Financial and Tax Planning

Hi all..if anyone has still not filed their Income tax return and wishes to file, I can help do the needful. Plz get in touch with me.

Regards,
Keyur

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Worried about Household Budget -- Here's all you want to know

Proper household budgeting helps in creating wealth for goals like children's education, their wedding planning and one’s own retirement planning.
If one is able to plan their cash flows well in advance, in such case even their small savings will help them in achieving their bigger financial goals of life. To make it happen, one should start working on their savings ratio. Ideally one should set aside around 20-30% of their income as saving after meeting all expenses.
Here are some tips to get your household budget on track.
Pen down your expenses
Keep track of your monthly spending. It may not be possible for you to record every small expense so in that case you can club those little expenses in a single approximate amount. More precisely, you should pen down all your fixed and flexible expenses which will help in calculating the exact amount of expenses. Differentiate expenses into necessities and luxuries. For example, health insurance is a necessary expenditure.
List down your goals
Broadly, these can be put in four categories - retirement planning, child education planning, wedding planning and house purchase. You need to plan out that how much you need to save on monthly basis towards these priorities and accordingly, you need to adjust the amount against your other liabilities while meeting out your overall expenses. The longer the time horizon of your goal is, the lesser amount you need to save on monthly has the highest duration to get it accomplished. Also, to maintain a positive cash flow throughout your life, you need to invest your money in the right direction.
Create Emergency Fund
It is always suggestible to maintain at least 3 to 6 months of your expenses well in advance in your bank or in any liquid funds from where you can easily withdraw your money within a day.
Limit your debts
Have proper control over EMI's. Too many things purchased on credit card can affect your monthly budget severely. You might also have EMI for your home loan. The total EMI amount should not ideally exceed 10 per cent of your expenses.
Restructure your budget periodically
Spending on necessities should be your priority. Try to stick to your budget and once any of your goals is accomplished or your income gets increased, then try to restructure your budget and make a new budget from time to time.
Review your budget on time
Any planning done for one time is never successful, it needs to be reviewed on quarterly, semi-annually or annually basis. Reviewing process also helps you to remain stick towards your goals and your daily action plan also not goes beyond your daily cash limit. Therefore, if you are able to set a pattern to draw and follow your household budget from today, you can plan to think for a better tomorrow.
The better your budgeting is, the healthier your finances will remain through your life. A well-planned budget helps you in not only growing your money but also, helps you in growing your overall net worth.

Is longer holding of stocks for tax relief good for investors?

Tax experts believe investors can gain if holding period for long term capital gains (LTCG) exemption is increased to three years from the present one year since it would provide an impetus for building a stable equity portfolio and give a longer window for adjusting stock losses if any, besides reducing holding costs.
The Finance Ministry is understood to be considering increasing the holding period of stocks for long-term capital gains (LTCG) exemption from the current one year to three years. This, in effect, would mean if you sell the stocks in your portfolio within three years of purchase you would be liable to pay short-term capital gains tax of 15 percent should you be sitting on profit from your investment. The exemption window for nil LTCG at present is one year.

Thus, if an investor holds a stock for one year, it will not attract any capital gains tax if sold. On the face of it, the move will look negative for investors since the tax incidence on such investments would remain for a much longer duration. But could an increase in the holding period for availing LTCG exemption be seen as a benefit by the investing community? Tax experts believe investors can gain if the holding period is increased to three years as proposed since it would provide an impetus for building a stable equity portfolio and would give a longer window for adjusting stock losses if any and reduce holding costs. "If the holding period of equity shares is increased, it will act as an impetus for investors to stay committed for the longer term. Investors who stay invested for the long term (for at least 3 years going up to 5-7 years) can truly benefit from gains of investing in equity.

This change in the time period for long term tax on equity gains should not worry investors who are in for the long haul, they should take this as an opportunity to make wise investment and sit back to see their investments grow," Archit Gupta, CEO and Founder, ClearTax.com. Sudhir Kaushik, Co-founder and CFO, Taxspanner.com, advises investors to ignore short-term tax changes and look for long-term portfolio returns. "Equity investments should be made on a regular basis, preferably through SIPs over a long term. Investors should stay invested till they actually need money and ignore small tax changes. The sale of stocks should be based on your financial need ideally. Otherwise, one should stay invested and defer taxes if possible. The move would force investors to avoid frequent sale/purchase and hence will bring down the cost of investments in the long term," he said.

Kaushik said that investors would also likely benefit from a longer window for booking losses on equities. "Investors will also have more time to book losses and carry forward or adjust with taxable capital gain. Currently, one need to book losses within a year for adjusting against the taxable gain," he said. Cleartax’s Gupta agrees. "If the change takes place those holding for the short term will now have a longer period of time to plan short-term losses set off from short term gains," he said.

How to ensure regular income in golden years??
Mutual funds can help you save for your retired life.

The risk of living too long makes many avoid the thought of retired life, especially in this era of nuclear family. One should be in a position to fend for himself after he retires to ensure that the golden year remains golden.

In India, less than 11% of the estimated working population is eligible to participate in a formal pension system and about 90% of the population does not come under the purview of any such mechanism. The cost structure of life insurance products are relatively higher due to agent commission, fund management fees, policy administration etc impacting the returns. Net of expenses, a traditional plan would give you returns around 6% per annum.

Hence, it is advisable to diversify a part of your retirement investment to a low cost wealth creation product- mutual fund.
Mutual funds offer to invest in stocks, bonds and gold. For long term goals such as retirement, one should have exposure to stocks. One can start with equity mutual funds. For those, who don’t want to take 100% equity exposure, a balanced fund can be a good choice as it invests at least 65% in equities and the remaining in debt securities. While the stocks bring in returns, the bond exposure offers stability. Historically, balanced funds with more than 10 years track record have generated a compounded annualized growth return of 15 – 20%, significantly higher than most of the investment products. Balanced funds are treated as equity funds for the purpose of taxation. This means that the long term capital gain tax on balanced fund is NIL. Dividends too are tax free in the hands of the investor.

As a thumb rule, the accumulated funds for retirement should be approximately 20 times the required annual income just before retirement. One can accumulate his savings in equity funds and balanced funds using a systematic investment plan. This way he can build a large corpus over his working life.

If one falls in the high income tax slabs then he can look at opting for a systematic withdrawal plan from mutual funds. Investor can instruct the fund house to redeem units worth a fixed sum of money each month. Thus he can ensure regular income in his golden years. Sale of units of mutual funds is subject to capital gains tax. For the long term capital gains, the tax rate is lower as compared to 20% and 30% applicable to higher income tax slabs.

For investments in Mutual funds, you can contact me at 9833008874 or mail at [email protected]

Thank you,
Cheers...!!!

Should you invest in PPF or ELSS?

Before we move on, let us look at both investment options.

The Public Provident Fund, or PPF, and an equity linked savings plan, or ELSS, are eligible for a deduction under Section 80C of the Income Tax Act, which has been upped to Rs 1.50 lakh in last year’s Union Budget.

The amount you invest in PPF is eligible for a deduction, the interest earned is tax free and the entire amount on maturity (principal + interest accumulated) is also tax free. In other words, it is exempt from tax all the way – what is referred to as EEE.
When you invest in an ELSS, you get the deduction under the relevant section. Since the money has to stay invested for at least three years, there is no long-term capital gains tax that has to be paid.

As far as the tax benefit goes, both score high. The differences are stark when looking at the risk barometer.
Since the return in PPF is guaranteed and is backed by the government, there is no risk associated with it. The icing on the cake is that investments in a PPF account cannot be attached under any court order with respect to any debt or liability of the account holder.

But while PPF is identified as a risk-free investment, no investment is 100% free of every possible risk. Any investor who parks too much money in fixed-income assets can face other types of risk such as inflation risk and shortfall risk. A high rate of inflation would erode the value of your savings. Shortfall risk is the risk that an investment’s actual return will be less than the expected return, or more accurately, the return needed to meet one’s investment goals. Then there is the issue of liquidity too - should the investor need the money for some emergency it would be difficult since the PPF has a lock-in period of 15 years.

The return in PPF has declined over the years. From 12% at the turn of the century, it dropped down to 11%, then 9.5%, 9% and finally 8% where is languished for many years. Between FY12 and FY15 the rate hovered between 8.6% and 8.8%.
If you take the average inflation by year, the CPI from 2008 to 2013 has fluctuated between 8.32% and 12.11%. (Source: Inflation.edu). All in all, the PPF has not done an excellent job in consistently beating inflation over the last few years.

If we look at the average returns of the ELSS category over the past 10 years, as on January 2, 2015 they stood at 16.64% annualised. Do note, this is just the average return and there will be funds that have delivered a more superior performance - SBI Magnum Taxgain Scheme 93 (Growth) tops the list with a return of 21.43%.

However, stocks have a much higher level of risk in the
conventional sense, in that you could lose all your money and never recover it. At the same time, an investor who buys and holds a mostly stock portfolio generally faces less of a shortfall risk than the investor who parked the same amount in a fixed return investment over many years.

If your portfolio does have a very heavy equity exposure, then by all means exhaust the Section 80C limit with an investment in PPF. However, do take into account your principal repayment of the home loan, child’s tuition fees, contributions to Employee Provident Fund, or EPF, and premiums paid for life insurance before assuming that you need to invest Rs 1.50 lakh in PPF.
On the other hand, if your equity exposure is much less than desired, then you could look at ELSS. But don’t be in a tearing hurry to sell your fund units on completion of three years. Exit from the fund when the market is rallying so you walk away with a profit. If this means hanging on for a few more years, do so.

So in conclusion, there is no simple right or wrong with regards to PPF and ELSS. Both are completely different products. PPF must find a place in every investor's portfolio, but so must equity. Good tax management can go a long way toward enhancing your return. But the decision needs to be made in conjunction with your overall portfolio and not in an ad-hoc fashion.

Like we mentioned at the start, if you had your overall portfolio plan in place, you will be much less likely to make decisions that you would regret later. And you would be less likely to react to short-term returns of certain funds that could, in hindsight, be a flash in the pan.

For any application in ELSS, you can call me on 9833008874

Cheers...!!!

For many, real estate is a “safe-haven” for investment, in particular, the idea of investing in a second home. Pros include an increase in net worth of the owner, tax-saving on monthly take-home, source of secondary income through rents, reinvestment, reselling, lease etc. All in all, owning a second house is equated to image building, financial security and confidence. Some notable advantages include:

1)Savings in taxes For the higher income level group, buying a second house on a loan is a way of saving taxes on their monthly take-home. The EMI (Equated Monthly Installment) helps them claim benefit under Section 80 C for the principal repaid and section 24 B for the interest paid.

2)Source of secondary income Following the tax-saving part, people consider investing in the real estate to create a regular source of secondary income. Rent accumulated on a second house covers up for the EMIs paid, thereby facilitating an easy repayment of the actual price of the property over a period of time. Since rent is subject to annual increase, it helps in additional savings.

3)Investment for future needs For some people, investing in the real estate is to have ready finance for after- retirement life, child’s education, daughter’s marriage etc. In such cases, the expected is a property appreciation that can take care of all that inflation and actual price of the objective/s, the goal/s.

If only determining the purchase of a second house was that easy. In fact it is never too simple to assess capital outflow and the capacity to commit to long term repayment plans. A hasty take on a secondary purchase, can become a liability. While pros are aplenty, the below listed cons cannot be overlooked while contemplating on the purchase of a second home.

1) Savings take a backseat Savings of a person takes a backseat when commitment to EMI comes to the fore. To accommodate such regular commitment, individual often makes a lot of lifestyle adjustments. As EMIs remain constant, an individual’s finances are vulnerable to contingencies resulting from job loss or ill health.

2) Liquidity Real estate is tough to liquidate. It requires a lot of time and attention to process its resale. Also, the risk of not being able to sell such asset during emergency could be an important aspect to mull over. A hasty decision on selling property may lead to improper negotiation and thereof a bad deal, and financial loss.

3) Tax savings Home loan payments do provide tax-savings up to INR 1.5 lakhs under Section 80 C. But similar tax-savings also take place through PF (provident fund) contribution, insurances, child’s education etc. For home loans, one gets tax benefit on the principal amount, as well as the interest portion. In the initial years, since the interest pay is high, the benefit on it is also high. But over the years as the interest pay goes down, the tax benefit thereof has only a little coverage on taxes accrued through regular income (primary employment). Therefore, we must know that tax-benefit is effective for a limited time only.

4) Other associated risks Other risks associated with the decision of owning a second house include-
a) Risk of rented home being vacant
b) Risk of home being let out on lower rents
c) Maintenance cost may deplete the income from the second property

Matters of heart and finances need time and attention and should never be rushed. What may seem an easy option today, may lead to some financial misery tomorrow. If you cannot decide for yourself, engage a professional hand and seek guidance on the entire process of determining to invest or not to invest in a second house.

For more info plz mail at- [email protected]
Cheers...!!!!

Retirement Planning

Retirement Planning consists of the following things:

1. Knowing when you will retire.
2. Knowing how long you and your spouse will live.
3. Knowing how much you will spend in this period
4. Knowing how much your medical expenses will be.
5. Starting to save/ invest as soon as possible (understanding, and so tapping Compounding)
6. Investing as much as possible, as quickly as possible, and not interrupting the compounding.
7. Understanding asset classes - equity, debt, cash and real estate
8. Understanding asset class returns, standard deviation, mean, and reversion to the mean.
9. Understanding Asset Allocation.
10. Knowing that Cost really matters, and one way of mitigating costs is through higher saving.

I hope that you realise that 1-4 is a joke - nobody can estimate these 4..so what you have to do is from 5 to 10 !!

Start of with a prayer on your lips, a white board, a nice calculator, and an adviser. Chances are in about 5 years you would have learnt why you do not need an adviser. If the adviser is good he would have delivered good results by now and you would do away with the doubt of whether you need an adviser.

So retirement which is the biggest asset that you will buy starts of by doing a SIP in a few mutual funds. I would suggest a combination of a large cap fund, one mid cap fund and a balanced fund

How much should you save/ invest? The answer is simple - it does not matter. If the retirement calculator says you have to invest Rs. 32000 and you are able to invest only Rs. 10,000, it does not matter. MAKE A START. That is important. Once you start and after a couple of years you make it 20,000 and then increase it to Rs. 45,000 you would have at least partly compensated for the delay.

You must not buy any plan from a life insurance company - forget what it is called!! Whether it is called 'Endowment' or 'Moneyback' or 'Unit linked' or it has the word Retirement or Pension...IGNORE products from a life insurance company.

The mutual funds also have retirement plans on offer, but no adviser sells it, so there is very little chance of it being offered to you. If you are a PPF fan continue your PPF, but a big portion should go into an ELSS - clearly have a vision that you will touch that ELSS only when you retire.

So discontinue your endowment plans, keep your PPF alive, keep your EPF from your company alive, start doing a couple of SIPs..and hey your retirement will be fine. Rather you will be on the right path!!

For more info plz mail at- [email protected]
Cheers...!!!!

Five investment mistakes you must avoid in 2016.

This time of the year, many individuals want to begin with their financial plans. Sometimes it pays not to make mistakes. Here are some such mistakes you must avoid.

While it is not possible for anyone to predict definite returns when investing, it sure is possible to avoid some common mistakes which can help you from losing your money. Noted below are some mistakes that you sure must avoid starting in 2016:

1. Overinvesting in one asset class: Like Warren Buffett rightly said “Don’t put all your eggs in one basket”, it is always advisable to manage your financial portfolio by the way of diversification . Diversification is when one chooses to put his money in more than one investment platform than just one, for example having the right balance of equities and debt funds in your portfolio. Most Indians have a poor exposure in equities which is not advisable; to make profits a right amount of equity investment is proposed. It should be noted that fixed deposits, real estate and gold are almost similar in nature, as over a long period of time all three asset classes perform at par with inflation.

2. Postponing investment decisions: Most people are too busy to invest; they just wait for the right time to invest. May be for a next promotion, a better salary or also a good raise. It should be noted that investment decisions should not be postponed. You can start as early as 20 years of age; you can save from your pocket money itself. Imagine your money resting in your savings bank account where it will earn only an interest of 4%, where as when invested wisely it can earn you anything from 14% to 16%.

3. Constantly looking for “What is New” syndrome: Anyone who makes systematic investment decisions can easily say that the Indian equity market has performed 14-16% over the period of 10-20 years. An individual can easily keep adding more to it systematically to gain on their investments. However, people are more bothered about the “What is New” craze and unknowingly over diversify.

4. Periodic review: Reviewing and analyzing ones wealth pie is very important, most individuals skip the process, in turn losing money. A holistic view of the assets one has and taking corrective measures at the right time is what is required to keep the investments healthy. It is imperative to note that reviewing your investments once a year is advisable, as this helps you to keep a check on what asset classes are performing and which are giving a negative return. If you notice negative returns you may want to switch your investments.

5. Being affected by “Get Rich Quick” syndrome: In the hurry to get rich most individuals do not want to give time, often falling prey to fast trading and quick losses. They buy expensive stocks and the moment the stocks start depreciating they sell them, as they get scared of losing money. The result is, instead of making money they end up incurring a loss. The worrying aspect of this syndrome is that both first time and experienced investors are affected by this. The ideal thing to do is to buy slow but steady, in this process you should ignore the highs and the lows. For stable returns one needs to stay invested for a considerable amount of time. Seek professional help as and when you need.

Summing up, I would like to add that it’s a pleasure to see your money go up, but it can be devastating to see your money going away. The idea is to avoid the above mistakes and stay safe. One just needs to stay focused.

For more info plz mail at- [email protected]

Cheers...!!!!

Budget highlights - expected

- Service Tax may be increased to 16%
- No Change in Long Term Cap Gain
- Minimum Tax Limit to be increased by 50k
- Reduction in corporate rate tax
- To***co duty hike by 30%
- Alcohol will also be expensive
- Low cost housing in focus
- Crop insurance for farmers
- 10 year old cars to be banned
- PSU Banks may get 70,000 Crs

For more information please get in touch with me on 'indiafinplanner@gmailcom'

Cheers..!!!!

Hi friends, its good time to tax start planning for next financial year 2016-17.

Some options you should consider:
1 - Interest in PF increased to 8.80%. If you are not comfortable blocking your funds in PF for 15 years, you can start investing more in PF. Request your employer to deduct higher amount from your monthly salary and invest in PF. Note that your employer will not be liable to contribute higher amount. So the additional contribution will only be from your end.

2 - Start investing in tax saving bonds. HUDCO is one of them. This is preferable by those who are in 30% tax bracket.

3 - Make 5 year FD with a bank. Rates are around 7.50% to 8.00%.

4 - If you are living with your parents and your parent does not have taxable income, give them rent and claim HRA in your return of income. This will save good amount of tax.

5 - As a thumb rule of financial planning, one should have term policy of around 10 times of earning and a mediclaim covering severe illnesses and accidental cover. This will not only secure you at the time of crisis but also give you tax benefit under section 80C and 80D of the Income Tax Act respectively.

6 - One of my favourite option is to start investing in Tax saving equity linked SIP's. (ELSS). This is perhaps the best time to start as markets have corrected by 20% from its peak. Invest in large and mid cap fund to take the utmost benefit of future gains. You can even call me if you want to invest in ELSS.

For more information and queries you can always get in touch with me at '[email protected]' or call on 09833008874

Cheers..!!!

Section 80C investments should be guided by your needs

You should first assess your requirement and accordingly pick the right investments of right quantum.

The last few months of the financial year are addressed towards ensuring that the tax benefits that are available are utilised effectively. One of the most widely used benefits covers the deduction under Section 80C of the Income Tax Act and while making use of this there is a need to take a careful look at the overall strategy that one is following. This will ensure that there is no wastage of funds and that the best use of the money is possible. There are a few parameters that can be followed for this purpose and here is a detailed look at what an individual investor needs to do in this regard. Reach the limit One of the first things that people with a high income needs to do is to ensure that they are making the full use of the Section 80C limit available under the Income Tax Act.

This is Rs 1.5 lakh per annum and if there is no full use of the limit then it would mean that some amounts that could have been taken have been allowed to lapse. This can result in a rise in the tax liability as the reduction of the amount from the taxable income is less. The overall limit that is being utilised by the existing investments should be checked and there should be a plan to ensure that the figure that is required is achieved during the year. Some of the options that are suitable for last minute investing include those like PPF, NSC and for senior citizens the Senior Citizens Savings Scheme. Do not make excess investments.

There are times when the individual will realise that they have already crossed the limit of Rs 1.5 lakh that has been allowed and their eligible investments are already above this figure. This is a tricky situation because it could mean that there are some additional investments that are not required but are still being made and hence an effort needs to be undertaken to try and cut down the investments. This is difficult because in some cases it might not be possible to do so with an example being the payment of an insurance premium where if this is curtailed then the benefits on the policy can be terminated.

This is the reason why any investment should be checked for its future impact before it is actually made rather than during this exercise after the process has been completed. An overall review of the excess investments will show whether there can be some investments that can be cut down and the money directed elsewhere. Actual need For some people there might not be the need to make the full use of the Section 80 C deduction because they might not have the necessary income that can be reduced by the investments. Take for example someone who has a total income of just Rs 3.5 lakh. In this case since there is no higher inflow that is present the individual need not invest more than Rs 1 lakh in order to bring down their tax liability to zero. The basic exemption limit is Rs 2.5 lakh for those below 60 years and hence this plus the Rs 1 lakh deduction will reduce the taxable income to Nil. This means that there would be a reduced pressure on the finances of the individual in trying to make the highest use of the available limits because there might not be the need for such an effort.

This can help in the overall financial planning process because it will free up the amounts that can be used effectively for some other investment that can actually yield better benefits in terms of the achievement of other goals. Or it could be that the investment can yield higher returns than what would have come had the amount just been directed towards tax saving debt investments.

Thank you,
Cheers
You can get in touch with me at '[email protected]' for more information and guidance.