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Friday, February 29, 2008

Indian Union Budget 2008 - 2009

Its Feb 29 (leap year), that time of the year for the Indian government to come out with the union budget, and it did come out. So what are the positives and negatives? How will it affect you? Lets take a look its implications.


Taxpayers may gain up to Rs 44,000 per year


The adjustment for the income tax slabs has been done in such a way that people in the high income category stand to gain even more.

The increase in tax slabs in undoubtedly great news for the salaried. The news gets even better for those in the higher tax brackets. The adjustment for the income tax slabs has been done in such a way that people in the high income category – say above Rs 2.5 lakhs per annum - stand to gain even more.

To put this in numbers, a person who had a taxable income of Rs 5 lakhs would have be paying a tax of Rs 1 lakh – before any cess on his income in the income tax slabs that prevailed till now. However, under the new income tax slabs, his tax liability would come down to Rs 55,000 translating into cool tax savings of Rs 45,000 per year. That is a huge amount of money.

So, how has this magic come about? To consider this, look at the tax slabs. The minimum exemption limit has gone up by Rs 40,000. That’s good enough. What is better is that the next slab of 20% which earlier kicked in from Rs 1, 50,000 and extended till Rs 2, 50,000 will now only kick in from Rs 3 lakh onwards.

The good news does not end here; in the prevailing regime the 30% tax bracket started from Rs 2.5 lakh onwards. In the latest budget, the 30% tax bracket only starts from Rs 5 lakhs onwards. This is the revision that will do the magic for the high income earners. And, all this is not taking into account the impact of deduction on account of Section 80C.

The huge jump in interim slabs means that many people will just fall out of the highest tax slab into the tax slab below after they start claiming deductions they are entitled to under Section 80C. This is one budget middle class salary earners are unlikely to forget.

So what does the revision in the tax slabs mean for various tax payers. For a person whose taxable income after all deductions was Rs 2.5 lakh, tax savings could be around Rs 14,000; for someone with an income of Rs 5 lakh, it could be around Rs 45,000; for someone with a salary income of Rs 7.5 lakh, tax saving would be Rs 44,000 and for those earning Rs 10 lakh, tax saving would be as much as Rs 45,000 per year.

Threshold tax exemption limit increased from Rs 1,45,000 to Rs 1,80,000 for women
Senior citizens threshold tax limit increased from Rs 1,95,000 to Rs 2,25,000
Threshold limit of tax exemption increased from Rs 1,10,000 to Rs 1,50,000 for men




The old tax slabs were:

Upto Rs 1,10,000 – Nil
Rs 1,10,001 – Rs 1,50,000 – 10%
Rs 1,50,001 – Rs 2,50,000 – 20%
Above Rs. 2,50,000 – 30%


The new tax slabs are:

Upto Rs 1,50,000 - Nil
Rs 1,50,001 – Rs 3,00,000 – 10%
Rs 3,00,001 – Rs 5,00,000 – 20%
Above Rs 5,00,000 – 30%

Income Old Tax New Tax

Rs 2,50,000 (14,000) Rs 24,000 Rs 10,000
Rs 5,00,000 (45,000) Rs 1,00,000 Rs 55,000
Rs 7,50,000 (44,000) Rs 1,74,000 Rs 1,30,000
Rs 10,00,000 (45,000) Rs 2,49,000 Rs 2,05,000


Corporate tax sees no change

FM leaves India Inc a bit disappointed by not tinkering with corporate tax levels in Budget 2008. Corporate will be paying the same rates of 33.99% tax this year as well, additionally there is no change in surcharge on corporate tax.


Debt waiver, relief schemes for marginal farmers


The banks may be on the tenterhooks but the ‘Indian farmer’ is rejoicing. The Finance Minister has acted Santa Clause and announced debt waiver and relief for small and marginal farmers. The move will cost the government a total of Rs 60,000 crore – the waiver costing Rs 50,000 cr and a 25 per cent discount on the one time waiver to cost Rs 10,000 crore.

Agricultural loans given by scheduled commericial banks, regional rural banks and cooperative credit institutions up to March 31, 2007 and over-due as of December 31 that year will be covered under the waiver scheme to address the problem of indebtedness of farmers.

According to industry sources, the banks have reasons to be happy as there was an implicit hint that they would get reimbursed accordingly. In that scenario, the move will help the banks to get rid of bad debt.

The farmers can also take fresh loans post the settlement of the older ones which will give a fillip to agri credit space that has already touched Rs 2,40,000 cr in 07-08.


Govt to slap commodity transaction tax on futures


Government will introduce a commodity transaction tax for futures, the finance minister informed the Parliament on Friday.

The finance minister also proposed to bring commodity bourses under the purview of service tax.


Sectorial Impact: Financial sector


It has advised commercial banks, including RRBs, to add at least 250 rural household accounts every year at each of their rural and semi-urban branches.

The stock markets got a blow today with the FM announcing a hike in short-term capital gains tax rate from the earlier 10% to 15% now, while the STT, Securities Transaction Tax rates has been kept unchanged.



It is clear, reverse mortgage scheme is tax-free

In a step that was welcomed by housing finance companies, the government made it clear that the loan under Reverse Mortgage Scheme would not be considered as transfer of capital, thus putting it beyond the purview of income-tax. "Reverse mortgage would not amount to transfer and the stream of revenue received by the senior citizen would not be income," Finance Minister P Chidambaram said while presenting 2008-09 Budget. The scheme was notified by the housing finance sector regulator, National Housing Bank, last year to ensure financial security to senior citizens.
Subsequently, many banks and housing finance companies including Punjab National Bank, Dewan Housing, LIC Housing Finance launched such a scheme.



Ignoring of demand of STPI extension disappoints IT industry

IT industry is disappointed that its demand for extension of the Software Technology Parks of India (STPI) scheme beyond 2009 was ignored in the Union Budget. The STPI scheme that provides a 10-year Income Tax exemption in software technology parks expires, in March 2009.



New IITs for Bihar, Andhra and Rajasthan

Three more Indian Institutes of Technology (IIT) would come up in Bihar, Andhra Pradesh and Rajasthan in fiscal 2008-09. While IITs coming up at Patna in Bihar and Medak in AP is expected to start from the next session in 2008-09, the Rajasthan government is yet to provide a suitable site for its IIT, considered as a premier engineering institution in the country.
There are seven IITs in the country - Kharagpur, Mumbai, Chennai, Kanpur, Delhi, Guwahati, and Roorkee. These autonomous engineering and technology-oriented institutes of higher education were established and declared as Institutes of National Importance by the Indian government.



Infra sops to electrify power sector

There's more 'power' to Power sector in this year's Budget. It is announced that a Transmission & Distribution Reform Fund and Setting up of a Coal Regulator.
General Project Import Duty has been reduced from 7.5% to 5%. However, for Power Projects other than Mega Power Projects, withdrawal of exemption from additional duty of Customs of 4% and additional duty of Customs introduced on goods for High Voltage Transmission and Sub-Transmission & Distribution Projects will increase the Project cost.



Other changes in Budget 2008-2009 are:



Tuesday, February 26, 2008

Tax: Plan Your Taxes

10-point checklist for planning your taxes



Planning for tax investment from the beginning of the year is a good practice. But, Inot dome well in advance better to start when the end of the fiscal is less than three months away. Now is the time to start planning your taxes.



The following is a ten-point checklist.



1. The most important thing to do is start compiling a list of the Tax Deduction at Source(TDS) you have paid. TDS operates like tax already paid i.e. from your final tax liability you have to pay only such amount that is over and above the tax already deducted. It is important for all taxpayers to collect the TDS certificates after the end of the fiscal year. Though these don’t have to be attached with the tax return anymore, they have to be filed and kept on record and produced before the ITO if called for.



2. If you have availed of housing finance, be sure to collect the certificate of your EMIs and the total interest paid from the housing finance company.



3. If you haven't bought Mediclaim, do so now. There is a deduction of Rs. 15,000 (Rs. 20,000 if you are a senior citizen) available under Sec. 80D.



4. It is time to make your Sec. 80C investments to claim tax rebate. PPF offers 8% tax-free. Equity linked savings schemes are the flavor of the season. Have you considered these?



5. Sec. 88 used to be unavailable to those earning above Rs. 5 lakh. However, its not so with Sec. 80C. Everyone, regardless of income level, can take advantage of the Rs. 1 lakh tax break offered by 80C.



Sec. 80C doesn’t impose sub-limits like Sec. 88 used to. For example, under 88, you could invest only up to Rs. 10,000 in ELSS. Or only Rs. 20,000 was available for housing finance. Now, 80C is extremely flexible, as the erstwhile sub-limits have been dispensed with.



The EET tax regime has yet not been notified. Therefore, all your tax saving investments for FY 07-08 will be under the old EEE system. For next year, defer your tax saving investments till such time there is clarity on the issue. The Government is expected to come out with the new tax laws anytime next year.



6. If you have made a donation, you need to submit the receipt issued by the institute (receiving the donation) to get the benefit of the deduction under Sec. 80G. If you have not collected such a receipt, do so soon.



7. If you are a female assessee under the age of 65, do not forget to take into account the special tax exemption slab of Rs 1,45,000 while arriving at your tax. And if you are above the age of 65, remember to claim the special slab exemption of Rs. 1,95,000.



8. If you are a trader, remember, Sec. 88E allows you a set-off of the Securities Transaction Tax against your trading profits. Arrive at your taxes only after claiming this set-off.



9. Last but not the least; get in order all your supporting documents of the tax planning/saving instruments that you have invested in. For employees, this directly affects the amount of TDS on your salary. If you are late, you would end up bearing a higher amount of TDS than what ought to have been deducted.



10. The last date for payment of advance tax is March 15th. However, if your advance tax payable is less than Rs. 5,000, then you can pay such tax while filing the return. Also, if you earn any income after 15th of March, pay tax on it on or before 31st and such tax would also be treated as advance tax.

Monday, February 25, 2008

Real Estate Vs Equity

Should you put your surplus into real estate or financial instruments?



SO YOU are a young Indian who earns well, has spent wisely and drive your own car, live in your own house and are able to meet daily expenses without too much effort. Now you are concerned with the surplus that you have in hand and are confused whether to put it into financial instruments such as mutual funds and unit-linked insurance policies (ULIP) or whether you should buy a second house to capitalize on the current real estate boom.

Anybody looking at real estate as an investment option is currently at least in the post 35 year age group. In the current scenario, other financial instruments score over real estate as a long-term investment option. The returns in the short and long term are more attractive.



Portfolio advisor too agree. Investment in mutual funds and stock markets is liquid. But investments in the property market are not. Mutual funds yield at least 40% year-on-year returns. If a investors puts in Rs 20,000 per month in the Reliance growth fund and his returns are currently over Rs 3.6 crore in 10 years. This is way above that in real estate. In fact, thumb rule based on the worst performing systematic investment plan mutual fund over the last 10 years. If you have invested for over seven years, returns are normally the amount invested multiplied by the number of years it was invested for.



Investment in ULIP has dual benefit of mutual fund and life insurance policy.



So why are people investing in real estate at all? – Hype. Where did the hype come from? The hype around the real estate market comes primarily from speculative extremely short term investors. They have bought at launch prices and sold as the values of each subsequent release by the developer was raised and encashed their investment in the short term. These would have yielded very high gains. Nobody who has invested for the long term has contributed to the hype because chances are that they have not exited the market and their computed returns are notional. A long-term investor should not look at hyped gains.



At the height of the boom, some property investment adviser had advised various investors to put money into multiple projects and to recycle the investments for maximum returns. In fact, they managed portfolios of investors who had up to Rs 1 crore to invest by putting in the 10% that was required to book a property and then to exit when the next installment was due. The gains were then reinvested in newer launches and the money was constantly increasing.



But the current scenario is different. Today after almost 8-10 months of slow-down in transactions, developers are completing projects rather than launching numerous new ones. Even the rate of hike of value is steady and therefore the short-term speculator is kept at bay.



Immature markets tend to behave erratically. Initially rental markets are not stable and more users think of purchase rather than rentals. Once the supply comes in the rental markets pick up and those who do not want to occupy, lease out property. This hike in demand brings in the speculators and short-term buyers. Finally when there is a glut and capital values stop rising, the rentals will rise.



But typically a yield from residential real estate investments is only 15-20% in stable markets and 10-12% in unstable markets.



So again why invest in real estate at all? Why not only in mutual funds if you are a retail investor? - To diversify your portfolio



Simple mantra for the retail investor:


• Do not make investments on the basis of hype. In a market correction hype comes down and you get a realistic picture.


• It is wise to hold a diversified portfolio with real estate as one of the options


• Time your entry correctly. The hype typically starts when the peak is reached. If you enter at the peak, you will not get the best rates and you may be part of the slide



During investing for the long-term remember that returns average out. The property adviser, who does not wish to be named, maintains that normally even in weak market cycles property values double in five years. So if you are in the 35-plus age group, your property value will at least double every five years and you will never lose out. However, the rate of enhancement of the mutual fund investments is greater in the short term.



Long-term returns on real estate investments can be up to 200-300% if you choose your destination correctly. If you invest in what is the periphery of the city today and hence cheaper, and if there is good economic activity there, the returns in the long term are definitely positive. Choice of investment destination is important. But real estate decisions are often emotionally driven too. Aspirational considerations may drive the investors to look at property purchase than yield analysis alone. But if the investor reads the future potential of markets correctly, he can get good returns.



The retail investor has more to look forward too from real estate markets. The Sebi has already issued draft guidelines for Real Estate Investment Trusts (REITS), a sound financial instrument in developed real estate markets around the world. This will open up a class of investment to the real estate retail buyer that was earlier not possible.


Younger investor opting more for systematic investments in mutual funds that is more speculative but has greater returns. The REITS, expected to be functional by next year, will attract an older investor who takes less risks, but opts for steady returns.

Friday, February 22, 2008

Insurance Basics Part III - Types

Why Do I Need Life Insurance?

You need Life Insurance because typically the need for income continues for those who are financially dependent on you, but there is no guarantee of your ability to earn consistently and for the rest of your life. Life insurance can help you safeguard the financial needs of your family.

This need has become even more important due to steady disintegration of the prevalent joint family system, and emergence of nuclear families. The need to protect your family's ever growing needs is why you need Life Insurance.

Life insurance is designed to protect you and your family against financial uncertainties that may result due to unfortunate demise or illness. You can also view it as a comprehensive financial instrument – as a part of your financial planning offering you savings & investment facilities along with cover against financial loss. By choosing the right policy as per your needs i.e. customized solutions, you will be able to plan for a secure future for yourself and your loved ones.

1. UNIT LINKED

Market linked insurance plans invest the premium in to the equity, debt and cash markets by the way of allocating units, which like any other mutual fund have a NAV and the customer is free to switch between one fund class to another depending on the risk factor he wishes to be in.

ULIPs offer -
1) Better return than the traditional endowment plans and
2) Offer a great deal of flexibility along with great returns making them the finest product offering.

ULIP products can range from single premium to a regular premium option along with investment funds ranging from index funds to mid-cap funds and debt market linked funds.


a) Regular Premium

Unit Linked Single Premium Plans require the premium to be paid at the interval agreed on the application.

b) Single Premium

Unit Linked Single Premium Plans require the premium to be paid only once.

2. PENSION

Retirement Plans which will make sure that we are there to support you in every stage of your life and your savings today become your wealth and support for your future years to come. Plans help you secure your financial independence even after retirement.

a) Annuity

Annuity is an insurance scheme under which an insurance company promises to make a series of fixed periodic payments to a person in exchange for a premium or a series of premiums called the purchase price.

b) Retirement

Retirement is the beginning of the twilight of the journey of life when you have done all that you could to arrive at this point of time, and now left with time to reflect back on what was, and also what is to come. Our retirement plans help you to retire with laughter lines – not worry lines.

3. TRADITIONAL

Saving Plans, which offer bonuses, are excellent long term saving instruments with complete safety. Our products offer additional benefits which include 4 times life cover at little extra costs, limited premium payment terms and compounded reversionary bonuses making it a very good long term investment.

a) Endowment

Life insurance cover with a savings component. Apart from death benefit, a predetermined sum is paid at the end of a specified term. A plan in which the amount is paid to a policyholder if he outlives the tenure of the contract or to the beneficiary if the insured person dies before the date on which the policy matures.

b) Money Back

A plan in which part of the sum assured is paid back to the policyholder at regular intervals.

Money back plans are Traditional Insurance plans that provide the investor with returns at regular stages of life.

4. TERM PLANS

A type of life insurance where the sum assured is payable only in the event of death of the life insured during the specified term. In the case of survival, the contract expires and the premium is not paid back to the insured.

The sole objective of Term plans is to serve the protection needs of the customers and by doing so, safeguard one’s family from the financial implications of unfortunate circumstances that one cannot foresee. These plans are pure risk cover plans with or without maturity benefit. These pure risk plans cover your life at a nominal cost and you may want to take this plan to cover your outstanding debts like a mortgage, a home loan etc.

5. CHILDREN PLAN

As a parent, you always dream the best for your child including marriage, higher education, or that hand holding for a start in life. Whether you are there to see your child grow up and settled or not, your child feels your love in the financial support arranged by you through our wide range of Children's insurance policies taking him from one milestone to another.

Saving early and saving regularly for your child helps combat inflation and ensures higher yields. If you take an insurance policy for your child you can take advantage of lower premium rates and ensure that your children remain covered throughout adult hood, at a much lower rate. This also instills a saving-habit in your children at a young age developing them as and when the policy vests in them.

Tuesday, February 12, 2008

Insurance Basics Part II - Life Stages

Life Stages

Your insurance need will change as your life does, from starting to work to enjoying your golden years and all the stages in between. Each one of these stages may pose a different insurance need/cover for you. In this section, we have drawn up the basic life stages and help you analyze various insurance needs accordingly.


STAGE 1 : Young and Single

An important stage where one lays down the foundation of a successful life ahead. Take advantage of the time and power of compounding to ensure that you build up your dreams. Start saving early.

Your needs:

  • Save for a home and wedding
  • Tax Planning
  • Save for Golden years

STAGE 2 : Just Married

Marriage brings about a significant change. New dreams and new opportunities also bring in additional responsibilities. While both of you look forward to a happy and secure life, it is equally important to ensure that eventualities don’t come in the way of shaping your dreams.

Your needs:

  • Planning for home / securing your home loan liability
  • Save for vacation
  • Save for your first child


STAGE 3 : Proud Parents

Once you have children, your need for life insurance is even more. You need to protect your family from an untoward incident. Ensure your protection umbrella takes into account the future cost of securing your child’s dream. You will want life to go on for your loved ones, and having enough life insurance is a way to help ensure that.

Your needs:
  • Provide for children’s education
  • Safeguarding family against loan liabilities
  • Savings for post-retirement
STAGE 4 : Planning for Retirement

While you are busy climbing the ladder of success today, it is important for you to take time and plan for your life after retirement. Having an early start for retirement planning can make a significant difference to your savings.Think about your golden years even before you have reached them. The key is to think ahead and plan well using your time and money.

Your needs :
  • Provide for regular income post retirement
  • Immediate Tax benefits
  • Lead a secure, independent and comfortable life style in your retirement years
  • Choosing the right plan
Identifying the right plan basis your needs is the first crucial step towards insurance planning.

Analysing Needs.........What is your need?

Protection
Need for a sound income protection in case of your unfortunate demise.

Investment
Need to ensure long-term real growth of your money.

Saving
Save for the milestones and protect your savings too.

Pension
Need to save for a comfortable life post retirement.

Once you have analyzed your needs as per above classification, you need to then ascertain important factors such as type of cover, insurance amount as per one's income, life stage and dependents. It is difficult to arrive at all these figures yourself. Our financial consultants can help you.

Tuesday, February 5, 2008

Insurance Basics Part I

Insurance

Insurance is the lifejacket you wear in a storm, the umbrella that shields you in a downpour, It does not prevent these events from taking place, but makes sure that their impact is lessened and that you have something to hold on to.

It gives you the financial security and certainty to deal with the aftermath of these events. It becomes the earning member of the family and supports you and your family during the rough times.

Why Life Insurance

Protection

You need life insurance to be there and protect the people you love, making sure that your family has a means to look after itself after you are gone. It is a thoughtful business concept designed to protect the economic value of a human life for the benefit of those financially dependent on him. That’s a good reason.

Supposing you suffer an injury that keeps you from earning? Would you like to be a financial burden on your family, already losing out on your salary? With a life insurance policy, you are protected. Your family is protected.

Retirement

Life insurance makes sure that you have regular income after you retire and also helps you maintain your standard of living. It can ensure that your post-retirement years are spent in peace and comfort.

Savings and Investments

Insurance is a means to Save and Invest. Your periodic premiums are like Savings and you are assured of a lump sum amount on maturity. A policy can come in really handy at the time of your child’s education or marriage! Besides, it can be used as supplemental retirement income!


Tax benifits
Deductions from gross income on Life Insurance premium paid (Traditional & Unit Linked Plans)

Under Sec 80C of Income Tax Act

Available for Premium paid (max. up to 20% of SA) on Life Insurance policies with a maximum ceiling p.a. Rs. 1,00,000 irrespective of the Gross Total Income.

A maximum of Rs. 1,00,000 p.a. paid as a contribution on a pension plan is fully deductible from the taxable income (within the max. ceiling Rs. 1 lakh )

Under Sec 80D of Income Tax Act

Premium paid for Critical Illness rider is deductible as medical insurance premium from the annual income chargeable to tax up to a maximum amount of Rs. 15,000.

Exemption from the Life Insurance proceeds

Under Sec 10(10D) of IT Act

Maturity benefits are tax-free in the hands of the policyholder if, at any point of time during the policy life, premiums paid within one year do not exceed 20% of the basic Sum Assured.
Death benefits are tax-free.

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