Suresh, 27, works for one of the largest IT companies in the country. He likes to travel and has a passion for photography. Naturally, he allots a bulk of his salary to travelling and buying new photography equipment. Suresh is soon going to get married to Megha, 26, and as he and Megha have been spending time together, he realises that things might change financially after marriage. Megha earns her own income but now their plans need to cater to both their future needs.
Individual spending habits can wreck the financial well-being of both spouses. In fact a study found that almost 55% of the 550 respondents to an online survey said they have frequent fights over money with their life partner. The reasons are— overspending habits, being tightfisted with money, lending to relatives or friends, being secretive about money and investment choices.
Most couples take financial planning seriously only after an emergency strikes. Ideally, marriage should lead to a change in investing behaviour because it also has an impact on tax filings. Before going into the details of investments and taxation after marriage, newlyweds should keep a few points in mind.
Budgeting and Starting Early
The first step towards a secure financial future is to keep an account of your income and expenses. Budgeting helps in tracking expenses and categorising them into essential and non-essential. Couples should cut back on non-essential expenses and then plough the surplus fund into building a savings moat. If both spouses are working, expenses could be shared and invested individually.
In the initial phase of marriage, people mostly focus on the good things in life and financial planning takes a backseat. The essence of investing successfully is to start early in life. Chart out a joint investment plan and bring it into action as early as possible. Though major investments largely remain the same after marriage, the treatment changes.
Life Insurance
A lot of things change after marriage, and suddenly you are responsible for two people. The most vital investment is to have proper life insurance. It protects the family against unfortunate incidents and takes care of financial needs like children’s education and loans.
In case you have an existing policy, don’t forget to update the beneficiary details after marriage. Life insurance should be taken at the earliest as premiums are affordable when you are young.
Health Insurance
If both spouses are working, they probably have a health cover provided by the employer. However, group policies can sometimes fall short in times of need. A better option would be to take a family floater plan, which will provide greater coverage and will also include children in the future. A family floater plan, is a good idea even when both spouses are not working or they don’t have individual health plans.
According to insurance experts, a husband and wife should pick a health insurance plan where they each receive a sum assured of Rs 10 lakh. The couple has the option to purchase a family floater plan with an additional cover of Rs 25 lakh. If your financial situation is sound, you can also enrol in a health plan that provides coverage up to Rs 1 crore.
Investments of up to Rs. 25,000 in health insurance are eligible for deductions under Section 80D of the Income Tax Act, 1961. The rising cost of medical care has, however, pushed up the premiums of health insurance plans . Health insurance expenses often go past Rs. 25,000 in a year. If both spouses are working, health insurance can be bought in a way that both spouses can claim the deduction.
Mutual Funds
Most couples set aside lump sum amounts as savings but fail to inculcate a habit of saving regularly. Small monthly investments in mutual funds through systematic investment plans can ensure a substantial corpus in a couple of decades. In the long run, equities tend to give the highest returns. At a young age, the risk appetite is also relatively high and investment in a proper mutual fund can be highly rewarding. Regular investments also help in forced savings and couples naturally cut back on avoidable expenses. For instance, regular monthly investments of Rs. 5,000 in an equity scheme can create a corpus of around Rs. 1 crore in over a decade. Mutual funds can also be a good way to plan for expenses.
For instance, if you both want to take a vacation in the next year that will cost you around Rs. 1.5 to Rs. 2 lakhs. Maybe you can save Rs. 10000 each month in a SIP and your partner can also put aside Rs. 5000 each month to take up that vacation.
Benefits in the taxation of rental income
Many people think that if you have two houses you can save tax if you are married. But each Assessee (spouse & individual) can avail deductions of principal payments and interest component U/s 80C & 24(b) of Income Tax Act 1961 as per condition prescribe therein.
For example, according to income tax regulations, transfers as gifts between spouses are exempt, meaning these transfers are not categorised as taxable income for the recipient. However, any income generated from the utilisation of such transferred funds may be considered as income in the hands of the donor.
Now, if a husband owns a rental property and instructs the tenants to pay the rental income to his wife, as per the clubbing provisions of the Income Tax Act, this rental income would still be taxable in the hands of the husband, not his wife. Not only that, if the wife chooses to invest this money in a fixed deposit, the interest earned also would be taxable in the hands of the husband and not the wife. Or, if she uses the funds to buy stocks, the capital gains arising on the sale of the stocks will be taxed in the husband’s hands.
Conclusion
The key to managing money after marriage lies in communicating and respecting each other’s needs. If partners start by making a budget, pooling resources for common expenses, sitting down and planning for financial goals, understanding each other’s financial responsibilities and making combined decisions on things to splurge on it can add to their happiness and make them choose good investment plans.
The idea is to ensure that you both save towards common goals and spend on the things that you desire for so that you can enjoy a happy and secure life.
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