New Financial Reforms Take Effect: Changes for PPF, Mutual Funds, and Insurance Starting October 1

These Financial Reforms Introduce Major Changes in Savings and Insurance Policies: As October arrives, significant financial reforms are set to change the way investors, borrowers, and policyholders navigate their financial journeys. These updates encompass new regulations for small savings schemes, improvements in loan transparency, alterations to health insurance policies, changes in taxation for mutual funds, and more. Here’s a detailed overview of the key changes to note:

1. New Rules for Post Office Small Savings Schemes

The government has updated the regulations for Post Office Savings Schemes, including the Public Provident Fund (PPF) and Sukanya Samriddhi Yojana. A notable change restricts minors to only one PPF account, eliminating the practice of multiple accounts. If more than one account is opened for a minor, the extra accounts will be marked as “irregular” and will earn a reduced interest rate of 4% instead of the standard 7.1% until the child turns 18. Additionally, Non-Resident Indians (NRIs) who did not disclose their residency status while maintaining a PPF account will see their accounts earn no interest effective October 1.

2. Health Insurance: Shorter Waiting Periods and Easier Claims

For policyholders with health insurance issued before March 2024, significant changes will be seen upon renewal. The Insurance Regulatory and Development Authority of India (IRDAI) has reduced the moratorium period from eight years to five years. Additionally, the waiting period for pre-existing conditions has been shortened from four years to three years, facilitating easier claims for policyholders.

3. Greater Loan Transparency for Borrowers

Starting October 1, the Reserve Bank of India (RBI) mandates that banks and Non-Banking Financial Companies (NBFCs) provide a Key Facts Statement (KFS) for all retail loans. This document will offer borrowers a clear breakdown of loan terms, fees, and charges, eliminating hidden costs and ensuring better financial understanding.

4. Endowment Policies to Offer Higher Early Exit Payouts

Policyholders of endowment life insurance will benefit from enhanced surrender values if they opt to exit their policies early. Previously, those who surrendered within the first year received no returns on their premiums. The new regulation requires a partial refund of premiums for early exits, providing a better financial safety net for policyholders.

5. Direct Tax Vivad Se Vishwas Scheme for Tax Disputes

October 1 also marks the initiation of the Direct Tax Vivad Se Vishwas Scheme 2024. This scheme aims to minimize the challenges of tax litigation by offering a streamlined process for settling disputes with the tax department, providing lower settlement amounts for new appellants and additional benefits for those declaring disputes before December 31.

 

6. No More 20% TDS on Mutual Fund Repurchases

To alleviate the tax burden on investors, the government has abolished the 20% tax deduction at source (TDS) on mutual fund unit repurchases. This change, effective from October 1, will ease the tax implications when redeeming mutual fund units, thereby benefiting investors.

7. Changes in Buyback Taxation

Previously, when companies bought back shares, they absorbed the tax burden, allowing shareholders to receive tax-free proceeds. However, starting October 1, buyback proceeds will now be classified as dividend income and taxed based on the shareholder’s personal income tax bracket. This change may significantly affect investors, particularly startup employees utilizing Employee Stock Option (ESOP) buybacks.

8. SEBI Streamlines Bonus Issue Trading

For investors interested in bonus issues, the Securities and Exchange Board of India (SEBI) has expedited the process. Shares from bonus issues will now be available for trading just two days after the record date, compared to the previous wait of up to two weeks, enhancing liquidity and access to bonus shares for investors.

These reforms are designed to simplify financial processes and foster a more transparent, investor-friendly environment. As these changes come into effect, individuals and businesses will need to reassess their financial strategies to navigate the evolving landscape effectively.

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