Monday 10 December 2012

Have you planned your Taxes for this Financial Year?

by
Pradip Chakrabarty
Founder – Advisorkhoj.com

I know tax planning is a boring and time consuming exercise that we need to do every year. Though, I cannot help you avoid it but certainly can help with all the information that you need to plan your taxes and thus save money.   

First, Let us know the Income Tax slabs for FY 2012-13


Now, Let us know how Personal Tax scenarios have changed from last financial Year? 




Now, how much Tax you can save from various Investments?

One can claim his investments/payments under section 80C, 80CCC and 80CCD, up to Rs. 100,000 (Rupees One Lac only) combined limit - Amount can be invested in:
  • Life insurance/Unit Linked Insurance Plan (ULIP) premiums
  • Public provident fund (PPF)
  • National Savings Certificate (NSC) or National Service Scheme (NSS) or Post Office Tax Saving Deposits
  • Accrued Interest of NSC VIII Issue
  • Investment in Rural Development Bonds of NABARD
  • Five year Tax Saving Bank Fixed Deposits (For 5 years or more)
  • Investments in Mutual Funds Tax Saving Schemes (ELSS)
  • Employee Provident Fund (EPF) - Employee’s Contribution only
  • New Pension Scheme (NPS)  - To the extent of 10% of your salary by the Employer or Central Government will be eligible for additional tax benefit over & above the Rs. 1.00 Lac limit u/s 80C
  • Home Loan – only Principal amount paid (If you have got possession of the property)
  • Senior Citizen Savings Scheme 2004, if you are more than 60 years of age
  • Pension Scheme or Retirement plans under section 80CCC
  • Tuition Fees (excluding donations/ development fees) paid for Children (Max 2 Children only) for full time education in school/ colleges in India only.
  • The amount you pay as stamp duty when you buy a house and also the amount you pay for the registration of the documents of the house can be claimed as deduction under section 80C. However, this can be done only in the year of purchase of the house.

You can save Taxes further from following

Deduction of upto 10,000 for interest from Savings Bank Account under a new section 80TTA
  • Maximum deduction of up to 15,000 under Mediclaim/ health insurance taken for self and family. An additional deduction of up to 15,000 for buying cover for dependent parents. If parents/assesses are senior citizens, can claim deduction up to Rs 20,000 (Under Section 80D)
  • The maximum limit is of 1.5 lacs on interest payments of a home loan for a self-occupied residential property. However, there is no ceiling on the amount of deduction if the house is let out or deemed to be let out. In this case, house rent would need to be shown in as income in case house is not self-occupied or it’s a second property (under Section 24(b)/Home loan interest payment)
  • Donations made to Religious or charitable Trusts is allowed @ 25/50/75/100% (of the contribution amount) depending upon the charity and approval  (under Section 80G)
  • Tax relief on interest payments on education loan taken for higher studies for self, spouse or child. There is no maximum limit on this deduction, but should be from a school/ institute /university recognized by the government (Section 80E)
  • Deduction of 50,000 for maintenance of a disabled dependent. If the disability is severe, the deduction amount will be 100,000 (Under Section 80DD)
  • Deduction can be claimed if person has a disability. The allowed deduction is Rs 50,000. This deduction goes up to Rs. 75,000 in case disability is severe (section 80U Disabled/ Handicapped person).
  • Deduction of upto Rs. 5,000 is allowed for preventive health check-up of dependent senior citizens.
  • Expenses incurred for medical treatment for self, spouse, dependent children, parents, brothers and sisters. Maximum deduction is Rs 40,000 (Can go up to 60,000 in case patient is senior citizen). Deduction is allowed only in case of specified diseases or ailments such as, AIDs, Malignant Cancer, Chronic Renal failure, Thalessaemia, Dementia, Parkinson’s disease, etc. (Section 80DDB)


Rajiv Gandhi Equity Savings scheme (RGESS): New retail investors with annual income of Rs 10 lakh and below are eligible to claim a deduction of 50% on a maximum investment of Rs 50,000/- - Applicable for those who first time invest into equities, Exchange-traded funds (ETFs) and Close Ended mutual funds listed on stock exchange and invested only in BSE 100, CNX 100 and blue chip public sector stocks. Shares of PSU firms categorised as Maharatna, Navratna or Miniratna by the central government will be eligible for RGESS. Follow on public offers and IPOs of PSUs will also be eligible (Under sub-section (1) of Section 80CCG of Income Tax Act 1961) – Exact notification and launch of this scheme is expected shortly.

Few useful links in context to your IT planning/ filling returns

1. Know your exact tax amount

2. Check your Employees Provident Find (EPF) Balance

3. Check your previous Tax refunds (if any)

4. To Find a TAX RETURN PREPARER (TRP)

5. View your Tax credits/ TDS from your bank thru net banking facility

6. To know more about Income Tax


Hope, the above comes handy in planning, Saving/Investing and filing your Taxes!


Disclaimers
1) The tax rates mentioned above are those provided in the Income tax Act, 1961, applicable for the financial year 2012-13 relevant to assessment year 2013-14. In the event of any change, we do not assume any responsibility to update the tax rates consequent to such changes.
2) The tax rates mentioned above are only intended to provide general information and are neither designed nor intended to be a substitute for professional tax advice. Applicability of the tax rates would depend upon nature of the transaction, the tax consequences thereon and the tax laws in force at the relevant point in time. Therefore, users are advised that before making any decision or taking any action that might affect their finances or business, they should take professional advice.
3) A non-resident tax payer has an option to be governed by the provisions of the Income tax Act, 1961or the provisions of the relevant Double Taxation Avoidance Agreement, whichever is more beneficial. As per the Finance Act, 2012, submission of tax residency certificate containing prescribed particulars, will be a necessary (though not sufficient) condition for granting benefits under the Double Taxation Avoidance Agreements to non-residents.

This article was also published in "Chatterpiller", the newsletter of Carma Connect
https://carmaconnect.in/newsletters/2012/12/15/finger-food-6/




Thursday 6 December 2012

Retirement Planning for Entrepreneurs in changing times…



…Continued from last issue

by
Pradip Chakrabarty
Founder – Advisorkhoj.com


In the last issue we discussed how important it is to have a financial plan, what is the amount required, and we arrived at a figure of Rs. 2.33 Crores. This is how much you (the entrepreneur) need to accumulate to maintain the same lifestyle till you’re 75, assuming you started your journey at 30 and retired at 50! That basically means you have only 20 years to accumulate all your money. Sounds scary, doesn’t it
A quick recap: There are many avenues to SAVE and INVEST
  1. SAVING PRODUCTS – Bank Fixed Deposits, PPF (Public Provident Fund) Account, Debt Funds of Mutual Fund, NPS (National Pension Scheme), Post office Savings Schemes, and son on  – these investment would typically fetch you a return of around 8%
  2. INVESTMENT PRODUCTS – Mutual funds (Equity schemes) and Shares – these have potential to fetch you a return of at least 15%-18% if invested for a long term. Since we are planning to invest for next 20 years its’ already Long term.
How much should you SAVE and/or INVEST – Frankly speaking, there are no thumb rules. But, with age your exposure to equity investing should reduce. An old investing formula suggests – 100 minus your age.For Example – When you are starting at Age 30 your equity exposure should be around 70%, at Age 35 – 65%, at age 40 – 60%, at age 45 – 55% and at Age 50 – only 50%. Since this is no thumb rule, let’s assume you are Saving/Investing at a ratio of 50:50.
Solution (At a Ratio of 50:50)
  1. Put the 50% (Rs.500,000) out of your Total Savings Corpus of Rs.1,000,000 in a Savings/Fixed deposit/ Debt Product and invest the rest 50% (Rs.500,000) in one or more Mutual Fund Equity Scheme/s.
  2. Start a Mutual Fund Monthly SIP (Systematic Investment Plan) for Rs. 14,500/- in  a Balanced Fund (Having 50% Debt and 50% Equity) for 20 years – assuming return of 11.50% CAGR
(CAGR means Compounded Annual Growth Rate)
Final Corpus Figures
Saving / Investing DetailsAmount after 20 Years
Rs. 500,000 in a Fixed Deposit for 20 yearsRs.   2,330,478
Rs. 500,000 in a Mutual Fund Scheme or EquityRs.   8,183,268
Rs. 14,500 Monthly SIP in a Mutual Fund for 20 Years – assuming return of 11.50%Rs. 13,413,965
Total Retirement Corpus at Age 50Rs. 23,927,711
Therefore, simply speaking you need to invest ONLY RS. 14,500/- per month for next 20 Years! Small Money?  Yes, really small – but, remember you need to invest month after month for next 20 years. But how that is possible? The answer is POWER OF COMPOUNDING and DISCIPLINED INVESTING!
Please look at the chart below to find out how a small amount can turn into a magical figure through power of compounding and disciplined investing.

Monthly Investment
                                     15% return per annum
5 years
5 years
10 years
10 years
15 years
15 years
20 years
20 years
(Investment)
(Total Return)
(Investment)
(Total Return)
(Investment)
(Total Return)
(Investment)
(Total Return)
2,000
1.20 Lacs
1.79 Lacs
2.40 Lacs
5.57 Lacs
3.60 Lacs
13.53 Lacs
4.80 lacs
30.31 Lacs
5,000
3.00 Lacs
4.48 Lacs
6.00 Lacs
13.93 Lacs
9.00 Lacs
33.84 Lacs
12.00 Lacs
75.79 Lacs
7,000
4.20 Lacs
6.27 Lacs
8.40 Lacs
19.50 Lacs
12.60 lacs
47.38 Lacs
16.80 Lacs
1.06 Crore
10,000
6.00 Lacs
8.96 Lacs
12.00 Lacs
27.86 Lacs
18.00 Lacs
67.68 Lacs
24.00 Lacs
1.51 Crore
15,000
9.00 Lacs
13.45 Lacs
18.00 Lacs
41.79 Lacs
27.00 lacs
1.01 Crore
36.00 Lacs
2.27 Crore
20,000
12.00 Lacs
17.93 Lacs
24.00 Lacs
55.73 Lacs
36.00 Lacs
1.35 Crore
48.00 Lacs
3.03 Crore
25,000
15.00 Lacs
22.42 Lacs
30.00 Lacs
69.66 Lacs
45.00 Lacs
1.69 Crore
60.00 Lacs
3.78 Crore
50,000
30.00 Lacs
44.84 Lacs
60.00 Lacs
1.39 Crore
90.00 lacs
3.38 Crore
1.20 Crore
7.57 Crore

Monthly Investment
                                     18% return per annum
5 years
5 years
10 years
10 years
15 years
15 years
20 years
20 years
(Investment)
(Total Return)
(Investment)
(Total Return)
(Investment)
(Total Return)
(Investment)
(Total Return)
2,000
1.20 Lacs
1.95 Lacs
2.40 Lacs
6.72 Lacs
3.60 Lacs
18.38 Lacs
4.80 lacs
46.86 Lacs
5,000
3.00 Lacs
4.88 Lacs
6.00 Lacs
16.81 Lacs
9.00 Lacs
45.96 Lacs
12.00 Lacs
1.17 Crore
7,000
4.20 Lacs
6.83 Lacs
8.40 Lacs
23.53 Lacs
12.60 lacs
64.34 Lacs
16.80 Lacs
1.64 Crore
10,000
6.00 Lacs
9.76 Lacs
12.00 Lacs
33.62 Lacs
18.00 Lacs
91.92 Lacs
24.00 Lacs
2.34 Crore
15,000
9.00 Lacs
14.64 Lacs
18.00 Lacs
50.43 Lacs
27.00 lacs
1.37 Crore
36.00 Lacs
3.51 Crore
20,000
12.00 Lacs
19.53 Lacs
24.00 Lacs
67.25 Lacs
36.00 Lacs
1.83 Crore
48.00 Lacs
4.68 Crore
25,000
15.00 Lacs
24.41 Lacs
30.00 Lacs
84.06 Lacs
45.00 Lacs
2.29 Crore
60.00 Lacs
5.85 Crore
50,000
30.00 Lacs
48.82 Lacs
60.00 Lacs
1.68 Crore
90.00 lacs
4.59 Crore
1.20 Crore
11.71 Crore

Monthly Investment
                                     20% return per annum
5 years
5 years
10 years
10 years
15 years
15 years
20 years
20 years
(Investment)
(Total Return)
(Investment)
(Total Return)
(Investment)
(Total Return)
(Investment)
(Total Return)
2,000
1.20 Lacs
2.06 Lacs
2.40 Lacs
7.64 Lacs
3.60 Lacs
22.68 Lacs
4.80 lacs
63.22 Lacs
5,000
3.00 Lacs
5.17 Lacs
6.00 Lacs
19.11 Lacs
9.00 Lacs
56.71 Lacs
12.00 Lacs
1.58 Crore
7,000
4.20 Lacs
7.24 Lacs
8.40 Lacs
26.76 Lacs
12.60 lacs
79.40 Lacs
16.80 Lacs
2.21 Crore
10,000
6.00 Lacs
10.34 Lacs
12.00 Lacs
38.23 Lacs
18.00 Lacs
1.13 Crore
24.00 Lacs
3.16 Crore
15,000
9.00 Lacs
15.51 Lacs
18.00 Lacs
57.35 Lacs
27.00 lacs
1.70 Crore
36.00 Lacs
4.74 Crore
20,000
12.00 Lacs
20.69 Lacs
24.00 Lacs
76.47 Lacs
36.00 Lacs
2.26 Crore
48.00 Lacs
6.32 Crore
25,000
15.00 Lacs
25.86 Lacs
30.00 Lacs
95.59 Lacs
45.00 Lacs
2.83 Crore
60.00 Lacs
7.90 Crore
50,000
30.00 Lacs
51.72 Lacs
60.00 Lacs
1.91 Crore
90.00 lacs
5.67 Crore
1.20 Crore
15.80 Crore
(The above calculations are approximates and may vary a little bit. You may also calculate with free calculators available on various financial websites).
Remember, even though the solution looks simple we fail to maintain the discipline and thus end up into some financial crisis or the other. You also need to know and understand the following during your journey of entrepreneurship –
  1. The above is just a glimpse of your Retirement Planning. But to have an exhaustive Financial Plan you must take help of a professional Financial Planner and might have to pay a small fee.
  2. Apart from Retirement planning you should also focus on planning your child’s Higher education as with times it is going to be very expensive and demanding. Also, what about planning your children’s marriage?
  3. How about planning your and your family’s health? Do you have a Mediclaim policy? Domestic as well as overseas (if you are travelling to abroad frequently). These days, Family Floater Policy is very popular as one policy covers the entire family!
  4. What about planning Holidays that you have dreamt of during these 20 years? Have a plan for that too!
  5. Now, most importantly, what happens to your family when you are not around? Something happens to you? Remember, they will need the same amount of money which you needed. Here the solution is simple – you should take a TERM PLAN INSURANCE. Term plans typically offer higher Life Coverage at a very low premium and generally not suggested by Insurance Agents as commission on these policies are very low. You should compare various Term Plans offered by Insurance Companies on the web – online buying is also possible. In the context to this article I suggest taking a Term Plan of At least a Crore – Annual premium would be around Rs. 8000 – 10,000 for a Life cover of I Crore till age 75!
  6. Document all your investments and keep copy of all the receipts/ Bonds and Statements in one file, record the details in an excel file, scan the documents and keep them stored in your computer.
  7. Most importantly, you should review all your investments once every year with your financial planner.
Friends, as we start our journey as an Entrepreneur we write the Story Board/ Draw a Business Plan and prepare a Financial Plan. We also seek guidance of a Mentor. But, most of the times we fail to draw a plan for our own life cycle. We feel nothing will happen to us and focus on things other than our own life. We never take professional Financial advice.. This could turn into a horror story… A recent incident really shook me. A Techie whose wife is a Chartered Accountant died recently in a road accident. Wife did know that her husband kept changing the password of his laptop where all his investments were recorded.. He never shared the password with his wife. Imagine the situation… Wife has no clue about his husband’s investments? What happened to her? How to handle and take care of situations like these?I will try writing an entire piece on this next time and try offering a solution!
Happy Retirement Planning! Or should I say Happy Financial Planning?
*(Disclaimer: Mutual Funds and securities investments are subject to market risks and there is no assurance or guarantee that the objectives of the Scheme will be achieved. As with any investment in securities, the NAV of the Units issued under the Scheme can go up or down depending on the factors and forces affecting the capital markets. Past performance of the Sponsor/AMC/Mutual Fund is not indicative of the future performance of the Scheme. Please read the Statement of Additional Information and Scheme Information Document carefully before investing. Insurance is the subject matter of the solicitation. Contact a qualified Investment Advisor before investing)

This article was also published in "Chatterpiller", the newsletter by Carma Connect
https://carmaconnect.in/newsletters/2012/08/17/finger-food-2/