also you will not get the benefit from power of compounding if you postpone your investing. For example you will be able to accumulate only half of the money if you start just after 5 years than if you start investing now. Check the below example:

Amount Per Month Investment Period (In Years) Investment Period (In Months) Annual Interest Rate Final Amount will be
10000 20 240 15% 1,51,59,550
10000 15 180 15% 67,68,630

“A man who makes a mistake and doesn’t correct it’s making another mistake.”– Confucius

Myth #2: My EPF will take care my Retirement

Your contribution towards the EPF will be till you work full time. Also the contribution is very less (~10% of your basic salary). As the interest rates are going down day by day for small saving schemes, you will find very difficult after Retirement financial life if you are only dependent on your EPF.

Myth #3: My Tax Savings will take care of my Retirement

Tax saving is a small part of your overall investment. Most of the people do last minute tax investments and due to this last minute urgency they invest without having any plan or goal. The good investors are those who make their tax planning from the beginning of the financial year based on their overall financial plan. Since there is a limitation on the amount of money which can be investment for Tax saving, it will not be sufficient for your post Retirement financial requirements.

Myth #4: I can do it on my own, Financial Planners are very expensive

To save a small amount on Financial Planner Fee now, you might miss your important financial goals in future. Certified Financial Planners have the knowledge to provide unbiased advice with proper execution plan for all your financial goals. They also provides the techniques to handle personal financial risks, helps you to fix your existing financial issues etc.

Myth #5: Retirement means Not Working

Most of the people think that Retirement means No Work just relax and enjoy. Are you sure you will be able to spend the entire day without doing anything for another 20 years? Why don’t you do one thing, take 1 week off from your current job and spend the whole week at home without doing anything and see how it goes. Ideal thing will be if you can spend at least 3-4 hours on doing some meaningful work which either gives you an income or helps to the society. This way you will be physically and mentally fit.

“Life can only be understood backwards; but it must be lived forwards.”– Soren Kierkegaard

FYI: Follow these 8 easy steps and achieve your financial freedom.

The Ultimate Financial Checklist for each stage of life (RETIREMENT)

“Retirement’s the most wonderful thing. I get to enjoy all the things I never stopped to notice on the way up. After an extraordinary life, it’s time to enjoy my retirement.” – Patrick Macnee.

First of all congratulation, finally you have reached your retirement after coming all the way. In this stage we believe you have fulfilled all your major responsibilities such as your child’s higher education, child’s marriage, cleared home loan or any other loans you have.  At this stage you cannot make too much exposure to equity market, hence re-balance your investments. You might have already moved to the place where you decided to spend your rest of the life or planning to move. So enjoy your retirement as per your plan and stay healthy.

“Pay off your mortgage before retirement, and that’s one less bill you’ll have to worry about when you’re on a fixed income.” –  Suze Orman.

How to start planning you finance?

Life insurance:  At this stage most probably you do not require any Life Insurance. Verify once and take your call.

Health Insurance: This is the most important insurance you must have including Super Top-Up and critical illness insurance. This will be required for your entire retirement life. Do not forget to renew these insurance on time to avail all the benefits. Keep insurance documents handy along with your ID cards, these will be helpful that the time of emergency.

Financial Goal: Go through all your financial goals and investments once again. Make sure to rebalance the equity exposure. For detail information on evaluating your financial investment, click here.

Do not overspend: Cut down all the unnecessary spending. Create a budget including your regular medicine, fuel charges, gifts & vacations and stick to it. If required then only use your credit card and pay your complete bill on time.

Be debt free: Make sure you are debt free.

After retirement income source: You should have some monthly income from your assets or investments or part time job.

Have a WILL: Make sure you have a WILL by this time. Also write down how your money should be used the way you wish.

Health: Not the least, you should really work on your health. As if you are healthy then only you will be able to enjoy the way you want your retirement life.

So your ultimate checklists for Personal Finance as RETIRED are:

  • Make monthly budget and stick to it
  • Cover with proper Health Insurance & life insurance(if required)
  • Revisit all your financial goals and re-balance your investments.
  • Be debt free
  • Make sure you have an monthly income
  • Periodic health check-up and stay healthy
  • Have a written WILL
  • Seek professional Personal Financial Planner help for better Financial Future. Do not trust anybody blindly in case of your Personal Finance.
  • Finally ENJOY

The Ultimate Financial Checklist for each stage of life are:

The Ultimate Financial Checklist for each stage of life (APPROACHING RETIREMENT)

“To enjoy a long, comfortable retirement, save more today.” Suze Orman.

This is the time when you are in your peek of earning as well as spending (including expenditure). Few years more and then you will take your retirement. Things which you want to do from long time, spend your time the way you want everything is going to be true. Your kids are in their higher studies or going to be. As you have planned things are all in place and your investments are working the way you want. However things do not go all easy for many people, hence it is very important in this stage to revisit all the financial goals and investments; make sure things are in the right path.

“As far as your personal goals are and what you actually want to do with your life, it should never have to do with the government. You should never depend on the government for your retirement, your financial security, for anything. If you do, you’re screwed.” – Drew Carey

How to start planning you finance?

Life insurance:  Check how long you need the insurance which should be decided on your dependents.

Health Insurance: This is the most important insurance you must have including Super Top-Up. If possible have critical illness insurance also.

Emergency/Opportunity fund: Keep 6 to 12 months monthly expenditure in less risky liquid fund which are easily available at the time of emergency or any opportunity.

Financial Goal: Go through all your financial goals and investments. Make sure all are in place. You also have to decide how much percentage of your investment for your retirement should be invested on equities. For detail information on evaluating your financial investment, click here.

Do not overspend: You are already in your highest spending era, hence have a proper budget and stick to it. Use your credit card wisely and pay your complete bill on time.

Be debt free: Make sure you become debt free before you retire. This will give a peaceful life in your retirement.

After retirement income source: You should work on something which will give a constant source of income during your retirement time. You can think of a rental income, work as a consultant on the field you are working etc.

Plan on spending your retirement life: You should actually start thinking and come up with a detail plan how you are going to spend your retirement days. Doing nothing will make you weak and can effect mentally/physically. After retirement it will be very hard to find out what you should do to spend your time, hence it is best to figure out now itself. You can think of your hobby or working with an NGO or start a new business, anything you have in your mind, start working from now on so that you have a proper plan.

Place where to live after retirement: It is very important to decide where you are going to spend your entire retirement period. Hence visit those places which all are there on your mind. Go spend few days and try to understand whether this is the place or not.

Have a WILL: Make sure you have a WILL by this time. Also write down how your money should be used the way you wish.

Health: Not the least, you should really work on your health. As if you are healthy then only you will be able to enjoy the way you want your retirement life.

“Living each day as if it were your last doesn’t mean your last day of retirement on a remote island. It means to live fully, authentically and spontaneously with nothing being held back.” Jack Canfield.

 So your checklist for Personal Finance as an APPROACHING RETIREMENT are:

  • Make monthly budget and stick to it
  • Cover with proper Health Insurance & life insurance(if required)
  • Create an emergency/opportunity fund
  • Revisit all your financial goals and investments.
  • Use your credit card properly and always pay your complete credit card bill on time
  • Be debt free before retirement
  • Have a after retirement plan
  • Have a written WILL
  • Seek professional Personal Financial Planner help for better Financial Future. Do not trust anybody blindly in case of your Personal Finance

The Ultimate Financial Checklist for each stage of life are:

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