Tagged: Tax Planning
ATM :: Things to know before investing in ELSS
India Infoline News Service | Mumbai | December 30, 2017 18:41 IST
Learn about ELSS investment & answer to all your questions like what is ELSS, how to invest in ELSS, tax benefits in ELSS at Indiainfoline
Equity Linked Savings Scheme or ELSS funds are a type of mutual funds whichbase their returns from the equity market. These funds are tax saving in nature and are eligible for a tax deduction of up to Rs1.50 lakhunder Section 80C of the Income Tax Act. Below are a few things that an investor must know before investing in ELSS funds.
What is ELSS?
ELSS schemes are a category of mutual funds promoted by the government in order to encourage long term equity investments. Under this scheme, most of the fund corpus is invested in equities or equity-related products.
Types of ELSS:
There are two categories in ELSS mutual funds i.e. dividend and growth.
The dividend fund is further divided into Dividend Payout and Dividend Reinvestment. If an investor opts fordividend payout option, he receives the dividend which is also tax-free,however,underthe dividend reinvestment option, the dividend is reinvested as a fresh investment to purchase more shares.
Under the growth option, an investor can look for longterm wealth creation. It works like a cumulative option whose full value is realized on redemption of the fund.
How to invest in ELSS?
One can invest in ELSS via two methods i.e. lumpsum or SIP.
SIP or Systematic Investment Plan, is a process where an investor needs to invest a fixed amount of money every month at a specified date. SIP inculcates a disciplined approach towards investing in an investor. SIP also gives the benefit of rupee cost averaging to an investor.
What is the lock-in period in ELSS?
ELSS funds have a lock-in period of three years. Whencompared to EPF, PPF, NSC and other prevalentinvestments under Section 80C, ELSS has the shortest lock-in period.
What is the benefit of tax in ELSS?
The primary purpose of any investment is to gain deductions under income tax for wealth creation. ELSS funds fit that bill perfectly. An investor gets a doubleedged benefit of tax saving and wealth creation at the same time. Dividends earned from ELSS funds are also exempted from tax. ELSS funds also provide the benefit of long term capital gains as they have a lock-in period of three years.
What is the investment limit of ELSS funds?
One can start investing in ELSS mutual funds with a minimum amount of Rs500, and there is no upper limit on how much a person can invest in ELSS funds. However, the tax saving ceiling is only up to a maximum of Rs1,50,000 a year.
What are the risks involved in ELSS funds?
ELSS mutual funds do not have ironclad guarantee over returns, as theygenerate their earnings from investments in the equity market. Nevertheless, some of the best performing ELSS mutual funds have given consistent and inflationbeating returns in the longrun. This quality is not possessed by the other fixed income tax saving investments like PPF andFD.
Conclusion
ELSS mutual fund investment has now become a popular tax saving investment under Section 80C, and it is also ideal for retirement planning and wealth creation coupled with the benefits of lower lock-in period, SIP method of investment, rupee cost averaging risk and no tax on dividends or the benefit of capital gains. ELSS funds should be taken into account by every investor while planning their investment goals.
Disclaimer: The contents herein is specifically prepared by ‘Dalal Street Investment Journal’, and is for your information & personal consumption only. India Infoline Limited or Dalal Street Investment Journal do not guarantee the accuracy, correctness, completeness or reliability of information contained herein and shall not be held responsible.
Source: https://goo.gl/wGHgDF
ATM :: How to become rich fast at a young age in India: 5 amazing investment strategies to follow before you turn 30
Everyone wants to be financially secure and well off by the age of 35-40. However, when we are in our 20’s, we tend to live life in the moment and forget saving for the future.
By: Sanjeev Sinha | Updated: November 27, 2017 2:25 PM | Financial Express
All of us have various financial goals in life. Everyone wants to be financially secure and well off by the age of 35-40. However, when we are in our 20’s, we tend to live life in the moment and forget saving for the future. This is not the right approach towards creating wealth. Therefore, to ensure that you are financially secure and on the right track with your money, here are 5 important investments that you must make before you hit your 30-year milestone:
1. Investment towards tax saving
Considering that you are working and earning, it is important for you to assess your tax liability and take advantage of tax deductions available under Section 80C of the Income Tax Act. “By proper tax planning, you can not only reduce your tax liability but also save some more to invest towards your other goals. One of the best tax-saving instruments is Equity-Linked Savings Schemes (ELSS). It is a type of open-ended equity mutual fund wherein an investor can avail a deduction u/s 80C up to Rs 1.50 lakh for a financial year,” says Amar Pandit, CFA and Founder & Chief Happiness Officer at HapynessFactory.in.
2. Investment towards emergency corpus
There are various events like accidents, illnesses and other unforeseen events that we may encounter in our lives. These events should never occur, but if they do, one needs to be adequately prepared for the same. In critical cases, such events may hamper one’s ability to work and may even lead to a loss in earnings for a few months or years. Hence, “it is advisable to build a contingency corpus, which is equivalent to at least 5-6 months of living expenses. Further, your emergency fund should be safe and easily accessible (liquid in nature) at short notice, in case of an emergency. Hence, savings bank accounts and liquid mutual funds are two options for setting aside the emergency corpus. However, considering that liquid and ultra-short term mutual funds are more tax efficient in nature, it is advisable to park a major portion of your corpus in the same,” says Pandit.
3. Investment towards long-term goals
It is very important to save and invest towards your long-term goals such as marriage, buying a house, starting your own venture, retirement, and so on. You must start with determining how much each goal will need and the savings required to achieve the goal. Once the corpus is fixed, you can invest towards the goal regularly. As an investment strategy, start fixed monthly investments – SIPs (Systematic Investment Plan) in mutual funds. Always remember, the earlier you start investing towards your goals, the longer time your investments will have to grow and the more you will benefit from the power of compounding. Equity mutual funds which are growth oriented are a preferable investment option for long-term goals.
4. Investment towards short-term goals
There are many short-term goals that are recurring in nature, such annual vacation, buying a car or any asset in the near term and so on. For such goals, you are advised to park your funds in liquid or arbitrage mutual funds rather than a savings account. “Mutual funds are more tax efficient than savings accounts and also there are different funds for different time horizons. For example, for goals to be achieved within a year, you can opt for liquid or ultra-short term funds whereas for goals to be achieved post one year, you can opt for arbitrage funds,” advises Pandit.
5. Investment towards health and life cover
Life and health insurance typically are not supposed to be considered as investments. However, both are very important and must be considered as one of the priority money move to be made before turning 30. If you are earning and have a family dependent on you, you must assess and buy the right life insurance term cover for yourself. Further, with costs of health care and medical on the rise, any untoward illness without sufficient cover will have you dip into capital which is unnecessary. Hence, there cannot be any compromise on health insurance. Thankfully, there are various health covers available in the market today. You should opt for the right cover for yourself, depending on your needs and post considering all the options.
Source: https://goo.gl/Abf7TR
ATM :: Planning your Taxes and your Loans
To avoid last-minute hassles, it is always good to plan taxes and loans in advance.
Sep 15, 2017 06:29 PM IST | MoneyControl.com
In order to avoid any last minute hassles while filing your tax returns, you need to ensure that you plan your taxes in advance. If you have the right foresight and plan your loans and taxes properly, then you can surely save a lot of money.
Here are some key details on planning your taxes and loans…
Salary restructuring
There are a few components which can help in bringing down your tax liability. For this, you need to reallocate your salary. Like medical expenses which are reimbursed by the employer, certain food coupons, house rent allowance, leave and travel allowance etc., should be used efficiently to bring down your tax liability.
Proper use of tax exemption
There are several tax saving options under 80C and 80D. Under 80C, you have options like NSC, PPF, a premium of life insurance, 5-year FD with banks and post office etc. 80D includes premium paid in Mediclaim policies.
Your tax plan and financial plan must go hand in hand
Your tax-saving plan has to be in tandem with your financial plan. Opt for tax-saving options which will contribute to achieving your financial goal.
The loan factor
There are loans which can actually help in reducing your tax burden. So, you should ensure that you make use of this benefit to the maximum.
Exploiting the loan factor:
If you are planning to take a home loan for buying a home, then restructure it in the best possible way as it can give you tax benefits. Under Section 80C, the principal repayment of housing loan can give you a deduction of up to Rs 1,50,000 and under Section 24B, the interest paid on a housing loan can get you a deduction of up to Rs 2,00,000.
Now, if the home loan amount is huge, then it may cross the tax exemption limit. In such cases, you can opt for a joint loan with spouse or parents or siblings. This will help both the individuals to get the tax benefit. It, thus, becomes a useful tax-saving option for the entire family. It should be noted that stamp duty and registration charges that are paid while transferring the property are also eligible for income tax deduction under the Section 80C.
If you take a loan to buy a second home, then to you can get the advantage of tax deductions under Sections 80C and 24B. Under Section 80C, the principal loan amount will be considered and under Section 24B, the interest paid towards the loan will be considered.
Education loan can also be taken for self or for your spouse or children. You can get tax benefits if you take the loan from a scheduled bank or a notified financial company. You can easily claim a deduction for payment of interest. The tax benefits can be enjoyed for a maximum period of eight years or on the term of the loan repayment.
Personal loans also come with the tax advantage. Personal loans which are taken for renovating or repairing home are helpful. Personal loans taken to make down payment of home loan will also give you the advantage of tax benefit.
To sum up…
Thus, there are different ways and means of reducing your tax liability. Loans give you the dual advantage. They take care of your financial needs i.e., buying a home or higher education of your children and at the same time, they also give you the much needed tax-benefit. So, explore all the pros and cons of the various loans and use them to plan your taxes effectively.
Source: https://goo.gl/FAj4J9
ATM :: Home loan tax reliefs often missed by taxpayers
By Preeti Motiani | ECONOMICTIMES.COM | May 11, 2017, 10.55 AM IST
The Union budget of 2017 brought mixed bundle of joy for the taxpayers. While the section 80EE was re-introduced, holding period was lowered which brought cheers for the taxpayers, on the other hand, the individuals claiming a loss on the let out property or deemed to be let out property were left in shock.
Many of you who already own a second house or looking to buy a new house might give a look at the rules listed below to receive the often missed benefits.
1. You can claim tax benefit on interest paid even if you missed an EMI.
Section 24 of the I-T act mentions the word interest payment “payable” on housing loan. It means that even if you have missed the EMI payment in a year you can still claim the tax benefit on it. It can be claimed as a deduction so long as the interest liability is there.
Kuldip Kumar, Partner and Leader – Personal Tax, PWC says, “One should retain the copy of the interest certificate issued by the lender i.e. bank or NBFC specifying the amount of loan, interest due etc. as this will help in case of any questioning from the tax department.”
The principal repayment deduction under Section 80C, however, is available only on actual repayments.
2. Principal repayment tax benefit is reversed if you sell before 5 years.
While the finance minister may have provided a relief by reducing the holding period to 24 months to qualify for the long-term capital gains but if you sell a house within five years from the date of purchase, or, five years from the date of taking the home loan, the tax benefit gets reversed.
“The deduction claimed will be added back to the income of the taxpayer in the year in which the property is sold,” says Archit Gupta, founder, Cleartax.com
However, the loan amortisation calculations are such that the repayment schedule has lower component of principal repayment in the initial years of the home loan and the tax reversal rule only applies to Section 80C. Also, the benefit of lowered holding period for capital gains will apply from April 1, 2018, AY only.
3. You are eligible for tax break only when you are a co-borrower and co-owner.
You cannot claim a tax break on a home loan even if you may be the one who is paying the EMI. For instance, there may be a situation when you’re paying the EMI of a home loan for the property which is owned by your parents or spouse.
“However, when the house is in the joint name and funded by both the spouses by a way of housing loan, both husband and wife can avail the separate deduction for the interest payments and principal repayment of such loan,” says Kumar.
Even if you own a property with your spouse, you can’t claim deductions if your name’s not on the loan book as a co-borrower.
4. You can claim pre-construction period interest for up to 5 years.
Any interest paid on the borrowing during the construction of a house is eligible for tax relief only after you have received the completion certificate.
“Interest paid during the construction period can be claimed as a tax deduction in five equal instalments starting from the year in which construction of the property is completed. The total tax benefit will be annual interest payable + 1/5th of the pre-construction period “says Gupta.
While filing returns for the AY 2017-18, the maximum limit for the self-occupied property is Rs 2 lakh. In the case of let out property, there is no limit.
The union budget 2017 has removed this anomaly and put the cap of Rs 2 lakh on the let out property. The same will be effective while filing the returns for next year i.e. 2018-19.
5. Re-introduction of the Section 80EE
To provide an additional relief to the homebuyers, the section 80EE has been reintroduced with effect from April 1, 2017. The maximum deduction available has been reduced from earlier of Rs 1 lakh to Rs 50,000 now.
However, this deduction comes with certain restrictions which need to be satisfied while availing this deduction. The conditions are:
a) The home-owner/s should be first time buyer even if the property is bought in the joint ownership,
b) The loan value must not exceed Rs 35 lakh and property value should not exceed Rs 50 lakh, and
c) The loan must be sanctioned by a financial institution during the period April 1st, 2016 to March 31st, 2017.
Archit Gupta, Founder & CEO, Cleartax.com says, “If the taxpayers are able to meet conditions for both of section 24 and 80EE, their taxable income can be reduced by 2.5 lakhs in FY 2016-17 return filing.”
6. Processing fee and other charges are tax deductible.
Most taxpayers are unaware that charges related to their loans such as processing fees or prepayment charges qualify for tax deduction. As per law, these charges are considered as interest and therefore deduction on the same can be claimed.
“Section 2(28A) of I-T Act defines interest as interest payable which includes any service fees and other charges in any manner in respect of money borrowed,” says Kumar.
Therefore, it is eligible for deduction under Section 24 against income from house property. Other charges also come under this category but penal charges do not.
Also, any payment made towards stamp duty and registration fees incurred by the individual are also tax deductible as per the section 80C(2) (xviii) (d) of the act.
7. Loans from relatives, friends and employer are eligible for tax deduction.
If you have taken a loan from friends and/or relatives to acquire a house then you can claim a deduction under Section 24 for interest repayment on loans. You can also claim a deduction for money borrowed from individuals for reconstruction and repairs of property.
“A taxpayer would need to obtain a certificate from the relative which would contain the details such as the amount of interest payable, amount of loan taken, specifying the property details for which loan is taken,” says Kumar.
However, one must remember that this rule is only applicable for interest repayment. You cannot avail the tax benefits available on the principal repayment on that part of the loan borrowed from your relatives, friends and employer.
Further, a lender, in this case, your relatives and friends must disclose the interest earned on such transaction while filing their income tax returns.
Source: https://goo.gl/3hozR4
NTH :: New Income Tax Rules On Home Loan Come Into Effect. Details Here
Now the limit that can set off against the loss from rented house property has been restricted to Rs. 2 lakh per annum.
Edited by Surajit Dasgupta | Last Updated: April 09, 2017 16:48 (IST) | NDTV Profit
The government has changed income tax rules that could increase the tax outgo of those who have taken a home loan for a property that has been rented out. The amount that could be set off on home loans for rented property has been reduced. Earlier, in case of rented property, the loss from house property – which is basically the interest paid on home loan minus rental income – was allowed to be adjusted from income without any limit. This helped significantly reduce tax liability. Now the limit that can set off against the loss from rented house property has been restricted to Rs. 2 lakh per annum. This came into effect from April 1, 2017 (assessment year 2018-19).
However, on rented properties, the interest paid above Rs. 2 lakh can be carried forward for eight assessment years. Since the interest component of home loan repaid in initial years is higher, experts say that the borrower may not be able to fully adjust the interest paid as deduction even in subsequent years.
For example, your interest outgo on a second property is Rs. 5 lakh in a particular year. Assume that you are earning a rent of Rs. 1.5 lakh annually from the property. Such buyers, as per the current rules, are allowed to adjust the difference of Rs. 3.5 lakh (Rs. 5 lakh interest minus Rs. 1.5 lakh). But from the next financial year, they will be allowed deduction of just Rs. 2 lakh. The remaining amount of Rs. 1.5 lakh (Rs. 3.5 lakh minus Rs. 2 lakh) can be carried forward up to eight financial years and be adjusted later.
Tax experts say that some high net worth individuals – who used to buy properties on loan and were able to set off the full interest liability against the lettable value of property and thus bring down their tax liability substantially – would be particularly hit from this new tax rule.
Note: Income tax rules say that those who own more than one property can only treat one of them as self-occupied and the rest have to be assumed to be rented. Income tax has to be paid on notional rent.
From April another tax rule related to the properties will also change. The new tax rule will help bring down tax liability from property sale. The holding period of a property for qualifying under long-term gains will get reduced to two years, from three years currently. As per current tax norms, if a property is sold within three years of buying, the profit from the transaction is treated as short-term capital gain and is taxed according to the slab rate applicable to him/her. So reducing this time period to two years will bring down tax liability.
Thus, after two years, the transaction will be able to qualify for long-term capital gains, thus lower taxes. Under long-term capital gains on immovable properties, the profit is taxed at 20 per after indexation. Under indexation, inflation during the holding period is taken into account and thus the purchase price is adjusted, reducing the tax burden on the property seller. There are also other benefits for the seller under the long-term capital gains tax. If the gains are invested in some select government investment schemes, the tax liability goes down significantly.
Source: https://goo.gl/N8K3mp
NTH :: Income Tax Rules On Home Loan To Change From Saturday. Details Here
Tax experts say that some high net worth individuals, who used to buy properties on loan and were able to set off the full interest liability against the lettable value of property and thus bring down their tax liability substantially, would be particularly hit from this new tax rule.
Written by Surajit Dasgupta | Last Updated: March 28, 2017 09:01 (IST) | NDTV Profit
Interest paid above Rs. 2 lakh on rented properties can be carried forward for 8 years from April 1.
To address the anomaly of interest deduction in respect of let-out property vs self-occupied property, the government has changed income tax rules, which will come into effect from next financial year April 1, 2017 (assessment year 2018-19). In this regard, the government has cut down tax benefits borrowers enjoyed on properties let out on rent. According to current tax laws, for properties rented out, a borrower could deduct the entire interest paid on home loan after adjusting for the rental income. On the other hand, borrowers of self-occupied properties get Rs. 2 lakh deduction on interest repayment on home loan.
However, on rented properties, effective from April 1, interest paid above Rs. 2 lakh can be carried forward for eight assessment years. Since the interest component of home loan repaid in initial years is higher, experts say that the borrower may not be able to fully adjust the interest paid as deduction even in subsequent years.
For example, your interest outgo on a second property is Rs. 5 lakh in a particular year. Assume that you are earning a rent of Rs. 1.5 lakh annually from the property. Such buyers, according to the current rule, are allowed to adjust the difference of Rs. 3.5 lakh (Rs. 5 lakh interest minus Rs. 1.5 lakh). But from the next financial year, they will be allowed deduction of just Rs. 2 lakh. The remaining amount of Rs. 1.5 lakh (Rs. 3.5 lakh minus Rs. 2 lakh) can be carried forward up to eight financial years and be adjusted later.
Tax experts say that some high net worth individuals, who used to buy properties on loan and were able to set off the full interest liability against the lettable value of property and thus bring down their tax liability substantially, would be particularly hit from this new tax rule.
From April another tax rule related to the properties will also change. The new tax rule will help bring down tax liability from property sale. The holding period of a property for qualifying under long-term gains will get reduced to two years, from three years currently. As per current tax norms, if a property is sold within three years of buying, the profit from the transaction is treated as short-term capital gain and is taxed according to the slab rate applicable to him/her. So reducing this time period to two years will bring down tax liability.
Thus, after two years, the transaction will be able to qualify for long-term capital gains, thus lower taxes. Under long-term capital gains on immovable properties, the profit is taxed at 20 per after indexation. Under indexation, inflation during the holding period is taken into account and thus the purchase price is adjusted, reducing the tax burden on the property seller. There are also other benefits for the seller under the long-term capital gains tax. If the gains are invested in some select government investment schemes, the tax liability goes down significantly.
(Know Your Tax Liability Here)
Source: https://goo.gl/jwT9V2
ATM :: Can You Claim Both HRA And Home Loan For Tax Exemption?
In some cases, the Income Tax Department may question the tax exemption taken on both HRA and home loan, says an expert.
Written by Surajit Dasgupta | Last Updated: October 10, 2016 10:36 (IST) | NDTV Profit
- HIGHLIGHTS
Income tax exemption on both HRA, repayment of home loan can be claimed
However, taxman could ‘closely monitor’ such a situation, says an expert
Income Tax Department may disallow one of the claims, he adds
Yes, you can claim income tax exemption on both house rent allowance (HRA) and repayment of home loan. If you are living in a house on rent and servicing home loan on another property – even if both the properties are located in the same city – you can claim tax benefit for both.
But “this situation could be closely monitored by the Income Tax Department particularly where the amounts are relatively higher and may also disallow one of the claims if sufficient explanations are not available”, says Amit Maheshwari, managing partner at Ashok Maheshwary & Associates LLP.
- Mr Maheshwari cites some cases when the tax department may not raise questions:
When the person may have moved from rented house to own house during the year or vice versa - When the person’s own house could be smaller in size and the person may have moved to a bigger house rented by him/her
- When the children of the person may be studying in the locality of the rented house and during the year it was not possible for him/her to change the school and consequently he/she was not able to move to the new house bought
But in some other cases, the Income Tax Department may question the tax exemption taken on both HRA and home loan, Mr Maheshwari adds.
“Hence, in all such situations, the individual has to ensure that the related documentations (like lease deeds, possession/completion letters, etc.) and justification regarding the same are readily available with him/her if the such query is raised,” Mr Maheshwari says.
Salaried individuals who live on rent can claim HRA to lower taxes. It is partially exempted from taxes. However, if the individual does not live in a rented accommodation, HRA is fully taxable.
The deduction on HRA is the lowest of the following under Section 10(13A) of the Income Tax Act:
- Actual HRA received from the employer
- 50 per cent of (basic salary + dearness allowance) for those living in metro cities (40 per cent for non-metros)
- Actual rent paid less 10 per cent of salary
On the other hand, if you are servicing a home loan you can claim tax benefits on principal and interest payments. Principal repayment, under Section 80C of the Income Tax Act, is exempted up to Rs 1.5 lakh. And on interest repayment, exemption can be claimed up to Rs 2 lakh, under Section 24.
In this year’s Budget, the government had announced an extra deduction of Rs 50,000 on the interest component of home loan for first-time buyers, where the loan does not exceed Rs 35 lakh and the value of the property is up to Rs 50 lakh.
Source: https://goo.gl/SVJdfz
ATM :: Register the property as soon as you book
Arvind Rao | Aug 27, 2016 09:56 PM IST | Business Standard
Flexible payment schemes offered for under-construction property can lead to tax issues when the owner sells it. It’s not clear in the Income-Tax Act whether the seller should take the indexation benefit from the date of getting possession of the house or if it can be calculated based on each instalment paid after registration.
The flexible payment started with 80:20 scheme, where a buyer pays 80 per cent of the home value upfront either from his own funds or through a loan. The remaining is paid on possession. At present, there are many complicated variants of it such as 5:10:30:25:20:10 to help buyers to pay for a house without taking a home loan. In most cases, the agreement for the flat is registered on payment of one or two instalments that establishes the buyer as a legitimate owner and prevents the developer from selling the house to another buyer when the rates go up.
But when the owner sells the property bought through the flexible payment scheme, calculation of capital gains tax can get complicated if a person holds the property for more than three years, which makes it a long-term capital asset.
The Income Tax Act says that in case of computation of long-term capital gains, the tax payer can index the cost of acquisition of the property since the date of acquisition to the date on which it has been sold.
Indexation is done with the help of a Cost Inflation Index, which is notified every year by the tax authorities. The first year when such an index was notified was in 1981-82 at a base value of 100 and the index notified for 2016-17 is 1,125. If an individual purchases a house for Rs 20 lakh and sells it at Rs 50 lakh, he is liable to pay capital gains tax on the profit made, which is Rs 30 lakh in the example. But the buyer can reduce this liability by using Cost Inflation Index. The longer one holds the property; the lower would be the tax outgo.
The complication
The correct method of calculating capital gains came up before the Mumbai Income Tax Tribunal, which was pronounced in July 2016. The taxpayer had declared long term capital gains on sale of property at Rs 29,02,270 after considering the indexation benefit of Rs 19,93,232.
The tax payer had become a member of a housing society in 1993 and was later allotted a flat in 1994. The housing society constructed and allotted flats to all the members. The taxpayer claimed that he had been paying proportionate cost of construction on various occasions from 1994 to 2006, as and when called upon by the society. While calculating the indexed cost of acquisition, the tax payer adopted the cost inflation index, corresponding to each year of payment.
The tax officer however held a different view. He argued that the property tax assessment bill issued by the municipal corporation showed that the said flat was assessed to property tax from January 1, 2007 and therefore the date of acquisition of the property was to be taken as January 1, 2007.
Accordingly, the tax officer’s cost indexation calculation was determined by adopting the said date, thereby increasing the tax burden on the seller. The officer calculated the taxpayer’s additional liability at Rs 4,71,074. The officer added this amount to the tax payer’s income. At the first level of appeal, the appellate authority confirmed the tax officer’s view and decided the case against the taxpayer.
Tribunal favours the taxpayer
At the Tribunal, the tax payer put forth his case that the benefit of indexation of cost should be granted to him right from 1994 when he started making payments and not from January 1, 2007 when the house was first subjected to property assessment.
The tax officer argued that a property can be said to be acquired only after its possession is handed over to the buyer, and therefore adoption of date as the one he considered is justified.
On considering the merits of the case, the tribunal observed that the society in question was allotted land by Maharashtra Housing and Development Authority or Mhada and the conveyance deed was made in favour of the society in 1994. Being a member of the society, the tax payer was allotted a flat and was issued the share certificate in 1994. It was also observed that an allotment letter for the specific flat was also issued to the tax payer in 1995.
The Tribunal was of the opinion that it is not necessary that the taxpayer must become an owner by way of conveyance deed for the purpose of computing capital gains. As the tax payer had acquired the right to obtain a specific flat in the society in 1994 itself, the indexation of the cost of acquisition of the flat has to be granted with respect to the initial date of 1994, subject to the fact that the indexation be applied to each instalment as and when the same was paid. The case, therefore, was decided in the favour of the tax payer.
Implications
The case provides an extremely useful tax planning measure for those who plan to purchase an under-construction house. They must register the property as soon as possible and become the legal owners. If they sell the property after holding it for more than three years after completion, they will get the indexation benefit even for the instalments paid.
A registered agreement provides definitive details of the property such as flat number, floor, size of the flat, etc. On the contrary, merely having allotment letter, which do not define the flat, will not be helpful. In the past taxpayers with allotment letters did not get any relief in similar cases.
The case in question had stronger facts: A society already existed and the taxpayer held share certificates. These principles should equally apply to buyers in under-construction projects who would become society members post completion.
- TAX RELIEF
Calculating capital gains on property bought in flexible payments scheme can be complicated when the owner sells it - Income-Tax Act lacks clarity on whether the seller can calculate capital gains from the date of property registration or from the date of possession
- Mumbai I-T Tribunal has ruled that date of possession is not necessary
- Buyers should therefore register property as early as possible, which establishes them as legal owners
- Buyers with allotment letters, which do not define the flat, have failed to get relief from tax authorities in the past
The writer is a chartered accountant and financial planner
Source: http://goo.gl/aEWUPj
ATM :: Financial planning in new year: Start it now
Don’t tinker with your long-term investment plan. But it is always better to make some critical changes, based on new tax laws and instruments
Sanjay Kumar Singh | April 3, 2016 Last Updated at 22:10 IST | Business Standard
The start of a new financial year is a good time to review your financial plan and take stock of where you stand in relation to your goals. If new goals have emerged, this is the time to make fresh investments for these. While having a steady approach is a virtue here, make some adjustments in the light of developments that have occurred over the past year.
Equity funds
Large-cap funds have fared worse than mid-cap and small-cap ones over the past one year (see table). Over this period at least, the conventional wisdom that large-cap funds tend to be more resilient than mid-cap and small-cap ones in a declining market was overturned. Nilesh Shah, managing director, Kotak Mahindra AMC, offers three reasons. “For the bulk of the previous year, FIIs were sellers of large-cap stocks, whereas domestic institutional investors (DIIs) were buyers of mid- and small-caps. Large-cap stocks are also more linked to global sectors like metal and oil, whereas mid- and small-caps are linked to domestic sectors. The latter has done better than the former, leading to stronger performance by mid- and small-cap stocks. Large-cap stocks’ earning growth decelerated or remained subdued throughout last year while mid- and small-caps delivered better growth,” he says.
Despite last year’s anomalous performance, investors should continue to have the bulk of their core portfolio, 70-75 per cent, in large-cap funds for stability, and only 20-25 per cent in mid-cap and small-cap funds. Large-caps could also fare better in the near future. Says Ashish Shankar, head of investment advisory, Motilal Oswal Private Wealth Management: “IT, pharma and private banks, whose earnings have been growing, will continue to do so. Public sector banks and commodity companies, whose earnings have been bleeding, will not bleed as much. Many might even turn profitable. FII flows turned positive this month and FIIs prefer large-caps. With the US Fed saying it won’t hike interest rates aggressively, global liquidity should improve. If FII flows continue to be stable, large-caps should do better.” Valuations of large-caps are also more attractive.
Debt funds
Among debt funds, the category average return of income funds and dynamic bond funds was lower than that of short-term, ultra short-term and liquid funds (see table). Explains Shah: “Last year, while Reserve Bank of India (RBI) cut policy rates, market yields didn’t soften as much. The yield curve became steeper. The short end of the curve came down more than the long end, which is why shorter-term bonds did better than longer-term gilts.”
Stick to funds that invest in high-quality debt paper, in view of the worsening credit environment. Shankar suggests investing in triple ‘A’ corporate bond funds. “Today, you can build a triple ‘A’ corporate bond portfolio with an expected return of 8.5 per cent. Many of these have expense ratios of 40-50 basis points, so you can expect annual return of around eight per cent. If bond yields come down, you could end up with returns of 8.5-9 per cent. If you redeem in April 2019, you will get three indexation benefits, lowering the tax incidence considerably.” Investors who have invested in dynamic bond funds should hold on to these. “A rate cut is expected in April. Yields will drop and there may be a rally in the bond market,” says Arvind Rao, Certified Financial Planner (CFP), Arvind Rao Associates.
CHANGES YOU NEED TO MAKE
Investment
- Fixed deposit rates from banks will be better than returns from the post office deposits in the new financial year
- Choose your tenure first and then, do a comparison of bank fixed deposit rates before making the final choice
- Invest in the yellow metal via gold bonds
Insurance
- If your liabilities have increased, revise term cover upward
- Revise health cover every three-five years to deal with medical and lifestyle inflation
- Revise sum assured on home insurance if you have added to household assets
Tax planning
- Conservative investors should invest in PPF at the earliest
- Those who can take some risk should bet on ELSS funds via SIP
- Invest Rs 50,000 in NPS
Traditional fixed income
The recent cut in small savings has jolted conservative investors. The rates on these have been linked to the average 10-year bond yield for the past three months. These will be revised every quarter now, make them more volatile. “People who want to invest in debt and want sovereign security should continue to invest in Public Provident Fund (PPF). No other instrument gives a tax-free return of 8.1 per cent with government security,” says Rao.
As for time deposits, financial planner Arnav Pandya suggests, “From April, fixed deposits of banks will give better returns than those of the post office. Decide on your investment tenure, see which bank is offering the best rate for that tenure, and invest in its deposit.” Lock into current rates fast, as even banks are expected to cut their deposit rates.
Tax-free bonds are another good option. Nabard’s recent issue carried a coupon of 7.29 per cent for 10 years and 7.64 per cent for 15 years. Beside getting tax-free income, investors stand to get the benefit of capital appreciation if interest rates are cut.
“People who have some risk appetite may also look at debt mutual funds and fixed deposits of stable companies,” adds Rao.
Gold
The sharp run-up in gold prices over three months, owing to the rise in risk aversion globally, took most people by surprise. The sudden spurt emphasises the need to stay diversified and have a 10 per cent allocation to the yellow metal in your portfolio. However, instead of using gold Exchange-traded funds (ETFs), which carry an expense ratio of 0.75-1 per cent, invest via gold bonds, which offer an annual interest rate of 2.75 per cent. The Budget made gold bonds more attractive by exempting these from capital gains tax at redemption.
Tax planning
Start investing in tax-saving instruments from the beginning of the year. “Don’t leave tax planning for the end of the year, otherwise you may have to scramble for funds,” says financial planner Ankur Kapur of ankurkapur.in. For those with the money, Pandya suggests: “Invest the entire amount you need to in PPF before the April 5. That will take care of tax planning for the year and you will also earn interest on your investment.”
Investors with a higher risk appetite could start a Systematic Investment Plan (SIP) in an Equity Linked Savings Schemes (ELSS) fund, which can give higher returns. “If you invest early in the year via an SIP, you will reap the benefit of rupee cost averaging,” says Dinesh Rohira, founder and Chief Executive Officer, 5nance.com. Pankaj Mathpal, MD, Optima Money Managers suggests linking all tax-related investments to financial goals.
If you live in your parents’ house and pay rent to them to claim House Rent Allowance benefits, which is perfectly legal, get a rent agreement prepared.
With 40 per cent of the National Pension System (NPS) corpus having been made tax-free at withdrawal in this Budget (the entire corpus was taxed earlier), this has become more attractive. “Open an NPS account if you have not done so already and enjoy the additional tax deduction of Rs 50,000,” says Anil Rego, CEO & founder, Right Horizons. In view of the low returns from annuities, into which 60 per cent of the final corpus must be compulsorily invested, don’t invest more than Rs 50,000.
Tax deduction under Section 24 is available on the interest repaid on a home loan. “Buying a property to avail of the benefit is not advisable if the family has a primary residence,” says Rego.
Insurance
While reviewing your financial plan, check if the term cover is adequate. A family’s insurance cover should be able to replace the breadwinner’s income stream. Financial planners take into account household expenses, goals like children’s education and marriage, and liabilities like home loans when deciding on a person’s insurance requirement. “If goals have changed or liabilities have increased, raise the amount of cover,” suggests Mathpal. Kapur says the premium rate is likely to be lower if you buy the term plan before your birthday.
Your health insurance cover might also need to be raised to take care of medical inflation. The same holds true for household insurance if you have reconstructed your house and the structure has become more expensive, or if you have added expensive assets. Rohira suggests buying add-on covers like accidental insurance and critical health insurance for comprehensive protection.
Source: http://goo.gl/iZ3KSx
ATM :: Budget 2016: Times guide to personal tax
TNN | Mar 1, 2016, 04.36 AM IST | Times of India
Proposal (P): Increase the rate of surcharge on income exceeding Rs 1 crore to 15% from 12%.
Impact (I): This will raise the maximum marginal rate of tax to 35.54% from 34.61% on the ‘super-rich’.
P: Increase limit for tax rebate to Rs 5,000 from Rs 2,000 for resident individuals with a total income of up to Rs 5 lakh a year.
I: This will ensure an additional saving of Rs 3,090 for small taxpayers.
P: Raise deduction limit for rent paid by an individual who doesn’t have a house and isn’t entitled to HRA from the employer to Rs 60,000 pa from Rs 24,000 pa.
I: This will allow the individual to claim an additional deduction of Rs 36,000 pa, leading to a tax-saving of up to Rs 13,015.
P: Under the current provisions, dividend received by an individual from an Indian company is exempt from tax as dividend distribution tax (DDT) is already paid by the firm. It is proposed to charge the individual an additional tax at 10% on the dividend received in excess of Rs 10 lakh.
I: This will ensure that dividend earned by super-rich is also subject to tax in addition to the 15% DDT paid by Indian firms. The maximum effective tax that the dividends bear will be 32.21% (i.e. 20.36%+11.85%).
P: Make gains under the Sovereign Gold Bond Scheme, 2015, exempt from tax. Also, provide indexation benefit on transfer of the gold bonds.
I: This will give incentive for investing in gold bonds instead of the physical form.
P: For rupee-denominated bonds, give tax exemption to non-resident investors on gains arising from currency appreciation between the dates of issue and redemption.
I: This will attract non-resident investors to rupee-denominated bonds and help Indian companies raise funds abroad.
P: Don’t subject NRIs to higher rate of TDS due to unavailability of PAN if they fulfil certain conditions.
I: This will bring significant relief to NRIs.
P: Introduce e-assessment and do away with physical presence during tax hearings.
I: This will lead to an increase in paperless assessment and less face-to-face interaction between taxpayer and income-tax officers.
P: Increase the threshold limit for TDS in case of withdrawal of PF balances to Rs 50,000 from Rs 30,000.
I: Individuals with accumulated PF balances of up to Rs 50,000 will now not be subject to TDS on withdrawal.
P: Individuals with rental income less than the maximum amount not chargeable to tax should furnish Form 15G/15H for non-withholding of TDS.
I: This will bring huge relief to senior citizens and small taxpayers who have nil taxable income or income below the threshold limit but had to file I-T return to claim refunds of TDS deducted on rental income.
P: Include exempt income from long-term capital gains on sale of equity shares or equity-oriented mutual funds to determine whether an individual is liable to file I-T return.
I: To determine the requirement for filing a tax return, long-term capital gains on sale of equity shares or equity-oriented mutual funds that are exempt from tax also need to be included. Also, individuals with only exempt income from long-term capital gains on sale of equity shares or equity-oriented mutual funds will now be required to file return if the total exempt income exceeds the maximum amount not chargeable to tax (currently Rs 2.5 lakh).
P: Reduce the time-limit for filing of belated return to any time before the end of the assessment year or completion of assessment, whichever is earlier. However, allow a belated return to be revised within a year from the end of the relevant assessment year or completion of assessment, whichever is earlier.
I: This will reduce the time-limit for filing a belated return to one year from two years and encourage timely compliance. Revision of belated return will now be permitted, which was not possible earlier.
P: Amend advance tax payment schedule for individuals as (a) 15% of tax payable by June 15; (b) 45% of tax payable by September 15; (c) 75% of tax payable by December 15; and (d) 100% of tax payable by March 15.
I: This will increase the compliance burden.
P: Don’t subject to tax shares received by an individual in consequence of demerger or amalgamation of firms without adequate consideration.
I: This will bring uniformity in tax treatment of shares.
P: Exempt withdrawal in respect of contributions made on or after April 1, 2016, from a recognised provident fund and an approved superannuation fund, up to 40% of the accumulated balance.
I: This will increase the overall tax liability.
P: Exempt 40% of the total amount payable to individuals on closure/opting out of NPS.
I: Will reduce tax liability.
Source : http://goo.gl/tDeUEc
ATM :: Should we focus on financial planning or just tax planning?
By Vivek Law | Last Updated: February 20, 2016 | 16:13 IST | Business Today
The Budget may not have much for you. So, it’s best to plan your finances in such a way that this does not matter. India is perhaps the only country where the Union Budget is almost like a carnival. What is otherwise meant to be a statement of the government’s finances is a lot more in India. It is also a vision statement of the government’s policies. But that is hardly the reason why every Indian citizen looks forward to it and why it is covered in a high-decibel manner across the media. The reason is: Tax.
Unlike in most countries, the government tweaks tax rates, exemptions and deductions, almost every year. Consistency is not our forte. It is, therefore, not surprising that we all stay glued to the TV to listen to the Budget speech to figure out whether we need to pay more taxes, which product will be cheaper or expensive and, above all, which new products will we now be able to invest in for saving tax. In India, it is the government that does our financial planning. It decides which products we should put our money in by identifying products that qualify for tax deduction. It keeps changing the list every year. And most citizens merely follow the direction given by the government as product manufacturers line up one product after another with one simple hook: “Save Tax”.
Never mind if the product is suitable for us or not. As long as it provides a tax break, we must buy it, we are told. And most of us take the bait and buy it too. Should we save tax? Of course we must. But should we focus on financial planning or merely on tax planning? Tax planning is an integral part of financial planning. The focus should be first on drawing up our financial plan. On finding out our earnings and expenses. On figuring out our Tax rates, exemptions and deductions are tweaked by the govt almost every year By Vivek Law goals in life. On figuring out our need for money in the short term (one-two years) and the long term (more than five years). Once this is done, we must figure out how much to put in equity and how much in debt. How much to set aside for buying our home and how much to set aside for gold. But before all this, have a health insurance policy, and if you have a dependant, a term insurance as well.
After this comes the bit about picking products. The remarkable thing about our successive governments has been how they have clubbed together everything in the bracket of products that allow us tax deductions and exemptions. So, for example, your children’s school fees as well as your provident fund are eligible in the same category. So are your insurance and equity-linked savings scheme (ELSS) investments. There is a separate category for health insurance as also for the National Pension Scheme.
In other words, once you have figured out your financial plan, putting aside money to make the most of tax breaks is easy. What can be dangerous is doing it the other way around. For example, if you do not need a ULIP or an endowment policy, and buy one just because your agent tells you that it gets you a tax break, it is disastrous for your financial plan. Similarly, putting all your money in a PPF account may not be prudent either. Sound financial planning is about asset allocation. Not putting all your eggs in one basket.
Financial plans are also not made for one year. Yes, one must look at one’s financial plan periodically but not change it every year just because the government decides to make changes to the tax-saving products’ list in every Budget. In fact, the government needs to get out of the business of deciding where we invest. It needs to segregate expenditure and investment and not put them in one basket. We are a nation of savers and are laggards when it comes to investments. So, what would I expect from the finance minister this Budget? Given the rather stressed condition of the finances, it would hardly be prudent to expect any great tax breaks from the finance minister. Instead, what would be easy to do is to simplify the sections under which we get our tax breaks. Put expenditure—school fee, home loan etc—in one basket and put core investment products—ELSS, ULIPs, PPF etc—in one.
(In association with Mail Today Bureau)
Source : http://goo.gl/2HrmoK
ATM:: 9 smart ways to save tax
Babar Zaidi | TNN | Jan 11, 2016, 08.57 AM IST | Times of India
Do-it-yourself tax planning can be rewarding and challenging. Rewarding, because you can choose the tax-saving instrument that best suits your needs. Challenging, because if you make the wrong choice, you are stuck with an unsuitable investment for at least 3-5 years. This is where our annual ranking of best tax-saving options can prove helpful. It assesses all the investment options on seven key parameters—returns, safety, flexibility, liquidity, costs, transparency and taxability of income. Each parameter is given equal weightage and a composite score is worked out for the various tax-saving options.
While the ranking is based on a robust methodology, your choice should also take into account your requirements and financial goals. We consider the pros and cons of each option and tell you which instrument is best suited for taxpayers in different situations and lifestages. We hope it will help you make an informed choice. Happy investing!
ELSS FUNDS
ELSS funds top our ranking because of their tremendous potential, high liquidity and transparency. The ELSS category has given average returns of 17.8% in the past 3 years. The 3-year lock-in period is the shortest for any Section 80C option.
If you have already fulfilled KYC requirements, you can invest online. Even if you are a new investor, fund houses facilitate the investment by picking up documents from your house and guiding you through the KYC screening. ELSS funds are equity schemes and carry the same market risk as any other diversified fund. Last year was not good for equities, and even top-rated ELSS funds lost money. However, the funds are miles ahead of PPF in 3- and 5-year returns.
The SIP route is the best way to contain the risk of investing in equity funds. However, with just three months left for the financial year to end, at best, a taxpayer will manage 2-3 SIPs before 31 March. Since valuations are not stretched right now, one can put in a bigger amount.
SMART TIP
Opt for the direct plan. Returns are higher because charges are lower.
ULIP
The new online Ulips are ultra cheap, with some of them costing even less than direct mutual funds. They also offer greater flexibility. Unlike ELSS funds, where the investment cannot be touched for three years, Ulip investors can switch their corpus from equity to debt, and vice versa. What’s more, there is no tax implication of gains made from switching because insurance plans enjoy exemption under Section 10 (10d). Even so, only savvy investors who know how to use the switching facility should get in.
SMART TIP
Opt for liquid or debt funds of the Ulip and gradually shift the money to the equity fund.
NPS
The last Budget made the NPS attractive as a tax-saving tool by offering an additional tax deduction of Rs 50,000. Also, pension fund managers have been allowed to invest in a larger basket of stocks.
Concerns remain about the cap on equity exposure. Besides, the taxability of the NPS on maturity is a sore point. At least 40% of the corpus must be put in an annuity. Right now, the income from annuities is taxed at the normal rate.
SMART TIP
Opt for the auto choice where the equity exposure is linked to age and comes down as you grow older.
PPF AND VPF
It’s been almost four years since the PPF rate was linked to the benchmark bond yield. But bond yields have stayed buoyant and the PPF rate has not fallen. However, the government has indicated that it will review the interest rates on small savings schemes, including PPF and NSCs. If this is a worry, opt for the Voluntary Provident Fund. It offers that same interest rate and tax benefits as the EPF. There is no limit to how much you can invest in the VPF. The contribution gets deducted from the salary itself so the investor does not even feel it go.
SMART TIP
Allocate 25% of your pay hike to VPF. You won’t notice the deduction.
SUKANYA SAMRIDDHI SCHEME
This scheme for the girl child is a great way to save tax. It is open only to girls below 10. If you have a daughter that old, the Sukanya Samriddhi Scheme is a better option than bank deposits, child plans and even the PPF account. Accounts can be opened in any post office or designated branches of PSU banks with a minimum Rs 1,000. The maximum investment in a financial year is Rs 1.5 lakh and deposits can be made for 14 years. The account matures when the girl turns 21, though up to 50% of the corpus can be withdrawn after she turns 18.
SMART TIP
Instead of PPF, put money in the Sukanya scheme and earn 50 bps more.
SENIOR CITIZENS’ SCHEME This is the best tax-saving instrument for retirees. At 9.3%, it offers the highest interest rate among all Post Office schemes. The tenure is 5 years, extendable by 3 years. Interest is paid quarterly on fixed dates. However, there is a Rs 15 lakh overall investment limit.
SMART TIP
If you want ot invest more than Rs 15 lakh, gift the amount to your spouse and invest in her name.
BANK FDS AND NSCs
Though bank FDs and NSCs offer assured returns, the interest earned on the deposits is fully taxable. They are best suited to taxpayers in the 10% bracket or senior citizens who have exhausted the Rs 15 lakh limit in the Senior Citizens’ Saving Scheme.
SMART TIP
Invest in FDs and NSCs if you don’t have time to assess the other options and the deadline is near.
PENSION PLANS
Pension plans from insurance companies still have high charges which makes them poor investments. They also force the investor to put a larger portion (66%) of the corpus in an annuity. The prevailing annuity rates are not very attractive. Pension plans launched by mutual funds have lower charges, but are MFs disguised as pension plans. Moreover, they are debtoriented plans so they are not eligible for tax benefits that equity plans enjoy.
SMART TIP
Invest in plans from mutual funds. They offer greater flexibility than those from life insurers.
INSURANCE POLICIES
Traditional life insurance policies remain the worst way to save tax. Still, millions of taxpayers buy these policies every year, lured by the “triple benefits” of life insurance cover, longterm savings and tax benefits. Actually, these policies give very little cover. A premium of Rs 20,000 a year will get you a cover of roughly Rs 2 lakh. The returns are very poor, barely 6% if you opt for a 20-year plan. And the tax-free income is a sham. Going by the indexation rule, if the returns are below the inflation rate, the income should anyway be tax free. The problem is that once you sign up for these policies, they become millstones around your neck.
SMART TIP
If you can’t afford to pay the premium, turn your insurance plan into a paid-up policy.
Source: http://goo.gl/DWqo4K