Purchases made on EMI – Good or bad? (Yahoo Finance - BankBazaar.com)

When its festival time and you notice almost every other shop offering discounts and offers, you are tempted to go on a shopping spree and buy even things you may not need. But what happens to your liquidity at such times and how do you settle your credit card bills after the shopping? Merchant outlets and credit card companies recognize that this could be a concern to many shoppers and offer a scheme of payment by Equated Monthly Installment (EMI) in order to tap such customers as well and increase their sales. This is very popular in India for electronic appliances, mobiles, laptops and other gadgets. An EMI scheme means you can purchase the product and begin using it immediately, but pay the price over an extended period of time in installments. On the face of it, this scheme looks very attractive and easy on your purse. But there is no such thing as a free lunch. Let’s look at the extra costs you are likely to pay when you opt for an EMI scheme and what you should evaluate before you opt for such a scheme.

Costs to be borne while opting for an EMI Scheme:

Higher amount paid: Raj opted to purchase his mobile phone worth Rs. 40,000 through an EMI scheme offered by the retailer, which was in tie-up with his credit card company. The EMI was for 6 months, which should have technically worked out to a down payment of Rs. 4000 and 6 EMIs of Rs. 6000 each. But Raj discovered that he had to pay a down payment of Rs. 4000 and 6 EMIs of Rs. 6833 each. That is, he would have ended up paying Rs. 5000 more on the product if he had opted for the EMI scheme. This is because most EMI schemes come with a hidden cost, which is the interest you will have to pay.

Additional costs: Apart from the interest cost, most credit card companies charge a processing fee when you opt for an EMI scheme. This is a percentage on the transaction amount and varies from bank to bank.

Default in paying EMIs: The EMI amount will get reflected on your monthly credit card bills along with your other dues. So when you fail to make the payment of your credit card dues in a month, you will be charged the normal interest of anywhere between 24%-36% for non-payment along with the late payment fee and taxes. The EMI amount, in addition to being subject to these charges will also carry the basic interest cost thus causing a double whammy.

Absence of discounts: Often banks tie up with merchant outlets and offer the EMI option on various products. However, most products carrying the EMI option do not have the benefits of a discount or any offers attached to them. For example, an LCD costing Rs. 30,000 under the EMI option may be available at Rs.27,000 without the EMI option.

Pre-closure penalties: If you purchase a product on an EMI scheme offered by your credit card company, it is most likely that there will be a pre-closure penalty. This means that if you have the cash to pay off the entire amount before the completion of the total number of EMIs, you will have to pay a pre-closure charge, which is usually in the range of 2.5%-3% of the outstanding principal amount.

Things to evaluate before opting for an EMI Scheme:

As you can see, even though an EMI option may be light on your pocket, there are several costs attached to it. You must therefore evaluate the offer on the table before you opt for it. As a first step, remember to read the fine print thoroughly, as card companies can change terms at their discretion. You must also check if the total payment you are making, including all the EMIs and the down payment is equal to the MRP of the product or if it is more than the quoted price. If it is more, then it means you are being charged interest and/or processing fees for the option.

You must then check all options for the product in other stores – both online and offline, and see if you can get the product at a better price if you do not opt for EMI. If the difference is substantial, it is better to opt out of EMI.

Remember to consider the likely costs like pre-closure penalty when you evaluate the EMI option, as there are a few credit cards which offer zero pre-closure charges. This is because you should have the flexibility to close the scheme when you have excess cash. Also remember to consider how the existing credit limit on your card will change because of opting for the EMI scheme. When you use EMI on credit cards, your existing credit limit comes down to the extent of the outstanding amount.

Is an EMI scheme good or bad?

Although a good EMI scheme is easy on your wallet, you must try to avoid it as the first option. You may not only be spending more than the actual worth of the product, but also splurging first and then relying on EMI payments is not healthy for your finances. Remember to evaluate all costs associated with the scheme and then choose or reject it.

5 Common Estate Planning Mistakes To Avoid - Yahoo Finance (Business Insider)

Estate planning certainly isn't one of the sexiest ways to spend your day.

The idea of deciding how you'd like to die and who you'll leave your assets to can be overwhelming. 

That's why we like the idea of approaching estate planning like you would building a new home. Start with a solid foundation early enough in life, and then build it up one piece at a time. Once the roof is up and you've passed inspection, it's just a matter of trimming the hedges, changing a few light bulbs and renovating every once in a while. 

"There is no perfect estate plan," says CFP Nancy Anderson.  "We can’t plan for every contingency, but if we take some time to think about the major things, plan for them and double check that the right people are on the right documents, it can go a very long way in the end." 

Here are a few common estate planning mistakes to avoid: 

Thinking you're too young to make one. So, you're 33, fit as a fiddle and far too busy at your 9-to-5 to worry about something as dry as your estate plan — right? Don't kid yourself. You may not have many physical assets to your name yet, but a lot goes into estate planning besides deciding which of your siblings get first dibs on your vintage record collection. If you wind up in the hospital with no way to communicate, you'll wish you had designated a Power of Attorney to decide on treatment or at least jotted down how you'd prefer to be cared for at the end of your life.

Keeping your will a secret. Your life is not a Hollywood film. The idea that your family will pile into your attorney's office an hour after your funeral for the dramatic unveiling of your will is far from normal — or wise. In most cases, estate planners recommend telling your family exactly what they can expect before you pass away. Even if that means playing referee while your kids squabble over who gets your antique china set, it's worth dealing with the disagreements before it's too late for you to have a say.  "It's a double-edged sword; people don't want to communicate what property is going to be given because it could cause animosity," attorney Senen Garcia, founder of SG Law Group in Coconut Grove, Fla. told Bankrate.com. "It may cause animosity now, but you can deal with it. Later on, you have no control of it because you are gone."

Leaving too much cash to the wrong people. We'd all love to dump a pile of cash on our loved ones' laps after we pass away, but in some cases that's the worst possible way to leave a legacy. The key is to dole out money in a way that will improve their lives for the long-run. Using a trust fund can be a smart way to leave money to relatives, since it is administered by a trustee who must dole out the cash exactly how and when you tell them to. 

Forgetting about the blow from taxes. If you have considerable assets to leave behind, you'll need to carefully consider the estate taxes that will be levied against them. One way experts recommend getting around hefty estate taxes is to carefully plan ahead which assets you'll leave to certain family members and friends. You can "gift" them assets up to $13,000 per year while you're still alive under IRS guidelines before gift taxes kick in. 

Not editing your plan along the way. Life is far from predictable, which means your estate plan, like any financial plan, should be updated as your financial and personal circumstances change. Changes such as a birth, marriage, divorce, job loss, health condition, etc. all warrant factoring in to your estate plan. And beyond that, you'll have to seriously keep an eye on the ever-changing laws in both the state where your estate plan was drawn up and the country as a whole.

What are you waiting for? We recommend seeking a professional to help draft and review your estate plan. But don't just rely on one — both your financial advisor and your attorney (sometimes even in collaboration with each other) should be able to cover all the issues involved, making sure you've remembered to cross your T's and dot your I's.

So you haven’t got your income tax refund yet? (DNA 16th Sep 13)

Here are some ways to expedite the process and avoid waiting too much further for it

Paying tax is a pain! Filing your annual return correctly within the due date is a bigger pain. And the biggest pain of them all is to wait endlessly for that tax refund that is rightfully yours. Having been a good citizen and having complied with the law of the land dutifully, you are right in expecting that you are treated fairly by the department. And the least courtesy that they can show towards a diligent tax payer like you is to refund his money quickly and in a hassle free manner. While your complaint is fully understandable, an objective analysis of the situation would help. Steps that the Income Tax department has taken ? Sensitive to the agony of the tax payers, the Income tax (IT) department has taken a few steps to make life easier for the tax payer. Here’s a look. ? Refund Banker Scheme: Introduced in 2007, SBI, Mumbai, is mandated to handle the refunds centrally and the amount may be credited to your bank account through RTGS/ECS or sent by cheque. This has simplified the process and also quickened it. ? Facility to check the refund status: The department has enabled you to check online, the status of your refund. You may visit https://tin.tin.nsdl.com/ oltas/refundstatuslogin.html ? Centralised return processing: Earlier, the returns were processed at the local IT office and refunds were issued from there. Now the same is mostly being carried out at the Centralised Processing Centre (CPC), Bangalore, and refunds arranged from there. This has resulted in streamlining of the return processing and refund process. How to avoid delays Well, not all the blame for the delayed refunds lies with the department. You, at your end, can take a few steps to avoid or minimize the delay. ? Ensure taxes are correctly credited to you: Quite often, the tax payments claimed by you may not match with the records of the department. You can verify all your TDS and advance tax payments from your Form 26AS, which can be downloaded from https://www.tdscpc.gov.in/en/ taxpayer-home.html. Periodical reconciliation of the same and immediate steps to set right any differences would ensure full credit of your taxes. ? Ensure the correct account number: If the wrong account number is mentioned in your return, your refund may get delayed as result. ? Submit ITR V on time: Ensure that the acknowledgement (ITR V) for submission of your tax return has been forwarded to the CPC within the specified time. Unless this is done, your tax return may be considered as not filed. For more such guidelines on personal finance, visit www.itsallaboutmoney.com

Rookie mistakes to be avoided (DNA 16th Sep 13)

These are some of the recurring investment faux pas that most people still tend to make even in their 30s

Vijay Pandya

In your early twenties, it seems the money you earn is never enough to last the month. Saving seems to be an impossible concept, unless if a strict parent imposes restrictions on spending and forces you to do it. The mid-twenties is when future goals become clearer and saving for them starts off in earnest. The crucial difference between saving and investing usually gets highlighted in your early thirties. However, having over a decade of experience doesn’t help much. Managing money and managing investments are two totally different tasks, requiring an entirely different approach and set of skills. Making money earn money is the key factor here that tends to be missed out. Earning less Saving enough money to pay three to six months of living expenses in case of job loss concerns is a good idea, but then keeping that amount for a rainy day in your savings account is just plain stupid. Invest it in fixed deposits instead and keep rolling them over instead of encashing on maturity, its that simple. Unbalanced portfolio Similarly, while equities do give a good rate of return, the risks are equally great. Maintain a balanced portfolio so that volatile markets do not completely deplete your net worth overnight. Diversify across instruments and sectors even while dealing with ‘safe’ options like mutual funds. Unclear goals Do you want to live in a spacious 2BHK flat or opt for a 1BHK and send your child abroad for higher studies? Buy an entry-level hatchback or top-end SUV? Party every weekend or once in a few months? Vacation abroad twice a year or once in two years? Unless if you are clear about your projected spends, it will be impossible to plan your investments in sync with them. Unexpected inflows Diverting your Diwali bonus for an outstanding credit card payment gets you out of a financial crunch but did you learn anything from the experience? They say those who do not learn from history are condemned to repeat it and you may just exemplify that adage next year. Unexpected inflows should be invested and reinvested, not spent. Stopgap solutions Taking a personal loan to bridge the gap and buy a bigger house solves an immediate need but adds a high-cost liability that will offset whatever returns your current investments are making. Instead, ‘break’ a few fixed deposits before their maturity. Losing projected interest for a few months is better than paying it multiple times over for years on end. Following friends What works for your office colleague, school buddy or train friends may not necessarily be applicable to your financial situation. Blindly investing where others do without understanding your own financial potential, abailities and constraints, is strictly avoidable. Top 5 Problems And Solutions 1 Uncontrolled spending One way to control and monitor your spending is to open a separate bank account and designate it as a spending account. Both husband and wife need to spend only from it. As soon as you receive your salary, transfer the budgeted amount, say Rs 25000 to your spending account. Then spend your monthly expenses from it. This account is for all your expenses. Investments or EMI will not be mingled with it. Whenever you check it, you will be able to make out how much has been spent so far. End of the month you will have a complete history. Now you can analyse and control your spending. At the beginning of the month, your mind knows the balance is 25000 and the countdown starts. It starts thinking how we can run the show for the rest of the month with this balance. 2 Credit card trap The simple and successful way to use credit card is to pay the 100% due amount on the due date. Minimum balance payment, EMI purchase through credit card, balance transfer from one credit card to the other will slowly take you to the debt trap. 3 Money compatibility Couples often don’t work on their money compatibility. This is a serious problem. Check how compatible you and your spouse in money management. You may be conservative and your spouse may be aggressive. You may think that the best place to invest is stock market and your spouse may think bank FDs. You should communicate your money management style to your spouse as well as you need to understand the money management style of your spouse. Both of you need to analyse the merits and demerits of money management style of each other and their own. Then you need to create a mutually agreed combined money management style.This will be vital to you both throughout your married life to help minimise stress from disagreements about money. 4 Not having a plan If you are not having a financial plan, then things will not be under your control. A financial plan tells you what is your potential and what are all the things possible with that. This gives you clarity and confidence. 5 Poor risk management Life cover, health cover, property insurance and having emergency reserve: These 4 items are more discussed and less practiced.

RBI allows transfer from NRO to NRE account 3: Procedures for Transferring funds (http://nareshco.com/blog/?p=454 on 3rd Aug 2012))

A lot of NRIs have shown interest in transferring funds from NRO to NRE since the notification came out on May 7, 2012. However, very few have actually transferred funds. This is mainly due to the lack of awareness or experience in newly issued notification in case of NRIs, Banks as well as Chartered Accountants. Additionally, most of the queries from NRIs have been for the procedural aspects only.

After successfully helping my clients in transferring funds from NRO to NRE,  based on my experience, I have summarized the procedures in 4 simple steps as follows:

1. Obtain Chartered Accountant (CA) Certificate in Form 15CB

• Select and Consult a Chartered Accountant
• Explain your situation
• Provide documentation/explanations
• CA will verify the source of funds and whether income tax is deducted and/or paid
• On verification, CA will issue certificate in the prescribed Form 15CB

2. Submit Form 15CA online

• Access www.tin-nsdl.com
• Click “Services” and then “Form 15CA”
• Read Guidelines and familiarize with Form 15CA requirement
• Click “Form 15CA (Online Filing)” in the Forms section
• Fill up all the information as required
• Click “Proceed”
• Please review the details and then confirm to upload the form electronically
• On Confirmation, the form is electronically submitted to the Income Tax Department
• Form 15CA with an Acknowledgement No. is generated
• Print and sign the form

3. Submit documents to Authorized Dealer/Bank where NRE accountis kept

• Form 15CA
• Form 15CB
• Check (cheque) or Demand Draft for the amount
• Request letter or Form as per respective bank’s requirement
• Complete any other document, requirement or formality

4. Transfer: On verification of submitted documents, Bank will process the transfer and credit NRE account.

Timing:
Obtaining CA certificate is the most important and most time consuming step. Each CA will have his/her own procedures to verify the source(s) of funds and whether source is tax exempt and/or income tax is paid. Once you complete Step # 1 (obtain CA certificate in Form 15CB), other steps could be completed within a day and mostly the same day.

Source:
The key thing in verifying the source is determining the sources of funds. For Example, if you have a NRO FD of 3 years maturing on July 31, 2012. Source of fund is not NRO FD matured on which TDS deducted but it consists of 1. Principal when FD was made in 2009 and 2. Interest on the Principal from 2009-2012. Interest on NRO FD is considered current income and is taxable in India. While TDS could be deducted on Interest (current income), it is also important to verify the source of Principal. The CA certificate includes verification of all sources of NRO funds.

Things to consider/remember:

1. Every bank’s process and procedure for transferring funds from NRO to NRE is different so it is advisable to inquire, know and understand the procedures of the bank with which you have NRE account.
2. Filing Form 15CA is very important as the form is electronically submitted to the Income Tax department. Any error could generate an inquiry from the Income Tax department.
3. As Part B of the Form 15CA is filled based on CA Certificate issued by the Chartered Accountant in the Form 15CB, experience of a Chartered Accountant in dealing with NRIs and issuing CA certificate especially for NRO to NRE transfer should also be considered.
4. Even though RBI issued the notification allowing transfer from NRO to NRE on May 7, 2012, there is still lack of awareness among bank employees of the procedures and/or requirements.  E.g.  Bank employees may not know the BSR code of their own branch and could take few hours to a day to respond. Please note that BSR code of bank branch is a basic requirement (more than 3 years old) for any remittance, irrespective of the purpose and to be included in #4 of the Form 15CB whereas this notification came out less than 3 months ago. So, it is important to work with a knowledgeable bank person or have someone to liaison with the bank and/or have patience.

In summary, Nothing should deter you from transferring your funds from NRO to NRE account. My advice is to transfer funds from NRO to NRE as soon as possible to enjoy 5 benefits and reduce tax drag with the help of your experienced Chartered Accountant.

Gilt Funds (Dated 1st Dec 2011 & 18th Apr 2012)

Greetings,

In context to our follow-up advice on investments in Gilt Funds on 1st Dec 2011 and Dynamic Bond Fund on 18th Apr 2012, we are recommending to continue holding these funds. They have delivered close to 13% CAGR till date.

For those holding them in dividend option must consider moving them to the growth option if the cash-flow from this investment is not required.

Alternately investments in IDFC & SBI Dynamic Bond Funds can also be considered for those with a investment view of a year or more, the return expectation on these investments should be 9-10% during this period.

For further details please write to vivek@wealthcare.net.in

Ulips are more expensive than MFs (BS 3rd Dec 2012)

NEHA PANDEY DEORASThe new marketing line amid insurance agents is “ unit- linked insurance plans ( ulips) are cheaper than MFs”. This argument is based on the expense ratio that mutual funds charge vis- a- vis Ulips. But ask a financial advisor and he will strongly advocate a mutual fund for investment purposes and a term plan for insurance. Even in terms of overall costs, an MF score. In September 2010, the Insurance Regulatory and Development Authority ( Irda) had issued guidelines for Ulips, aimed at capping the charges on the product, which in the first year could be as high as 100 per cent of the premium. The guidelines were a huge help for customers. In August 2012, the Securities and Exchange Board of India ( Sebi) introduced measures for the insurance sector. Sebi allowed funds with assets worth less than ₹ 100 crore to charge 3.12 per cent in expense ratio annually. This led many to believe that mutual funds have become expensive, compared with Ulips. Such a notion, however, might be misplaced. For one, Ulips levy more than one cost in the first five years of investment but MFs don’t. For another, Ulips charge under various heads such as premium allocation charge ( PAC), fund management charge ( FMC), policy administration charge, mortality charge, et al, while the MF only levies an expense ratio ( the fee charged by a fund house to manage and operate the fund). Therefore, despite a higher expense ratio, MFs work out cheaper than Ulips. Sumeet Vaid, founder and CEO of Freedom Financial Planner, says Ulips are expensive products and, hence, should not be used as an investment vehicle. While insurance plans are best for risk coverage, Vaid advises one to stick to MFs for investment needs. Sample this. HDFC SL Progrowth Flexi charges 7.50 per cent as PAC and 1.35 per cent as FMC in the first policy year. However, the plan does not levy any policy administration fee and mortality depends on the age to be insured. The cost of investment in the first year is 8.85 per cent ( excluding mortality). For instance, if you are paying apremium of ₹ 5 lakh for a ₹ 50 lakh cover, your cost of investment in the first year would be ₹ 44,250. The product levies a similar charge in the second year. However, in the third, fourth and fifth years, the charges decrease by two per cent. From the sixth year, the policies do not charge PAC but a policy administration fee is charged at ₹ 6,000 per annum or 1.2 per cent, whichever is lower. FMC continues to be levied at 1.35 per cent every year. Similarly, Aegon Religare iMaximize Plan does not levy a PAC but it charges a policy admin fee of ₹ 1,200 a year and FMC of 1.35 per cent annually in the first five policy years. Taking the above example, the cost of investment would be ₹ 7,950 yearly ( FMC of ₹ 6,750 + ₹ 1,200). This is besides mortality fee, which increases with age. Five years of investment is considered because the lock- in period for Ulips is five years. Bajaj iGain III is an even more expensive product. It levies a PAC of two per cent, FMC of 1.35 per cent, and varied policy admin fees. In the first year, the investment cost would be ₹ 17,134. In the second year, the cost is ₹ 17,153, in the third year ₹ 17,173, and so on. This excludes mortality fee. We assume the investor will stay invested throug the policy term. However, if the investor wants to discontinue the policy, there are charges for that as well. All the three policies mentioned above charge six per cent of the annual premium or fund value not exceeding ₹ 6,000 in the first four policy years. In comparison, HDFC Top 200 ( an equity diversified mutual fund scheme) levies only 2.87 per cent of the investment as expense ratio. For an investment of ₹ 5 lakh, the scheme would deduct ₹ 14,350. Birla SunLife Equity ( an equity diversified mutual fund scheme) charges 3 per cent annually, or ₹ 15,000, and DSP Equity charges between 2.59 per cent and 2.85 per cent in the first five years of investment. That is, between ₹ 12,950 and ₹ 14,250. Here, 0.5 per cent has been added to the historical expense ratios, because the expense ratios are likely to go up on the back of the new regulations. While mutual funds can give 10- 12 per cent annually, financial planners say Ulips mostly give seven- eight per cent annually if you have invested only in equity schemes. Take your pick. Mutual funds 0.5% has been added to historical ratios as expense ratios are likely to go up due to new regulations HDFC BSL DSP Top 200 Frontline Equity  Year 1 2.87 3.00 2.85 Year 2 2.69 3.00 2.88 Year 3 2.70 3.00 2.79 Year 4 3.00 3.00 2.61 Year 5 2.40 2.85 2.59 BREAK- UP OF PLANS ( in ₹) Premium Fund mgmt Policy allocation charge charge administration charge Discontinuance/ Surrender charge HDFC SL Progrowth Flexi Year 1 7.50% 1.35% Nil Lower of6% * annual premium or fund value or notexceeding 6,000 Year 2 7.50% 1.35% Nil Lower of4% * annual premium or fund value or notexceeding 5,000 Year 3 5% 1.35% Nil Lower of3% * annual premium or fund value or notexceeding 4,000 Year 4 5% 1.35% Nil Lower of2% * annual premium or fund value or notexceeding 3,000 Year 5 5% 1.35% Nil Nil Year 6+ Nil 1.35% 6ka year or 1.2%, p. a. whichever is lower Aegon Religare iMaximize Plan Year 1 Nil 1.35% 1,200 a year Lower of6% * annual premium or fund value or notexceeding 6,000 Year 2 Nil 1.35% 1,200 a year Lower of4% * annual premium or fund value or notexceeding 5,000 Year 3 Nil 1.35% 1,200 a year Lower of3% * annual premium or fund value or notexceeding 4,000 Year 4 Nil 1.35% 1,200 a year Lower of2% * annual premium or fund value or notexceeding 2,000 Year 5 Nil 1.35% 1,200 a year Nil Year 6+ Nil 1.35% p. a. 1,200 a year Bajaj iGain 3 Year 1 2% 1.35% 384 a year Lower of6% * annual premium or fund value or notexceeding 6,000 Year 2 2% 1.35% 403 a year Lower of4% * annual premium or fund value or notexceeding 5,000 Year 3 2% 1.35% 423 a year Lower of3% * annual premium or fund value or notexceeding 4,000 Year 4 2% 1.35% 444 a year Lower of2% * annual premium or fund value or notexceeding 2,000 Year 5 2% 1.35% 467 a year Nil Year 6+ 0% 1.35% 490 a year

Deduction in respect to interest on deposits in savings accounts (u/s 80 TTA)

The following Part CA, consisting of section 80TTA, shall be inserted after Part C of Chapter VI-A by the Finance Act, 2012, w.e.f. 1-4-2013 :

CA.—Deductions in respect of other incomes

Deduction in respect of interest on deposits in savings account.

80TTA. (1) Where the gross total income of an assessee, being an individual or a Hindu undivided family, includes any income by way of interest on deposits (not being time deposits) in a savings account with—

 (a) a banking company to which the Banking Regulation Act, 1949 (10 of 1949), applies (including any bank or banking institution referred to in section 51 of that Act);

 (b) a co-operative society engaged in carrying on the business of banking (including a co-operative land mortgage bank or a co-operative land development bank); or

 (c) a ^17aPost Office as defined in clause (k) of section 2 of the Indian Post Office Act, 1898 (6 of 1898),

there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee a deduction as specified hereunder, namely:—

  (i) in a case where the amount of such income does not exceed in the aggregate ten thousand rupees, the whole of such amount; and

 (ii) in any other case, ten thousand rupees.

(2) Where the income referred to in this section is derived from any deposit in a savings account held by, or on behalf of, a firm, an association of persons or a body of individuals, no deduction shall be allowed under this section in respect of such income in computing the total income of any partner of the firm or any member of the association or any individual of the body.

Explanation.—For the purposes of this section, "time deposits" means the deposits repayable on expiry of fixed periods.

Analysis/Conclusion

The insertion of this new section has been a relief to individual or Hindu undivided family as interest on saving bank account was always a taxable income with no corresponding tax benefits. It would also help in avoiding inclusion of small savings bank interest in the taxable income, which was required to be done after deletion of section 80L.

Nine tax saving options other than the famous Section 80C (NDTV Profit May 29, 2013)

Before you calculate your tax liabilities, remember to analyze the various sections of tax deductions under the Income Tax Act as tax planning does not end with Section 80C.

80D:
Tax deduction under section 80D qualifies for mediclaim policies. The premium, which is paid for medical insurance policy for self and family members to protect them from sudden medical expenses, comes under this section. The maximum amount allowed for exemption annually for self, spouse and dependent parents/children is Rs. 15,000. In case of a senior citizen, the maximum amount extends up to Rs. 20,000. If you are paying the premium for your parents (whether dependent or not), you can claim an additional maximum deduction of Rs. 15,000.

80DD:
According to the Income Tax Act, if you are paying a premium to LIC or any other insurance company (approved by the Income Tax board) for the medical treatment of a dependent physically disabled person, you can avail exemption under the section 80DD. Here, the dependent should be none other than your spouse, children, parents or sibling. If the person is suffering from 40 per cent of any disability, a fixed sum of Rs. 50,000 can be claimed in a year. Similarly, if the disability is 80 per cent, the fixed sum goes up to Rs. 1,00,000 per year. For initiating the process of deduction you need to submit the medical certificate issued by a medical authority along with the return of income.

80DDB:
If you have incurred expenses for the medical treatment of self or your dependents, you can claim a deduction of up to Rs. 40,000 or the actual amount paid, whichever is less, under the section 80DDB. For a senior citizen, the maximum exempted amount is Rs. 60,000, or the amount actually paid for medical expenses. To claim a deduction under this section, you need to submit a medical certificate from a doctor working in a government hospital.

80E:
The interest paid on loan taken for pursuing higher education of self or any dependent is exempted from tax under section 80E. An education loan can be taken for wife, children and minors for whom you are the legal guardian. This deduction is applicable for a period of eight years or till the interest is paid, whichever is earlier. The deduction is only approved for higher studies, which means full-time graduate or postgraduate courses in engineering, management or applied sciences, pure sciences including mathematics or statistics. However, from 2011 onwards, the scope of this exemption has been extended to cover all fields of studies including vocational studies pursued after completing the senior secondary examination or equivalent. No exemption is applicable for part-time courses.

80G:
One often donates on philanthropic grounds to help the destitute. Such an amount can be donated to trusts, charitable institutions and approved educational institutions, and qualifies for deduction under Section 80G. The exemptions can be up to 50 per cent or 100 per cent of the donations made. Funds in which the donations are eligible for tax exemptions include the National Defence Fund, Prime Minister Drought Relief Fund, National Foundation for Communal Harmony, National Children's Fund, Prime Minister's National Relief Fund, etc.

80GG:
If a salaried or self-employed person staying in a rented house does not receive any kind of HRA, they can claim a deduction under this section. However, you cannot avail any such benefit if you, your spouse and/or your child owns any residential accommodation in India or abroad. You can claim the least of the following under Section 80GG: 25 per cent of the total income, or Rs. 2000 per month, or excess of rent paid over 10 per cent of total income. (this section is interesting as Self employed person usually overlook this provision.)

80GGC:
Any monetary contribution to any political party or electoral trust is eligible for tax exemption. Thus, your contribution, as a matter of appreciation for their work, will serve both the purposes.

80U:
A resident of India suffering from any kind of specified disability is eligible to claim tax deduction under this section. In order to enjoy this opportunity, one should be suffering from not less than 40 per cent of the following diseases: blindness, low vision, mental illness, mental retardation, hearing impairment. The deduction provided is flat Rs. 50,000, irrespective of the expense incurred. If the disability is severe, the deduction can be up to Rs. 1 lakh. One needs to provide a copy of all the certificates issued by a medical authority in order to avail this benefit.

80CCG:
The Finance Act 2012 introduced a new Section 80CCG to offer 50 per cent tax break to new investors who invest up to Rs. 50,000 and whose GTI is less than or equal to Rs. 10 lakh. It has been introduced for budding investors entering the equity markets for the first time and is a once-in-a-lifetime benefit.

Hence, there are several sections apart from 80C that can help an individual benefit from tax exemptions. It is time to start looking beyond 80C for tax savings.

Group Health Plan’s Fine, but Go Solo for Better Cover (ET 10th May 2013)

New health insurance norms are likely to bring in some benefits, but delay in purchasing a policy may be risky, says Preeti Kulkarni

Did you notice that the premium for your company health insurance plan has gone up? Take a look at your revised salary structure, and you will notice that your company is paying a higher premium for your insurance cover this year. But bad news does not end here. Restrictions such as sub-limits and co-payments, too, have gone up. “Premiums for group health insurance are increasing due to high claims,” says Mahavir Chopra, head, e-business and personal lines,Medimanage.com, a health insurance consultancy firm. Experts believe that companies may pass on higher premiums to employees to cut costs. “One worrying trend is that some companies are shifting the cost of parents’ coverage to their employees. This could result in a significant reduction in enrollment of parents,” says Segar Sampathkumar, general manager with public sector major New India Assurance. “Employees shouldn’t opt out of parents’ coverage when the cost of coverage shifts to them, as they might not get insurance for their parents at a later date when they need it the most.” 

TO BUY OR NOT TO BUY At the moment, however, nobody is keeping their parents out. In fact, many of them are scouting for an independent cover for their parents. Many are even looking for independent cover for themselves, probably because of the increasing awareness about the importance of health insurance cover, say experts. “There is a huge flux of salaried employees queuing up to buy independent health policies,” says Mahavir Chopra. If you are in the process of buying a cover for your parents, or even for yourself, be prepared to slog a bit as the process of decision-making is a bit complex.

On the one hand, friendlier products without claim-based loading (where renewal premiums rise if you make claims) and arbitrary premium hikes are expected to hit the market after October 1, when the new guidelines of Insurance Regulatory and Development Authority (IRDA) become effective. On the other hand, premiums across age groups could go up as insurers factor in new regulations in their products. Hence, the question: is it better to wait until October to purchase a health policy or take the plunge right away? “I don’t see any reason why policyholders should put their decision on hold. After all, the changes that are going to be effective from October are procedural in nature. There will be very little or no impact on pricing,” says Neeraj Basur, CFO, Max Bupa. Also, remember, most health insurance policies are annual contracts and you can benefit from the new regulations the next year when your policy is renewed. “My advice would be, if you are uninsured, get yourself insured right now. No day is too soon when it comes to health insurance. Of course, the benefits of the regulations could accrue next year on renewal. But that is no reason to defer insurance protection,” says Sampathkumar. Also, you could look for products that meet the new requirements even in their current form. “There are some products that already meet 90-95% of the regulatory (no loading, no maximum renewable age) requirements, you could buy these products. In case premiums shoot up, you would get a three-month notice (as per new regulations) which would be enough for you to switch to an affordable plan,” advises Chopra. For instance, existing products offered by Apollo Munich, Max Bupa and Tata-AIG have already done away with the claim-based loading clause. 

STUDY THE FEATURES CLOSELY Irrespective of whether you go ahead with your plan to purchase health insurance now or wait till October, you need to take into account a list of parameters. “First and foremost, study the reputation of the insurer, when it comes to claim settlement, even before looking at product features. While looking at product features one must also scrutinise the waiting period for pre-existing diseases (PED) cover, whether any copay has to be borne by the insured, whether there is any ailment-specific or room rent capping, as this will reduce the reimbursement amount,” says Divya Gandhi, head, general insurance and principal advisor, Emkay Insurance Broking. 
If you are buying your policy before October, make sure it does not carry a claim-based loading clause or specify a maximum renewable age. “A good health insurance product is one with no or reasonable limits/cappings and stable premiums across life-cycle/age groups. Premiums for products that have a maximum renewable age or claim-based loadings currently are bound to increase by 20-25%, especially in the higher age groups. Such products should be avoided at least till October,” says Chopra. 
Moreover, you need to be doubly sure of the policy wordings and features when buying a cover for your parents, especially if they happen to be senior citizens. It is, no doubt, a tedious task as such products contain complicated terms and conditions, but this will help avoid nasty surprises at the time of making claims. “One should look at the maximum age at entry, the price, the terms, whether there is any co-pay and what the fine print says. The track record of the insurer should be paramount, as the relationship would continue for decades,” says Sampathkumar. Also, ensure that you tone down your expectations of the ideal product. “Getting a perfect product for parents at this age is highly unlikely. This being a highrisk category for insurance companies, there are bound to be limits. Look for products which save the most for you, have lower co-pay limits, sub-limits and claimbased loading. Avoid products that have combination of many complex cappings - co-pay, surgery limits, room-rent limits, etc. Such products are very complex and end up paying only 40-45% of the actual costs incurred,” adds Chopra. 
preeti.kulkarni@timesgroup.com 

How to calculate tax on mutual funds? (Cafe Mutual - 21st Feb 2013)

Melvin Joseph of Finvin Financial Planners explains the applicability and calculation of taxes on different fund categories.

When you allocate investments for long term financial goals, taxation will make lot of difference on your client’s corpus accumulation. If they are getting it tax free like PPF, it is always good.

Let us see how to calculate tax on mutual funds. First of all let us study what are the heads under which we get income from mutual funds. If your client’s investment is in growth option of the mutual fund, the gain will be reflected by way of increase in net asset value (NAV). This gain is called the capital gain. But, if they have opted for dividend option, the gain will be by way of periodic dividend also.

Let us see how to calculate tax on mutual funds under these two heads.

How to calculate capital gain tax on mutual funds?

1.   Equity mutual funds

For taxation purpose, funds with 65% or more allocation in equity are classified as equity funds. So balanced funds like HDFC Prudence, HDFC Balanced etc. also will come under this category.

Suppose you have invested 1 lakh in Feb. 2005 in HDFC Prudence fund. The value of this investment is around 4 lakhs today. How much is the capital gain? It is 4 lakhs   – 1 lakhs = 3 lakhs. You want to sell this fund today for buying a car. How to calculate tax payable in this scenario?

Here is the good news. You need not pay any tax on this gain of 3 lakhs. This is because the long term capital gain from equity mutual fund is tax free.

What is long term capital gain?

It is the gain you are getting, when you are selling the mutual fund after 365 days of its purchase. As per the current tax rules, long term capital gains from equity mutual funds are tax free.

What is short term capital gain?

It is the gain you are getting, when you are selling the mutual fund within 365 days of its purchase. As per the current tax rules, you have to pay 15% tax on the short term capital gains from equity mutual funds. With 3% cess, it will be 15.45%.

2.   Debt mutual funds

In addition to normal debt funds, funds with less than 65% in equity, international funds, gold funds, fund of funds etc. are also considered as debt funds for taxation purpose.

In debt funds, the short term capital gains are fully taxable. You have to pay tax as per your tax slab. Suppose you are getting Rs 30,000 as short term gain by selling a debt fund within 1 year and if your salary income is 4 lakhs, your taxable income will be 4, 30,000.

For long term capital gains in debt funds, you have to pay tax as follows

1. 20% with indexation benefits or
2. 10% without indexation benefits.

What is indexation?

Indexation helps you to offset your gain with the effect of inflation. Government will notify the cost of inflation index every year. Please note the cost of inflation index for the recent 3 financial years.

2010-11: 711,        2011-12: 785,        2012-13: 852

Let us see how to calculate capital gain for debt funds?

Suppose you have invested 1 lakh in a debt fund in January 2011 and are selling in Feb. 2013 for 1, 20,000.

Your original investment = 100000

Indexed cost:  1, 00,000 x 852/711 = 1, 19,831.

Capital gain after indexation = 1, 20,000 – 1, 19, 831 = 169/- (sale price- indexed cost)

So, in this case, you have to pay 20% tax on the gain of Rs 169 only and not on the gain of 20,000!  Your tax liability is only 34/-. This is the benefit of indexation.

If you don’t want to apply indexation, you have to pay 10% tax on the gain of 20,000. Then the tax liability will be Rs 2000.

How to calculate tax on mutual funds dividend income?

1.   Equity mutual funds

There is no tax on mutual funds dividend you receive from equity mutual funds. It is tax free in your hands.

2.   Debt mutual funds

You need not pay any tax on mutual funds dividend you receive from debt mutual fund. But the mutual fund company is liable to pay dividend distribution tax to the government before paying the dividend to you.

Dividend distribution tax in debt mutual funds (DDT)

For liquid funds and money market funds, the DDT is 25%. There is another 5% surcharge on it along with 3% cess. So, the effective rate of tax will be 27.0375 %( 25% tax+ 5% surcharge+3% cess).

In other debt funds, the DDT rate is lower. It is 12.5 %. There is another 5% surcharge on it along with the 3% cess. So, the effective rate of tax will be 13.5188%.

Will they deduct tax on mutual funds income?

No, the fund house will not deduct the tax from your gain. You have to calculate and pay tax on mutual fund income. But for NRIs, tax on mutual funds will be deducted as per the applicable rates before paying.

So how are mutual fund investments more tax-efficient?

Here, you pay tax only at the time of redemption. But in bank deposits, you have to pay tax every year on accrual basis. With indexation benefits, debt funds are more attractive than fixed deposits. Equity funds after one year are totally tax free.

Hope that this article was useful in understanding the tax on mutual funds.

The article was first published on http://www.finvin.in

The views expressed in this article are solely of the author and do not necessarily reflect the views of Cafemutual.

Making indexation work to your clients advantage (Cafe Mutual 5th Feb 2013)

Dilshad Billimoria of Dilzer Consultants explains the importance and application of indexation in various asset classes.

Before getting into an explanation of indexation, let us look at the definition of a few related things.

Capital Asset: This is an asset that is not easily sold in the regular course of business operations for cash. Examples include land, buildings, and machinery that cannot be quickly converted to cash.

Capital Asset is any asset held by the Income Tax Assessee but does not include:

·         Jewellery, art, or drawings.

·         Any stock in trade held by a business in the course of its day to day operations.

·        Agricultural land which is outside the radius of 8 km of municipal limits and has a population of less than 10000. 

Capital Gain: Any appreciation in the value of an asset from its purchase price is gain. The gain is not realized until the asset is sold.

For e.g., if you have invested Rs 1 lakh in an equity mutual fund and it has appreciated by 10% after 1 year, the gain is said to be unrealized, until the asset is actually sold. Once, the fund is sold, the gains become realized and are subject to tax.

 Capital Gain is of two types:

 ·         Short term: This is an asset that is sold before 36 months. However, if these assets are held for 12 months or less, they also come in the purview of short term capital gains. 

a)     Units of specified mutual funds.

b)    Securities listed on a recognized stock exchange.

c)     Units of Unit Trust of India.

d)    Equity or preference shares held. 

·         Long term: If an asset is sold or transferred after 36 months from the date of acquisition or transfer, or after 12 months, in case of the specified assets listed above, the gain is said to be long term capital gains. 

Computation of tax on short term and long term capital gains:

Tax Applicable:

For Short term capital gains: The tax rate applicable is as per tax slab of the individual.

For Long Term Capital Gains made: The tax rate is the lower of 10% on the gain or 20% on the gain after considering indexed cost of acquisition (This option is applicable for assets listed above as securities) For property, the tax rate is only 20% on the gain with indexation benefits.

I will explain what indexation is, and how it benefits you, in just a bit…

For Short term Capital gains, the Sale consideration is reduced by the following:

a)     Expenditure incurred in transfer of a capital asset.

b)    Cost of Acquisition.

c)     Cost of Improvement.

For e.g., if an equity fund is purchased in June 2012 for Rs 1 lakh and the same is sold in January 2013 for Rs 105000, the gain is Rs 5000 and the period is 6 months, therefore, short term capital gains is applicable. If you have incurred a cost to acquire this mutual fund, like fees paid of say Rs 1000, the computation of tax is as under:

Computation of capital gains 

Transaction	Value
Sale of Mutual fund	105000
Less: fees paid	1000
Less: Cost of purchase	100000
Capital Gains	4000

The tax rate applicable here, as mentioned, is dependent on the tax slab of the individual. If the individual is in the highest tax slab, the tax applicable would be 30%+ surcharge. 

Ignoring the surcharge calculation (since it is subject to frequent change), the tax paid on the above Rs 4000 is Rs 1200. Hence, the net gain after tax is Rs 2800.

For Long term Capital Gains, there is a concept of indexation, which needs to be understood first with inflation.

The value of a rupee today, is not the same as the value tomorrow. The prices of articles keep increasing every year and you need to pay more for every article over the years. This is due to inflation and the rising cost of articles and the subsequent decrease in purchasing power. As the cost of 1 liter of petrol has risen from Rs 20 in the early 1980’s to Rs 79 in 2012, you need to pay 300% more for the same quantity of one liter of petrol.

Therefore, just as you have incurred a higher cost on purchase of petrol, the government has given the benefit of paying lower capital gains tax by incorporating the effect of inflation on your cost.

Indexation is used to counter the eroding effect of an asset over time, by using an index every year, which inflates the cost of acquisition of the asset by a factor called the Cost Inflation Index, which is published by the Government every year.

Below is the cost inflation index for all the years.

FINANCIAL YEAR	COST INFLATION INDEX
1981-1982	100
1982-1983	109
1983-1984	116
1984-1985	125
1985-1986	133
1986-1987	140
1987-1988	150
1988-1989	161
1989-1990	172
1990-1991	182
1991-1992	199
1992-1993	223
1993-1994	244
1994-1995	259
1995-1996	281
1996-1997	305
1997-1998	331
1998-1999	351
1999-2000	389
2000-2001	406
2001-2002	426
2002-2003	447
2003-2004	463
2004-2005	480
2005-2006	497
2006-2007	519
2007-2008	551
2008-2009	582
2009-2010	632
2010-2011	711
2011-12	785
2012-13	852

Now, let as look at calculating the capital gains on long term capital assets.

Therefore, just like short term capital gains calculation, the calculation for long term capital gains is arrived at taking the sale consideration and reducing by, 

a)     Expenditure used in the transfer of the capital asset.

b)     Indexed Cost of Acquisition.

c)      Indexed cost of improvement.

Therefore, to arrive at the indexed cost of acquisition of an asset for computing long term capital gains, following is the formula:

Sale consideration* Cost inflation index for the year of sale/ cost inflation index for the year of purchase.

Illustrating with an example here would be useful: A property has been purchased for Rs10 lakh in June 2004 and is sold for Rs 20 lakh in Dec 2009.

First, we need to compute whether the gain is short term or long term.

In this case, the asset (property) has been held for more than 3 years. (Dec 2009 - June 2004). The asset is sold after 5 years; hence it is sale of a long term capital asset.

Now to compute the capital gains tax applicable:

We cannot just take Sale Consideration – Purchase cost. Since, this is a long term capital asset, (property) we have to calculate the indexed cost of acquisition.

*Indexed cost of Acquisition in the above example is: 1000000*632(CII for FY of Sale of Asset)/480(CII for FY of Purchase of Asset= Rs 1316666.

In addition, say, there was an agent fee of 2% paid on sale of the asset. Since, this is the expenditure incurred on transfer of the asset; it can be reduced from the sale consideration, to reduce the applicable capital gains tax.

Therefore, using the formula to compute long term capital gains as mentioned above: 

Transaction	Value
Sale Consideration	2000000
Less Expense incurred on sale (agent fees)	40000
Less Indexed cost of Acquisition *	1316666
Total Capital Gains Applicable	643334

This amount has a tax of 20% on it. (Long term capital gains tax)= Rs 128667.

To avoid this tax, there are options, under Sec 54, Sec 54B, Sec 54D, 54EC, 54 F, 54G, depending the type of property sold, where one can claim exemption. This further reduces the incidence of capital gains tax payment.

Therefore, instead of paying tax on 1 lakh, the tax has to be paid only on Rs 6, 43,334, because the indexation benefit has been used to increase the cost of the asset, and thereby reduce the capital gains.

Remember, we need to be first clear on the type of asset sold. If the asset was any of the listed  assets, that fall under the 12 months horizon like shares, mutual fund units, etc, then the option of tax would be 10% flat on the long term capital gains incurred or 20% after the indexation calculation is made, whichever is lower.

In the above example, of property sale after 5 years, only 20% tax is applicable with indexation and the calculation is shown above.

In case, a property has been inherited, the same calculation would be applicable; however, two important points need to be considered in case of cost of acquisition and period for determining the type of capital gains.

The cost of acquisition would be the cost of acquisition incurred by the previous owner before the property has been transferred. The period would be calculated from the date of transfer of asset from the previous owner to the current owner and the date of sale.

Dilshad Billimoria

(Certified Financial Planner and Investment Advisor)

The views expressed in this article are solely of the author and do not necessarily reflect the views of Cafemutual.