Tax saving option in Section 80C

Some Tax Saving option in Section 80C

When we talk about tax planning, most common term flash in mind is Section 80C. The Section 80C offers various options to fulfill people’s different need. In Jan-March quarter most of the person rush for tax saving instrument and often make wrong decision in hurry. They don’t even realize that they have invested their money in those products which is really not suited them. The right time to make tax plan is the beginning of fiscal year (April-May).Today I am throwing some light on those products which are available in under section 80C.

Provident Fund: It is the very common and popular in service class people. As employer deduct the some portion of money for contribution in provident fund from employee’s salary. PF gives 8.5% per annum and is very secure in terms of safety. Employee can liquidate it at the time of retirement. However, partial withdrawal is also permitted with some condition. 

Public Provident Fund or PPF: It is very good option available with low risk and offer tax free return after maturity. It offer return market linked for current year it is 8.8%.The lock-in period is 15 year but partial withdrawal is possible after fifth year.

Bank Fix Deposit: The 5 year bank fix deposit is also available. Various bank offer return 8-9% this year (See earlier blog). The return is taxable as per one’s tax slab. The lock in period is 5 year. It is low risk product but keep in mind the post tax return also before investing in fix deposit.

National Saving Certificates or NSCs: It offer 8.5% return and is very safe investment. The lock in period of these instruments are 5 and 10 years. The person can choose any maturity 5 or 10 year based on their need.

Senior Citizen’s Saving Scheme: It offer 9.3 % return and added in taxable income. It is the most suitable option for senior citizens (above age 60 year) as it gives regular interest income in each quarter. It has no risk and very safe investment option. The lock-in period is 5 year.

Insurance Policies: It is long term product and lock in period depend on plan’s maturity. It has highest degree of safety but its average return around 6-7% only.

ULIP or Unit Linked Insurance Plan: The return is market linked as no fix return offer. Partial withdrawals possible. It is in the form of bundle which offer insurance, tax exemption and return also. The cost and charges is high compare with other products. The risk is depend on which option you have chosen.

ELSS or Equity Linked Saving Scheme: It is market linked product. There is no fix return. The lock in period for this product is 3 year. It has shortest lock-in period among all Section 80C options. It is high risky investment product.

NPS or National Pension Scheme: It is retirement goal oriented product. No withdrawal allowed before retirement. The return is market linked and it has very low expense ratio means low cost product.

Besides the above mentioned investment products which are in under section 80C, there are some expenses also eligible in under this section.

Home loan repayment: Principal portion of EMI is eligible for deduction till Rs 1,00,000 limit.

School Fees: Tuition fees of up to two children in a recognized educational institute for eligible for Section 80C

Home Purchase: During the purchase of home whatever stamp fee and registration fee you pay is also deductible from taxable income.

There is also other option available for tax deduction other than Section 80C which we will discuss later. If you want more clearity on these products pleas ask through email

Regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com
www.artofinvest.com

National Pension Scheme

National Pension Scheme

In earlier days, only government employees were eligible for life time pension after retirement. After demise of employee, the pension continues to his/her spouse and dependent children. With the passing of time, due to the increasing no. of retired Govt. employee the liability of the government has increased tremendously. It has felt across the world. Increase in life expectancy age and better medical facility the expected increased liability, defined pension proved like a ticking time bomb for Indian government. 

The defined benefit pension means guaranteed pension or the pre decided pension benefits or fix benefits. After the report of three different studies, the defined contribution pension system has been replaced. On the basis of these studies, the NPS (New Pension Schemes) was made mandatory for central govt employees except the Armed forces with effect from 1st January, 2004. 

In our country, only 12% the working population covered under pension schemes. To cover the large no. of population for pension benefit, NPS has opened for all Indian citizen between age of 18 and 60 with effect from 1st May 2009. The name has been changed from New Pension Scheme to National Pension Scheme.

The main features and architecture of NPS:

• PFRDA (Pension Fund Regulatory and Development Authority) issues the investment guidelines for investment and manage the fund. It is regulatory authority for NPS.

• NPS has a two tier structure. Tier-1 account does not allow premature withdrawal and it is mandatory for all Govt. employees joining after 1st Jan, 2004. Tier-2 account is withdrawable account. Individual can make withdrawal prior retirement without telling any reason. To open Tier-2 account, Tier-1 account is mandatory. The monthly contribution would be 10% of the salary and DA to be paid by the employee.

• The minimum amount per contribution Rs 500 per month and one should invest at least once in a year. The minimum annual contribution is Rs 6000 in each subscriber account.

• If unable to deposit minimum annual contribution, a penalty of Rs 100 would be levied and account would be dormant. A dormant account would be closed when the account value falls. For re-active the account, subscriber have to pay minimum annual contribution amount and penalty.

• The normal exit option is available at or after the age of 60. At the time of exit, the individual would be required at least 40% corpus to purchase annuity. If any individual decide to exit prior age 60, then 80% corpus mandatory to purchase annuity. In case of subscriber’s death, the whole 100% available amount will be given to nominee.

• NPS scheme has lowest cast model in the world. The fund management charge is 0.0009% of the total AUM managed. The fund managed by 8 different fund houses with the help of professional fund managers. LIC , SBI and UTI manage the government employees and other subscriber’s  funds. HDFC, ICICI, Kotak Mahindra, Reliance and DSP BlackRock fund houses manage only non-govt subscriber’s funds. NPS allows to subscribers to switch from one fund house to another fund house.

• NPS offers two broad approach to invest. First is Active choice and the other is Auto choice. In Active choice, the subscriber will decide the asset classes for investment. In Auto choice, the funds will be invested according to life cycles of subscriber. Asset allocation would be change based on age of subscriber automatically in this option.

These are the main features which we have discussed. The article has been a bit lengthy. For more detail and any other query related investment, you can contact me through my email.

Warm regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com

www.artofinvest.com

www.arvindtrivedicfp.blogspot.in

Traditional Plans V/S ULIP Pension Plans

Traditional Plans V/S ULIP Pension Plans

I have read very useful and interesting article on insurance in Business Standard daily and I want to share it with all of my reader. It is very useful for all of you.

Pension plans of insurance companies should carry a warning---when it comes to retirement planning, these are more expensive and don't offer the tax benefit of instruments such as Public Provident Fund (PPF) and National Pension System (NPS). PPF is exempt from tax at the investment, accrual of interest and withdrawal stages, while NPS is cheaper (the commission paid to fund managers is just 0.25 per cent).

In the case of pension plans from insurance companies, the annuity paid is taxed at the hands of the policyholder. And, the commissions and charges are higher than NPS. But if you have invested in PPF and NPS and still want to save for retirement, you could consider pension plans. These help you accumulate savings and build a retirement corpus. A third of this corpus is commuted, meaning it is paid to you on maturity. This amount is tax-free. The rest is used to give you regular income through an annuity plan; this income is taxed.

By providing a tool to accumulate and invest your savings, these plans give you a lump sum on retirement, then used to get regular income through an annuity plan. Given the high cost of living and rising inflation, employer pensions alone aren't sufficient.

Within pension plans, there are unit-linked and traditional ones. The basic difference between the two is the kind of instruments these invest in. So, how does one decide which is best for him/her?

Traditional plans are more oriented towards investment in debt funds, as these have a certain guaranteed sum assured for policyholders at the end of the tenure. "A major part of their investment, about 60 per cent, is in government securities. That is why it may not be possible for a traditional plan to give returns that beat inflation," says Prakash Praharaj, founder and chief financial planner of Max Secure Financial Planners.

In the case of a unit-linked or market-linked pension plan, a policyholder can choose the investment limit he/she wants for equity investment. But market risks are involved, as the investment is linked to equity markets. "If you are starting your retirement planning early, you could go for Ulip (unit-linked insurance plan) pension plans, as these would give better returns. Traditional plans wouldn't give very high returns because of the cap on investments prescribed by the regulator," Praharaj says.

According to Anuj Bhagia, chief marketing officer, Policybazaar.com, Ulip pension plans are preferred. "They allow the policyholder a choice of funds, along with investment in equities, which helps in faster accumulation of funds with growing markets," he says.

Ulips also give the policyholder an option to switch between the investments (debt and equity) three to four times a year. But this would help only if a policyholder understands the market risks and is able to switch at the right time.

According to Insurance Regulatory and Development Authority guidelines, both traditional and Ulip pension plans have to provide minimum guaranteed returns, as these are aimed at building retirement corpuses. Traditional plans guarantee a minimum sum assured, along with bonuses, if any, while Ulips provide a minimum guarantee of about 4.5 per cent.

"Ulip plans go through the vagaries of the stock market. So, the returns may not be as high as expected, while traditional plans, with their debt outlook, are a more trusted partner, though these have slow wealth accumulation. Therefore, as an investor, I need to know what product I would want to purchase, according to my appetite," says Bhagia.

As bonus is discretionary, not mandatory, customers choosing a traditional plan should look at the past record of companies in paying bonuses, says Sanjay Tiwari, vice-president (strategy and product), HDFC Life. The company offers both Ulips and traditional pension plans; there are sets of customers for both.

Another advantage of Ulip plans is the option to top-up or increase your investment. This could help inflate the investible amount, which, for a pension plan, is beneficial to build the overall corpus through the long term, Tiwari adds. For a traditional plan, there is no such option.

Amitabh Tapadar, chief marketing officer, Tata AIA Life Insurance, says while equity gives better returns through the long term, according to the new regulations, insurers have to give a non-zero guarantee, even on Ulip pension plans.

Therefore, there are chances companies offering Ulip pension plans would also invest substantially in debt market, as the equity exposure is limited. Hence, their returns might be less than in the case of pure equity investments.

In terms of costs, Ulip plans score over traditional ones, owing to transparency. Traditional plans are cost-heavy and opaque, unlike Ulip plans, for which all charges are confirmed to the consumer upfront. But a few insurers charge a guarantee fee for Ulip plans.

One should check these before purchasing a plan, Bhagia says. Customers should also look at the history of the insurance company, in providing annuity service, as it is now mandatory to buy the annuity from the same company one buys the pension plan from.

For more detail about any other query related investment, you can contact me through my email.

Warm regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com

Schemes offered by Post Office

Post Office Schemes

The telegram has ended recently and the use of postal stamp has got reduced in recent time in our country. The use of Indian post has got reduced in urban area. Now, the people prefer courier to deliver documents. The increasing use of email, scan documents are also reason behind the shrinking use of Indian Post. However, it is still significant in rural India and may play important role in future due ot its wide network.

The Indian Post has also applied for banking license recently. It has strong and wide bandwidth across the whole India to serve the people banking service with 1.55 lakh branches. Its saving schemes are still popular among all type of investors. Today, we will discuss about all the schemes available in post office. The following schemes available with post office:

·         Saving Account

·         Recurring Deposit

·         Time Deposit

·         Monthly Income Scheme

·         Public Provident Fund (PPF)

·         Senior Citizen’s Saving Scheme

·         National Saving Certificates (NSC)

·         Other Financial Services

(A) Saving Account: It can be open with minimum balance amount of Rs 50 without cheque facility. If you avail cheque facility then you have to maintain Rs 500 minimum balance. You will get 4% interest on the balance amount in your account.

(B)  Recurring Deposit: It offers 8.3% interest rate with tenure 5 year. The tenure may be extended up to 5 year as per investor willingness at the time of maturity. The interest credit on the 15 days balance. For this deposit you need not open saving account with post office.

(C) Time Deposit: It is eligible for section 80(c) benefit. You can choose deposit term between 1 to 5 years and can foreclosure after one year. It offers interest rate between 8.2% to 8.4%. Minors above 10 year also operate this type of account.

(D)  Monthly Income Scheme: The minimum requirement for this scheme is Rs 1500 and maximum limit Rs 4.5 lakh. Its tenure is 5 year although foreclosure allowed with penalty. It offers 8.4% interest on your deposit and interest credited in your post office saving bank account.

(E) Public Provident Fund (PPF): It is eligible for section 80(C) tax benefit. Its maturity amount is also tax free. The minimum deposit required is Rs 500 and its maturity period is 15 year. Withdrawal allowed after 6 year with some term and condition. The term may be extended at the time of maturity for 5 year in a year. The interest rate for current year is 8.7% and it will decide by every year by government.

(F)  Senior’s Citizen’s Saving Scheme: The minimum age required to open this account is 60 year if opt VRS then it would be 55 year. It is eligible for Section 80(C) tax benefit. The maximum amount is allowed for deposit is 15 lakh per person in this scheme. Its tenure is 5 year. The interest rate offered in this scheme is 9.2% and quarterly credited in your account. Foreclosure is also allowed with penalty and it can be extended by 3 year at the time of maturity.

(G) National Saving Scheme (NSC): The minimum Rs 100 required for this investment. Its tenure is between 5 – 10 year. It is eligible for section 80(c) tax benefit and interest earned every year treated as reinvestment and eligible for section 80(C) also. The interest rate is offered in this scheme 8.5% to 8.8% depend on the maturity.

(H)  Other Financial Services: National Pension Scheme (NPS), money transfer, life insurance services is also offered by Indian post. Postal life insurance is only available for employee of central govt, state govt, public sector and semi govt organisations.

For more detail about any other query related investment, you can contact me through my email.

Warm regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com

Available Tax Saver option in Section 80C

When we talk about tax planning, most common term flash in mind is Section 80C. The Section 80C offers various options to fulfill people’s different need. In Jan-March quarter most of the person rush for tax saving instrument and often make wrong decision in hurry. They don’t even realize that they have invested their money in those products which is really not suited them. The right time to make tax plan is the beginning of fiscal year (April-May).Today I am throwing some light on those products which are available in under section 80C.

Provident Fund: It is the very common and popular in service class people. As employer deduct the some portion of money for contribution in provident fund from employee’s salary. PF gives 8.5% per annum and is very secure in terms of safety. Employee can liquidate it at the time of retirement. However, partial withdrawal is also permitted with some condition. 

Public Provident Fund or PPF: It is very good option available with low risk and offer tax free return after maturity. It offer return market linked for current year it is 8.8%.The lock-in period is 15 year but partial withdrawal is possible after fifth year.

Bank Fix Deposit: The 5 year bank fix deposit is also available. Various bank offer return 8-9% this year (See earlier blog). The return is taxable as per one’s tax slab. The lock in period is 5 year. It is low risk product but keep in mind the post tax return also before investing in fix deposit.

National Saving Certificates or NSCs: It offer 8.5% return and is very safe investment. The lock in period of these instruments are 5 and 10 years. The person can choose any maturity 5 or 10 year based on their need.

Senior Citizen’s Saving Scheme: It offer 9.3 % return and added in taxable income. It is the most suitable option for senior citizens (above age 60 year) as it gives regular interest income in each quarter. It has no risk and very safe investment option. The lock-in period is 5 year.

Insurance Policies: It is long term product and lock in period depend on plan’s maturity. It has highest degree of safety but its average return around 6-7% only.

ULIP or Unit Linked Insurance Plan: The return is market linked as no fix return offer. Partial withdrawals possible. It is in the form of bundle which offer insurance, tax exemption and return also. The cost and charges is high compare with other products. The risk is depend on which option you have chosen.

ELSS or Equity Linked Saving Scheme: It is market linked product. There is no fix return. The lock in period for this product is 3 year. It has shortest lock-in period among all Section 80C options. It is high risky investment product.

NPS or National Pension Scheme: It is retirement goal oriented product. No withdrawal allowed before retirement. The return is market linked and it has very low expense ratio means low cost product.

Besides the above mentioned investment products which are in under section 80C, there are some expenses also eligible in under this section.

Home loan repayment: Principal portion of EMI is eligible for deduction till Rs 1,00,000 limit.

School Fees: Tuition fees of up to two children in a recognized educational institute for eligible for Section 80C

Home Purchase: During the purchase of home whatever stamp fee and registration fee you pay is also deductible from taxable income.

There is also other option available for tax deduction other than Section 80C which we will discuss later. If you want more clearity on these products pleas ask through email

Regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com

Retirement Planning - Its Importance

Have you prepared your retirement plan ?

We all work hard entire life for our daily needs and responsibilities. Our daily essential expenses has become costly day by day and the common man are in trouble to match the income for their current daily life expenses. During this daily life income generation struggle, somehow we are ignoring our after retirement plan. All of us expect a stress free retirement life and for that we need a suitable corpus. This corpus is nothing but replacement of your income when you stop working after retirement. The importance of building retirement corpus you can imagine that even today we are earning and hardly fulfil our needs and when we will stop earning then how can we expect stress free life. Migration of children, weakening joint family system, increased life expectancy, increasing medical bill, increased cost of living are the main factors which forced us to think about retirement planning in very serious.

One more crucial factor is inflation we should consider at the time of making retirement plan. It makes life worse more for retired person. For example if average inflation rate for next 25 year is 8% and our monthly expenses is Rs 15,000. So we need around Rs 1,00,000 per month with the effect of inflation.

Most of young people, at the beginning of their career completely ignore thinking about retirement plan. But please note down retirement is reality for every working person and for comfortable life style after retirement should make planning at the very beginning of the career. In most cases we have roughly 30 years for building the retirement corpus. As age of around 25 the person get job and around 55 take retirement. It means we should invest for some part of our saving for comfortable retired life during our working years.

So now it has become clear that how important to plan for after retirement life. If you find it is difficult to make retirement corpus then contact any independent financial advisor ( IFA).There are many ways to build retirement corpus like SIP in equity mutual fund, regular investment in government sponsored NPS (New Pension Scheme), PPF (Public Provident Fund), Provident Fund for employee, Annuity Schemes etc. We will discuss about these options in upcoming blog.

If you have any query regarding investment please feel free to ask.

Regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com