How Budget 2017 Affects the Common Man?

budget 2017 common man

While the demonetization decision by the Govt. showcased its strong will to curb the menace of black money and counterfeit currency, the common man accepted the decision in anticipation of the benefits it will reap. Considering the large supply of money coming into the banking system, tax revenues were expected to improve. No wonder, everyone was looking forward to this year’s budget as a budget of hopes. Here’s how the Union Budget 2017 affects the common man:

Changes in Income Tax Rates

Starting with the budget proposals, FM shared some interesting data. There are just 76 lakh individual assesses who declare income above 5 lakh and out of these, 56 lakh are in the salaried class. This was in contrast to the fact that more than 2 crore Indian citizens flew abroad, either for business or tourism, in the year 2015.

He also admitted that the present burden of taxation is mainly on honest taxpayers and salaried employees who are showing their income correctly.

Giving a marginal relief to the taxpaying assessees and with an intent to increase the tax base, the tax rate has been reduced from 10% to 5% for the income between ₹2.5 lakhs to ₹5 lakh. Further, a super-rich surcharge has now been imposed on individuals earning between ₹50 lakhs and ₹1 crore @ 10%. Earlier, this surcharge was only applicable for individuals earning more than ₹1 crore @ 15% which continues to be levied.

The tables below explain this further:

budget 2017 common man

 

Here is how much an individual at different levels of income saves under the existing tax rates and the proposed tax rates:

budget 2017 common man

 

There has not been any additional relief for senior citizens apart from the above. Since their basic exemption limit has been a little higher than the normal tax assessees, the tax relief has indeed been lower for them. For the senior citizens with taxable income between ₹5 lakhs to ₹50 lakhs, there has been an uniform tax relief of ₹10,300. For very senior citizens of age 80 years or more, the basic exemption limit was ₹5,00,000, and there has been no additional tax relief for them.

No Major Changes in Excise Duty and Service Tax

Since Goods & Service Tax (GST) is due to be implemented latest by Sept. 2017, no major changes were made in the rates & provisions of excise duty and service tax. However, minor tinkering of the rates in excise duty has been done due to which certain articles get cheaper and some dearer.

Here is a chart that details this:

Budget 2017 common man

Tax Incentive for Digital Payments

In order to promote digital transactions and to encourage small unorganized business to accept digital payments, Govt. has reduced the deemed profit of 6% for business receipts received through electronic means instead of 8% of those received in cash.

It is important to note that the benefit of reduced deemed profit will be available even for the revenue generated during the whole current year 2016-17. The existing rate of 8% for the deemed profits shall continue to apply in respect of total turnover or gross receipts received by way of any other mode.

Computation of Long Term Capital Gains

As per existing provisions, for computing capital gains in respect of an asset acquired before 01.04.1981, the assessee is allowed to take either the fair market value of the asset as on 01.04.1981 or the actual cost of the asset as the cost of acquisition. As the base year for computing, the indexed cost of acquisition or cost of improvement has become more than three decades old, assessees were facing genuine difficulties due to non-availability of relevant information for computation of fair market value (FMV) of such asset as on 01.04.1981.

Govt. has therefore proposed to shift the base year to 2001. In other words, the cost of acquisition of an asset acquired before 01.04.2001 shall be allowed to be taken as FMV as on 1st April 2001 and the cost of improvement shall include only those capital expenses which are incurred after 01.04.2001. This amendment has been made in order to ease the compliance and measurement issues.

Change in Holding Period of Immovable Properties for Long Term Capital Gains

To make the real estate sector more attractive for investment, Govt. has decided to reduce the period of holding from the existing 36 months to 24 months in the case of immovable property, being land or building or both, to qualify as a long-term capital asset. Long-term capital gains are subject to various concessions like eligibility for tax exemptions, indexation benefits, concessional tax rates etc.

Restricting Cash Donations

Currently, no deduction is allowed for the cash donations in excess of ₹10,000. This threshold limit is proposed to be reduced to ₹2,000.

Tax Deduction on Rent

Govt. has proposed that every individual or HUF paying monthly rent above ₹50,000 will be required to deduct tax at the rate of 5%. The tax shall be deducted at the time of making payment or at the time of credit of rent to the account of the landlord, for the last month of the previous year or the last month of tenancy (if the property is vacated during the year), whichever is earlier.

Simplification of Tax Filing Process

One page income tax return is proposed to be made applicable for the individuals with taxable income less than ₹5 lakhs. Also, the time period for revising a tax return is being reduced to 12 months from completion of financial year, at par with the time period for filing of return. The time for completion of scrutiny assessments is being compressed further from 21 months to 18 months for Assessment Year 2018-19 and further to 12 months for Assessment Year 2019-20 and thereafter. The person with income less than ₹5 lakhs filing the return for the first time will not be subjected to scrutiny.

Further, to ensure filing of returns within due date, the fee for delayed filing of return has now been proposed in the Income Tax Act. If the return is filed after the due date but on or before 31 December, the assessee shall be liable to pay ₹5,000. If the return is filed after 31 December, the charges shall be ₹10,000. However, with a soft corner for the smaller taxpayers, it is proposed that the fee shall not exceed ₹1,000 in case the total income does not exceed ₹5 lakhs. So, from next year onwards, the normal perception of treating 31 March as the return filing deadline should improve.

tax saving else

Capital Markets

The target of disinvestment receipts during the next year has been set at ₹72,500 crores. This includes ₹46,500 crores as disinvestment receipts, ₹15,000 crores as strategic disinvestment receipts and the balance of ₹11,000 crores from the listing of general insurance companies. Shares of Railway Public Sector Enterprises like IRCTC, IRFC and IRCON will be listed on stock exchanges. Also, a new ETF with diversified CPSE stocks and other Government holdings will be launched in 2017-18. With the CPSE ETF FFO launched in January 2017 getting a bumper response and same giving decent 10-12% returns in a short span of time, it is going to be an exciting time for the capital market investors as well.

The common man has some reasons to smile after this budget.

How do you rate the budget? Share your thoughts in the comments below.

Simardeep Singh is a Chartered Accountant based in Delhi. He loves sharing his knowledge about personal finance and investment. He blogs regularly at  www.simardeep.com.


Key Highlights of Union Budget 2017

Highlights budget 2017

Union Budget 2017 has been a historic one with many firsts to its name. This was the first budget to be presented at the start of February instead of the last day of the month. Further, it was the first time Rail Budget and General Budget were presented together giving a full picture of the finances of the Government.

Finance Minister’s budget speech laid the foundation to implement the government’s vision to empower India through 10 broad themes, viz farmers, rural population, youth, poor and the underprivileged, infrastructure, financial sector, digital economy, public service, prudent fiscal management and tax administration.

Here are some of the key highlights of Union Budget 2017: 

Farmers and Rural Economy

Setting it on the top of the wishlist, FM showcased his priorities to focus on the agriculture sector. The coverage of the Fasal Bima Yojana, which will secure farmers from natural calamities, has been increased to 40% cropped areas in 2017-18 and 50% cropped areas in 2018-19.

Long-term irrigation fund set up by NABARD will see an addition of Rs. 20,000 Crores to its corpus adding to a total of Rs. 40,000 Crores. Micro irrigation fund is also to be set up by NABARD with an initial corpus of Rs. 5000 Crores to achieve the goal of ‘per drop more crop’.

Govt. has set an optimistic target to bring 1 crore households out of poverty by 2019. To achieve 100% electrification target by May 2018, the budget allocation has been increased under Deen Dayal Upadhyaya Gram Jyoti Yojana (DDUGJY). 

Personal Taxation

This is always the most awaited section of the FM’s budget speech. The basic tax exemption limit has been retained at Rs. 2.50 lakh. While there has not been any change in the personal tax rate slabs as was largely expected, the tax rate has been reduced from 10% to 5% for the income from 2.5 lakhs till Rs. 5 lakh.

The tax rates on the higher incomes have not been tinkered with. In fact, a super-rich surcharge has now been imposed on individuals earning between Rs. 50 lakhs and Rs. 1 crore @ 10%. Earlier, this surcharge was only applicable for individuals earning more than Rs. 1 crore @ 15% which continues to be levied.

So, in a nutshell, the tax burden has been halved for the people earning till Rs. 5 lakh while people earning between Rs. 5 lakh to Rs. 50 lakh stand to benefit by reduction of Rs. 12,875 in their annual tax outgo. 

tax saving else

Capital Markets

The target of disinvestment receipts during the next year has been set at Rs. 72,500 crores. FM also mentioned in his budget speech that the shares of Railway Public Sector Enterprises like IRCTC, IRFC and IRCON will be listed on stock exchanges. Further, a new ETF with diversified CPSE stocks and other Government holdings will be launched in 2017-18. So, the next year will be an exciting year for the capital market investors as well with several PSU stocks entering the capital markets.

Railways

Govt. has set out four focus areas in Railways including passenger safety, capital & development works, cleanliness and reforms in finance & accounting system. A fund called ‘Rashtriya Rail Sanraksha Kosh’ with a corpus of Rs. 1 Lakh crores over a period of five years will be created towards passenger safety. Unmanned level crossings on Broad Gauge lines will be eliminated by 2020. Further, to stress upon its thrust on renewable energy, Railways will feed about 7,000 stations with solar power in the medium term. A beginning has already been made in 300 stations and work will be taken up for 2,000 railway stations as part of 1000 MW solar mission.

Real Estate Sector

With a view to promoting the real-estate sector and to make it more attractive for investment, government has decided to reduce the period of holding from the existing 36 months to 24 months in the case of immovable property, being land or building or both, to qualify as a long-term capital asset. It is important to state here that long-term capital gains are subject to various concessions like eligibility for tax exemptions, indexation benefits etc.

Less-Cash and Cash-less Economy

In order to provide cashless economy and transparency, Section 80G has been proposed to be amended to restrict the deductions in respect of donations not exceeding Rs. 2,000 if such donation has been made in cash, instead of Rs. 10,000 as per the present provisions. Similarly, any cash expenditure in excess of Rs. 10,000 will not be allowed as a deduction from the income of the assessee. Further, to incentivise the cashless transactions in the businesses, Govt. has reduced the deemed profit of 6% for business receipts received through electronic means instead of 8% of those received in cash. 

Taxing the Markets

In a public address earlier in the month of January, Hon’ble PM had hinted on the change in the taxation of the capital market transactions, no mention of the same in the budget speech and the fine print is indeed a welcome measure.

No Major Changes in Excise Duty & Service Tax

In view of the fact that Goods & Service Tax is due to be implemented by Sept. 2017, no major changes were made in the rates of excise duty and service tax.

Strengthening the Financial Sector

The focus of the Govt. on the resolution of stressed legacy accounts of banks continues. The legal framework has been strengthened to facilitate resolution, through the enactment of the Insolvency and Bankruptcy Code and the amendments to the SARFAESI and Debt Recovery Tribunal Acts. In line with the ‘Indradhanush’ roadmap, Govt. has provided Rs. 10,000 crores for the recapitalisation of Banks in 2017-18. Further, to deal with big-time offenders, including economic offenders fleeing the country to escape the reach of the law, Government is considering the introduction of legislative changes to confiscate the assets of such persons located within the country.

Other Noteworthy Highlights

A few of the other Noteworthy Highlights in the Budget are:

  • Affordable housing will now be given infrastructure status which will enable these projects to avail the associated benefits.
  • Fiscal deficit estimated for 2017-18 at 3.2% of GDP.
  • Political funding reforms announced where the maximum amount of cash donation to a political party is restricted to Rs. 2,000 from one person
  • One page income tax return to be filed by the individuals with taxable income less than Rs. 5 lakhs
  • The person with income less than Rs. 5 lakhs filing the return for the first time will not be subjected to scrutiny.

While the budget was largely expected to be a populist one on the backdrop of demonetisation and slowing economy, the Finance Minister played the balancing game quite well.

As it is said, ‘stock exchange is the barometer of the economy’, the budget was given a thumbs up with BSE Sensex rising almost 500 points.

What is your take on the budget?

Simardeep Singh is a Chartered Accountant based in Delhi. He loves sharing his knowledge about personal finance and investment. He blogs regularly at  www.simardeep.com.


Expectations from the Union Budget 2017

expectations budget 2017

Marking a departure from the tradition, the Finance Minister will present the Union Budget in the Parliament on the first day of the February this time instead of the last day. Advancing of the date coupled with demonetization impact will certainly make the task of FM a little more challenging. At the same time, the buoyant tax collection figures till December as announced by him will provide him comfort.

While the common man experienced many problems after the demonetization decision by the government, there is an expectation that the Budget will offer some benefits and incentives.

Here are a few of the common man’s expectations from the Union Budget:

Increase in the Basic Exemption Limit

The basic exemption limit for an income tax assessee below 60 years of age is Rs. 2,50,000 and anybody earning lesser than that is not required to pay any tax. This limit has not been revised in the last two years and many are expecting an increase in this threshold limit. Demonetisation has helped bring money into the banking system which will eventually help increase the tax base. Hence, the benefit can be passed in the form of higher basic exemption limit.

Increase in the Tax Saving Investment Limit

Section 80C provides for certain tax-deduction eligible investments/payments which help an assessee save on tax e.g. payment of life insurance premiums, ELSS, PPF etc. However, there is a maximum ceiling limit attached with such investments which presently stands at Rs. 1,50,000. This limit is expected to be enhanced in order to incentivise savings and eventually, save tax.

tax saving else

Re-Introducing Standard Deduction for Salaried Individuals

Professionals and businessmen get the deductions for the expenses incurred in earning their income while calculating their income tax. However, salaried individuals do not enjoy such privileges and they need to pay tax on the gross amount of earnings. Thus, a standard deduction for salaried individuals is expected to be re-introduced in order to boost personal consumption. This will not only provide a sense of relief on the taxation front but also a psychological one.

Deduction for Interest on Housing Loans

The Govt. has made its intent quite clear on its agenda of housing for all in providing affordable housing to its citizens. One does tend to skew towards a decision that is more tax efficient. Given the current limit of Rs. 2 lakhs, a loan amount of up to Rs. 25 lakhs can help the assessee take the maximum advantage. However, such an amount of loan many not be sufficient for Metro & Tier-2 cities and hence, a higher limit will encourage more people to realize their dream of owning a house.

Incentivising Digital Payments

The Union Budget may be another stage for the Govt. to portray its intent to move towards a cashless economy and in further providing some tax incentives for digital payments. Any such move will certainly be welcomed as any tax savings are good savings. A precursor to such incentives to be introduced in the budget has been the announcement of reduced deemed profit of 6% for business receipts received through electronic means instead of 8% of those received in cash.

People will certainly be eager to see how many of these expectations are fulfilled in this Union Budget.

Simardeep Singh is a Chartered Accountant based in Delhi. He loves sharing his knowledge about personal finance and investment. He blogs regularly at  www.simardeep.com.


An Overview of Investment Options to Save Taxes

investment save taxes

We are pretty sure your employers are breathing down your neck for submitting investment proofs for the current year. Have you done the investment for minimizing your tax outgo? There is still time, fret not. As the final post in our series on tax saving we do an overview of tax saving investment options for you to make an informed decision.

Gazing into the Crystal Ball

Do not hurry into the next tax saving investment. Why? Because of long term impact of the decisions you make today. Think about the future -- the next 5, 10 and 15 years. Think about the following:

  • How much short term money is required (money that you would like to use within 3 years)?
  • Amount required for a house, child’s education, marriage etc. Big ticket items which normally occur in the longer term

There may be other financial requirements, thus making it imperative that you write it down as a plan. We at Money View blog have published a number of posts on financial planning. You can start with these.

A gist of all tax saving products

Fortunately there are many tax saving products one can choose from. But unfortunately we are spoilt for choice. One of the many paradoxes in life. Some of the main products are:

  1. Employee Provident Fund (EPF)
  2. Public Provident Fund (PPF)
  3. National Pension Scheme (NPS)
  4. Equity Linked Saving Scheme (ELSS)
  5. Unit Linked Insurance Plans (ULIPS)
  6. Long Term Fixed Deposits (FD)
  7. Term Insurance

The ‘term insurance’ is purely an insurance product, with no financial benefit if the claim is not made. We will get to this later.

We have covered each of these terms in detail here: What Investments can Help You Save Income Tax Legally?

Let’s now see some interesting charts comparing the various products.

investment save taxes

  • It is clear from the above chart that the ELSS has the greatest expected rate of return. But there is a caveat, It is expected but not guaranteed. It is linked with the performance of the stock market. In the long term, the stock market is expected to give the largest return among all the investment avenues available.
  • The other attractive instrument is the NPS. Under this scheme, the government invests your money into bonds and other securities. Hence the higher return. The caveat here is that one can use it post retirement only. We think it’s a simple yet effective option for a retirement fund. In fact under the new rules, there is an additional INR 50,000/- exemption if one invests the same in an NPS account.
  • We will not comment much on EPF as it is almost out of your control and is a function of your salary structure.
  • The PPF does offer an attractive return along with tax exemption under 80c. One should closely consider this and unlike NPS it is more liquid.
  • The ULIP is barely attractive unless one wants to simplify their investment and insurance needs.
  • Fixed deposits are more for liquidity rather than investment. It is the most liquid of all the instruments, but as interest rates are down post demonetization, it is expected FD rates will come down even further.

The chart below indicates the ease of withdrawal or what we term as liquidity.

investment save taxes

Even though the FD is the most liquid, it does not yield high returns.

The second is the ELSS, which yields the maximum return in the long term. From these charts, it may be easier for you to pick  instruments for a specific long term and short term goals.

tax saving else

Some of the good ELSS funds are

  1. Sundaram LT ELSS Fund
  2. SBI Tax Advantage ELSS Fund
  3. HDFC Long Term Advantage Fund
  4. ICICI Prudential Long Term Equity Fund

Note on Insurance

We have covered insurance in this detailed post Is Insurance a Good Way to Save Taxes?. It is important to stress that insurance should be looked at only from an ‘insurance’ perspective and not from an investment standpoint. Therefore term insurance products make the most sense as the premiums are the lowest. For investment we can opt for ELSS rather than ULIPs that combine insurance and investments. Of course in the end, if you already have a ULIP, it may make sense to complete your minimum tenure.

Planning

After all these facts, it’s time to plan your taxes effectively. We recommend the following:

  1. Get a term insurance. The premium rates depend on your age and health profile.
  2. Calculate EPF contribution and deduct from 80c limit to calculate investment gap required to claim full exemption.
  3. Generate Retirement corpus if required: NPS seems to be an attractive option. PPF can also be considered.
  4. Rest shall go into an ELSS fund. Though the risk is higher, due to a lock-in period, they are reduced. The returns can be handsome.

Please note you should have regular savings going into fixed deposits and recurring deposit accounts. This shall help you build your liquidity portfolio.

Conclusion

All this may be overwhelming, but worth the effort. Keep it simple!

--------------------------------------------------------------------------------------------------------------------------------------------

This article is the last in the 5-article series on ‘Guide to Saving Income Tax Legally’.

In this series, we have discussed everything from investment options which help save income tax to striking the right balance between different tax saving options.

Read previous articles:

What Investments can Help You Save Income Tax Legally?

PPF, EPF or FD — Which is Better for Tax Planning?

Is Insurance a Good Way to Save Taxes?

Why ELSS is the Best Way to Save Taxes?

Arjun Balakrishnan is an investment fanatic who loves writing about investment topics. He regularly writes at Investment Gyaan.


Tax Planning With an Expert #MoneyViewChat

Tax planning is on our minds as we all approach the financial year end. Despite our best intentions, somehow planning our taxes gets pushed off to last minute when most of us scramble to save the taxes that we can. Last week, we did a tweet chat on the topic of tax planning with an expert, Simardeep Singh, who is a tax planning expert and CA. The interaction was very interesting. Here is a recap of the tweet chat which will give you good insights about the commonly asked questions on tax planning:

https://twitter.com/MyMoneyView/status/819545555642806272

https://twitter.com/MyMoneyView/status/819547469528829952

https://twitter.com/MyMoneyView/status/819549632682491904

https://twitter.com/MyMoneyView/status/819551232603942912

tax saving else

https://twitter.com/MyMoneyView/status/819552416035172353

Hope you enjoyed this recap which must have clarified many of your doubts on tax planning. Do follow us on our twitter handle @MyMoneyView for many such interesting and informative tweet chats.


benefits ELSS

Why ELSS is the Best Way to Save Taxes?

elss best way save taxes

Often we ignore the simplest of investment options, and look for more complex solutions for higher returns. The formula for success in creating wealth in investing is have a simple framework and being patient. This is termed as the flywheel effect. You need to do hard work to get the flywheel moving initially especially from rest, but when the flywheel gets into momentum it is a self-perpetuating machine.

Similarly get your investment framework right, be patient and then your money flywheel will run on almost auto-mode. In this article we will discuss one such investment instrument that can be a useful part of your financial flywheel - ELSS. Let's see the benefits of investing in ELSS.

ELSS (Equity Linked Savings Scheme)

ELSS enables the investor to do two things:

  1. Invest in equity/stock market: This will enable the investor to beat inflation over a long time frame
  2. No capital gains tax: One of the losses that we have when we put our money in fixed deposits is that we have to pay tax on the gains. Not only are the returns low on these deposits but the returns are taxed. Double whammy. ELSS gains on the other hand are tax free.

To highlight how tax can eat into our returns, let's look at the chart below.

benefits ELSS

It plots the year-on-year return on an initial investment of INR 1,00,000/- compounded at the rate of 8%. The orange curve represents tax free returns and the blue curve represents returns after tax.

Over a 15 year time period there is almost a 40% difference in the final corpus. This is assuming you pay a tax of 30% on the returns in the taxed case. Without your knowledge tax makes your returns look very average. Tax management is one of the facets of personal wealth management.

ELSS is one of the options to avail under Section 80C.

ELSS Better Than ULIPs as an Investment Choice

This is a very important concept to understand. Getting insurance and making an investment need not be good when done together. ULIP(Unit Linked Insurance Plan) is often the instrument of choice for the common man. Often we don’t really understand the gains of ULIP compared to ELSS.

You may be surprised to know that a number of ELSS schemes have outperformed ULIPs handsomely. On the other hand a number of banks earn more money on ULIPs and hence the agents mislead you. What about insurance? You can get a term insurance for very little for the sum assured. Check it out.

ELSS Vs PPF

This is a tough one honestly. Both are wonderful instruments, of course each having their own pros and cons. Both are tax saving schemes
under Section 80C.

One major difference is that the returns on PPF are fixed and promised by the government. This is a debt instrument and safer. The returns on ELSS is dependent on the performance of the stock market. ELSS can beat the PPF returns when a bull market is on. It is sound investment policy in diversifying by investing in both.

Minimum Lock In

To avail of the tax benefits, you have to be invested in ELSS for at least 3 years. You may think that OMG my money is stuck. On hindsight, this is a blessing in disguise! The lock-in period makes you a long term investor which is a prudent investment tactic especially when it comes to equity markets. Time of investment is taken care of by the law .

A Simple Route to the Stock Market

We believe every citizen in the country should have a certain amount of money invested in the stock market. Why should it be a privilege of the high net worth individuals only? We all need to be part owners of businesses. The benefit of ELSS is that it offers you this opportunity. You can use a SIP (Systematic Investment Plan) method to start the process.

ELSS - A Neat Beginning

If you have just started thinking about investing in the stock market, ELSS offers a simple way of participating in the same and saving tax as well. For established investors, ELSS still is a good option to diversify your portfolio at relatively lower risk. Do talk to your financial planner and do your research before choosing the right scheme. But don't let go an opportunity to avail of the benefits of ELSS.

tax saving else

This article is the fourth in a 5-article series on ‘Guide to Saving Income Tax Legally’.

In this series, we will discuss everything from investment options which help save income tax to striking the right balance between different tax saving options.

Read previous articles:

What Investments can Help You Save Income Tax Legally?

PPF, EPF or FD — Which is Better for Tax Planning?

Is Insurance a Good Way to Save Taxes?

Arjun Balakrishnan is an investment fanatic who loves writing about investment topics. He regularly writes at Investment Gyaan.

 


How to Get the Maximum Benefit from Your Health Insurance Policy

maximum benefit health insurance policy

You are smart, you are savvy – you know how important it is to have adequate insurance cover. You have done your homework, compared policies and their benefits, and chosen the best possible plan for yourself and your family.

Sounds good, so far.

But every now and then, do you feel that are not able to take full advantage of your health insurance policy? Are you spending a good bit of money out of your pocket every time you fall sick, in spite of that health insurance policy that seems to just sit pretty in your drawer? To be able to utilize your health insurance policy in the best possible way, you need to put in some effort and educate yourself about your plan, and how it works.

Here’s how to get the maximum benefit from your health insurance policy:

Educate Yourself about Your Entitlements

Right at the time of buying your health insurance policy, go through the fine print. Find out what you are entitled to and understand what all you are covered for. Read the “Terms and Conditions” carefully, and if you are confused, or do not understand any clause, ask your agent to explain things. Most of us feel embarrassed about asking questions for fear of looking like ignoramuses, but it is better to push your ego aside and ask if you are not clear about anything.

Maintain a List of Empanelled Hospitals

If you do not know which hospitals your insurance company has tied up with when you are well, you will face problems when you are sick. Consider a scenario – out of the blue, you feel a shooting pain radiating through your left arm, you are sweating, and gasping for breath. In a tizzy, your spouse rushes you to the nearest hospital, trying hard to recollect which hospitals your insurance company has listed. But the mind blanks out. Not bothered about empanelled hospitals at that moment, your spouse just wants to reach a hospital – any hospital – as soon as possible. As things calm down, you realize that you are not at an empanelled hospital, and will have to cough up the hefty medical bill.

The best way to avoid this possibility is to make sure that you have a list of empanelled hospitals handy, and you know how to reach those hospitals. If you take a little trouble during your wellness, you will find it worth the while in your sickness.

Go for the Free Medical Check-ups

Do you know that most health insurance policies entitle policyholders to a free medical check-up once every four claim-free years? In fact, some insurance companies offer this facility every year, even if you have filed a claim. Chances are you do not. You are not the only one – most people do not know about this facility and, sadly, most insurance agents neglect to inform their clients about this provision. Even those who know about it are not sure how to take advantage of it, fearing that their premium might go up, should the test reveal any bad news.

It is important to understand that you will not be charged a higher premium at the time of renewal if your test result shows a condition you did not have at the time of buying the policy. So, what are you waiting for, go for that free medical check-up.

Buy Additional Cover

In these days of soaring medical costs, it is better to take additional cover, which is over and above your existing health insurance policy. If you want a larger cover, once you have taken a regular policy, it is advisable to buy a top-up policy, than expand your existing policy. With a top-up policy, you can save your regular policy for general claims, while using the top-up to cater to that one-time high hospital bill. And yes, it is perfectly alright to have more than one health insurance policy.

Pay Your Premium in Time

Hard to believe as this might be, a disproportionately large number of people forget to pay their premium in time. In fact, many forget to pay it at all. People get busy, or they go through some crisis, or they go abroad, and forget about the premium.

However, it is very important to pay your premium in time throughout the life of the policy. If your existing policy lapses because you did not pay your premium, you will have to pay a higher premium for a new policy. You will also forego the free check-up that you are entitled to every four claim-free years.

As they say, your health is in your hands. So is squeezing the maximum out of your health plan.

Suneeta Kaul is a journalist, a writer, and a blogger. She tracks the economy, the corporate sector and the stock markets, and is a keen follower of current events. Having started her career with The Economic Times, she has worked for publications such as The Asian Age, Business India, and Thomson-Reuters, among others.


Is Insurance a Good Way to Save Taxes?

Is Insurance Good Way Save Taxes

This post is about a delicate topic, often discussed amongst friends, colleagues and relatives -- Insurance. It’s a difficult topic in my view, as it is not just about returns on investment. It’s about a sense of security for the individual and the dependents. The choice is not driven by money, so one has to be sensitive to the potential outcomes. So we will try not to persuade you as the reader in a specific direction, rather present factual information about the different type of products that are available in the market and how it affects your tax planning.

Term Life Insurance

Term life insurance as the term suggests is an insurance policy for a pre-defined length of time to protect the insured’s family primarily against the sudden demise of the insured. It is only insurance without any cash benefits unless the untoward incident happens during the term. It is a functional policy that does its job of securing your dependents with no strings attached.

The premium paid under the term insurance policy is eligible for deduction under the 80C section of the Income Tax act. Please bear in mind, insurance decisions are not investment decisions, so it’s important to look at insurance from a more extreme situation. The advantage of a term insurance policy is that premiums are much lower.

Whole Life Insurance

Again as the term suggests, it is valid until the end of the insured’s life span with an assured cash payout after the insured’s demise. It’s a traditional plan, which our parents and grandparents are well aware of. The main advantage is the assured cash payment, but of course it comes with a much higher premium.

It is up to the situation of the family, both economically and structurally which may make this an attractive option. The premiums are eligible for deduction under section 80C, much like the term plan.

Unit Linked Insurance Plans (ULIP)

A highly controversial topic, hence we will not discuss the merits and demerits much. This product (ULIP) is a combination of a term life and an investment fund. The Insurance company you insure with, will allot a part of the premium to life insurance and a part to investing in other instruments. It is a subject of debate whether this is better off than going for a separate term life and a mutual fund.

Again, we would suggest you do what makes your financial plan tick. If you have a ULIP, there may be logic continuing. If you are yet to get one, please ask the adviser/agent detailed calculations and make a choice accordingly. There are enough agents in the market trying to paint a rosy picture. Most ULIPs are deductible under 80C, so they do qualify as tax saver but from the perspective of investment they fare poorly due to high costs to the investor.

Endowment Insurance Plans

Okay, this one is in the middle of everything we just described. An endowment policy will pay the dependents on the sudden demise during the policy tenure. What’s more, they assure a payment even if the insured does not die after the policy period expires. So one is assured the payout on their own insurance. Technically some ULIPs are endowment plans as well.

Like other insurance plans, the premium paid are deductible under the 80C section. One may find the concept of endowment plans attractive but please do your math before jumping in. There may be better options, of course depends on the nature of your spends and your economic goals.

Insurance and 80C Deductions

As per current tax laws, life insurance premiums upto 1.5 lacs are eligible under Section 80C subject to other investments falling under Section 80C adds up to a total of Rs. 1.5 lakhs.

Also take note that only insurance policies having life cover are eligible for tax deductions. ULIP products which are sold as Pension plans are not tax exempted.

Conclusion

The sense of security is probably in the driving seat compared to returns when one thinks of insurance. Rightly so. Your financial planner should appreciate this emotion and give you the right guidance. No one answer is correct and will differ person to person, family to family.

We would strongly recommend to question, increase awareness and make the choices that make you sleep sound at night.


This article is the third in a 5-article series on ‘Guide to Saving Income Tax Legally’.

In this series, we will discuss everything from investment options which help save income tax to striking the right balance between different tax saving options.

Read previous articles:

What Investments can Help You Save Income Tax Legally?

PPF, EPF or FD -- Which is Better for Tax Planning?

Arjun Balakrishnan is an investment fanatic who loves writing about investment topics. He regularly writes at Investment Gyaan.


5 Tips for Investing in Equity Mutual Funds

5 tips investing equity mutual funds

In almost every other financial blog post, the emphasis on equity mutual funds has been immense. It is without doubt the most sought after investment these days, with real estate and deposits/debt taking a back seat. It is therefore important to understand certain realities about these funds which can guide us to make better investment decisions.

What Goes Up, Comes Down

Newton discovered this law centuries ago but investors have not paid enough attention. An equity mutual fund that performs extraordinarily well in the past year or so need not continue to do well. In fact, there is a high possibility of the fund correcting or consolidating, in which case you may end up making a loss.

One of the reasons that this happens is that the fund may have invested in a sector that could have done really well. Some sectors are cyclical in which case a good period is followed by a bad or an ordinary period. At the moment mid and small cap companies have been doing really well for the past 3 years, and hence could see some near term consolidation. Therefore small and mid-cap funds may not replicate past performance in the coming years.

Fund Manager's Track Record

We cannot stress this enough. The fees you pay for the mutual fund is not half as important as the track record of the fund manager. A good fund manager can generate above average returns for an extended period of time (>10 years). The fees that you pay for a good fund manager with a credible track record may well be worth it compared to a cheaper fund.

Weigh your options considering qualitative aspects as well. But how does one assess the manager’s track record? You can ask yourself the following:

  1. How did the fund manager perform during the 2008 financial crisis or for that matter any bear market. Did their fund correct lesser than the average market. If it corrected much more, that would mean the fund manager was simply chasing trendy stocks which eventually collapsed.
  2. How long have they been a fund manager and how many bull-bear cycles have been witnessed? This is very important. The stock market is a great leveler. A fund manager learns a new lesson during every bull and bear market. More experience, the better the manager handles the investment.
  3. Go-Go stocks: Go-Go stocks are stocks that the market fancies a lot at a given time. Good fund managers do not go after these stocks as they are generally over priced and when there is a crash these are the ones to get punished the most. This happened to Infra stocks in the last Indian bull market.

Spend time knowing your fund manager as it may be a partnership for life.

The Truth about NAV

NAV or Net Asset Value is the sum of the underlying assets of the mutual fund. It is NOT the measure of the value of the fund. You cannot measure if the fund is cheap or expensive with the NAV. Often we are misled to think a fund with a lower NAV is cheaper which is far away from the truth.

Probably the rate of change of NAV is a better indicator of fund performance. So next time an agent talks about NAV, ask him/her about the fund portfolio to assess.

How Many Funds?

“The definition of genius is taking the complex and making it simple”, a famous quote by Albert Einstein.

We need to take this seriously. Often agents and advisers suggest buying a number of mutual funds in the name of diversification. We need to understand that diversification is already present in any individual fund and there should be no need to buy funds from different companies. What could be considered, is diversification in terms of small, mid and large cap funds or just go for a diversified fund. But buying funds from different banks and institutions is not diversification.

Constant Review

Investment process is a journey, rather than just sitting idle after investing. Constant review of the performance of your fund, the market sentiment and knowing your fund manager are some key elements of the journey.

Keep reading and learning. It's your money after all.

Let us know about your experience with equity mutual funds in the comments section.

Arjun Balakrishnan is an investment fanatic who loves writing about investment topics. He regularly writes at Investment Gyaan.


PPF, EPF or FD -- Which is Better for Tax Planning?

ppf, epf or fd

Investing and tax planning go hand in hand. The amount of money you save in taxes can be re-invested to create more wealth in your compounding journey. Remember creating wealth is all about compounding.

In our previous post, we have mentioned tax saving investment options available out there.

In this article, we talk about some of the more conventional products such as Fixed Deposit (FD), Public Provident Fund(PF) and Employee Provident Fund (EPF) along with their impact on your taxes.

Long-Term Fixed Deposits (FD)

Long-term FDs are similar to the usual FDs except that their lock-in period is much longer (5 years) and the amount invested in the FD is not taxable. This comes under the 80C section of the income tax act and hence there is a limit of 1.5 lakh for the financial year. Bear in mind this 1.5 lakh includes other saving products that come under 80C. The current typical FD interest rate for 5 years and above is 6.5%.

An important point to note is that the interest (6.5%) from the long term FD is still taxable. Therefore, you will bear the taxes on the gains of your investment after 5 years. As the current interest rates are lower than before and are forecasted to go lower, a long term FD seems to be one of the less favourable options considering the returns will be quite low after the tax on gains.

Public Provident Fund

One of the oldest (introduced in the 60s) tax saving products, the Public Provident Fund (PPF) is often not given its due attention and is probably in the last of our investment preference list. PPF also falls under 80C section of the income tax act, which has an exemption limit of 1.5 lakh per year. The interest rate offered on PPF is attractive at about 8% (announced by government time to time) compared to the long term FD. The lock-in period for PPF is a massive 15 years, which basically means it is illiquid in nature. Though the rules allow you to make premature withdrawals, PPF is mainly a retirement planning product.

Hence, PPF should be part of one’s retirement planning as it is completely tax-free (even the gains) and the interest rates are on the higher side.

Employee Provident Fund

Whether we like it or not, almost all of us are part of the Employee Provident Fund (EPF) scheme. The great thing about the EPF is this forceful nature which protects the salaried class from bankruptcy. You contribute 12% of your basic and your employer contributes another 12% to deposit to your EPF account every month. EPF also falls under 80C, so you have a challenge balancing everything out. The interest rate from EPF investments is similar to PPF, about 8% which of course can change. The lock-in period for EPF is a minimum block of 5 years but withdrawal has restrictions much like the PPF. EPF is also oriented towards retirement planning.

One of the main drawbacks of EPF is the ongoing debate on whether the gains need to be taxed or not. The finance minister has tentatively rolled back the proposal of taxing 60% of the gains made during withdrawal which if implemented will come as a big blow to many of us.

ppf, epf or fd

Conclusion

Of the three products, long-term FD looks the weakest considering rate of return and the tax on the interest in FDs. The EPF is a product which you have little control over unless you can negotiate your pay structure. Therefore, PPF is probably the product one needs to consider for saving tax under 80C and plan for their retirement.

If retirement planning is not your concern, you can consider products like ELSS (Equity Linked Saving Scheme) mutual funds and bonds.

-----------------------------------------------------------------------------------------------------------------------------------------

This article is the second in a 5-article series on ‘Guide to Saving Income Tax Legally’.

In this series, we will discuss everything from investment options which help save income tax to striking the right balance between different tax saving options.

Read previous articles:

What Investments can Help You Save Income Tax Legally?

Is Insurance a Good Way to Save Taxes?

Arjun Balakrishnan is an investment fanatic who loves writing about investment topics. He regularly writes at Investment Gyaan.