FAQs on Filing of Income Tax Returns

Tax Planning

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July 14, 2017

It’s the time of the year to file your taxes. Here are FAQs on IT returns that will make your task of filing returns a little easier. If you have more questions feel free to add in the comment section.

Related Articles:

The company has already deducted tax from my salary. Do I still need to file tax returns?

Even if the tax is deducted at source (TDS), and you’re not liable to pay any more tax to the government, it is compulsory to file returns if your income exceeds the basic exemption limit. Filing tax returns is a way to declare to the government that you have earned income only from the sources revealed by you.

Read – Tax Planning for NRIs

Image courtesy of Stuart Miles at FreeDigitalPhotos.net

What is the Last Date for filing an Income Tax Return?

The due date for filing your Income Tax Return for the financial year – 2016-2017 is 31st July, 2017.

Read – ESOP rules & taxation

What will happen if I do not file my returns within the due date?

If you have not filed your returns within the due date, you will have to pay a penalty of Rs. 5,000. You will also have to pay interest on tax due.

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What is Form 26AS?

Form 26AS is a statement that shows the details of tax credit in a tax-payer’s account as per the I-T Department’s records. The tax credit will include all the different taxes like TDS, self-assessment tax, advance tax etc.

Must Read – ELSS Vs PPF

What is ITR Verification?

Once Income Tax Returns are filed, you need to verify it. It is not treated as valid until it is verified by the taxpayer. There are different ways of verification. It can be printed, signed and sent to Centralised Processing Centre, Bengaluru. It can be e-verified using an electronic verification code (EVC), Aadhar, ATMS, netbanking or bank account based validation.

Can I file a revised return to correct mistakes made that I make in the original return?

It is possible to file a revised return if the original return has been filed before the due date and the Department has not completed the assessment. However, a revision is not possible for a return filed after the due date.

IT Return can be revised within a period of one year from the end of the relevant assessment year or before completion of the assessment whichever is earlier.

Read – Mutual Fund Taxation

What does the Aadhaar number have to do with filing of tax returns?

The government has made it mandatory to link the PAN with Aadhaar for filing tax returns except for certain people. Those exempted include non-resident Indians, people above the age of 80 years and people living in Assam, Jammu & Kashmir and Meghalaya.

What is Form 10E and who should file it?

Sometimes you might receive income in arrears. It means you receive the actual money in a financial year different from when they accrued. The tax treatment might be different in these two different financial periods. If you want the income to be adjusted such that the arrears were received in the year in which they were due, you have to file Form 10E. You can claim relief from tax if any.

This post is written by Vidya.

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Have you filed your income tax returns? Let us know if you have any questions about filing taxes.

Simple 2 Step process to link PAN and Aadhaar

Tax Planning

Hemant Beniwal

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June 13, 2017

10

Simple 2 Step process to link PAN and Aadhaar

Aadhaar must for filing income tax returns from 1st July 2017 so right now there’s no choice but to link PAN and Aadhaar. I am sharing a simple 2 step process – please share your queries & experience regarding the process in the comment section.

If you would like to know about PAN & Aadhaar

PAN (Permanent Account Number) is a unique 10 character code that is assigned by the Income Tax department. It is assigned to all taxpaying entities. The Income Tax Department can track all monetary transactions using the PAN.

An Aadhaar is a unique identification that is assigned to every Indian citizen. It is a 12 digit number. It is issued by the Unique Identification Authority of India. Its aim is to serve as a proof of identity and address of a person.

Check – Ask Tax Saving Questions & Get their Answers

Linking PAN & Aadhaar

The government has made it mandatory to link the PAN and Aadhaar. The deadline is July 1, 2017. If it is not done, the PAN will get invalidated. The following are exempt from this rule –

Non-residents, those who are not citizens of India,
People who are 80 years of age and over and
People living in Assam, Jammu & Kashmir and Meghalaya

How to link your PAN and Aadhaar

You can link the two IDs either online or offline Linking of PAN and Aadhaar

Check – ELSS Vs PPF – Save Tax & Make Money

ONLINE APPROACH

Step 1

Login Credentials Available

Login to e-filing portal of Income tax department by entering your PAN as User ID, password, date of birth and CAPTCHA code.

If no pop-up window appears, Go to the menu option – ‘Profile Setting’ and click on ‘Link Aadhaar’. A pop-up window appears prompting you to link your PAN with Aadhaar.

You can input your Aadhaar number and your name and click on ‘link now’.

Login Credentials not available

If you cannot login, register on the Income tax e-filing portal and follow the steps mentioned above.

Simple 2 Step process to link PAN and Aadhaar Click to Tweet

The system will match your name, date of birth and gender in the PAN and Aadhaar databases.

Step 2

If details are matching, you will get the message “Aadhaar – PAN linking is completed successfully.”

If you have registered an email address with the portal, you will get an email confirming the same.

If the details are not matching, you will get the appropriate error message.

Other Scenarios

Do your PAN and Aadhaar have different details?

1) Name in the Aadhaar card is different –

Log in to the Aadhaar website and request for a name change.

Upload a scanned copy of PAN card as proof.

The only requirement is that the registered mobile number has to be operational.

2) Name in PAN or some other details are incorrect –

Request for change of name or update of any details here – UTI or NSDL

Read – Tax Planning for NRIs

OFFLINE APPROACH to link PAN and Aadhaar

You can also link PAN and Aadhaar using SMS messages

You can send the following message to either of the two numbers – 567678 or 56161

UIDPAN<Space><12 digit Aadhaar No.><Space><10 Digit PAN No.>

Why is the government asking us to link PAN and Aadhaar

These IDs serve as a proof of identity. The government can trace monetary transactions with the PAN number. If a PAN is connected to an Aadhaar, the identity of the person can be tracked by the government. Some people have multiple PANs – approx 10 Lakh plus. This link will be able to identify who has done the transaction irrespective of the PAN number.

Aadhaar is based on biometrics and PAN is not. Duplicating Aadhaar is more difficult compared to duplicating PAN. So if the two are linked, it is easy to establish identity. It increases the possibility of a person being identified. It is a step towards greater transparency in financial transactions and for the government to gain control over people in the country.

Have you linked your PAN and Aadhaar? Let us know if you faced difficulties in linking the two and how did you manage to resolve it.

Investment Guru – Why you should avoid them?

Hemant Beniwal

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May 9, 2017

10

Investment Guru – Why you should avoid them?

Anyone who can make simple thing complex is considered as Investment Guru. The financial media is in the business of broadcasting news, advice, expert opinions etc. It is easy to get swayed by all that advice. But all the advice is not necessarily good for your portfolio or goals. You have to evaluate the advice and sift the unnecessary advice from the useful advice for your financial portfolio.

Read- 5 Things You Should Know About Risk and Your Investments

Avoid following forecasts of Investment Guru

Experts forecast performance of assets. Why do we listen to them? It is mainly because we think we do not understand markets and we make no serious attempt to learn. We are also scared to make decisions on our own when it comes to investments. Experts are not always correct when it comes to prediction of market performance. CXO Advisory group studied 6,582 predictions from 68 different investment guru during the period 1998-2012. The average accuracy rate was just 47%!

Investment Guru - Why you should avoid them? Click to Tweet

It is better for you to understand that nobody understands markets – decide on your investments based on your financial needs. But we are not talking about Do It Yourself.

Avoid advice not suited to your investment needs

Gold might be the favorite of one Investment guru – other may bet on real estate. You cannot follow their advise blindly. Check your investment portfolio. Do you need to invest in gold or real estate? If you follow the investment gurus without looking at your investment needs, your asset allocation will be imbalanced. The advice might be correct but it may not suit your investment time frame or risk profile. It is better to avoid such advice.

Must Check- 7 Types of Indian Investors, Which one are you

Is the expert’s view objective?

Investment guru will want to be objective in his advice. But is he? They might consciously or unconsciously be motivated by other factors. It could be self-interest, confirmation bias or fear of being contrary to what other market experts are saying. Such biased advice is not in your best interests. So if you follow an investment guru, do so, but critically analyse the advice and check if it is suitable for you.

Forecast is one-sided

Some experts provide an analysis looking only at one side of the story. They refer to situations, examples and data that prove only their conclusions. If an expert does not consider alternate scenarios or possibilities, it is better to stay away from his predictions. If he ignores data that can prove his forecast wrong, it means he is not providing a well-rounded opinion. Good experts provide their analysis and conclusion but also acknowledge that the future is uncertain.

Read – 15 Types of Risk In Investment Everyone Should Know

Forecast is based on one particular reason/event

If the expert has based his advice on one event or reasoning, it is better to look at it more critically. It can mean that he has not looked at all aspects of the investment decision. He might be pushing a story. Such advice can upset your investment portfolio.

But not all what the investment guru say should be ignored. Here is a list of valuable advice from them –

Peter Thiel, Paypal co-founder and investor in many other companies says that one cannot focus only on near-term growth but look at the long-term prospects.

Warren Buffet, considered as the greatest investor of all times says to invest unemotionally. Emotions like ego, fear, cognitive bias can hinder rational decision making when it comes to your finances. Learn to avoid these emotions while investing and reap benefits.

Jim Rogers, a successful and renowned investor says it is best to do nothing sometimes. An active investor is one who does not simply buy or sell but waits for the right opportunities to buy and sell even if those opportunities are few and far between.

Read – 10 Lessons to Teach Your Kids About Money & why its so important

George Soros a great investor and philanthropist believes that he is rich because he recognized and accepted his mistakes. As an investor, you should admit a wrong investment decision and reverse it to cut short your losses. There is no use of holding on to a bad asset hoping it will have an upswing.

Charlie Munger, a legendary investor says you have to live below your means especially at the start of your career. There is no wisdom in trying to copy your rich neighbour’s flashy lifestyle. Invest as much as possible and spend what is left after saving and investing. This will help you reach your financial goals.

For having a successful financial portfolio –

Understand the assets that you are investing in
Update your knowledge on personal finance
Do not ignore financial experts completely, but filter their views with your research and analysis to make the best use of them.
Don’t forget about asset allocation

This post is written by Vidya.

Feel free to share your views on Investment Guru in the comment section.

Let us Make Sense of the Sensex and Nifty

Investment Options

Hemant Beniwal

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March 23, 2017

67

Let us Make Sense of the Sensex and Nifty

You may not believe what I am going to share – you may think advisors know what is Sensex and Nifty but based on my interaction with top Mutual Fund advisors when I was in Job – most of them don’t have much clue. But I can assure you, after reading this post you will not have any doubt – I have covered

What is Sensex and how it is calculated?
What is Nifty and how it is calculated?
Free float market capitalization
Difference between Nifty and Sensex
You can also check long term charts & performance

What is Sensex and Nifty?

What is Index? Definition of Index is “An Index is a statistical aggregate that measures change.” Remember this throughout this post – ‘statistical aggregate’. All Index are not the same – they can be differentiated based on countries, the market cap of stocks they cover, or even how any stock will become part of the Index. Sometimes I feel even the construction of an index is an art & not science 😉 Sensex & Nifty both are large-cap Index but from different stock exchanges BSE NSE.

Must Read – What is Equity?

What is Sensex?

Full-Form of Sensex is Sensitive Index. People are happy when the Sensex goes up and upset when it goes down. Sensex is the stock market index of the Bombay Stock Exchange or BSE – it is also called BSE Sensex.

Let us Make Sense of the Sensex and Nifty Click to Tweet

Sensex Meaning

It is the market-weighted stock index of 30 companies that are selected on the basis of financial soundness and performance. Usually, large and well-established companies that are are representatives of the various industrial sectors are chosen.

Companies in Sensex India

Adani Ports	Coal India	HUL	M&M	SBI
Asian Paints	Dr Reddys Labs	ICICI Bank	Maruti Suzuki	Sun Pharma
Axis Bank	GAIL	Infosys	NTPC	Tata Motors
Bajaj Auto	HDFC	ITC	ONGC	Tata Steel
Bharti Airtel	HDFC Bank	Larsen	Powergrid	TCS
Cipla	Hero Motocorp	Lupin	Reliance	Wipro

Check – 8 Most important Mutual Fund Questions

It was first published in 1986. The base value of Sensex is 100 and the base year is 1978-79.

Let us look at some numbers.

The number of stocks in the Sensex – 30
As of March 15, 2017, the Full Market capitalization of Sensex is 4,986,299 crores and the free-float market capitalization is Rs. 2,687,777 crores

How has Sensex performed over the years?

Here is a graph that shows the value of Sensex since inception –

Nifty Chart – Historical Data

How Sensex is calculated?

The Sensex is calculated using the Free-float Market Capitalization’ method. In this method, the index reflects the free-float market value of the 30 constituent stocks relative to a base period.

What is meant by free-float market capitalization?

Free float stands for the shares that are open for trading. All shares may not be free-floating. Some may be pledged, some may be in the hands of the persons or bodies having controlling interest/promoters, some shares may be government holdings, etc. Such locked-in shares are not considered free-floating.

What is Market capitalization?

Market capitalization is the combined worth of all the stocks of different companies within the stock exchange.

The market capitalization of a company is arrived at by the product of the price of its stock and the number of shares issued by the company.

This figure is multiplied by the free-float factor to determine the free-float market capitalization. The free float factor is derived from the information each company submits regarding the free-floating shares. Every company has to give the information on a quarterly basis in a format given by BSE.

The free float market capitalization of all companies is summed up.

The free float market capitalisation is then divided by an index divisor to get the Sensex value. This divisor adjusts for changes in stocks and other corporate actions. The divisor is the value of the Sensex Index in the base year.

How Sensex Works – example

Suppose the index has two companies – X and Y.

Company X has 500 shares out of which 300 are free floating or available for the general public to buy and sell. The price of each share is Rs.80.

Company Y has 1000 shares out of which 700 are free-floating. The price of each share is Rs. 100

Market capital of Company X = 40000

Market capital of Company Y = 100000

Free-float factor for Company X = 0.60

Free-float factor for Company Y = 0.70

Total free float market capital of the index = (40000*0.60) + (100000*0.70) = 94000

Let us assume the base year index was 5000.

Value of Index = (94000 x 100)/5000 = 1880

So the Value of the Index is 1880.

The Same example can be applied to how nifty works.

Read – New Pension Scheme (NPS)

What are the Highs and Lows of Sensex in the last 10 years?

The market is affected by various political, social, and economic factors across the world. The lowest points were reached in 2008 when the stock markets in the U.S. started crashing and there were major credit losses in the U.S. There was a steep drop in 2015 as well.

The highest points were reached in August 2015 and in March 2017.

How can I use SENSEX to aide my investments?

You can invest in Sensex-based funds to take advantage of the rising value.
If the markets are volatile, the Sensex is swinging across different values, then it is better to wait for the volatility in the index to get less. (You were expecting this – better invest through SIP)
The stocks in the SENSEX are financially sound. Most of them are blue-chip companies. You can invest in equity funds that invest in these shares.
It serves as an indicator of how the economy is doing and how the companies are performing. This will help in prudent decision-making in your finances.

Check ETF & Index Funds

What is Nifty?

National Stock Exchange (NSE) is the leading stock exchange of India. Full form of NIFTY is “National Stock Exchange Fifty” – it is the broad index of NSE. NIFTY normally comprises of 50 stocks but right now there are 51 stocks. It is known as NIFTY 50 or CNX Nifty. It is owned and managed by India Index Services and Products Ltd. (IISL).

The base period for the Nifty index is November 3, 1995. The base value of the index has been set at 1000, and a base capital of Rs 2.06 trillion.

Check – Portfolio Management Services (PMS) in India

Which companies are part of the NIFTY 50?

There are certain eligibility criteria for companies that have to be met –

Liquidity – The stock should have traded at an average impact cost of 0.50 % or less during the last six months, for 90% of the observations for portfolio of Rs. 2 crores.

Float Adjustment – Companies must have at least twice the float-adjusted market capitalization of whatever is the current smallest index constituent.

Domicile – The company should be domiciled in India and trade on the NSE.

51 companies in NIFTY –

ACC Ltd.	Bharti Airtel Ltd.	HDFC Bank Ltd.	Kotak Mahindra Bank	Sun Pharmaceutical Industries
Adani Ports	Bharti Infratel Ltd.	Hero MotoCorp Ltd.	Larsen & Toubro	Tata Consultancy Services
Ambuja Cements Ltd.	Bosch Ltd. AUTOMOBILE	Hindalco Industries Ltd.	Lupin Ltd. PHARMA	Tata Motors (DVR)
Asian Paints Ltd.	Cipla Ltd. PHARMA	Hindustan Unilever Ltd.	Mahindra & Mahindra	Tata Motors Ltd.
Aurobindo Pharma Ltd.	Coal India Ltd.	Housing Development Finance	Maruti Suzuki India	Tata Power Co.
Axis Bank Ltd.	Dr. Reddy’s Laboratories	ITC Ltd.	NTPC Ltd. ENERGY	Tata Steel Ltd.
Bajaj Auto Ltd.	Eicher Motors Ltd.	ICICI Bank Ltd.	ONGC	Tech Mahindra Ltd.
Bank of Baroda	GAIL (India) Ltd.	Idea Cellular Ltd.	Power Grid Corporation	UltraTech Cement Ltd.
Bharat Heavy Electricals	Grasim Industries Ltd.	IndusInd Bank Ltd.	Reliance Industries Ltd.	Wipro Ltd. IT
Bharat Petroleum Corporation	HCL Technologies Ltd.	Infosys Ltd. IT	State Bank of India	Yes Bank Ltd.
				Zee Entertainment Enterprises

The NIFTY 50 Index represents about 65% of the free-float market capitalization of these stocks listed on NSE Nifty as on March 31, 2016.

Check- ESOP in India

How has the NIFTY performed over the years?

Here is a graph that shows the value of NIFTY since inception –

Nifty Chart – Historical Data

How NIFTY is calculated?

NIFTY 50 is computed using free float market capitalization weighted method, wherein the level of the index reflects the total market value of all the stocks in the index relative to a particular base period

Here is the mathematical formula to arrive at the value of NIFTY –

Market Capitalization = Equity Capital x Price

Free Float Market Capitalization = Equity Capital x Price x IWF

Index Value = Current Market Value / Base Market Capital x Base Index Value (1000)

*IWF = Investible Weight Factor – It is a factor to determine the number of shares available for trading

The index is calculated in real-time daily whenever the value of any scrip changes.

What are the Highs and Lows of NIFTY in last 10 years?

The market is affected by various political, social, and economic factors across the world. The NIFTY fell more than 10% in one day during the sub-prime crisis in January 2008. It also fell by 490 points in August 2015 when the Chinese stock market crashed.

The highest points were reached in August 2015 and recently in March 2017.

The highest point of NIFTY is 9218.40 reached in March 2017

How can I use NIFTY to aide my investments?

You can invest in NIFTY-based funds to get long-term benefits. It is a good place to invest as it is usually stable and is well-diversified.
NIFTY ETFs or Index Funds can also be tried if you would like to stick with Index returns.
Same as Sensex the stocks in the NIFTY are financially sound. Most of them are big blue-chip companies. You can invest in equity funds that invest in these shares.

What is SGX Nifty?

The full form of SGX Nifty is Singapore Nifty – it is just a derivative of CNX Nifty. In recent times it has gor prominace as it has more trading hours – trading starts before Indian Markets open & closes after that. So if there is major news & that may impact the market – people start looking or big investors start trading on SGX Nifty.

Must Check- 7 Types of Indian Investors, Which one are you?

Difference Between Sensex and Nifty

As such, there is no difference between Sensex and Nifty because both target large-cap stocks. There’s no difference in the performance – you can see that in 20 years chart.

NIFTY and Sensex are stock market indices that indicate the strength of the market. The NIFTY reflects the value of NSE and Sensex is the stock market index for BSE.

But if you still looking for a difference between Sensex and Nifty – NIFTY is more broad based as it has more listed securities (50 stocks) compared to Sensex (30 Stocks). NIFTY is considered to have a more diversified portfolio than Sensex. More trading happens in NSE as compared to in BSE.

Hope this article answers your questions on nifty and Sensex – if you still have any question feel free to add in the comment section.

Cheapest way to send Money to India

NRI

Hemant Beniwal

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March 16, 2017

0

There is a large population of Indians migrating to all parts of the world. Money transactions from those countries to India have really increased. Therefore, the need to have very secure ways of sending money to India is important. Those living abroad and have businesses in India, most of the times they transfer money there. Perhaps, you might be knowing some money transfer services that offer better conditions than others. You don’t have to pay too much to send money to India, instead, you can choose a service with better conditions such as low fees and attractive exchange rates. You can make most rupees from your dollars with great exchange rates. There are many money transfer options which have unique advantages and disadvantages. Different NRIs have different reasons for transferring money overseas to India. Whatever your reasons may be, there are many options to go smart about it.

Read – Can NRI Start PPF or have a savings account

Image courtesy of thesomeday1234 at FreeDigitalPhotos.net

What to consider when sending money to India

Exchange rates- should you send money to India, you need to pay attention to the exchange rates. Some money transfer companies have very attractive exchange rates. You would make the most rupees from your dollars if you decided to choose these money transfer companies.
Fees- most money transfer companies charge very low fees. The fees are generally less than $5.
Delivery/transfer time- transactions to India can be very fast. Some transfers can be as fast as 24 hours, but this would require you to pay more than those services that take 3-5 business days.

Cheapest way to send Money to India Click to Tweet

Paying attention to those factors would be very wise and a smart way to go about money transfer to India.

NRI TDS

Note – This post is written by an NRI reader of TFL – I have published it without any edit. Please go through this & share your views in the comment section – what you feel is the cheapest way to send money to India

Top 10 ways to send money to India

Transfast

This is a global money transfer company that has greatly reduced its fees and increased its exchange rates. If you are new customer and willing to wait for a few days for transfer, Tranfast is offering high promotional exchange rate and a $0 fee. This is one of the money transfer companies that could give you a lot of rupees from your dollars. Due to its $0 fee, Transfast is most certainly the lowest cost way to send money to India.

Western union

This is one of the largest money transfer companies in the world. It is popular for the largest network of cash agents worldwide hence it is regarded as the most trusted method of money transfer. The foreign exchange rates availed by Western Union are way advantageous. Western union is very fast and reliable. Nevertheless, this money transfer company charges higher fees for transfers that are made by an individual at a Western Union agent shop. If the receiver would need to pick up the money in cash, the fees would still be high.

Check – Tax planning NRIs

Ria Money Transfer

This is one great money transfer company is unique in its low fees. Their low prices and high exchange rates is not just for India but across the globe from USA. If you would want your money to arrive fast, Ria allows its customers to use a debit card at a relatively low price. This money can be transferred from the bank account. The company provides a better exchange rate and $0 fee for transfers that would take 3-5 days. It can send money to any bank in India, therefore, it is very reliable and convenient locally in India. Due to its consistently cheap fees and good exchange rates, Ria Money Transfers is one great way to go smart about sending money to India.

Transferwise

This money transfer company has very low fees and is very convenient. It is actually smart and secure way to send money directly to India. It has a ridiculously low fixed rate fee that saves you money and you can always afford it no matter the amount of money you want to send to India. There are no hidden costs and the money gets to the recipient within the promised time or even earlier. TransferWise has a very fast delivery time which is usually 24 hours or 1 working day. During public holidays the transfers can take up to 2 working days. Its services are a smart way to get rid of the bank fees. If you try using this service you will realize you no longer need to send money through the expensive banks. TransferWise is commonly used by those sending money from the UK and the European Union countries.

Conclusion – The cheapest way to send money to India

Sending money to India has now been made easy, simple and very affordable. With those money transfer options, you can select the one that is very suitable to you. Some factors such as the fees, exchange rates and transfer time are very necessary to consider when selecting the best money transfer option. Remember different money transfer companies charge different fees and exchange rates. Their transfer time may also differ greatly. Some companies have very fast transfer time while others can take long to process. There are those who are always cost effective when it comes to money transfer. There are money transfer companies which charge very low fees and are still very efficient in their services. Those that have good exchange rates are great too as you can get most rupees from the dollars. Sending money to India is not difficult and expensive task now.

Please share what’s your experience with transferring money to India – have you found out fastest & cheapest way to send money to India.

ELSS Vs PPF – Save Tax & Make Money

Hemant Beniwal

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March 8, 2017

5

Hope you will AGREE with me that your tax saving should be the result of your investment planning & not vice versa. So here fight is not Mutual Fund ELSS (equity-linked saving scheme) Vs PPF (Public Provident Fund) but much bigger than that.

I will agree with you that it’s not that SIMPLE but I promise after reading this post you will be able to take better investment decisions.

I have covered everything that will help you in taking the decision – a simple infographic, an awesome video, the table of comparison, the performance report of ELSS but in a different style & my view as an advisor.

ELSS Vs PPF infographic

Don’t consider it as verdict because we have also shared in earlier post – when not to invest in ELSS

If you want to know basics of Equity Linked Savings Scheme –

Check this post ELSS Funds (But before that check the video below)

Retirement – Mutual Fund Vs PPF

Be frank first question that we must ask our self is WHY we are investing in ELSS or PPF – both provide equal tax benefits under section 80C. It’s not only about TAX – it will also help in achieving our long-term goals. GOAL is the only common ground that I can see – else how we can compare an equity instrument with debt investment. Public Provident Fund (PPF) is always considered as retirement instrument so let’s first try to understand your actual need.

ELSS Vs PPF - Save Tax & Make Money Click to Tweet

How much to save for retirement? Whether you are in government sector or private sector, whether a professional or businessman there is one goal for which everyone saves money and that is “Retirement”. With the increase in the medical facility and constant increase in the life expectancy, it has become more important to save for retirement. An average Indian spends 20 – 25 years of his life in retirement. Still, a majority of the population do not save enough for this major event.

In the government sector, guaranteed retirement benefits are already available to employees in the form of pension and other benefits which are inflation adjusted, however for an employee in private sector or for a businessman, they have to plan their own retirement with different products available in the market such as Insurance pension plans, Public Provident Fund (PPF), Mutual Funds, etc.

Most of the times when people start thinking about retirement first question which comes into their mind are how much to save for retirement and second- which product to select? To calculate the required retirement corpus is very simple but to select the best out of available products is a very difficult to process. Let us first show you how to calculate required corpus for retirement.

Check – 11 Unusual ways of smart tax planning

How much to save for retirement?

To calculate the value of retirement corpus few inputs is required which are different for every individual like current monthly expenses, age, retirement age, expected rate of return, etc. Suppose Mr. A is 30 years old and his monthly expenses are Rs.25,000, he wants to retire at the age of 60. So considering 8% inflation, his monthly expenses at the age of 60 would be Rs. 2,50,000.

Below image shows how much your expenses would be at the age of 60 as per your current age.

Now if we expect Mr. A’s life expectancy to be around 80 years then he would require Rs.2.5Lakh every month for 20 years. With 2% of the Real rate of return the total corpus required would be Rs.4.9 Cr. Normally the retirement calculators available online do not consider real rate of return, so you might get a different answer. However if calculating through excel then you can use the real rate of return.

ELSS Vs PPF – Video

Note – Don’t look at the number they keep changing – but important is you understand the power of equity & compounding.

Now the Comparison

I am comparing Equity Mutual Funds (you can consider it as a synonym of ELSS) with other instruments – I have also added Insurance but I don’t suggest to mix insurance & Investment.

Mutual Fund ELSS Vs PPF Vs Insurance Pension Plan

	Equity Mutual Funds	Public Provident Fund	Insurance Pension Plan
Liquidity	MF provides option to redeem on demand, which is extremely beneficial especially during emergency.	First redemption is allowed at the end 7^th year which is 50% of the balance at the end of 4^th year.	One cannot withdraw money from pension plans. Only option is to either surrender the plan after 3 years or take loan on surrender value.
Tax saving	Only Tax saving mutual funds (ELSS) are allowed for deduction under Sec 80C. Redemption in equity mutual funds after 1 year is tax free.	Investment in PPF account is allowed for deduction under Sec 80c and redemption on maturity after 15 years is also tax free. However premature redemption would be taxable.	Premium paid towards pension plans are allowed for deduction under Sec 80c. On maturity only 1/3 of the accumulated amount is commuted which is tax free and rest of the amount is paid out in the form of annuity and is taxable.
Lock in	ELSS schemes of mutual funds have lock in period of 3 years and no withdrawal is allowed. Many other schemes have different lock in period, however withdrawal is allowed with exit load.	There is an initial lock in period of 15 years and there after every 5 years. However one can withdraw money from the end of 7^th year.	Lock in period = term of the policy. However one can surrender the plan or take loan on surrender value after 3 years.
Expected returns.	As equity mutual funds are market linked hence no return is guaranteed, however over a long period one can expect a CAGR of 12-15%	Current interest rate is 8%	The bonus issued is generally around 4-5% in insurance policies which is in the form of simple interest.
Maximum Investment	No limit	Limit of Rs.1.5 lakh per year.	No limit
Safety	Since the money is invested into equity market, the returns are not guaranteed. However the schemes are approved by SEBI and are monitored under strict guidelines.	Since the scheme is backed by the government, safety is not an issue.	The equity exposure in pension plans is nil. Also, insurance schemes are approved under the guidelines of IRDA.
Mode of investment.	Through Cheque, DD, NEFT and RTGS.	Cash, Cheque, NEFT.	Cash, cheque, NEFT, Credit Card.

Check – Best Tax Saving Mutual Fund 2017

Why choose Mutual Funds over PPF and Insurance Pension Plans?

In the above example of Mr. A, total retirement corpus required is Rs. 4.9 Cr. Suppose he chose to save this amount through PPF then required saving per month would be Rs. 30,000 approx. For insurance policy he would be required to pay premium of Rs. 60,000 per month.And for the same corpus if he chose Mutual Funds then he would be required to save Rs. 13,000 approx. The reason why mutual funds require less saving is due to its equity exposure. It can beat inflation and can generate higher rate of return in the long period of 30 years.

ELSS Vs PPF Vs NSC – Comparison

Update – Senior Citizen Savings Scheme rate 8%

Read – when not to invest in ELSS

ELSS Performance – 3 Year Rolling Return

3 years is a very short period for equity but at least this can give you idea about volatility.

My View

While considering retirement planning one should select a product which invests in equity, suits his risk profile, beats inflation and gives tax-free returns. Mutual funds are best as they fulfill the required criteria and offer much-required liquidity option with minimum cost.

Also, mutual funds are successful in creating long-term wealth and offers better flexibility than PPF and Insurance Policies. Please remember, over exposure into one asset class can harm your portfolio in long run. So, one should always invest with the proper asset allocation and review the strategies regularly to get maximum benefits.

Best debt tax saving instrument is PPF – Best equity tax saving instrument is ELSS. Period

Feel free to ask any questions or share your views in the comment section.

You can download ELSS vs PPF PDF from the print friendly button.

NRI can use DTAA as a Tax Planning Tool

Hemant Beniwal

-

March 6, 2017

0

What is double taxation? If you are an Indian (NRI) and a resident in another country with multiple sources of income across both the countries, you can get taxed twice – once in your resident country and once in India. There are other ways to get double taxed too. For example, if you stay in India and work as a freelancer for a company based in United States or you are working abroad but directly receives income in India, your income can be treated as taxable income in both countries. In India, you are a resident earning income and in U.S., your income can be subject to tax as the source of income is from U.S.

Read: It is not legal for an NRI to hold Resident Savings Account in India

Image courtesy of Graphics Mouse at FreeDigitalPhotos.net

What is DTAA?

Paying taxes twice on one income source is not in the individual’s best interests. Therefore India has signed a treaty called the Double Tax Avoidance Agreement (DTAA) with many countries. Individuals can use the provisions of this agreement to avoid double taxation.

How to avail of DTAA benefits?

You can avail of DTAA benefits in the following manner –

Check if the DTAA agreement is in place between the two countries in question. You can check here to find out if DTAA is applicable to the country in question.
Submit the following documents on time –
Tax Residency Certificate – You have to get a tax residency form from the government of the country you reside in. It has details like name, status, nationality, address, tax information.
DTAA Application Form – Form 10F should be obtained from the income tax department and verified by the government of the country where you reside.
Self Declaration and Identity Form – A declaration stating which country you reside for the relevant financial period and that DTAA is applicable in your case.
Self Attested copy of PAN Card
Self Attested copy of passport

How is the DTAA benefit calculated and provided to an individual?

There are primarily three methods to claim relief from taxes under DTAA –

1) Exemption method

2) Deduction Method and

3) Tax credit method.

The exemption method follows the Tax deducted at Source (TDS) method. Here, you are taxed in one country and exempted from tax in the other. Tax is deducted at source as per the rate applicable as per the DTAA agreement between India and the relevant country.

Let us look at an example. Here we assume a tax rate of 10% in resident country and 20% in source of income country

Source Country Income	Rs. 1000
Resident Country Income	Rs. 1000
Total Income	Rs. 2000
Tax in Source Country (20%)	Rs. 200
Tax in Resident Country (10%)	Rs. 100
Total Tax Paid	Rs. 300

In the deduction method, tax is paid in the country where income is earned and is subtracted from the total global income. Then tax is calculated on the difference and paid in the home country.

Source Country Income	Rs. 1000
Resident Country Income	Rs. 1000
Total Income	Rs. 2000
Tax in Source Country (20%)	Rs. 200
Taxable Income in Resident Country (Rs. 2000-Rs. 200)	Rs. 1800
Tax in Resident Country (10%)	Rs. 180
Total Tax Paid	Rs. 380

In the tax credit method, total global income is taxed in the country where you reside. Then tax relief can be claimed from the country where the income is earned.

Source Country Income	Rs. 1000
Resident Country Income	Rs. 1000
Total Income	Rs. 2000
Tax in Source Country (20%)	Rs. 200
Tax calculated in Resident Country (10%)	Rs. 100
Tax payable in Resident Country ()	Rs. -100
Total Tax Refund in Resident Country	Rs. 100

You can select the taxation method that is most beneficial to you. For example, you choose the exemption method if you have already paid taxes or use the deduction method when the tax rates are high in the other country that you are not residing in.

DTAA is a provision that can be used to reduce tax burden. You should not evade paying tax but plan your taxes such that you pay as less as possible within the legal domain.

Effect of demonetisation on NRIs and OCI

NRI

Hemant Beniwal

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February 17, 2017

5

Effect of demonetisation on NRIs and OCI

Non-Resident Indian (NRI) – An NRI is a person who is still a citizen of India but lives in a foreign country.

Overseas Citizen of India (OCI) – It is given to a person who was eligible to be an Indian National anytime from 26^th January, 1950 or belonged to a territory that became a part of India after 15^th August, 1947. This person’s children and grandchildren are eligible to register as OCIs

Earlier there was a Person of Indian Origin (PIO) card which is now discontinued. Anyone with a PIO card will be treated as an OCI.

Check – wiseNRI.com for NRI Financial Planning

Effect of demonetisation on NRIs

The effects of demonetisation were felt not only by those residing in India but also by Indians abroad. They had some money on their hands in terms of the banned currency notes. Some had money in bank accounts. Let us have a look at the demonetisation rules for OCIs and NRIs.

Effect of demonetisation on NRIs and OCI Click to Tweet

The Reserve Bank of India (RBI) has allowed NRIs to deposit cash in denominations of Rs. 500 and Rs. 1000 up to June 30, 2017. But an NRI can deposit only up to Rs. 25,000. He cannot deposit money more than this amount even if the source of income is legal.

Check – NRI DTAA Rules

NRIs coming to India will have to fill up a declaration form and show the currency notes that they have to the customs officials. The customs officials will stamp the declaration. This stamped declaration along with other documents like original passport, passport copy, bank account statements, PAN and other documentary evidence will have to be submitted to RBI along with the money.

Must Check- The cheapest way to send money to India

Moreover, the deposit can be done only in the RBI offices in Mumbai, Chennai, Delhi, Kolkata and Nagpur and not in any other RBI office. RBI will then transfer the money into the person’s account. It may not be practical for all NRIs to travel within this time frame for depositing money.

Must Read – NRI Tax Planning

This might also be cumbersome for NRIs living in other parts of the country like Kerala or Andhra Pradesh who may not have to arrive in these cities (where the deposit is possible) to go to their hometown. They have to unnecessarily travel to deposit money which is not even a huge sum.

These rules and facilities are available only to NRIs and not to people who are classified under ‘OCI’. They are also not applicable to NRIs in Nepal, Bhutan, Pakistan and Bangladesh.

Check –NRI Tax Deducted at Source

People (OCI, people of Indian origin and citizens of other countries) who are not residing in India and live in a foreign country (except Pakistan and Bangladesh) cannot hold Indian currency above Rs. 25,000. The government may be following the logic that this is not a big sum and has chosen to ignore it for now. Maybe the government has plans to deal with this money later on once the effects of demonetisation in the country are settled.

But people with OCI status and even foreign tourists who regularly travel to India for vacation and official purposes may have money in the form of these notes and will find it difficult to accept that their money has no value now. Many are disappointed that their circumstances are not being considered for no fault of theirs.

The holding, transfer, and receipt of demonetised currency notes are a punishable offense. Therefore it is important to not deal with these demonetised notes.

If you are an NRI, please share how demonetisation affected you or someone you know.

What is Family Floater Health Insurance Policy?

Insurance Planning

Hemant Beniwal

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February 16, 2017

5

What is Family Floater Health Insurance Policy?

Family Floater Health Insurance Policy Meaning – Health insurance is an insurance cover taken to protect oneself financially during a medical emergency in the family. A family floater health insurance cover is a type of health insurance plan that covers the entire family. It provides cover for medical expenses in case of a medical emergency like sudden illness, disease or hospitalization. The sum assured can be used for any member of the family whenever required.

Image courtesy of digitalart at FreeDigitalPhotos.net

Read – How much health insurance I need

Benefits of a family floater health insurance cover

You can get insurance for the whole family under one plan. There is no need for separate handling and management of plans.
Some family floater plans allow senior citizens or your parents to be covered which is beneficial as it is difficult to get insurance for them. (but there are many cons if you are looking for family floater health insurance covering parents – as with the age their health issues will increase & can impact your premiums)
If the age of the oldest member of the family is not high, then a bigger sum assured can be purchased at a lower premium.
Many of family floater health insurance plans India can cover newborn babies almost immediately.
The sum assured can be used multiple times if required. For example, if a family has purchased a family floater plan of Rs. 3,00,000 and one member is hospitalised and uses a sum of Rs. 1,00,000. The other members or even the same member still can avail of Rs, 2,00,000 in the case of another medical emergency.
Family floater health insurance policy can also be used for tax deduction at the time of filing income tax returns. Indian’s love tax saving 🙂

Check – How to make sure health insurance claims are not denied

Why may floater health insurance policy not be suitable for everyone?

Family floater plans may not be the best option for families where the eldest member is over 45 years old. The premium is linked to the age of the eldest member and if the age is more, the premium cost is higher.
Most floater health insurance policy provide health cover for children till they attain a certain age (usually 18 or 21). So it might not make sense when your kids are around that age as then you have to take a separate cover for them.
If you have family members with a serious medical ailment, family floater plan may not be advantageous. It might be better to get a separate plan for this member.
The No Claim bonus will be lost for all members even if one member claims insurance. In case of individual policies, only the person who has claimed will not get the bonus.
Many floater health insurance policy limit the maximum age to 65 years (some at 60 and some at 80). A few of them offer life-long renewability. But almost all individual policies are renewable lifelong.

Health Insurance Floater Vs Individual Health Insurance

Star Family Health Optima	Description – Family Floater plan for 2 adults and 2 kids
	Sum Assured – Rs. 4,00,000
	Age of the eldest person insured – 35 years
	Features/Benefits – 100% sum restoration. Bonus given up to 25% of sum assured in 2nd year and additional 10% in 3rd year
	Premium – Rs. 11759
Star Medi-Classic Insurance Policy
	Description – Individual Insurance Policy
	Sum Assured – Rs. 1,50,000 per person (Sum Assured for 4 people- Rs. 6,00,000)
	Age of the person insured – 35 years
	Features/Benefits – 200% sum restoration. Bonus for claim free year is 5% of sum assured. It can be extended up to 25%. For example, if all four persons in the family make no claim in the 1^st year, the family will get a bonus of 5% of 150000 for each person which is Rs. 30,000.
	Premium – Rs. 2887 per policy (For 4 people – Rs. 11,548)

In this case, it makes sense to opt for individual covers as the premium is lower and the sum assured will not get exhausted for anyone else in the family if a claim is made.

Let us look at Max Bupa insurance policies –

If you go for Max Bupa Heartbeat Individual policy (Gold Version), a 35 year old will have to pay a premium of Rs. 12,254 for a policy of Rs. 5,00,000.

If you go for Max Bupa Heartbeat Family Plan (Gold Version) for 4 members (2 adults and 2 children) with the eldest member being 35 years old, you will have to pay a premium of Rs. 29,367 for a policy of Rs. 5,00,000.

What is Family Floater Health Insurance Policy? Click to Tweet

Here the family floater option seems better. The individual policy cannot be bought for minors too.

Family Floater plans make sense only when the family is young and there are lesser chances of claim. For example, if either of the spouses have a family history of certain illnesses which are passed on from one generation to the next, it is better to take individual policies.

Which family floater health insurance policy is best?

I frequently get this question & my only answer is if there is one best policy – why there are 20 health insurance companies. I am sharing few good health insurance policies that we reviewed in past:

Religare care Vs Apollo Optima restore

Lic Jeevan Arogya

Max Bupa health companion

Best health insurance for senior citizens

A news that SHOULD reduce premium of health insurance premium

Please share your experience with the settlement of claims in Floater Health Insurance Policy in the comment section. If you have any question feel free to ask.

Ask Tax Saving Questions & Get their Answers

Tax Planning

Hemant Beniwal

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February 8, 2017

17

Ask Tax Saving Questions & Get their Answers

Let’s accept Taxation is the most confusing topic in personal finance – there are a couple of reasons for the same: many taxes laws are ambiguous in India, new sections are introduced every year & the biggest is a blurred line between tax saving, vs tax avoidance vs tax evasion. We keep getting questions on Tax Saving – especially at the end of the financial year. That’s the reason we are adding this post. Go through the most common questions that we get & feel free to add your questions in the comment section – we will try to answer with the best of our knowledge.

How can one align tax savings with financial goals?
What should be the approach to taxes savings?
How can one save taxes by combining home loan with spouse (example or illustration)
Where does health insurance sit with respect to tax planning?
What is your view on NPS and the additional tax benefits that one can gain from it?
Advice to 10%/20%/30% tax payers on optimum tax savings
What is the maximum sum that one can save by way of tax planning for each tax bracket?

A few of my tax quotes were also got published in Outlook Money’s Taxes Saver 2016-17 cover story…

Ask Question on other personal finance topics (more than 500 Questions answered)

Investment Questions

Insurance Questions

Mutual Fund Questions

Financial Planning Questions

1) How can one align tax savings with financial goals?

Always remember your tax saving should be the result of your investment planning & not vice versa. This means first we make our goals, make a plan for it, then choose an investment strategy and after that, we see that can any tax-saving instrument can become part of the overall strategy or not.

Ask Tax Saving Questions & Get their Answers Click to Tweet

Tax Planning and Setting Financial Goals should be an integral part of financial planning. When one is investing in products to save taxes, he/she should keep the financial goals in mind. A lot of tax gets saved by EPF contribution and home loan amount. One should then think of financial goals, asset allocation, current life situation and risk profile. For short-term goals, one can invest in 5 years FDs. For long-term goals, like children’s higher education, one can invest in PPF. Invest in ELSS if you have the risk appetite for equity investments. Do not buy insurance just for saving taxes. If you have dependents, buy a term insurance policy and medical insurance else look at other avenues of saving taxes. Ensure that you plan your finances at the beginning of the financial year and your investment decisions are in place. Do not make investments when the due date for filing tax returns is just around the corner.

Read – ELSS – best tax saving instrument?

2) What should be the approach to tax savings?

You should think about saving taxes at the beginning of the financial year. You cannot act in a haste and buy a few random products to fulfill the 80C deductions. Your financial plan will be a mess and not help you reach your financial goals.

You should consider the various options available and select the ones that suit your current financial status with short-term and long-term goals in mind. Use default deductions like EPF, Tuition Fees, LTA, Medical Allowance. Use the housing loan deductions wisely. Invest in products that will give you a balanced exposure to equity and debt based on your risk profile & asset allocation. Purchase insurance such that suits your current life. For example, you need not buy term insurance if you are single without any dependents even if the sales person says that the premium is really low. You might be better off buying medical insurance for yourself.

You should educate yourself on personal finance and if needed, take the help of a professional financial adviser and plan your taxes in a disciplined manner.

Check – 7 reasons you can get an Income Tax Notice

3) How can one save taxes by combining a home loan with a spouse (example or illustration)

You can get a bigger loan amount if you borrow jointly with your spouse. A joint home loan also helps in getting more benefits under the Income Tax act.

Here is an example.

Mr. Jain and his wife take a joint loan of Rs. 50,00,000 with a 50% share each. Let us assume that both are in the highest income tax slab. (Tenure 20 Years & Rate 9.25%)

Details	Amount
Home Loan Amount	Rs. 50,00,000
EMI Principal+Interest payable (Rs. 2,32,185 + Rs. 3,17,335)	Rs. 5,49,520 per annum
Amount payable by each	Rs. 2,74,760
Total Taxes Deduction for the Jains under Section 80C in the first year (Maximum benefit in case of individual 1.5 Lakh).	Rs. 2,32,185 or Rs. 1,16,092 each
Taxes Deduction for the Jains under Section 24 in the first year (Maximum benefit in case of individual 2 Lakh).	Rs. 3,17,335 or Rs. 1,58,667 each
Total Tax Deduction	Rs. 5,49,520

If Mr. Jain had taken the loan only under his name, he would have got an exemption of only Rs. 3,50,000 (Rs. 1,50,000 80C + Rs. 2,00,000 Sec 24) as that is the maximum exemption for individual but due to Joint loan they will get additional benefit of Rs 1,95,520

Related Article – Understanding clubbing of Income & blunders people make

4) Where does health insurance sit with respect to tax planning?

Health is wealth. Getting health insurance will ensure your health is protected and at the same time, some amount of taxes can be saved which can be added to your financial wealth.

You can get a total deduction of Rs. 25,000 under Section 80D for health insurance policy taken for self, spouse or dependent children. If you are a senior citizen, you can claim a deduction up to Rs. 30,000. We can add the money saved in taxes to this wealth too.

You can buy health insurance for your parents and claim a deduction up to Rs. 25,000 as premium. If you are 60 years or older and manage to buy premium for your parents, you can claim Rs. 30,000 as a tax deduction

Health insurance is an important tool for tax planning. Health insurance protects your life and also saves taxes for you.

Mutual Fund Taxation in India

5) What is your view on NPS and the additional tax benefits that one can gain from it?

Investment in the National Pension Scheme (NPS) allows for an income tax deduction of Rs 50,000 under Section 80CCD. This is over and above the income tax deduction allowed under Section 80C. The amount in NPS is then invested in various asset classes.

60% of the NPS corpus can be withdrawn when one is 60 years old. The remaining 40% will have to be put into an annuity for a monthly pension. When the corpus is withdrawn, it is taxable. The annuity income earned by the remaining 40% is also taxable. So you are not really saving tax but only deferring it.

If you are in the 30% tax bracket, the total amount of taxes saved if you invest Rs. 50,000 in NPS is Rs. 15,450.

If you do not invest in NPS, you can invest Rs. 22,550(50000-15450) in equity mutual funds and in the long term, the returns will beat the NPS returns as NPS investment is a combination of equity, corporate debt and government.

If you are in the 10% or 20% tax bracket, you have many other options to save tax and invest the surplus amount in equity mutual funds.

Unless there is a scenario where the lump sum amount was withdrawn becomes tax-free or the annuity income becomes tax-free or NPS allows investors to choose to invest 100% of the NPS contribution in equity, NPS is not very suitable as a tax saving option.

In case, the long term capital gains become taxable or the returns on NPS significantly improve, NPS may become a better option as a tax-saving instrument.

Read – How to save capital gain tax on Property Sale

6) Advice to 10%/20%/30% tax payers on optimum tax savings

Income	Tax Rate	Tax Payable
Up to Rs. 2,50,000	0%	0
Rs 2,50,000 to Rs 5,00,000	10% on the difference between 5,00,000 and 2,50,000	Maximum of Rs. 25,000 + 3% cess on tax payable
Rs 5,00,000 to Rs 10,00,000	25000+ 20% on the difference between 10,00,000 and 5,00,000	Maximum of Rs. 1,25,000 + 3% cess on tax payable
Above Rs. 10,00,000	1,25,000 + 30% on the difference between total income and 10,00,000	1,25,000+ 30% on the income above Rs. 10,00,000 + 3% cess on tax payable

Note – From Financial Year 2017-18 – 10% tax slab will be changed to 5%

If you are earning above Rs. 2,50,000 per year, you are liable to pay income tax. There are many options available for reducing taxes payable. Tax evasion is an offense but you can save on tax using these smart measures –

Tax Savings via Exemptions

If you are in the lower I.T slabs, you can save taxes without investing or purchasing assets.

You can use the HRA component of your salary. The HRA component can be claimed as exemption. The amount of exemption is the lowest of –
Rent paid less 10% of basic salary or
50% of basic salary where the house is situated in any of the four cities of Delhi, Mumbai, Kolkata or Chennai, and

40% of basic salary in other cities or (c) actual HRA received, whichever is the lowest.

You can also claim exemption on reimbursements such as medical expenses and telephone expenses, conveyance (up to Rs. 1600 per month) and children’s education fees.
You can claim exemption on car allowance by opting for company provided car.

If you are in the 20% or 30% IT slab, you can use a combination of exemptions and investments savings to reduce the taxes payable.

Must Check- How to Save Maximum Tax

Tax Savings via Investments

If you do have money to invest, you can invest in retirement benefits such as EPF and PPF to claim deduction. If you are salaried, EPF might already be existent. The maximum limit for deductions claim under Section 80C is Rs. 1,50,000.

If you cannot invest in such retirement benefits, you can purchase life insurance and/or medical insurance not only for yourself but for family and dependent parents. Insurance is a must. This will help you satisfying insurance needs and tax-saving requirements.

If you have incurred loss on sale of housing property or shares, this can be set off against the income tax. This helps to make use of the loss and save some taxes. Check – ESOP Taxation

Tax Saving via loans

You can claim a deduction for interest paid on education loans and interest and principal paid on the home loans. The education loan will get paid off along with saving tax. The home loan will help you make a cherished asset and also exempt you from some tax.

If your income is below Rs. 10 lacs, you can take advantage of the clause of 50% of investment in direct equity as a deduction for a maximum investment of Rs. 50,000. You should have knowledge of the equity market and have a risk appetite. Money should be put in equity after taking care of EMIs and insurance. The investment will be subject to 3 years lock-in. The benefit will be available for 3 consecutive years.

If you are in the 30% slab, it makes sense to invest in a house. As you grow older, you will need a place to stay and more investments to save taxes. You can also increase your investments in PPF and invest in ELSS. This will make sure your portfolio has debt and equity components. You will earn returns and save taxes.

For NRIs – Use DTAA as a Tax Planning Tool

7) What is the maximum sum that one can save by way of tax planning for each tax bracket?

Let us assume three people –

Mr. Rohan who is earning Rs. 5,00,000 p.a.

Ms Sindhu who is earning Rs. 10,00,000 p.a.

Mr. Paresh who is earning Rs. 20,00,000 p.a.

Income (Rs.)	Tax Payable (Rs.)
5,00,000	25750
10,00,000	1,28,750
20,00,000	4,37,750

Tax Payable (Rs.)	Sum saved by tax planning
25750	Claim HRA or Deduction for Interest on Home loan – Rs. 96,000 (40% of basic salary that is assumed to be Rs. 2,40,000) and Take medical insurance for self for Rs. 20,000 and for parents for Rs. 30,000. Total Tax Liability will be nil
1,28,750	Claim basic deduction of Rs. 2,50,000 Claim deduction for Rs. 1,50,000 under Section 80C Pay medical insurance for self for Rs. 20,000 and for parents for Rs. 30,000 and claim deduction under Section 80D Claim deduction for Investment in Equity Savings Scheme for Rs. 25,000 Claim Rs. 2,00,000 for Interest payment of home loan Claim Rs. 10,000 for Interest received Your total tax liability will be Rs. 39,140. Claim Reimbursement for Medical allowance – Rs. 15,000 and Transport Allowance – Rs. 19200 and LTA – 20,000, Fuel Reimbursement – Rs. 21600 and save 20% on that – Rs. 15160 Tax Liability will be Rs. 39,140- Rs.15,160 = Rs. 23,980
4,37,750	Claim basic deduction of Rs. 2,50,000 Claim deduction for Rs. 1,50,000 under Section 80C Claim deduction for Investment in Equity Savings Scheme for Rs. 25,000 Pay medical insurance for self for Rs. 20,000 and for parents for Rs. 30,000 and claim deduction under Section 80D Claim Rs. 2,00,000 for Interest payment of home loan Claim Rs. 10,000 for Interest received Total tax liability will be Rs. 3,11,060. Claim Reimbursement for Medical allowance – Rs. 15,000 and Transport Allowance – Rs. 19200 and LTA – 20,000, Fuel Reimbursement – Rs. 21600 and save 30% on that – Rs. 22,740 Tax liability will be Rs. 2,88,320

Add your tax saving questions in the comment section. Also, try to participate in the conversations – I think that’s a good way to learn complex topics like TAX.