Retirement Fund : What is a Systematic Withdrawal Plan ( VIDEO )

If you are planning to take a sabbatical from work or are retiring soon, you may be looking at different investment options that give a regular income. Usually, a lump sum is invested in getting regular fixed amounts later. Popular products include post office monthly income scheme, Senior Citizens Savings Scheme and monthly income plans (MIPs). A lesser-known option is the systematic withdrawal plan (SWP) in mutual funds. Recently, some funds have even removed the exit load on SWPs if you were to withdraw up to 15-20% in the first year, to encourage people who want to start investing in this instrument. Here is a look at what an SWP is.

What is SWP?

Systematic Withdrawal Plan (SWP) is a service offered by mutual funds which provide investors with a specific amount of payout at a pre-determined time interval, like monthly, quarterly, half-yearly or annually.

How is SWP better than the dividend option?

An SWP is more reliable than a dividend plan when it comes to regular income. In the dividend plan of an equity fund, both the quantum and frequency of dividend is not guaranteed, and it largely depends on market movements and the profits that the asset management company makes.

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Mr. A invests Rs 15,00,000 in SWP and Mr. B invests the same amount in a bond/deposit scheme with 8% interest. Assuming SWP amount is kept at Rs 10,000 per month or Rs 1,20,000 per year or 8% of the investment amount. Also, let’s assume a return 8% in monthly investment plan or SWP. Both Mr. A and Mr. B are in 30% tax slab and continue to get SWP and interest income for ten years respectively.

In the above example, Mr. A would have paid Rs 37,537- as capital gains tax, while Mr. B would be liable to pay Rs 3,60,000 as a tax on interest income. Over a ten years period, they would have got Rs 12,00,000 as SWP amount or interest income respectively. If funds are not withdrawn even after ten years, Mr. A would have paid only 3.12% tax while Mr. B would have paid 30% tax on Rs.12,00,000 if the inflation rate is 6% per annum.

In another example, Mrs. Joshi has retired with Rs. 1,03,00,000 as separation benefit. Her children are well settled, and she stays alone. The corpus received on retirement has to be invested suitably, and it is decided that 45-50 percent of the total amount will be invested in equity while the balance (50-55 %) will be invested in debt instruments.

Rs.56,00,000 is invested in fixed income instruments to generate regular income. The balance Rs 47,00,000 is invested across different diversified equity schemes. At present, since Mrs. Joshi does not require any additional fund over and above what she receives, her fixed income savings are sufficient. However, over a period, say two years later, the returns from her fixed income schemes can become inadequate to cover her requirements. It is at this juncture that Mrs. Joshi can opt to avail the Mutual Fund SWP option. This withdrawal from her equity-based funds will be tax-free, and this is an additional benefit received.

Another example,

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Benefits of Mutual Fund SWP

From the above examples, it is amply clear that the SWP option of the Mutual Funds has its definite advantages. The two major gains derived from this option are again dwelt upon:

Mutual Fund SWP and Regularity:

Mutual Fund SWPs’ provide the assurance of getting a fixed amount at a pre-determined time frequency. Among the other options, frequency and pay-out of the dividend-paying monthly income plans are not certain or fixed beforehand. Sometimes, if the fund cannot generate sufficient profits, you might have no dividends to be paid. Hence every month you will have different amounts coming in and some month there might be no money received. SWP is a definite boon in such a scenario.

Inflation Protection through Mutual Fund SWP:

Most of the fixed income instruments do not insulate the investor against the inevitable effect of inflation. The Mutual Fund SWP scores in terms of generating returns to keep up with inflation especially is one opts for the equity fund route.

What are Dynamic Funds? ( Video )

Mutual Fund SWP and Tax advantage

In case of investments in equity mutual funds for a period of more than a year, the long-term capital gain is exempted. Only short-term capital gains are taxable at the rate of 15% on withdrawals from equity mutual funds investment within one year. Whereas in case of investments in debt schemes, the short-term capital gain ( an invested period is less than 3 years) is added to the investors income and taxed as per their tax slab. Long-term capital gains in debt schemes are taxed at the rate of 20% with indexation. In Systematic Withdrawal Plan (SWP), the tax is paid only on the gains made due to the NAV movement and not on the principal part in the withdrawals making the overall tax incidence lesser.

Unlike SWP, in traditional investment options, the entire gain is taxed according to the investors’ tax bracket (the highest currently being 30 %) considering if the investor falls under the highest tax bracket.

Regular supplemental income

The option of SWP in the mutual fund can help you by providing a steady source of income from your investments. This is especially useful for those who need money when their cash flow comes to a halt like a retirement, or at a time when supplemental income becomes a necessity due to the altered circumstances in life.

Meet financial goals

If planned well ahead of time, SWPs can provide a steady flow of money when most needed. They can therefore be linked to long term financial goals, such as providing a steady income in one’s retirement years or managing your child’s educational expenses.

If planned well ahead of time, SWPs can provide a steady flow of money when most needed.

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Who can use SWP?

Systematic Withdrawal Plan (SWP) can be utilized by those who are planning for their retirement in the coming years. Usually, the large amount of money that one receives at the time of retirement is invested in traditional savings instruments which attract income tax at the normal rates. Instead, they can make a lump sum investment in mutual funds with SWP facility. In this case, along with earning capital appreciation on the invested amount, he/she can receive a fixed amount monthly. It will help you in getting a regular income like salary even after retirement.

However, the use of SWPs may not be restricted to retirees alone. It is also useful for middle-aged professionals who have the responsibility of their family. They can use SWP option to get a constant source of fund for their dependents. They can plan it for their child’s educational expenses. They can even plan for a steady source of money for their retired parents.

One can easily make all the necessary calculations before investing.

A mutual fund SWP is designed keeping in mind the needs, interests and financial goals of the investors. By judiciously using tools like Systematic Investment Plan (SIP) and Systematic Withdrawal Plan (SWP), you can meet your financial goals without having to go through the hassle of timing the markets and making wrong financial decisions that may cost you dearly and throw you off track.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

Disclaimer

The above information is prepared for the purpose of investor education only and intended to consider as investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. Investors should consult their financial advisers before taking any investment decision.

EASY & COMPLETE PROCEDURE TO LINK AADHAAR WITH PAN CARD

From 1st July, 2017, it has been compulsory to link your Aadhaar card with PAN card for filing taxes. PAN card is a unique identification card having 10 digits alpha-numeric character which is required to have to pay compulsory taxes. It is compulsory to quote Aadhaar or Enrolment ID of Aadhaar application form to file the return of income and also for creating an application for allotment of PAN.

Following are the few easy procedures you should follow to link your Aadhaar with PAN card:

STEP 1-

At first you shall login to e-Filing portal which will ask you for your user id and password.

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STEP 2-

You will see different tabs on the top of the page opened after you login. One of them will be, profile setting tab. You have to click on that and the drop down will appear in which there will be an option of link Aadhaar. Click on Link Aadhaar option.

ITR2STEP 3-

A new page will appear which will show your personal details like name, date of birth, etc. you have to verify the details with respect to your Aadhaar card. And if the details are matched, you have to enter your Aadhaar number and then you have click on the ‘link now’ option available there. After this process, a pop-up message will appear on the screen which will show that your Aadhaar-PAN linking is completed successfully.

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Apart from 80C…

You all may be aware of the concept of deductions from gross total income available to the taxpayers. By investing in the avenues prescribed by the government, you can claim deductions from your gross total income. These deductions would be accessible under different sections of the Income Tax Act, 1961.

Section 80C is the most common deduction. But there are several deductions available for you, which you might not know. So, for your knowledge, the following are the deductions that you can claim under different sections of Income Tax Act.

TAX

Medical Insurance Premium under Section 80D

There is no guarantee of health or mishappening nowadays. So, you should always plan for such things before. Medical insurance provides you a safer side. It will help you financially when you or your family member sick or, meet with an accident, your medical bills are beyond your savings. The amount paid as medical insurance premium (mediclaim) is eligible for deductions under this section.

The maximum deduction amount that can be claimed under this section by an individual or HUF is Rs 60000, but there are many sub-limits that one has to take care of. The insurer should be approved by either the central government or the Insurance Regulatory and Development Authority of India (IRDA).

You can get an advantage of maximum deduction of Rs 25,000 for the premium paid for himself, consort or dependent children. You can also get an extra deduction of Rs 25000 for the premium you paid for your parents.

If the insured person is a senior citizen i.e. 60 years or more, then the limit of Rs 25,000 in each case would be increased to Rs 30,000.

Disabled Person’s Health under section 80DD

If any of the person including your consort, children, brother, sister, who is dependent on you, is disabled, then section 80DD provides you a deduction for the expenditure incurred by him on the health and maintenance of disabled persons. And in a case of HUF, it can be any of the family members dependent on you.

The maximum deduction amount that can be claimed under this section is Rs 75,000 per annum. The same will be increased to Rs 125,000 in case the dependent is suffering from a severe disability.

Critical Illness treatments now in Installment/EMI form will be a mode of relief

Particularized disease under section 80DDB

If your spouse and dependent parents, children, brother, and sister are suffering from a particular disease then, the deduction would be available for you on the expenditure made by you (i.e. taxpayer) in the treatment of specified disease. And in the case of HUF, the deductions can be claimed for expenditure made by the treatment of any family member.

The deduction amount will be equal to the amount actually expended or Rs 40000, whichever is less. If the person for whom the expenditure is made is 60 or more, then the limit of Rs 40000 will be taken as Rs 60000 and the same will be taken as Rs 80000 if the age is 80 or more.

Interest on Education Loan under section 80E

If you have taken an education loan from any financial institution for self, consort, children, or a student whose legal guardian you are, then you can claim this deduction for the interest paid by you on the loan amount.

To claim this deduction, make it clear that the loan is taken for higher education, i.e., any course pursued after completing 12th standard. This deduction is available for 8 years, which begin from the year of payment of interest.

Interest on Home Loans under section 80EE

If you have taken a loan for the purchase of residential property then, a deduction would be available for you for the amount paid as interest on loans. Rs. 50000 per annum are the maximum amount of deductions which could be claimed under this section.

There are certain terms and conditions regarding this section to avail the deductions like the loan must be taken between 1-04-16 and 31-03-17, the value of property must be less than Rs 50 lakhs, the amount of loan should be less than Rs 35 lakhs, the house property should be only in the name of one individual person.

Donation to funds or temples under section 80G

If you have donated to a fund which is apprised by the central government under this section, then deductions would be available for you on the amount donated, but it should not be more than 10% of the adjusted gross total income. This deduction is also available for donations given for renovation of temples mosque, church, which are approved by CG.

Maximum of Rs 10000 can be donated by cash. And if it exceeds more than Rs 10000, then no deductions would be made.

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Rent for housing under section 80GG

You are allowed to claim this deduction only if you do not receive House Rent Allowance (HRA) as part of your salary, or if you are not a salaried employee. A declaration form 10BA has to be submitted to avail this deduction.

If you have a house which is owned by you or your spouse or in the name of your minor child at the place where you are residing, then you can’t claim this deduction.

Donation to particular institution under section 80GGA

If you have donated to an institution based on scientific research or to a university or college which is approved by the government (under 35(1)(ii), 35(1)(iii), 35CCA, 35CCB), then deduction would be available for on the contribution made by you.

If the deductions are more than Rs 10000 then, it can be claimed only if the contribution has been made by any method other than cash. And if your income is from any business or profession, then no deductions would be applied to you.

Donations to political party under section 80GGC

If you have donated to a political party, then you can claim deduction under this section on the actual amount donated by you. But the deduction would not be provided if payments are given in cash.

Royalty income to author under section QQB

If you are the author of a book (other than textbooks for schools and colleges) and have received payment in royalty, either in lump sum or otherwise, then deductions would be available for you on the royalty income.

The maximum deduction that can be claimed when royalty is received in a lump sum is Rs 300000. If royalty amount is not received in a lump sum then the deduction amount would be 15% of the revenue of the book of the particular year.

Royalty income from patents under section 80RRB

If you are a patentee and have registered any patent after 1st April 2003 and received royalty income for it, then deductions would be available for you on the royalty amount.

Rs 300000 are the maximum deduction amount which you can claim under this section.

Interest on savings account under section 80TTA

The deductions would be available for you on the interest earned on a savings account. The utmost amount that can be claimed as a deduction under this section is Rs 10000.

Real estate investment no longer a fruitful venture : Budget 2017 explains

The Modi government’s agenda of affordable housing and its aim to provide ‘Housing for All’ by 2022, made the realtors and home buyers to expect much from the budget. They were expecting, tax incentives for first-time home buyers and higher tax savings on housing loans. But unfortunately, the budget not only missed out on these things, but with its proposals it is also believed to have discouraged investors from investing in second or more homes.

The budget proposals have restricted the taxpayers to avail the tax exemption on the interest paid on housing loans in case of rented out properties.

Under the existing provisions, the interest on housing loan paid in respect of a rented property (including deemed to be let out property) is allowed to be set off completely and in case where the rental income is less than the interest on housing loan, it could be set off with income from any other source —salary, business income, etc., resulting in reduction in tax liability.

This provision allows the tax payer to substantially save on his total income tax payable on rental income as well as total income.

Before budget and after budget

Now, the budget has proposed to cap tax breaks on interest paid on rented homes at Rs 2 lakh a year from 1 April, 2018. The move, therefore, is likely to affect the buyers who invested in property with this tax benefit as the associated tax savings through deductions will no longer be available.

As a result, individuals, will now abstain from investing in house property thereby affecting the overall realty sector.

Let’s understand the whole phenomena mathematically, Suppose, you have taken a loan for a second home with an interest outgo of Rs 4 lakh last year. If you had rented out the house for Rs 15,000 a month, or Rs 1.8 lakh a year, you were allowed to set-off or adjust the entire loss of Rs 2.2 lakh (Rs 4 lakh – Rs 1.8 lakh) against your salary income or any other source of income.

From 1 April 2018, the set-off you can claim will be capped at Rs 2 lakh, even if the loss extends beyond this limit. However, you will be allowed to carry forward the remaining losses not claimed for up to eight years. This effectively removes an anomaly that allowed individuals buying second homes on loan to enjoy higher tax relief than those buying for own use.

This will have a two-sided effect, firstly, it can slash down the property prices in a significant way and secondly, it will discourage individuals who can invest in property for renting out to the needy.

Impact of Demonetization on Real Estate & its effective resolution plan

The reform will affect the individuals who tried to avoid taxes by taking heavy home loans. This change in tax rules will restrict them from doing so.

Investors in property lose some benefits

The threshold limit of Rs 2 lakh will affect individuals who have recently taken heavy home loans and are in the initial days of repayment when the interest component comprises a chunk of the EMIs.

Another disappointing news for landlords is that the tenants will now have to deduct 5% TDS on rent exceeding Rs 50,000 a month. But this will have an impact on a small group of investors only as the rent limit is set higher.

The above points prove that investing in real estate is not so favourable post budget reforms. However, the Budget has given some relief on capital gains taxation on immovable property by lowering the holding period for long-term capital gains to two years which was earlier set at three.

This brings out that the homeowners have to pay tax at lower rates i.e. 20% after indexation benefit, on capital gains at the time of selling the house after two years. Earlier, they would have incurred tax at the marginal rate if property was sold within three years. They can now sell their properties earlier to avail exemption in taxes. this will also bring more inventory in the real estate sector.

Another change is made regarding the base year for indexation of capital gains which is proposed to be shifted from 1 April 1981 to 1 April 2001 for all classes of assets including immovable property. This change will result in more accurate computation of acquisition cost of the house while claiming indexation benefits at the time of sale. This will further reduce the tax burden on capital gains.

Budget 2017-18 sector/stock Impact ( positive and negative )

Auto Sector – Tractors

There is an overall positive impact on this sector. Government committed to double farmer income in five years.

The companies like Escorts, HMT, and VST Tillers fall under this sector.

Banks ( Public Sector )

There is a positive impact on overall banks public sector. Resolution of financial firms amendments to help banking sector. Government allocated Rs 10,000 crore for recapitalization of PSU banks.

The banks like SBI, Bank of Baroda, and PNB fall under this sector.

Cement – Major

There is positive impact on this sector. Government allocated Rs 3.96 lakh crore for infrastructure.

Such as UltraTech Cement, Shree Cements, and Ambuja cements comes under this sector.

Cigarettes

Government hikes excise duty on various lengths of cigarettes by 2.5% & 6%. Thus, this sector shows negative impact.

The cigarette companies like ITC, Godfrey Phillip, and VST are few examples of this sector.

Computers – Software – Training

Government hiked allocation for women skill development to Rs 1.84 lakh crore in FY 2018. It’s all ready to set up 100 India-International skill centres. Government to undertake reforms in UGC to improve higher education. It is creating innovation fund for secondary education. Thus, there is a positive and good impact on this sector.

The companies like Zee Learn, Aptech, and NIIT falls under this category.

Construction & Contracting – Civil

National highway allocation at Rs 64,000 crore. So, this sector proves to be a positive impact.

Such as the companies like NCC, Ashoka Buildcon, and Hind Construction are the examples of civil sector.

Construction & Contracting – Housing

Instead of build-up area, carpet area will be counted for affordable housing. Government proposes to finish 1 crore houses by 2019 for those living in kachcha houses. Economic Survey: Over Rs 16,000 crore made available to self-help groups. Hence, there is positive impact on this sector.

The companies like Ashiana housing, Peninsula, and Land Nila comes under this sector.

Union budget sector wise

Construction & Contracting – Real Estate

Government proposes to make changes in capital gains tax for housing. Re-financing of housing loans to give impetus to real estate sector. Affordable housing to be given infra status. Thus, there is a positive impact on this sector.

The real Estate companies like DLF, Oberoi Realty and Godrej Prop are few examples of this sector.

Engineering & Capital goods

Government doubles lending target of banks to Rs 2.44 lakh crore. Government allocated Rs 3.96 lakh crore for infrastructure, announces a new trade infrastructure export scheme. So, there is a positive impact on this sector.

The companies like Larsen, Adani Ports, and Siemens are few examples of this sector.

Electric Equipment

Economic Survey shows that over 20 crore LED bulbs have been issued via Ujjwala Yojana. Hence, there is good impact on this sector.

The companies like Havells India, Crompton Greave, and Techno Electric falls under this sector.

Electricals

Defence expenditure excluding pension at Rs 2.74 lakh crore. Therefore, it creates a good impact on this sector.

Bharat Electricals, CG Consumer, and Genus Power are few examples of this sector.

Engineering

Positive impact is shown by this sector, as government proposes to invest Rs 1.31 lakh crore in railways in 2017-18.

Few examples of this sector are Quess Corporation, Shanthi Gears, and LG Balakrishnan.

Fertilizers

Government will take steps to make sure farmers get better prices for harvest. Government committed to double farmer income in five years. Economic Survey shows that focus of government has been holistic development of Agriculture. Thus, this shows us a positive impact on fertilizer sector.

The companies like Coromandel Int, GSFC, and GNFC falls under this sector.

Impact of Demonetization on Real Estate & its effective resolution plan

Food Processing

This sector is showing good impact as government is going to set up dairy processing fund.

Nestle, Britannia, and GlaxoSmith Con are few of the food processing companies which comes under this sector.

Hospitals & Medical Services

This sector is not showing positive impact. New rules for pricing medical devices should benefit common man.

Apollo Hospital, Fortis Health, and Narayana Hruda are the few examples of this sector.

Hotels

5 special tourism zones are to be set up in partnership with states. Thus, goods results are going to be announced soon by this sector.

The Hotels like Indian Hotels, EIH, and Mahindra Holiday comes under this sector.

Infrastructure – General

Government is trying to expand airport capacity over next 10-15 years, with participation of private sector. There would be Increase in allocation for infrastructure. At least 25 stations re-development contracts will be awarded in 2017-18. Thus, good impact is shown by this sector.

Companies like Larsen, Adani Ports, and Siemens are few examples of this sector.

Refineries

Government will cut basic customs duty on LNG to 2.5% from 5% and proposes to create integrated PSU oil major. This shows positive impact on this sector.

Few examples of this sector are Reliance, ONGC, and IOC.

Oil Drilling and Exploration

Government is all ready to set-up new crude oil reserves. It shows a positive impact to this sector.

ONGC, GAIL, and Cairn India are few of the oil drilling and exploration companies.

Personal Care

Government raises allocation for MNREGA from Rs 38500 crore in FY 2017 to Rs 48000 crore in FY 2018. A good impact is shown by this sector.

Companies like HUL, Godrej Consumer, and Dabur India comes under this sector.

Plastics

Long-term irrigation fund set up in NABARD, additional corpus Rs. 20,000 crore which is showing a very good impact on this sector.

Supreme India, Astral Poly Tech, and Jain Irrig (D) are few plastic companies which fall under this sector.

Power – Generation & Distribution

A positive impact is there in this sector. Countervailing duty on machinery for renewable energy cut to 6%. Focus on solar continues as 7000 stations to be solar powered. Government is going to take up second phase of solar power development for additional 20,000 MW.

Such as NTPC, Power Grid Corporation, and NHPC are the few companies which come under this sector.

Power – Transmission & Equipment

Government is going to achieve 100% rural electrification by May 1, 2018. Thus, positive impact is shown by this sector.

GE T&D India, Kalpataru Power, and GE Power India are few of the power transmission and equipment companies.

Real Estate

Government reduces existing tax rate for personal income of Rs 2.5-5 lakh to 5% from 10%. Government doubles lending target of banks to Rs 2.44 lakh crore. So, there is a positive impact on this sector.

Companies like Aditya Birla, DLF, and Oberoi Realty fall under this sector.

Retail

Government reduces existing tax rate for personal income of Rs 2.5-5 lakh to 5% from 10%. It is showing a good impact on this sector.

Aditya Birla, Future Retail, and Trent are few companies which come under this sector.

Textiles – Denim

Economic Survey reveals that Rs 6,000 crore were announced to boost employment & exports in apparels industries, which results in the very good impact on this sector.

The companies like Arvind and Nandan Denim fall under this sector.

Textiles – General

Government proposes to carry-forward the MAT to 15 years from 10 years, which will show a positive impact on the companies like Bombay Rayon, Sutlej Textiles, and Garware Wall.

Transport & logistics

There is a positive impact on this sector as transport sector allocated Rs 2.41 lakh crore.

Interglobe Avi, Container Corp, and Aegis Logistics are few of the companies in this sector.

India’s foremost Tax Saving Investment options for 2017: make your life easy!

We’re at the end of the year 2016 and hence, tax payers are engaged in searching for the top tax saving investment options for the forthcoming year to economize their income tax which is under section 80C.

All just depends on your planning, if you have done it ably, then you can surely save your income tax and also get a shield to your higher returns.

The following are the best tax saving investment plans for you:

ELSS Tax Saving Mutual Funds

ELSS stands for Equity Linked Savings Scheme. It doesn’t just help you to save tax but provides you with certain opportunities to grow your money.

It proposes you with the higher returns than that of any other tax saving investment plans in India.

ELSS tax saving mutual funds doesn’t provides you a guaranteed return but if you are ready to attain higher risk then it can benefit you with 12%-15% of fantastic returns on your investment.

You can get lowest locking-period of 3 years in ELSS funds.

The returns or capital gains from selling this fund would be free from tax.

PPF

Public Provident Fund (PPF) provides 8.1% annual interest rate. And Ministry of Finance is decreasing the rates year on year. Hence, it is the best investment option to save income tax.

It has lock-in-period of 15 years. Interest provided at the time of maturity would be tax free.

The annual investment up to Rs 1.5 lakh qualifies for the IT Rebate under section 80C of Income Tax Act.

Loan facility is from 3rd to 5th FY with the interest rate of 2% per annum.

And, withdrawal can be done from 6th FY.

Sukanya Samriddhi Account Scheme

Do you have a girl child? If yes, then you don’t have to worry for her future. You can invest up to Rs 1.5 lakhs in SSAS and get higher returns.

 The interest rate in the existing FY is 8.5%.

One can make investment till the age of their girl reaches 15 years. No deposits are made between the age of 16-21 years and the account gets matured when she reaches at the age of 21 years. The interest you will receive at maturity is free from tax.

Tax Saving Bank FD schemes

It is the one of the old and best investment options for tax saving.

Due to Demonetization, interest rates have gone down between 5.55 to 7.5% p.a.

It has a lock-in-period of 5 years. And the interest provided is taxable.

Senior Citizen Saving Scheme

SCSS account provides tax saving option for the individual of the age 60 years or more with the annual interest rate of 8.5%.

The maximum limit of investment is Rs 15 lakhs.

Its maturity period is 5 years and the interest is paid quarterly and is taxable.

Rajiv Gandhi Equity Saving Scheme

This scheme benefits the first time investors in security market who are earning annually up to Rs 12 lakhs.

RGESS was introduced with the goal of encouraging savings from small retail investors to enter domestic capital markets. The scheme also aims at improving the retail participation in equity markets, and to promote an ‘equity culture’ in India.

The highest limit of investment allowed is Rs 50,000 and these can be invested in BSE100 stocks or RGESS mutual funds. Thus, returns are not guaranteed.

SAVE TAX

Voluntary Provident Fund

It is the benefaction from employees to his provident fund account. This would be beyond the EPF (employee provident fund) contribution of 12%. A maximum contribution an employee can make is 100%.

The returns after the maturity are tax free.

New Pension Scheme (NPS) under section 80C

It is the low cost investment plan for tax saving purpose. The returns are not fixed in NPS.

You can invest up to Rs 500 monthly or Rs 6000 per annum. There is no limit for investment in NPS.

The interest provided is taxable under the Act.

National Saving Certificate (NSC)

This is the safest investment plan as NSC is issued by post office and principal along with interest is backed up by the Indian Government.

There is no maximum limit for the investment. It is a given for the period of 5 years with the annual interest rate of 8% which is provided at the interval of 6 months.

Interest received is taxable.

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Unit Linked Investment Plan (ULIP)

It gives you the life risk coverage. But, there is no guarantee for returns. Returns of 5% to 11% would be provided depending on the type of scheme.

Its holding period is for 15-20 years.

Life Insurance Plans

When it comes to financial planning, life insurance is very effective.

One should go for term insurance plan as for high risk coverage and in low cost.

Pension Funds

It dispenses you with an income stream post retirement, which consists of deferred annuity and immediate annuity.

You can withdraw amount up to 60% of your collection, once you reach your age of retirement and have to re-invest the rest in an annuity fund which will benefit you with a monthly pension.

If you go for annuity plan, then you should have to invest in bulk at one time and then you’ll get monthly pension from the coming month.

Deduction on Stamp Duty

Under section 80C, taxpayers can claim deduction on the amount paid as stamp duty for property registration in their own name.

For deduction under Section 80C for total amount, including principal loan repayment, stamp duty and registration charges, the total amount cannot be over Rs 1.5 lakh.

Tuition Fees for two children

It would be deducted from your income under section 80C. The deduction will be on the actual payment of fee and not on books, bus fare, etc.

Salaried employees, however, cannot claim tax exemption under tuition fees if their child is studying abroad.

Home Loan Principal Repayment

You can get tax dispensation from home loan principal repayment in which interest is excluded from tax up to Rs. 2 lakhs which you could cover separately.

GST Bill impact on sector and stocks wise ( Positive and Negative ) : Nomura

Here is a sector-wise snapshot excerpted from a recent Nomura report on GST on how the bill is likely to impact various sectors and stocks.

AUTO

Largely positive for demand as it will lead to 10-17% fall in vehicle prices, assuming 18% GST rate.

Margin benefits to accrue for tractors as they can claim set-off against taxes paid on input. Organised battery and other spares segment would become more cost competitive and gain market share.

Stock Impact: Positive for Maruti Suzuki, Hero MotoCorp, Exide, Amara Raja, Eicher Motor, Mahindra & Mahindra, Bajaj Auto. Negative for Ashok Leyland

FMCG

We view implementation of the GST at a standard rate of 17-18% as positive for stocks in the household and personal care space as the effective tax rate reduces by around 200-500 basis points (bps), apart from reducing warehousing and logistical requirements. We expect companies to absorb these benefits and one should see a one-time margin expansion for companies having a leadership position or a presence in niche and underpenetrated categories.

However, certain negative elements do exist in the terms of working capital for retailers, and additional tax rates for jewellery manufacturers and cigarette manufacturers is negative for companies in that space.

Stock Impact: Positive for Hindustan Unilever, Emami, Godrej Consumer. Negative for Titan, Bata, ITC

LOGISTICS

The GST would lead to the elimination of the CST and inter-state VAT arbitrage possibilities. This will lead to consolidation of warehouses and increased efficiencies in the logistics chain. Overall we expect significant reduction in logistics costs across the value chain. 3PL/4PL logistics service providers are expected to gain market share on improved margins as a result of lower trucking costs.

Stock Impact: Positive for Container Corporation of India, Adani SEZ, Gujarat Pipav Port (positive in longer term)

INFRASTRUCTURE

Clarity on works contract taxation is the key benefit for companies like L&T involved in the EPC space. This is expected to eliminate litigation and multiple and varying taxes across states. Further, GST eliminates the need to distinguish between sales and services, a cause of many litigations.

Stock Impact: Positive for Larsen & Toubro (L&T)

CONSUMER DURABLES

GST will benefit consumer durables companies more from the improved logistics and the shift from unorganised to organised. Direct benefits of up to 200-300bps in cost savings may also occur as a result of GST subsuming state and central taxes as well as availability of full input tax credit on service tax pay-outs on advertising. However, we expect that a significant portion of the direct benefits will be passed on the end consumer due to a highly competitive market.

Stock Impact: Positive for Voltas, Havells, Crompton Greaves

E-COMMERCE

We think that the GST is largely mixed to marginally negative for ecommerce companies given 1) it could lead to significant increase in compliance cost especially for companies with a larger seller base and 2) a possible deterrent for smaller sellers to list on the platform given higher WC requirements for sellers and tax deduction at source. For ecommerce companies, we see offsets from 1) reduced working capital requirements, 2) lesser paperwork during transfer of goods interstate and 3) likely reduction in logistics costs from their ability to leverage the hub-and-spoke model more effectively.

GST

OIL & GAS

Key petroleum products like petroleum crude, natural gas, motor spirit, high speed diesel and ATF have been kept out of the GST regime. For other products, clarity is still awaited. Due to dual indirect tax mechanism, compliance costs are likely to increase.

Stock Impact: Neutral. Do not foresee any meaningful change on oil & gas companies

CEMENT

We expect overall tax incidence on cement sector to decline post GST implementation. Also, the cement sector will also benefit from an expected decline in logistic costs, in our view. While we expect cement companies to pass on the benefits, given that cement demand and plant utilisation levels are picking up, cement companies may retain some of the benefits.

Stock Impact: Positive for most companies

Read also

Invest in your Child’s Dreams: Best Investments for your Child’s Education

WIND POWER

GST will be negative for WTG manufactures like Suzlon and InoxWind as pressure on developer margins and IRRs may eventually force reduction in WTG prices and hence realizations. The extent of the impact may be up to 10-13% in terms of lower realization. However, in case WTG components make their way into the exemption list, the impact of the GST is largely nullified.

Stock Impact: Negative for Suzlon, Inox Wind

UTILITIES

Exclusion of ‘sale of electricity’ from the purview of the GST would potentially raise the cost of coalfired electricity & renewable energy for Discoms. Profitability of IPPs selling via medium/long-term PPAs is unlikely to be dented as the cost escalation would likely be a pass- through on account of the ‘change in law’.

Stock Impact: Positive for CESC. Negative for JSW Energy

PHARMA

We expect the GST rollout to have a negative impact on the sector as this is likely to increase the indirect tax burden. Our analysis based on a simplified model and assuming 18% GST rate suggests indirect taxes paid by Pharma companies can increase by 60% and MRP (end price to consumer) can go up by 4%. If Pharma companies are to absorb this price inflation, the domestic formulations EBITDA margins could see an impact of almost 20%.

Stock Impact: Negative for Alkem, Glaxo Pharma

IT Dept To Block PAN, LPG Subsidy Of Tax Defaulters

In order to cripple and check the activities of wilful tax defaulters, the Income Tax department has decided to “block” Permanent Account Number (PAN) of such entities, get their LPG subsidy cancelled and take measures to ensure that they are not sanctioned loans.

A number of such measures have been mooted by the tax department, to be undertaken this financial year, in order to curb the menace of large-scale tax avoidance and evasion.

As per a strategy paper prepared by the department, also accessed by PTI, the taxman will block PAN in such a way “that these defaulters are not sanctioned any loans or overdraft facility by public sector banks, as the same is bound to become non-performing assets”.

Further, it said, “Ministry of Finance can be suggested to withdrawn facility like LPG subsidy which is directly credited in to the bank accounts of the said defaulters.” This step, the strategy paper said, will act to “disincentive” the defaulters.

income tax
The taxman also proposes that the identities of such blocked PANs be circulated to the Registrar of Properties “with a request for not allowing any registration of immovable properties where such PANs are involved.” Such defaulters’ information has also been recommended to be circulated across tax offices so that their activities loans or government subsidy can be plugged country-wide.

Mahanagar Gas IPO review

The department has also decided to subscribe to the Credit Information Bureau Limited (CIBIL) data, on a possible payment basis, to check out the financial activities of defaulters and undertake action against them for recovery and freezing of assets.

CIBIL is an agency to collect and maintain records of an entities’ payments pertaining to loans and credit cards.

The department, beginning last year, has also started to ‘name and shame’ large tax defaulters (over Rs 20 crore default) by publishing their names and other credentials in leading national dailies and on its official web portal.

The IT department, beginning this financial year, has also decided to publicly name all category of taxpayers who have a default of Rs one crore and above.

“Tax default is a major menace that the department is grappling with.These new measures are aimed to curb these instances in the right earnest,” a senior IT official said.

Invest in your Child’s Dreams: Best Investments for your Child’s Education

College tuition and associated education costs rise 10-15% annually. If you have young children, the price you’ll pay for their education could be significantly higher than today’s prices. Currently, a Domestic 2 Year Full-Time MBA costs roughly ₹12-16 lacs, In 5 years, the cost is likely to touch ₹20-25 lacs.

The percentage of people getting a post graduate degree is merely 12% versus graduate degree of 72%, which is much lower for individuals who grew up in a low income household than individuals who grew up in non-low income household. These means only a lucky child can get an opportunity of getting higher education.

Due to increased Inflation, Competition & Lifestyle Inflation affecting the cost of children’s education there is a rise in demand for both the parents to work and earn such living. All the families are under increasing strain and disadvantaged families are strained to limits as they have fewer resources to invest in early development. The without resources like “parent coaching” in the busy life attract private coaching costs nearly ₹70,000-₹1, 00,000 p.a in addition to the academic costs.

Despite this cost escalation, you’ll want your children to have the option to go to the college of their choice. So how do you save enough money for college and still achieve your other goals?

LONG TERM AVERAGING OF EQUITY SIP’S IS RAPIDLY BUILDING WEALTH

Be an Early Bird

Starting savings early will not only be able to amass a larger sum, but the money will also gain from the power of compounding. E.g., Suresh Gupta, A Delhi based finance professional having a child aged 8 months started investing in an SIP of ₹ 9,000 for duration plan of 18 years in an equity fund that gives 15 per cent return for getting a target corpus of ₹1 cr. For such individuals like Suresh, Equity based Mutual Funds are more preferred than opting for balanced MF’s. If you have a higher risk appetite than your equity investment can be as high as 75% and rest in Fixed Deposits, PPF, Tax Free Bonds etc.

Play it safe in the Short Term:

If you have a short time horizon(<5years) you will have to opt for safer investments which means being risk averse. These investments include recurring deposits, debt investments, PPF etc. Though these investments offer guarantee returns with safety of capital but also provide less returns. E.g., Vimal Singh, A Mumbai based Salaried person having a child aged 15 years have to invest more than ₹50,000 in SIP for the period of 2-3 years to fulfill his child aspiration of studying for a MBA Course costing ₹20-25 lacs. A mid-incomed person cannot afford to put ₹50,000/month aside & ignore his household costs. Hence, the child has to either quit studying for post-graduation or has to take assistance from bank in the form of an educational loan.

Exploring investment Options for your child :

Exploring investment Options for your child

More than 4 lakh Pune flat buyers are victims of the builders

Investing in future child education is also gaining popularity these days. The plan can be established with one of the parents as the beneficiary and then transferred to the child after birth. These leads to more saving and longer time duration to appreciate. A couple married for 6 years before their first child is born has 33% longer time for their investments to appreciate. Otherwise, the parents can invest in Equity Mutual Funds which have delivered averaged annualized returns of 16.5% as compared to investing in traditional life insurance policies which offer low yields of 5-6%. 

Reviewing your performance of the funds in the portfolio is as important as Investing. An underperformance of fund can be rebalanced by replacing with a performing fund.

Example of Different Types Of Investments:

The investment of ₹2000/month for a period of 18 years in an traditional policy can grow till ₹7lacs with return of 5 to 6%, in a recurring deposit till ₹11 lacs with return of 9%, in a balanced fund till ₹15 lacs with return of 12% and in an Equity Fund at ₹22 lacs with return of 15%

Keeping in mind that financial plans are made to achieve such crucial goals in life. Hence the earlier you invest in your child education and the more systemized your financial plan is, the lesser financial burden you/child face in the long term.

“A child educated only at school is an uneducated child” – George Santayana

LIC Jeevan Labh Plan : Reviews/Features/Return Sheet

The expected returns are in between 5.6% to 6.8%.

Similar to the earlier post regarding ‘LIC Jeevan Shikhar”, this plan i.e., LIC Jeevan Labh Plan also has a similar kind of offering.

LIC Jeevan Labh is a limited premium, non-linked with profit endowment insurance plan which was launched on 4th January, 2016 for the sole purpose of attracting individuals who want to avail taxation benefits. The plan is suited to those who want premium commitment for short duration having life coverage and benefits for a longer period.

The limited feature in this plan lets you chose among the three variants of policy terms (duration) i.e., 16,21 & 25 years and premium paying years are 10,15 & 16 respectively.

Features & Benefits:

Minimum Entry Age: 8 years

Maximum Entry Age: 59 years

Minimum Sum Assured: Rs.2,00,000

Maximum Sum Assured: No LIMIT

Policy Term & Premium Payment Term(years) : 16 (10years), 21(15years) & 25(16years)

Maximum age at Maturity : 59/54/50 years

Payment option Facility :3/6/12 months

Additional Premium Benefit : Optional Rider as Accidental Death & Disability Benefit

Term Insurance Rider Benefit : Increases the Death Benefit with sum assured

Loan Facility – Duration 3 years

Surrender Benefit – Post 3 Years of premium

Though the tenure is 16,21 & 25 years you need to pay premiums only for specific period

Maturity Benefit : Sum Assured + Bonus + Final Addition Bonus

Death Benefit : Sum Assured + Bonus + Final Addition Bonus Sum Assured (Not less than 105% of total premium paid as on date of the death occurred)

Commencement of Risk : Immediate

Fixed Premium Deduction every year

Grace Period : 1 month

Bonus Rates (per Rs.1000 Sum Assured) of LIC Endowment Plans are in the below range:

• <11 years - Rs34 • 11years-15years – Rs.38 • 16years-20years – Rs. 42 • >20 years – Rs.48

LIC Terminal Bonus Rates:

LIC JEEVAN LABH TABLE

Source : LIC Website

Illustration:

If a 35 year old individual opts for a sum assured value of Rs.2 lacs for term 21 years for a premium paying term of 15 years then after completion of 22nd year he would receive maturity benefit of Rs.4.21 lacs(Inclusive Sum Assured + Accrued Bonuses + Final Addition Bonus.

The expected returns are in between 5.6% to 6.8%.

Higher the Age — Higher Premium — Lower Returns

Lower the Age — Lower Premium — Higher Returns

LIC JEEVAN LABH RETURN

The main intension to buy Endowment plans is avail the money back option, risk aversion & insurance plus investment benefits. The combination of Insurance + Investment is not a good option to invest as you get minimum Insurance coverage & minimum return on Investments. Therefore before buying any endowment product, check for two most important things, insurance coverage on which all diseases & return on investment.

Hence, buying LIC Jeevan Labh Plan is not a right decision for people looking for more than 10% returns p.a on their investment, over a lock in period of more than 10 years.