Prajna Capital |
| Posted: 12 Mar 2015 05:03 AM PDT Here's how the five significant changes in the budget will impact your retirement savings
Your retrial savings could undergo a big change if you consider the five recent changes in the Budget. Of these, two are related to tax rebates and have a financial implication--an increase in the tax deductible limit from `1 lakh to `1.5 lakh for investing in a pension fund, and an additional deduction of `50,000 for investment in a pension fund notified under Section 80CCD, which currently is only the National Pension System (NPS). Two other changes have a behavioural implication on how one builds a retirement corpus. These include the imposition of 10% TDS (tax deduction at source) on any premature withdrawal from the EPF (Employees Provident Fund), if the PAN is provided. If it isn't, the TDS is at the maximum marginal rate. The second allows an employee the choice between the NPS and the EPF. This will help him make a conscious choice on the basis of his risk profile rather than investing in a 100% debt oriented instrument. More importantly, such an option will result in the EPF raising its level of customer service. An amendment to the EPF & MP Act, 1952, will allow such a choice to the employee. Lastly, the Budget has introduced a defined benefit pension plan with a regular savings programme, the Atal Pension Yojana, which will replace NPSLite (Swavalamban). A common thread running through these changes is that it strengthens the NPS, with the triple tax advantage making it the retirement vehicle of choice. The first benefit is the deduction of `1.5 lakh within Section 80C. Earlier, Section 80CCD(1) offered a deduction of up to `1 lakh, not exceeding 10% of the salary (basic + DA), or 10% of gross income for self employed. The second benefit is under Section 80CCD(2), which provides a tax deduction for contribution by the employer up to 10% of salary. This is over and above the Section 80C limit of `1.5 lakh and there is no limit to the deduction that an employee can avail of. This is a significant benefit to employees but leaves out the self-employed as they cannot avail of it. The third special benefit under Section 80CCD provides an additional tax deduction of `50,000, which is over and above the `1.5 lakh limit of Section 80C. Thus, the overall tax deduction that one can avail of is `2 lakh by combining both these deductions. This additional limit is applicable to both employees and self-employed. However, before you invest in the NPS, consider the following points. Of the two NPS account options--Tier I and Tier II--the triple tax benefits are applicable only to the former, which is the pension fund account. Tier II is an optional account which offers complete liquidity and has no tax benefits. Importantly, don't rush to invest in the NPS in the current financial year since the additional benefit of `50,000 will be available only from the next financial year 2015-16 (AY 201617). You can also continue to utilise your Section 80C limit of `1.5 lakh in other instruments like the ELSS, PPF or housing loan principal payment and contribute only `50,000 to the NPS to take advantage of this additional limit. Finally, remember that the NPS gets the EET (Exempt-Exempt-Tax) taxation treatment. Here, the taxation on withdrawals is not limited to returns, but the entire withdrawal, including the principal component. This places NPS at a significant disadvantage to the other financial instruments and can reduce the retirement corpus. So, factor this in your calculations before you take the plunge. Best Tax Saver Mutual Funds or ELSS Mutual Funds for 2015
1.ICICI Prudential Tax Plan 2.Reliance Tax Saver (ELSS) Fund 3.HDFC TaxSaver 4.DSP BlackRock Tax Saver Fund 5.Religare Tax Plan 6.Franklin India TaxShield 7.Canara Robeco Equity Tax Saver 8.IDFC Tax Advantage (ELSS) Fund 9.Axis Tax Saver Fund 10.BNP Paribas Long Term Equity Fund
You can invest Rs 1,50,000 and Save Tax under Section 80C by investing in Mutual Funds
Invest in Tax Saver Mutual Funds Online - For further information contact Prajna Capital on 94 8300 8300 by leaving a missed call --------------------------------------------- Leave your comment with mail ID and we will answer them OR You can write to us at PrajnaCapital [at] Gmail [dot] Com OR Leave a missed Call on 94 8300 8300 --------------------------------------------- Invest Mutual Funds Online Download Mutual Fund Application Forms from all AMCs |
| Posted: 12 Mar 2015 03:53 AM PDT
If you don't rebalance your portfolio regularly, the option helps you book profits.
Advantages of triggers Investors should ideally rebalance their portfolios every six months. They should sell assets that have risen sharply, like equities at present, and put the money in an asset that is underperforming, like gold. Doing so allows the investor to bring his asset allocation back to its original level and guard against a sharp erosion of gains in case of a downturn. However, many investors neglect to do so, either because of greed--they want higher gains from the asset that is outperforming--or due to lethargy. Then the market crashes and their gains evaporate. If the bear run persists for long, they get disheartened and exit. After such an experience, many of them turn away from equities forever. By setting a trigger, you automate the process of booking gains in a rising market. As soon as your fund makes a pre-determined level of gain, the trigger gets activated. Trigger funds help investors have a positive experience from equities. It is not enough for investors to see gains on paper. Fund houses must put money in investors' hands, which is what a trigger fund does. Triggers help you to take advantage of attractive valuations when the market is falling. In many cases, investors, who wished for lower valuations when the market was up, find themselves paralysed when the market actually falls. By setting a pre-determined trigger, they can avoid falling prey to fear.Best Tax Saver Mutual Funds or ELSS Mutual Funds for 2015
1.ICICI Prudential Tax Plan 2.Reliance Tax Saver (ELSS) Fund 3.HDFC TaxSaver 4.DSP BlackRock Tax Saver Fund 5.Religare Tax Plan 6.Franklin India TaxShield 7.Canara Robeco Equity Tax Saver 8.IDFC Tax Advantage (ELSS) Fund 9.Axis Tax Saver Fund 10.BNP Paribas Long Term Equity Fund
You can invest Rs 1,50,000 and Save Tax under Section 80C by investing in Mutual Funds
Invest in Tax Saver Mutual Funds Online - For further information contact Prajna Capital on 94 8300 8300 by leaving a missed call --------------------------------------------- Leave your comment with mail ID and we will answer them OR You can write to us at PrajnaCapital [at] Gmail [dot] Com OR Leave a missed Call on 94 8300 8300 --------------------------------------------- Invest Mutual Funds Online Download Mutual Fund Application Forms from all AMCs |
| Reporting your Interest Income Posted: 12 Mar 2015 02:13 AM PDT If you have not been reporting the interest income from your fixed deposits while filing tax returns, there is reason to worry. All interest income from bank FDs (including the 5-year tax saving FD), bank recurring deposits, company FDs, non-convertible debentures (NCD) and National Savings Certificate (NSC), among others, is taxable. Even when your bank cuts TDS at 10% on your Bank FD, you are liable to pay the balance tax if you fall under a higher income slab. However, there is flexibility on how you report this income.
You are allowed to report interest income either on cash or accrual basis--you can account for the income either when you receive it or when interest is due. For instance, in the cash method, if you have invested in a three-year bank FD where the interest pay out is cumulative, you can safely put off reporting the interest income for the first two years. If the interest pay out is non-cumulative, you have to report the income that year itself. Under the accrual or mercantile method, the tax on the interest income has to be paid even if the income has not been received. Even when the interest pay out is cumulative, the investor has to report the income for each year. Which method should you follow?
If you follow the cash method, there is a risk that your income may come under a higher tax slab in some years, as a result you will end up shelling more tax on the interest income than earlier. Even under the same slab, deferring the tax would result in a high sudden outgo in the year of receipt. That is why, experts advise investors to stick with the accrual method. Even though you will be hit with tax on income which you have not received, the tax pay out will be spread across many years. It is better for individual taxpayers to follow accrual method of accounting as it brings clarity to your financials and you can carry out your tax-planning on a yearly basis. Bear in mind that where TDS is not cut, the onus will be on you to compute the total interest income for the year. If you remain in the same tax slab for the entire tenure of the investment, deferring the tax liability until maturity makes more sense. Although the total tax liability under both methods would remain the same, paying tax on yearly accrual basis could mean an opportunity loss on the money paid as tax over the years. The return you would make from investing this money until maturity of the instrument, and then paying tax will yield a better result. While you are free to choose what method of accounting to follow, you cannot switch at any time. If you are reporting interest income on your bank FD on cash basis today, you cannot start reporting it on accrual basis from next year without justification. While a one-time change in method of accounting is typically allowed, frequent changes is frowned upon by the taxman. Best Tax Saver Mutual Funds or ELSS Mutual Funds for 2015
1.ICICI Prudential Tax Plan 2.Reliance Tax Saver (ELSS) Fund 3.HDFC TaxSaver 4.DSP BlackRock Tax Saver Fund 5.Religare Tax Plan 6.Franklin India TaxShield 7.Canara Robeco Equity Tax Saver 8.IDFC Tax Advantage (ELSS) Fund 9.Axis Tax Saver Fund 10.BNP Paribas Long Term Equity Fund
You can invest Rs 1,50,000 and Save Tax under Section 80C by investing in Mutual Funds
Invest in Tax Saver Mutual Funds Online - For further information contact Prajna Capital on 94 8300 8300 by leaving a missed call --------------------------------------------- Leave your comment with mail ID and we will answer them OR You can write to us at PrajnaCapital [at] Gmail [dot] Com OR Leave a missed Call on 94 8300 8300 --------------------------------------------- Invest Mutual Funds Online Download Mutual Fund Application Forms from all AMCs |
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