No Regular Posts - :(

Due to various reasons there were no regular posts here..! Inconvenience Regretted. From January 2008 onwards you can expect regular posts here.!

A New Equation ‘Tax Planning = Financial Planning’

According to a common taxpayer’s perspective, choosing an instrument, for saving tax, is a big job. Most commonly, all the investors choose one of traditional instruments(PPF or NSC). But in today’s world, we have other options too. First, lets look the Section 80C.

The avenues available under 80C are

1. Premium paid for Life Insurance.
2. Contribution to Provident Fund.
3. Payment of Tuition Fees.
4. Investment in PPF.
5. Investment in NSC.
6. Investment in ELSS (Equity Linked Saving Schemes.

We can invest in the above avenues with a cap of Rs.100000. Additionally you can use another option

7. Repayment of Principal (With the Ceiling of Rs1.5 Lac) .

So you invested Rs 1 Lac in any of the above instrument. What is the return rate..?

Particular	PPF	NSC	ELSS
Lock in Period (in Years)	15	6	3
Minimum Investment	500	100	500
Maximum Investment	70000	100000	100000
Return	8%	6%	12% to 20%
Tax on Returns	Nil (As an date, there is no EET structure is followed)	Taxable	Dividend and Long Term Capital Gains are Tax Free

On seeing the above table, the last column of the table is pulling one to invest in ELSS for tax savings. But that ELSS instrument is fully based on the equity market, the return is not an assured one. As I mentioned earlier, may be in my earlier post, investing in ELSS is based on one’s risk appetite.

In common one can take risk in his early ages. On taking this in mind, most of the financial advisers are advising us to allocate our asset (for Section 80C). That is

Age	Life Insurance Premium	EPF / GPF	PPF / NSC	ELSS	Total
< 30	10000	25000	20000	50000	100000
30-45	10000	30000	25000	35000	100000
45-55	10000	350000	30000	25000	100000
> 55	10000	-	65000	25000	100000

Why they are recommending this kind of asset allocation ,..?

Let us discuss some times later.

One of the Major Relief for Taxpayers in the Budget 2007-2008

According to Subhash Lakhotia's view on the current budget, he mentioned that the special feature of the budget is FM is not considered the EET which give the taxpayers a relief for another one year. (Subhash Lakhotia is a New Delhi based tax investment consultant)

What is this EET ? In what sense it will affect Tax Payers..!?

Normally we used to do taxsavings in the form of PPF,GPF and NSC and much more. Here comes the terms EEE and EET .

Say suppose you are investing Rs 70,000 in PPF(which is the upper limit for this instrument under sec 80C of IT ACT). At the time of contribution in a particular year the amount contributed is exempted from Tax. This is the First E. The accumulated interest on this amount is also exempted from Tax and this is the Second E. When you are withdrawing the amount (after the 15 year Lock-in Period for the PPF) that is also Exempted from the Tax on that particular year. So the savings under 80C instruments are now availing the EEE Benefits.

In the previous budget our FM outlined that this EEE will be turned to EET in future. If it does so, all the withdrawal made from 80C instruments will be fall under taxable income that is the last E(xempt) will turned to T(axable). Basic idea of EET structure is to recommending a long term investing.

But FM does not mentions anything about that in his current budget.. We have one more year to enjoy the benefits of EEE.


Further readings

http://in.rediff.com/getahead/2006/feb/20ppf.htm
http://economictimes.indiatimes.com/articleshow/1378923.cms

Union Budget 2007-2008

Finally Finance Minister rolled out his budget for 2007-2008 today.

It was not so as expected two three weeks before, a 'DREAM Budget', but is a good budget according to my view.

His budget has some (even little) feathers for AAM AADMI and all too.

Highly concentrated for education (included scholarship for 1 lac student in a year who were dropping school after 8 th std), inflation rate (reduced excise duty for most common food mixtures!), agriculture , and Textiles (this budget is more favorable for textile industry).

As for as (genuine) tax payer (like us!?!)concern, he increased the threshold limit of tax free income from 1 Lac to 1.1 lac for all, 1.35 Lac to 1.45 Lac for women and for senior citizen it is hiked to 1.95 lac from 1.85 lac. He didn't do any reformation in the slabs (most of the analysts expected Kelkhars recommendation may included with the reintroduction of 80 L for Senior Taxpayers), but he hiked the education cess from 2% to 3% ( the raised 1 percent will be used for the secondary education schemes).

So... It is a good budget so far.


For more readings on the budget and its highlights..
http://indiabudget.nic.in/ub2007-08/ubmain.htm
http://www.rediff.com/money/budget07.html

Yet Another March 31...

Hi All

I am writing this before the Finance Minister P Chidambaram has open the talk on Union Budget 2007-2008, in the urge of upcoming March 31 2007.

Even the post budget impact will mostly take in effect in the next financial year, some of them will affect this year also.

Many of us in the group of salaried, may be finalized our tax saving equipments before the 15 February 2007 as we have a choice of saving Rupees One Lac to avail the fringe benefits.

But how far we thing ahead in the matter of returns and risks?

As on today, with the total ceiling of Rs.1 Lac, we have a plenty of options. But choosing the right one is always a tough job. Most of us simply follow our father's way choosing the investment option like GPF or EPF , PPF and NSC etc,. Nothing wrong in it because these are all proven investment vehicles with zero percent risks. What is the return rate ? That is also good as on now minimum 8 percentage.

There are other options also available for investing to get tax benefits and they may give you a better returns that the above mentioned vehicles, if you are ready to take little or high risks base on your risk appetite.

There are various sites (moneycontrol.com,personalfn.com and much more )offering a such tool that will ask some simple questions you have to answer. Based on your answers, they will show you what kind of risk appetite you are.

First find what level of risk you can take then we will talk more about the other investment options!

We will meet agian!(and again!? :))