Please Relax, It is Just Tax

Even though we have said it umpteen number of times, we would keep saying it.

tax7

Yes! WHY SO SERIOUS.

It is that time of the year when everyone is a “little worried” about filing IT returns and paying tax as the date closes in. Well, Fintuned would like to help there. So, here is a quick 5 slide on how we can help. 

Cheers,

Mihir

Income Tax Returns: An Assurance Of Your Financial Health!

Just the other day, I got a rather usual message from a teenage cousin. It was a troll message on the famous Alia Bhatt ( now you know why its rather usual :P). This is how the message goes (pardon me if you have already heard this one, because it is undoubtedly naïve)

Alia Bhatt: Dad, what is your plan for the weekend?

Mahesh Bhatt: Income tax returns!!

Alia: When did the first one release? 😛

To be honest, I know it is a poor joke. However, the only reason I put it here is to highlight the significance of filing Income Tax Returns [(Even Mahesh Bhatt files it ;)]. Also, the aim of this post is to assert the importance of filing returns when your taxable income is below the prescribed threshold.

Individuals, whose total income without allowing any deductions exceed the basic exemption limits are mandatorily required to file Income Tax Return (ITR).

So, what does total income, without allowing deductions mean?

For this, you first need to know the existing exemption limits, beyond which you are liable to pay tax.

For Assessment year 2015-2016, the basic exemption limits are the following:

  • Individuals below the age of 60, the exemption limit is INR 2,50,000
  • For senior citizens, whose age is between 60 to 80 years, the exemption limit is INR 3,00,000
  • For super senior citizens, whose age is more than 80 years, the exemption limit is INR 5,00,000

Let’s say, Mr. X has an income of INR 2,80,000 and his deductions under section 80C come to INR 50,000 for A.Y. 2015-2016. Hence, taxable income is INR 2,30,000 (INR 2,80,000 – INR 50,000). Now, since this amount is below the thresholds mentioned above, the tax payable is nil.

However, here the striking point is – Mr. X is required to file his returns because his Gross Total Income (total income before allowing deductions) is above the exemption limit of INR 2,50,000 (assuming he is not a senior citizen).

Now, the question is “Why should one file the return when his/her income is below taxable limit?”

Filing income tax return does not necessarily means paying taxes. There are a number of benefits that will ease your life and future plans if you file tax return. ITR acts as a credential of your financial well-being and serves as an evidence of your income. Additionally, it makes you a good law abiding citizen (like how Mr. Modi says).

Continue reading “Income Tax Returns: An Assurance Of Your Financial Health!”

The Lilliput Budget is Here

To be honest, we haven’t drafted a mysterious, funny, and an entertaining build-up for this one. This is because, we want you to immediately view and gain valuable insights from our presentation on the Union Budget 2015.  As promised, it is short and simple!

If you like our work and want to help us do more of it, then please subscribe to this blog and follow us on Twitter.

For any feedback, please write to us on fintuned.net@gmail.com

P.S: Since it has been embedded with MS PowerPoint Online, the slides may take a bit longer to load. Please bear with it because we promise it will be worth it 🙂

Happy reading and cheers.

Gratitude, At The Rate of 100 Percent Compounded Perennially!

This article has been contributed by our number cruncher Mr. Rohit Agarwal, with inputs from the entire team.

Do a small exercise. Just type “The importance of saying thank you” on Google. Surely, you will be amazed to see the multitude of articles that modestly unravel the significance of expressing gratitude. Wait, when did we become the philosophers of our generation?

To be honest though, these two words carry umpteen significance in our daily lives because they recognize the effort (Well, now you decide if you want to say thank you to Mr Rahul………..:P). However, I am not here to load my readers with all the mystical knowledge behind gratitude. In keeping with that notion, I will head straight to the discussion on the topic “Gratuity”.

gratuities_always_accepted_keepsake_box

Most of us have an idea (not like Abhishek Bachchan of course) that Gratuity is a retirement benefit, but are we absolutely aware of the tax implications of this benefit? If you answered that with a NO, then this post will change your answer in a few minutes.

To begin with, Gratuity is a part of salary that is received by an employee from his/her employer in gratitude for the services offered by the employee in the company (Saying thank you). Gratuity is a defined benefit plan and is one of the many retirement benefits offered by the employer to the employee upon leaving his job. An employee may leave his job for various reasons, such as – retirement/superannuation, for a better job elsewhere, on being retrenched or by way of voluntary retirement.

Establishments Covered Under Gratuity Act?

Well, it is extremely important to know if you are covered under the Gratuity Act or not. So, here is an overview of the establishments that are covered under the said act. [Don’t be worried about memorizing it. Just glance through ;)]

  • Every factory, mine, oil field, plantation
  • port, railways, shop & Establishments OR
  • educational institution

Employing 10 or more persons on any day of the preceding 12 months.

Eligibility

As per Sec 10 (10) of Income Tax Act, gratuity is paid when an employee completes 5 or more years of full time service with the employer (minimum 240 days a year). Please note, an employee means those who are on the company’s payroll. Trainees and interns are not eligible for this compensation.

Tax treatment of gratuity

And, here comes the real challenge.

Warning: If you are easily bored by tax laws or they perplex you every single time, then DO NOT just give it to “your CA”. Rather, prepare a good coffee and peruse through the diverse collection of Fintuned’s articles.

The gratuity so received by the employee is taxable under the head ‘Income from salary’. In case gratuity is received by the nominee/legal heirs of the employee, the same is taxable in their hands under the head ‘Income from other sources’.

The tax treatment for an employee varies as per their employers. Here’s a brief idea of the tax treatment of gratuity for each category of employees in detail.

For the purpose of calculation of exempt gratuity, employees may be divided into 3 categories –

(a) Government employees

(b) Non-government employees covered under the Payment of Gratuity Act, 1972

(c) Non-government employees not covered under the Payment of Gratuity Act, 1972

In case of government employees – they are fully exempt from tax on gratuity. So, they have the maximum tax benefit when it comes to gratuity and a good amount is credited in their bank accounts (I have no comments on their work style 😛) and not even a single piece of this pie needs to be shared with the government. (Are you thinking of a career change)

In case of non-government employees covered under the Payment of Gratuity Act, 1972 

Maximum exemption from tax is the least of the list given below:

(i) Actual gratuity received;

(ii) Rs 10,00,000;

(iii) 15 days’ salary for each completed year of service or part thereof

Note:

  • Here, salary = basic + DA + commission (if it’s a fixed % of sales turnover).
  • ‘Completed year of service or part thereof’ means: full time service of > 6 months is considered as 1 completed year of service; < 6 months is ignored.
  • Here, number of days in a month is considered as 26. Therefore, 15 days’ salary is arrived as = Salary * 15/26 (This is very very important)

In case of non-government employees not covered under the Payment of Gratuity Act, 1972 –

Maximum exemption from tax is least of the 3 below:

(i) Actual gratuity received;

(ii) Rs 10,00,000;

(iii) Half-month’s average salary for each completed year of service (no part thereof)

Note:

  • Well, the definition of salary is similar to the abovementioned one.
  • Completed year of service (no part thereof) means: full time service of > 1 year is considered as 1 completed year of service. < 1 year is ignored.
  • Average salary =10 months’ salary (immediately preceding the month of leaving the job)/10

Note: This Rs 10-lakh ceiling is a lifetime exemption limit, it will be reduced by the tax-free exemption claimed from any previous employment.

As you may have noticed, the calculation of maximum exemption seems a bit complex. However, since we are at your side, you need not be stressed. In order to resolve any doubts, we will come up with a calculated example ASAP (within a day) to give you a broader understanding on tax treatment of gratuity.

Is your coffee over?

While I am not sure of the coffee, this post is certainly over and I sincerely hope that you gained a better perspective on Gratuity. If there are any questions/doubts/comments, please reach out to fintuned.in@gmail.com. Or, litter the comments section 🙂

Cheers.

In a State of Tax SOS, Try ELSS!

The deadline is fast approaching. If you still haven’t done your tax planning, it’s time to gear up. There is no need to sweat because we are here just for your help (sounds awful lot like some marketing line, is it). Therefore, in the next three months, we will be focusing on a mix of tax related articles that will help you in efficient tax planning and save you some hard-earned money.

FU Tax!

So let us begin this series with an article contributed by Miss Riddhi Kharkia [ACA], a good friend, on Equity Linked Savings Scheme (ELSS).

First off, what is ELSS?

ELSS or Equity linked savings scheme is a type of mutual fund with a particular mode of making investments. It is a scheme that invests 65% of its corpus in equity and equity-linked products. As you can see, it is almost similar to any other mutual fund scheme with a slight variation in investing style. They are the favorite picks for tax planning because they offer dual benefits. Since the money is invested by the fund in equity i.e stock markets, investors get the benefit of capital appreciation plus dividend (if the scheme is dividend-oriented). In addition to that, investment in ELSS would is eligible for deduction to investors u/s 80C, which is capped to a maximum of Rs 1.5 Lakh. [Happy, huh ;)]

A detailed section on benefits.

When it comes to putting your money in any financial instrument, you want to do it with eyes wide open. So why not with ELSS?

To help you invest in this product with full-awareness, here is an elaborate section on benefits of investing in an ELSS.

  1. Since ELSS invests money in equity, it will help you to grow money when the stock market grows over a period of time. Currently, the SENSEX is on a decline owing to some heavy profit-booking activity and falling crude prices. As such, it is actually a good time to invest in the markets. In the later part of the article, I have provided my top three ELSS picks that could be your beginning point for taking the plunge!
  1. Investing in ELSS can help you in utilising tax exemption of Rs 1.5 Lakh in 80C, in case you have not been able to utilize it fully with traditional weapons like LIC premium and PPF/EPF investments. Take a stab at ELSS funds; you will like it 😉

ELSS comes with a lock-in period of 3 years only, the shortest among all tax saving options under Section 80C. In the case of SIPs, each installment is considered as a separate investment and will have a 3 year lock-in period from the date of such installment. The redemption on maturity is on first in first out basis.

After 3 years, you can remain invested for a longer period if you are pretty impressed with the returns and don’t feel like pulling out your money. A 3 year horizon is pretty decent time to help you grow money after considering market fluctuations as well. Additionally, a SIP gives you the benefit of rupee cost averaging. No, it is not some complex jargon but RCA simply implies that a SIP evens out the volatility in the markets and on an average, each installment gives you a hefty return.

  1. ELSS is the only tax saving investment that provides tax free returns for short period. Any returns received from equity funds after 1 year is tax free. Hence any dividends/returns/capital gains obtained from such funds are tax free.

When should you invest in ELSS?

Unlike a fixed deposit scheme or a regular insurance policy where investors can shell out money in lump-sum, this product requires a more mindful approach. Since it is an equity investment, It is prone to market risks and fluctuations and as such, the timing of the entry and exit is very important.

As I mentioned above, the best way to invest in a mutual fund (in this case, an ELSS fund) is creating a SIP because of its ability to generate steady returns over a specific horizon.

How to pick a winner?

Yes, this is a significant question because no one here wishes to lose money. While there are some definite parameters to look for, let me also point out that since an ELSS fund invests in equity, it has some inherent risk associated with itself. So the parameters you should ideally look out for are

  1. Long term performance of the fund.
  2. A glance at the holdings. (You can just take a look at the sectors it is invested in)
  3. Fund manager and performance of other funds managed by him/her.

Honestly, these parameters will give you a fair idea about the fund but as they say, research is never enough. Considering that, one may definitely divulge into further research on aspects like peer performance, expense ratio, leverage in the fund etc.

Conclusion

In comparison with other products under 80C, ELSS stands out both in terms of liquidity and stability. When compared with PPF, I believe PPF is a good investment option when you have surplus funds and you don’t need money in near future (a 15-year lock-in is huge). ELSS is viable when you want to maximize your returns along with tax savings in a shorter tenure.

As promised, here are my top three picks among ELSS funds that should help you get started in the least!

Note: Mutual funds generally offer two schemes – dividend (profits are given to investors from time to time) and growth (profits are ploughed back into the scheme leading to higher NAV). Here’s a look at the performance of the two types of funds.

*In no particular order*

  1. Reliance Tax Saver (ELSS) fund – Growth
  2. Axis Long Term Equity Fund – Growth
  3. L&T Tax Saver Fun – Cumulative

Disclaimer: It is your money. So, please read and invest!!

Protection + Returns!! Want To Know More?

ULIP

You know, how as kids we always had this urge to expand abbreviations using our creativity and then showcasing it to the whole world for laughs. Well, now we aren’t kids anymore (Though on children’s day, most of the Whatsapp texts ask me to keep the child in me alive 😛 ) but still, when I asked my friend if he had any idea of ULIPs, this is what he said: Yes, I know ULIPs. They stand for Unclear lackluster investment plans. Surely, it made me laugh first, but at the same time, I took the opportunity to talk about ULIPs and their significance. It just took a few minutes out of his schedule but he walked away with good knowledge of ULIPs. So, here I am, trying to do the same for you so that you may employ your creativity better and expand some other acronym 🙂

A Unit Linked Insurance Plan (ULIP) is a financial product which offers dual benefit of protection and investment/returns. Basically, it is an insurance policy/plan that is linked to capital markets. Under such a plan, a part of your investment goes towards providing you with a life cover and the remaining portion is invested in a fund. This fund then invests the money into the capital markets (equity, debt or both as per the plan of the vendor).Till here, I have just talked English and barely any finance and therefore, I am assuming that you would have understood the concept behind a ULIP. Wow, the first step is done and now that you have understood the ULIP funda, let us proceed to know more about this product.

The more, the better 😉

If you had to pass some financial aptitude quiz then knowing this much would be enough [they ask no more 😉 ] but I believe that your objective is to invest in a ULIP some day and for that, we have to drill down deeper. Before I go on to cover the kind of charges that are involved in a ULIP, the tax treatment of a ULIP etc. let me talk briefly on why I chose ULIPs as a point of discussion for this post. Let me warn you that the next 4 lines or so might be boring as they discuss history of ULIPs [don’t we hate histories] but if you have come till here, I am sure you will do just fine.

After the 2008 financial meltdown, Indian indices also took a bad hit and during that phase, ULIPs became a maligned product owing to lower returns and other structural flaws. However, ULIPs got a good makeover in 2010 in terms of product features and regulations. Now, after the elections in May, the stock market has seemingly embarked on an incessant rally and as a result, the stock market rally plus modifications in ULIP’s structure has brought this product back.Therefore, in a way, this is the best time to know about ULIPs.

YAYYY, you have now successfully gone past the history without yawning [sarcasm intended]. So, now you know of a couple of things about ULIPs i.e the meaning and their significance/relevance. Hoping that you are somewhat convinced of investing in an ULIP [if not, just see the growth in BSE sensex and you would feel the itch to make some money], let me straightaway jump to the charges that are involved while investing in a ULIP.

In terms of charges that are involved in a ULIP, it is important to understand that certain charges which may vary according to vendor and plans and hence, it is always advisable to go through the brochure/sales pamphlet or any other document that enlists the features of a particular ULIP. Now, there are approximately 8-9 broad charges that are involved in case of a ULIP. However, I believe that it is not wise to load you with all the information at once primarily because a good number of these charges are levied only when you exercise special features. Hence, the prudent thing to do is to go through the information provided by the insurer while purchasing the policy and that too, quite thoroughly. Undermentioned are a few charges that are common and mostly levied in case of a ULIP.

a. The Allocation charges: Charged as a percentage of premium upfront, the quantum of this charge varies across vendors, with a general maximum of 2 percent. Remember that it is taken before allocation of any units under the plan and is normally highest in the first year.

b. Policy/Administration charges: Simply, a fee taken for administration of policy. However, the way it is deducted is a bit abnormal. Basically, the charge is recovered through cancellation of units rather than a money transaction.

c. Fund management fees: As with any mutual fund, the fund manager of a ULIP fund does not work for free as well. Hence, this fee is deducted before arriving at NAV of the units.

Well, this is pretty much it. Yes, there are a few other charges as well but I do not think it is necessary to burden you with all information now. I believe you are quite smart to figure out these charges, when asked to pay and in case you might have problems then, we have a 24*7 assistance portal just for you.

Something grand, in the end! (woah, so bad rhyming)

To be honest, it is not something grand but since it is the end of this post, I thought to build up some climax :P. But, yes, as I promised, here is what you need to know about taxation of ULIPs.

Any premium you pay on the ULIP qualifies for deduction u/s 80C (just remember this one section, please) and the overall limit for deductions u/s 80C is INR 150,000 for A.Y 2015-16. However, the deduction is only applicable to the extent of 10 percent of sum assured. Any amount over and above that limit, will not qualify for deduction.

In case of a ULIP, there are couple of ways in which a payout is possible. One of them is the receipt of money by nominees on the death of the policyholder. As per tax laws, the money received by nominees is TAX-FREE.

Second payout route is payment on maturity of the plan/policy. In that case as well, the receipt is treated as payment received u/s 10 (10D) [No need to remember this section] and is also TAX-FREE. In fact, it is important to note that not all life insurance policies enjoy such a benefit u/s 10 (10D). However, ULIPs do.

Well, that is about it for this post 😀

Thank you for reading through and stay tuned for upcoming post on “A comparative study of different ULIPs”,

Cheers!