Tax Saving Options

It’s that time of the year where most of us run to save tax, as our organizations ask us to submit proof.

The most popular section for saving tax is Section 80C. Let us look at the various avenues available to us under this section. Remember that this section gives us deduction not only for investments but also expenses. The total amount allowed under this section is Rs. 1,50,000/-. Let us look at the options available:

• Principle amount of Home Loan: If you have been repaying your Home loan EMI’s, the principle amount of the home loan is eligible for deduction. Please note that the interest amount is allowed as a deduction under section 24 against income from house property. The amount of stamp duty and Registration fee is also allowed as deduction if a person has not taken a housing loan.
• Tuition Fee: This is allowed for only the tuition fee paid to any school, college or university for education of children. The maximum allowed is Rs. 1,00,000/- per child. You can claim exemption only for 2 children.
• Life Insurance Premium: Any premium paid for insuring your own life or that of your child or spouse is allowed as deduction. You have to ensure that the premium paid does not exceed 10% of the assured amount.
• PF: In case of salaried employees your own contribution to PF (compulsory or voluntary) is allowed as deduction.
• PPF: Any contribution to PPF is allowed as deduction.
• 5 Year Bank Fixed Deposits: The principle amount invested is allowed as deduction. Interest amount received is taxable.
• 5 year postal time deposit: This is similar to bank fixed deposit. Interest amount received is taxable.
• NSC: There are 2 types available 5 years and 10 years. Any investment is eligible for deduction. Interest amount received is taxable and also can be claimed under section 80C as investment, as interest is treated as reinvested.
• Senior Citizen Saving Scheme: investment in this scheme is allowed as deduction, but this is available only for those above the age of 55. Interest amount received is taxable.
• ELSS: any investment in this is available as deduction.  

Try and plan your tax saving wisely, if after doing any of the above, you exhausts you 80C limit, do not do any other investment under this section unless it is as per your financial goals.

If you have a housing loan, interest paid on housing loan to the extend of Rs. 2,50,000/- is allowed as deduction, under income from house property for self-occupied property.

Premium for health insurance is allowed as deduction under section 80D upto Rs. 15,000/- for self and family and Rs. 20,000/- for Sr. Citizens.

Make use of the options given to you and save tax. Tax saved is money earned.

Financial Goal Setting

We all have dreams, but most of us continue dreaming, whereas some of us convert their dreams into reality. Why is it that some of us manage to make our dreams a reality and others find it difficult? Simple. We try to find reasons or excuses why our dreams are difficult to be met. This is where we kill our dream. Then when we ask how was another person able to achieve his dream and we find reasons for his / her success. What if I tell you we all can meet our dreams and achieve it, if we want? I’ll give you some simple steps:

• First for every dream determine what the preconditions are, write them down. Don’t judge if it can be achieved or not, just write it down.
• Next check if there are any financial needs attached to achieve the dream. Some easy dreams which involve finance are financial freedom, retirement, child education, marriage, and house.
• Now once you determine that financial needs are attached, let us try to make them measureable. Put a figure against each dream.
• This step becomes much easier, now we need to decide where we invest to meet our financial dreams. This is a very important step, as this will tell you how much time you have to achieve your dream. Every investment option has a risk attached as well as the return. So depending on your risk appetite, your timeframe gets determined. If you feel that the timeframe is too high and you want to give up, meet a practicing financial planner. He will determine your risk appetite and give you a better idea on how to achieve your dreams.
• The financial planner would also be able to do the categorizations of your dreams into short, medium and long term, depending on your current wealth and income. As depending on the category of your dream, your investment need to be done accordingly. The Planner would also do proper diversification of investments, taking into account you tax bracket as well. We often forget the tax angle, your investments should be tax efficient.

These simple steps and your financial goal is set. Let me tell you, once your financial goal is set, all your other reasons and excuses disappear and your dreams become more achievable.

Convert your child’s future into reality

The moment a child is born, we see the parents very happy. Not only parents but also the friends and relatives. A few days on everyone starts having big dreams for their children. It’s good to have dreams, but we also need to works towards achieving those dreams. The two most important dreams the parents have are child’s education and marriage. If you have actually seen over the years the cost of education is just going up. Competition among children is also going and parents are also competing with other parents to show that they can give their children better education. Earlier all students used to study through the state board. Then slowly as awareness spread parents moved their children to CBSE and then ICSE and god knows what else is on the cards.

Whatever is on the cards, the cost of education is and will keep going up. So what should you do? Start now. Start a SIP which will be used only for your child’s education. As I have said many times the earlier you start the amount you need to keep aside remains small, with every passing year the amount to be kept aside keeps increasing.

Start with the following:

• Define your goal i.e. what sort of education you would like to give your child, what is the current cost of such education and till when you would be able to contribute to such goal.
• Start your contribution and remain focused, come what may, your dream and your child’s future depends upon you.
• Consult your advisor, to understand the risks involved in various types of investments and then take an informed choice.

If you start early your child’s future will definitely turn into a reality.

Creating Wealth through Equities

The sensex is going up and I can see that I can make money, so I want to invest in the stock market. This is what I hear from every second person. This is a good opportunity to create wealth through equities. Is it so easy, if it was everyone would have been making money. The fact is, it is not, you need to have knowledge and time, and best part is you should also be ready to lose some money if the market falls. As mentioned you need to have knowledge, time and risk taking appetite, not having even one is a sure shot disaster. So what are the options? One option is to go for investing in Equity Mutual funds. In this you are into equities indirectly. Indirectly means you do not own the stocks directly, but you put your money into a fund, which invests into equity.

Some of the benefits of investing through mutual funds are

• Knowledge – This aspect is taken care of because of the fund employs professionals who have the knowledge.
• Time – As these professionals are employed for the fund, they have the time
• Amount – You do not have to do big investments, you can start with as little as Rs.500/-, if you go for portfolio management, the amount to be invested would be a minimum of Rs. 25 Lakhs.
• Cost – the costs of portfolio manager are much higher compared to the costs of a mutual fund, as there are limits placed by SEBI.
• Liquidity – It is easier to get you money back, with minimal paper work.
• Tax – Mutual funds are tax friendly, you do not pay tax as your portfolio is churned, based on the market situation. In case of portfolio managed funds, you have to pay tax on every sell, depending on the period the stock was held.

Looking at the advantages, one can easily say, investing in the stock market through mutual funds is comparatively less risky.

Kisan Vikas Patra – The good, the bad, the Ugly

The finance minister recently introduced the Kisan Vikas Patra in its new avatar. Let us see some of its features

Interest Rate                – 8.7%

Period                           - 8 years 4 months

Redemption                 - Can be redeemed in 6 monthly intervals after a lock-in period on 2 years 6 months

Transferability              – Can be transferred with endorsement

Loan                               - Can be used as a collateral for loan

Minimum investment – Rs. 1,000/- and thereafter in multiples of Rs. 1,000/-

Maximum Investment – No Limit

Taxability                       – Interest is fully taxable

Documents required   – Proof of identity and address

Where to Purchase     – Post Office

The Good

The best part of Kisan Vikas Patra is there is no ceiling on the amount of investment. Even those who do not have a bank account or PAN card can apply. It has high liquidity, money can be withdrawn after just two and half years and there after every 6 months. The amount you would get at the end of every period is clearly mentioned. You could even use it as a collateral to get loan and can be transferred to anyone with just an endorsement.
The Bad

The interest rate guaranteed is 8.7% which is very less compared to other instruments for similar periods. The biggest problem is, it needs to be redeemed at the post office at which it was issued only and the interest is taxable.

The Ugly

Though the government has said that there will be KYC required, the absence of PAN makes room for a lot of black money.

Final View

Kisan Vikas Patra is good for village areas where they do not have access to banks. Hopefully the Jan Dan Yojna would overcome that. But for people in areas where there are banks, it would make more sense to put their money in Fixed Deposits, as you would get better rate of interest. Of course you have the taxability factor. To overcome tax issues, a better option would be Debt Mutual Fund, after taking indexation into account the tax would almost come to nil. Even for sr. Citizens its better to put their money in Sr. Citizen scheme where one can invest upto Rs. 15 lakhs and the interest rate is 9.2%, which is much higher than Kisan Vikas Patra.