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Monday, March 17, 2008

Sell your dud Stocks and Save Tax

Book Losses before 31 March And Set Off Against Cap Gains For Next 8 Yrs, Advise Tax Experts

ARE you sitting on unrealized losses from the recent downturn in the stock market? If the investments are less than a year old, you could put it to good use and lower your tax liabilities for the current financial year. Tax experts are advising investors to book their losses on or before March 31 this year and buy back those positions in the next financial year. By doing so, the tax on short-term capital gains (if any) can be set off to the extent of the short-term capital losses.

Market watchers are expecting some sharp swings in many small and medium cap stocks over the next few weeks as investors try to balance their account books.

Short-term capital losses for the year can be set off against any capital gains, short or long term, reported under the head, income from capital gains. In case the gains are lower than the losses, the excess short-term capital losses can be carried forward and set off against capital gains for eight successive assessment years.

Long-term capital losses on security transactions liable to securities transaction tax cannot be offset against any income, and cannot be carried forward for offsetting against any future gains.

This trend (of lowering tax liability by booking temporary losses) is also seen in other countries like the US, subject to fulfillment of certain conditions, where it is widely known as January effect.

However, investors have to bear in mind that short-term capital loss (STCL) first has to be adjusted with any short-term capital gains and only then with long term capital gains on transactions not liable to STT (like sale of gold, real estate, etc).

The theory behind the January Effect is that small stocks that perform poorly during the year fall victim to tax-related selling by mutual funds and other investors late in the year to capture the capital gains. As this drives prices down, presumably below true value, in December, investors buy back the same stocks in January, resulting in high returns.

However, there is a rule (wash sales rules) preventing investors from selling and buying back the same stock within 45 days for tax purposes. But in India, there is no such restriction that forbids investors from benefiting from this. So, many small-cap stockholders look for ways to avoid being taxed on non-profitable stocks. If they can sell these shares before the following year begins, their capital gains taxes should be lower.

Mutual Fund: Should I get rid of schemes if they under perform?

One can give the benefit of doubt to products that have started losing their value only recently

The contrast is striking. Especially, since the market has started falling. The return from some of the mutual fund scheme has been offering for sometime now is disturbing.

Some fund manager is severely underperforming his peers. For example, take a look at the gainers and losers, the top performing fund in the diversified equity scheme category has returned around 66% in the past one year, whereas the worst performer in the category has given a negative return. Index scheme category has given an average return of around 25% in the last one year. Worse, even debt schemes have performed better than these losers. Shot-term debt funds, for example, has offered around 8.4% returns to the investors in the last one year.

One really don’t understand how these schemes can lag so far behind the best in the category. How can any fund manager justify his fee, when he is underperforming even debt schemes? Even index scheme is outperforming means the fund manager is really dumb. There is no simple answer to this question. You have to monitor the scheme for a while and look at its portfolio before making final decision. After these two steps if he thinks there is no valid justification for such severe underperformance, he can get rid of the fund.

The decision making is not an easy task. That is why he called up to ask what the strategy suitable to deal with such situations is. But the questions were: should one get rid of a scheme if it severely underperforms its peers for a few weeks? Or should one really look behind the reasons for the underperformance before getting rid a laggard? Investment experts believe that one should always give a reasonable period of time for the scheme before deciding to redeem it. What the reasonable time is varies from people to people. For some, it is three months and others are more lenient; they would give six months. The first step is to start monitoring the scheme’s performance vis-à-vis its peers.

But always remember one point: you should compare only schemes within one category. If the scheme continues to perform badly for, say, six months. Then, look at its portfolio to figure out what is its investment strategy. If the fund manager has taken a defensive position, give him some more time. Otherwise, just dump him; he is not worth the fee you are paying.

You should deal with perpetual laggards severely. Certain themes and specific schemes have failed miserably to deliver. Such schemes should be punished.

For example, Birla Opportunities (incidentally, the biggest loser last week) haven’t performed well at all. The same applies to themes like contra, dividend yields. Well, if you have invested in any of these themes, go ahead and dump it without much trepidation. That was for perpetual laggards. What about schemes with an envious past record, but started underperforming only recently. Also, what if they are still average performers? For example, what about an HDFC Tax Saver, which started underperforming only in the recent past? But still the benefit of doubt can be given to these schemes. They have weathered many a storms and they have never deviated from their original mandate. And sure if you look at the long term performance, they wouldn’t be in the bottom 10.

Financial Planning: Don’t Over - Invest in PPF, NSC

A professor of mechanical engineering has been a regular investor in traditional investment products for the last 30 years. His investment portfolio includes instruments like LIC, public provident fund (PPF), national savings certificates (NSC), fixed deposits (FDs) and infrastructure bonds.

For him, investment in equities was never a priority. He thought they were risky. More recently, he ran into a wealth m a n a g e r who told him that investments in traditional products are important but it shouldn’t occupy a major chunk of his portfolio. Now he is beginning to invest a little in mutual funds and equities.

Everyone hates losing money. But by playing too safe, you could also lose money by earning negative real returns (after taxes and inflation). Traditional investments were hugely popular 20 years ago. They were safe, gave decent returns and were easy to invest in. However, they have not borne the onslaught of private investment options very well.

Today, most of Sunder’s clients find that PPF and NSC are more about wealth preservation than wealth creation. When they wish to build a fortune, they’re better served by newer investment options like mutual funds.

In recent years we have witnessed a tremendous growth and strengthening of the capital market. With new techniques and more options of investment, traditional products are losing their place in today’s investment portfolios.

It’s imperative for rigid investors to bring in a change in their portfolios and strike a good balance between the traditional products and the new age investment avenues to get the best return on investments. The allocation in traditional tools has to be balanced according to the age, liquidity requirement and risk perception of the individual.

Wealth managers feel the primary attraction of traditional investments is the perception of safety. But today we have a range of options that offer similar safety, with better liquidity and higher post tax returns. The higher post tax returns arise out of the tax-free nature of dividends from liquid or other bond funds.

Pros and cons of traditional products

1) Returns:

Quite mediocre compared to equity investments such as stocks and mutual funds.

2) Risk:

Scores highly on this factor because government backs them. This is one reason why people are looking at them once again, given the current volatility in the markets.

3) Liquidity:

Is a definite disadvantage, as most popular traditional investments requires you to stay invested for many years in order to get the full return promised. Getting your money back in between can range from inconvenient to impossible. In case you want to exit, there’s a huge exit penalty.

4) Taxation:

At a time when the government wanted to encourage small savings, traditional investments were given tax advantage status. Now government has made some mutual funds and insurance investments equally tax efficient, so traditional products have lost their lustre.

5) Transparency:

Are quite transparent, with returns being determined by the government rather than by further investment in other instruments. But unit linked plans are also becoming more transparent with the regulator’s intervention.

6) Convenience:

It used to be convenient because of the excellent network of post offices and other authorized agents. While this is still the case, alternative investments are becoming easier with the advent of private financial institutions and widespread use of technology.

This is the e-investor era where everything happens at the click of a button, provide flexibility, liquidity, transparency and most importantly, attractive returns. However, excess of anything is bad and traditional investments should still form a part of one’s portfolio, but to a limited extent.

Wednesday, March 12, 2008

How To Save On Tax - Current Year (2007 - 2008)

What's special about March? Lots of things, actually. But from a tax point of view, it will be that time of the year when a lot of you will actually start figuring what your tax saving avenues should be. Little wonder that mutual funds report the highest inflows into equity linked savings schemes (ELSS) and life insurance companies record their highest sales in the first three months of the calendar year.

Guilty as charged? Well, here's some help. Here's the first part of our special section dedicated to tax saving. We start right now with the absolute basics.

You would have noticed that the tax department is more partial to women and specially, senior citizens. But those rates are the maximum you would have to pay if you did absolutely no tax planning.

The very first step that you have to follow is to figure out what Section 80C (of the Income Tax Act) is and how you can use it for your benefit. Any individual, irrespective of how much s/he earns, can reduce his taxable income by up to Rs 1 lakh, which is the limit under this section. You can decide how much you want to invest in each of the options or whether you intend putting the entire amount in just one of them. For instance, someone may choose to invest Rs 1 lakh in tax saving mutual funds, while another may fulfill his limit by making the payment towards his home loan. There are no sub-limits on any one of them except the Public Provident Fund (Rs 70,000 per financial year). And, tuition fees are limited to two children.


Upto 1.1 Lakh Nil

1.1 to 1.5 Lakh 10% of income above 1.1 Lakh

1.5 to 2.5 Lakh Rs 4000 from earlier slab + 20% of the income above 1.5 lakh

Above 2.5 Lakh Rs 20000 + Rs 4000 of earlier slab + 30% of the income

2above 3.5 lakh


Upto 1.45 Lakh Nil
1.45 to 1.5 Lakh 10%

1.5 to 2.5 Lakh 20% + Rs 500
Above 2.5 Lakh 30% + Rs 20000 + Rs 500

Senior Citizen:

Upto 1.95 Lakh Nil

1.95 to 2.5 Lakh 10%
Above 2.5 Lakh 30% + Rs 11000

  • 3% Cess (1% Education Cess + 2% Secondary & Higher Education Cess) is lavied on Income Tax for all Individual, Irrespective of age and gender.

  • Surcharge 10% of is lavied on the income tax of those individuals whose Income exceeds Rs 10000.

So if you are a salaried individual, check the exact amount of your contribution to the Employee Provident Fund (EPF). Also check your existing life insurance policies and pension plans. If it totals up to Rs 1 lakh, then you are done. If not, then you have to figure out where to put your money.

When making a decision on which investments to opt for under Section 80C, there are three factors to consider: time horizon, risk appetite and tax on interest.

What falls on Section 80C:

Investments or contribution towards......

Education Provident Fund (EPF)

Public Provident Fund (PPF)

National Savings Certificate (NSC)

Life Insurance Policy

Pension Plan

Infrastructure Bond

Equity Linked Savings Scheme (ELSS)

5 Years Bank/Post Office fixed deposit (FD)

Senior Citizen Savings Scheme


Education Fees of Children

Repayment of Principalamount of home loan

A lot of these investment avenues have lock-in periods that extend for a number of years. For PPF, it is 15 years, for NSC, 6 years. The ones with the lowest lock-in period are ELSS (three years) and infrastructure bonds which generally start at three years. You will have to simultaneously also consider the risk factor. ELSS are the riskiest since they are diversified equity mutual funds. On the other hand you have PPF and NSC which are the safest since they are backed by the government. Finally, look at the tax implication on the return on your investment. For instance, the interest you earn on PPF is totally tax free. Not so in the case of NSC or your bank fixed deposits. But the capital appreciation on your ELSS will be totally free from any capital gains tax and the dividends you earn are tax-free too.

But there is more to tax saving than just Section 80C. If you are servicing a home loan, you would get a benefit on the principal amount being repaid under Section 80C. But you also get a tax exemption on the interest paid on the loan under Section 24. And under this section, the limit is Rs 1,50,000 in one financial year.

You would definitely be familiar with Section 80D. Under this section, you can claim an exemption on the premium you pay for your medical insurance, popularly known as mediclaim policy. There is a ceiling here though - Rs 15,000. Add Rs 5,000 to that amount if you are a senior citizen. The good news is that you can claim it not only for your own policy but also for your dependents, provided you are paying the premium.

And, if you have a charitable bent, then Section 80G is meant for you. Donations made under this section are eligible for a 50 per cent tax relief. To get a 100 per cent tax benefit, your donation will have to go to specified organizations/trusts like the Prime Minister's Relief Fund, CARE and Help Age India.

Related Feature

The above article features related content

Tuesday, March 11, 2008

Income Tax: Planned your tax for the year?

We are at the end of this financial year. Some tips in case your tax planning isn’t complete

The financial year 2007-08 is coming to an end in the next couple of weeks. This is the last chance for investors who have not planned their tax savings this year to invest and save taxes. There are certain investments and expenses that are exempt from income tax under the Income Tax Act. Investors can review their tax planning and see if they missed out on something good. This can lead to a 33 percent savings on the amount invested through the reduction in their tax liability.

Here are some ways for an individual to reduce tax:

Tax rebate under Section 80C

Section 80C of the Indian Income Tax Act allows income tax exemptions to individuals on certain investments and expenditures. The maximum exemption allowed under this section is Rs 1 lakh.

Investors can invest Rs 1 lakh in one or more of these instruments to avail tax rebates under Section 80C:

  • Provident fund or public provident fund (PPF)

  • Life insurance (term insurance as well as endowment plans)

  • Investments in pension plans

  • Investments in equity linked savings schemes (ELSS) of mutual funds

  • Investments in specified government infrastructure bonds

  • Principal repayment of housing loans

  • Investments in National Savings Certificates (interest of past NSCs can also be added to the Section 80 limit)

  • School, college tuition fees paid for children (allowed only for two children)

Tax rebate under Section 80D

Investments in medical insurance (Mediclaim policies) are eligible for tax exemptions up to Rs 15,000. This deduction comes under Section 80D and is in addition to the Rs 1 lakh rebate allowed under Section 80C. The deduction allowed for senior citizens is Rs 20,000. An individual can avail this for medical insurance premiums paid for himself, spouse, parents and children.

Other avenues for salaried individuals

Medical reimbursement:

Salaried individuals can avail a deduction of up to Rs 15,000 per year against medical reimbursement.

This deduction can be claimed if the employer pays medical reimbursement as a component of salary as the employer will have to pay fringe benefit tax on this amount. The deduction is allowed only on providing proper medical expenses proofs.

Leave travel allowance (LTA):

Salaried persons can avail income tax deductions on travel expenses (family travel expenses can also be covered if family travels along with tax payer).

As per income tax norms, leave travel allowance can be availed twice in a block of four calendar years. Presently, the block applicable is from January 1, 2006 to December 31, 2009. Leave travel allowance can only be availed on the expenses incurred on domestic travel. However, the travel mode can be anything (taxi, bus, train or air).

Last minute planning

We are very close to the financial year end. However, there are some ways for you to review your tax profile and make some last-minute adjustments.

First of all, check if you have already exhausted your Section 80C limit of Rs 1 lakh. If the limit is not completely exhausted, you can look for some investments under the Section 80C category. If a long-term and safe investment is the objective, you can look at investing in PPF or pension plans. You can invest in infrastructure bonds or tax-saving mutual funds if your investment horizon is bit shorter.

Salaried people can check their medical reimbursement limit. If the limit of Rs 15,000 is not already exhausted they can plan health check-ups and save tax on their medical bills.

Investing in a medical insurance policy is another option to save tax, if your Section 80C limit is already exhausted. But, don't just invest for the sake of saving taxes.

Many companies provide medical cover to their employees, their children and dependant parents. In case you already have medical cover provided by your employer, think and make a case before investing in a new medical insurance policy.

Friday, March 7, 2008

Life after Union Budget 2007 - 2008

In this section an attempt is made to analyze and highlight the implications of Budget on common man under various heading.

Home is where many tax saving options still dwell

Buy a home, go for joint ownership if you are two salaried persons, buy a second property, or even sell the existing one...if you plan well, there are various options to save tax on hard-earned money

THE Indian economy has been witnessing a boom in the recent past. However, rising property prices and growing interest burden on home loans are worrying buyers. The Budget has not offered any relief, but you can still make ample use of the existing provisions to save substantially on property investments. Here’s how….


Owning a house is not just a dream but a necessity, and there are several tax benefits as well. However, when buying a house, you would do well to consider the following.

(a) It’s always advisable to go in for a housing loan. Interest paid on home loans can be deducted from your taxable income up to a maximum of Rs 1.5 lakh. This can be a double bonanza in the case of joint ownership. If the joint owners equally bear the interest burden, each gets a deduction up to Rs 1.5 lakh. However, the total deduction cannot exceed the actual interest paid by the joint owners. So, if the total yearly interest liability is, say Rs 4 lakh, and the property is equally owned by three people, then each gets a deduction of Rs 1,33,333.

(b) Principal repayment up to Rs 1 lakh is allowed as a deduction from your taxable income under Section 80C, provided the loan is borrowed from a recognized financial institution.


These days it’s not uncommon to see people owning more than one property. While interest paid on loan taken for a single property is eligible for deduction up to Rs 1.5 lakh only, no such ceiling is prescribed for a new loan taken to purchase a second property. Thus, if your rental income from the second property is Rs 4 lakh and the interest expense on loan taken for the second property is Rs 2.5 lakh, then your income from house property shall be calculated as below:

By claiming deduction for the entire interest expense of Rs 2.5 lakh, you can substantially reduce your tax liability.

Had there been no deduction of interest expense, you would have had to pay tax on Rs 2.8 lakh instead of Rs 30,000.

However, if your second house is lying vacant, generating no rental income, you can still claim deduction for the interest paid. There will nevertheless be a notional rental income and the interest will be deducted from this income.


To minimize tax outflow while selling a property, take into account the following.

(a) A property or house held for under three years is termed as a short-term capital asset and does not attract any tax incentive. However, if you sell the property only after three years, it is a long-term capital asset, which is eligible for some tax relief.

(b)Selling property attracts capital gains tax. However, if you invest the proceeds from selling the property into buying or constructing another house, the taxman exempts you from paying taxes. But keep in mind the following:

• If you intend to purchase a new house, do so either one year before or within two years of selling your existing property.

• If you are constructing a new house, then ensure that it is done within three years of the sale of the earlier property. You can start construction even before the transfer of the existing property. However, ensure that it is completed within the stipulated time.

• If you have already sold your property, and could not acquire a new house before the due date for filing tax returns, you can deposit the money in the ‘capital gains deposit account scheme’ with any nationalized bank.

(c) Even those who do not want to buy a new house can avail of some tax benefits. All you need to do is invest the proceeds from the sale of the property in capital gains bonds issued by NHAI or REC within six months of the deal. The maximum investment permitted in such bonds is Rs 50 lakh, and these bonds can be redeemed only after three years from the date of investment.

Rental Income 4,00,000

Municipal Taxes NIL

Net Annual Value (NAV) 4,00,000

Standard Deduction (30% of NAV) 1,20,000

Interest On Loan 2,50,000 Taxable Income 30,000



Smart tips to better your life Thumb-Rules.

Want to make more bang from the extra buck that PC has gifted? Read on...

Stretch your disposable income

Several expenses you meet in daily life like tuition fee or insurance premium yield tax benefits. So use them effectively to lessen your burden, instead of utilizing the entire Rs 1 lakh limit for investments alone.

Keep your PAN ready

PAN is now mandatory for almost all transactions. So keep copies of PAN card ready for submission. While most investments demand a PAN, now you are also required to flash one to open a bank account.

Play safe, choose the right cover

Treat life insurance as a shield against uncertainties. Select an insurance policy that will provide life cover for you and your dependents rather than focusing only on returns.

Invest wisely

Do not mix investment objectives while selecting financial products. If you intend to have a steady and regular income, opt for debt products. For aggressive investors, equity is always the best friend.


Safe Haven

Investment’s not all about big risks & high returns. It pays to be a disciplined investor

Make most of PPF investments

Invest in the public provident fund before the 5th of the month to earn interest for the full month. If you pay by cheque, make sure your cheque gets cleared by this date.

Start early

Invest early in your PPF accounts, rather than waiting for the year-end as you may lose out on the interest. If lump sum investment is difficult, opt for monthly installments.

Look beyond usual pension plans

Consider and evaluate pension products beyond traditional routes to get a wider choice in achieving financial objectives. Look out for insurance-cum-pension plans for a secure future early on.

Debt’s the best bet for fixed returns

If you want fixed returns, and then select a debt instrument like fixed deposit or post office term deposit or NABARD rural bonds. These are not tradable and have a fixed payout. However, the returns are comparatively lower than equity-based investment avenues.


Cash Cows

Make an early start. Stick to basics. Span out your investments to keep the load light

Maturity’s the key

There are various lock-in periods for various tax saving instruments. While ELSS has a lock-in of 3 years, for term deposits it is up to 5 years. So select the one that suits your investment objective.

Don’t lock in your funds

Choose the dividend payout option in equity-linked savings scheme to get regular payout of the gains rather than face a lock-in on the entire investment. Look out for new avenues to reinvest the dividend so received.

Take the SIP route to prosperity

Equity-linked tax saving investments should be spread out through the year and this will require investments right from the beginning of the year. Thus, SIP route is advisable.

In debt, it’s all about timing

Debt investments for tax saving can be made at one go, but those that are not tradable should be selected in the beginning of the year to maximize earnings. Inflation can further eat into your returns from debt instruments.

Learn to lessen the study load

Save tax on tuition fees & interest paid on loan

BEING one of the key concerns of an average Indian, education is a natural beneficiary when it comes to tax breaks. Over the years, apart from constantly increasing budgetary allocations for education, the government has been making provisions to help students and parents avail of tax relief on money spend on it. Union Budget 2008-09 has maintained the status quo on deductions allowed on tuition fees and interest paid on education loans.


Several banks offer loans for educational purpose. Apart from tuition fees, the loan could cover expenses like hostel charges, library/laboratory fees, travel expenses and passage money for studies abroad. The borrower can claim tax exemption on interest paid under Section 80 E.

However, it comes with certain riders. The loan should be taken from a bank, financial institution or a government-approved charitable institution for higher studies. Courses eligible for the deduction include graduation, post-graduation, professional courses and other courses approved by the UGC, the government or the AICTE. As far as studying abroad is concerned, loans can be availed for job-oriented graduation courses offered by reputed universities, post graduation courses like MS, MBA and MCA, and other professional courses from certain institutes like CPA, USA and CIMA, UK.

Effective fiscal 2007-08, a person taking a loan to fund the education of his/her children or spouse will be eligible for claiming deduction on his/her income for taxing purposes. Also, there is no cap on the amount of interest on which one can claim tax exemption; your entire interest outgo on an education loan is eligible for deduction. The tax exemption, though, is not available for repayment of principal.

If you have borrowed Rs 2,00,000 at the rate of 12% per annum for seven years, the total interest paid would be Rs 1,06,776, and the entire amount can be deducted from the total income. The amount repaid as interest will get the benefit each year.

The repayment period for the student borrower starts one year after the completion of the course or six months after he/she secures employment, whichever is earlier. The tax exemption is allowed for the year you start repaying the loan and seven subsequent assessment years. For example, if you have started working in May 2008, the exemption can be claimed from the year 2008-09 to 2014-15. The repayment period specified by most banks is 5 to 7 years. If the loan has been taken by the parent or spouse, they can start repayment immediately after the disbursal of the loan and claim exemptions accordingly.


Money spent towards children’s tuition fees — at the time of admission and throughout the course’s duration — can be deducted from your taxable income under Section 80 C. However, other payments made to the school or college, like donations, development fees and other expenses of similar nature are not eligible for tax exemption. The relief is given to tuition fees paid towards full-time education of any two children of an individual. Also, the relief can be availed of only if the children study in universities, colleges, schools or educational institutions in India


Women to gain more if the planning is sound

WORKING women will be big beneficiaries of the increase in basic exemption limit as it will also help them in the investment planning process. The tax outgo will be less if they can claim all available deductions.

Women doing business need not pay tax on the expenses incurred on earning the income. They would be better off if they can avail of the entire Rs 1 lakh exemption available under Section 80C. The investment options under 80C include insurance premium and some other long term instruments that would help in accumulation of capital. Those who are young can make effective use of the equity-linked savings scheme, by building up a capital base for the future.

But the person would do well to make use of the options on the debt side as some balancing is required. The option can be something like rural bonds that provide for regular income or National Savings Certificates that allow for compounding of the amount.

Adequate coverage in other financial planning areas would keep women well equipped to deal with the uncertainties of the future. The options include insurance policies and some amount kept aside as cash for any disruption in cash flow in future. Changing the nature of receipts to something like dividends would give them tax-free status. This would help a person reduce the overall tax impact.

Wise old men to fare better

Senior citizens have several options to save tax

SENIOR citizens can now plan their investments in such a manner that their tax burden would be less. The higher basic exemption limit and the avenue to get relief for investments in the Senior Citizen Savings Scheme will make things easier for them.

Though there are several options, making use of all the available deductions would significantly bring down their tax burden. Apart from investments in the Senior Citizen Savings Scheme, the premium paid on medical insurance is one of the best options before them. The senior citizen can invest up to Rs 1 lakh in such schemes.

With basic exemption limit at Rs 2.25 lakh, they have a higher disposable income in their hands. Investments up to Rs 28 lakh at an average rate of 8% will be tax free in the hands of senior citizens.

Though this makes large investments possible, they have to be careful enough to carry out the necessary paperwork to ensure that there is no tax deduction at source. Otherwise, they will have to find ways later to get refund from the income tax department.

There are various investment avenues which ensure a regular flow of income for the individual depending on their needs. Some amount can also be channeled towards debt mutual funds, where a fall in interest rates will give the investor good returns. An interest rate fall will boost the prices of bonds that are held by the mutual funds.


Tips to keep you in good health (parents included)

With tax exemption limits for HEALTH insurance going up, ONE needs to take a fresh look at the POLICIES on offer and the MONEY to be set aside

There’s a lot to choose from, post-Budget

AROUND 70% OF Indians end up dipping into their savings in case of a medical emergency. This despite the fact that they could easily avail of medical insurance policies, which not only would protect their savings but also give them a tax break. This year’s Budget gives them even more reason to actively consider medical insurance. Starting this year, besides the existing deductions for medical insurance, an individual can claim an additional deduction of Rs 15,000 every year for medical premium paid on behalf of his/her parents. With numerous products on offer, making a decision is never easy. Here are a few things you would do well to keep in mind before buying a new mediclaim.


Because of the rising healthcare costs, some insurers have imposed sub-limits in their policies. The most common sub-limits are room rents, doctor’s fees and diagnostics expenses. So when you sign up for a policy, check if the insurer has assigned a maximum amount for a specific expense.

If you have a sum insured of Rs 1 lakh and the insurer has capped your room rent at 1-1.5% of the sum insured, then your room rent cannot exceed Rs 1,000-1,500 per day. Many insurers also impose a sub-limit on doctor’s fee at about 25-30% of the bill limit. The sub-limit can both be in percentage and absolute terms. This is because leading doctors charge a hefty fee which could inflate the medical bill substantially. So, make sure that you understand the clauses relating to sub limits before hand. Given that medical emergencies can burn a huge hole in your pocket, paying a slightly higher premium for getting a higher coverage might be a wise thing.


A cashless policy can be a good option if you don’t want to settle hospital bills by paying cash. Under this policy, you can undergo treatment at the hospitals specified by your insurer. The settlement is done directly by the third party administrator (TPA). Sanction could be of two kinds, full sanction and part sanction. In the case of part sanction, there are two ways in which a TPA can act. The first way is when the TPA approves a part of the amount before hospitalization with the balance to be paid when the final bill is produced by the hospital at the time of discharge. Under the second method, the TPA sanctions only a part of the total estimated amount and you have to pay off the balance.

The TPA, after the submission of documents, will reimburse the balance in 20 days. While cashless insurance policies help you manage your cash flows better, you should be careful because often TPAs end up paying only a part of the total bill.


Recently, some insurance companies have launched a unit-linked health insurance plan. Like in the case of other unit linked plans, the premium (minus the insurance costs and fund-related charges) will be put in debt and/or equity. The amount of health insurance cover is assured and does not get affected by the fund value. The tax breaks on these are unclear as of now since they are still being worked on.

Health is wealth, but whether you want mix the two is totally your call. Again, the primary reason for insurance is protection. So you ensure you are adequately covered!


AN EMPLOYEE SUBMITTED A MEDICAL BILL OF RS 25,000 FOR his wife’s treatment, which was within the company’s rules. To his surprise, he got a written communication from his office that he had crossed the income-tax limit and the reimbursement amount will be taxable. You may receive monetary compensation for medical treatment undergone either by yourself or any of the dependent family members from your employer, but the tax impact has to be considered separately. Any amount in excess of Rs 15,000 is taxable in your hands as defined in clause (b) of the Section 17 (2) of the Income Tax Act. However, like the cashless schemes, they do not have a list of hospitals. If your employer provides medical reimbursement as a part of your pay package, ensure you submit the bills of the equivalent amount. Otherwise the balance will be added to your income and you will be taxed as per the income slab you may fall in.


NRIs more investment options

But Rising Rupee May Hit Repatriation

AGAINST THE BACKDROP OF A ROBUST economic growth rate of 8.7%, the finance minister presented his budget proposals for 2008-09. Mindful of the impending general elections next year, it was expected that the Budget will have various populist measures and it did so.

The Budget proposals, as usual, present a mixed bag. While there have been no specific proposals for non-resident Indians (NRIs), in general, certain proposals are definitely welcome. However, some proposals will surely have adverse impact. NRIs can cheer about the increase in the threshold limits and liberalization of the tax slabs. Individuals will now not have to pay any tax on income up to Rs 1.5 lakh. The new tax slabs will result in tax saving of around Rs 45,000 for individuals having an income of more than Rs 5 lakh. An additional tax deduction of Rs 15,000 is also proposed for medical insurance cover for parents.

The finance minister has also mentioned that a permanent account number (PAN) will now be required for transactions in the financial market, subject to suitable threshold limits. Thus, NRIs should ensure that they obtain a PAN prior to undertaking such transactions.

NRIs will continue to enjoy exemption on the long-term capital gains on which securities transaction tax (STT) has been paid. Further, NRIs have the option of offering their investment income and long-term capital gains income arising from specified assets to tax at beneficial rates — 20% for investment income and 10% for long-term capital gains. However, the benefit of indexation or deductions under Chapter VI-A are not allowed in computing such income. Further, where appropriate taxes have been deducted at source from these incomes, there is no requirement to file a tax return.

At present, NRIs are also allowed to maintain foreign currency (FCNR) accounts & NRE accounts in India to invest in non-resident (non-repatriable) rupee deposits and also in RBI-approved foreign currency deposits with scheduled banks and claim tax exemption on income arising there from. These provisions remain unchanged. Further, NRIs can freely repatriate, outside India, their earnings in the form of interest, rent and dividend received in India, without any additional tax burden subject to specific conditions. However, with the rupee appreciating, it would not be surprising if NRIs do not opt for repatriation.

STT hike — Right idea, bad timing

JOHN MEYNARD KEYNES MUST SURELY HAVE DONE A LITTLE jig when news of the latest Budget got to him. The Budget itself was dead on arrival, the only death-defying twitch being some good old-fashioned election year populism. A little largesse here (read loan waivers), and a little there (tax cuts for the middleclass) add up to a still meaningful revenue deficit. We have come full circle in these four years from the stated emphasis on outcomes to the actual emphasis on outlays. Paradoxically, in the India of today, a complete debt waiver is probably the most effective way of dealing with farmers’ indebtedness. Poor execution and high frictional costs make any innovative programme like extending debt maturity, swapping debt for real estate equity or reducing the high cost of moneylender debt through subsidized debt programmers almost infeasible.

Capital market participants, who expected to put in a full day at the office analyzing Budget proposals, went home early. After two months of being beaten up by markets, few had the energy to argue with the only proposal of consequence — the increase in short-term capital gains tax from 10% to 15%. Right idea, poor timing. Right because a developing country like India should have a clear incentive to invest for the long-term, rather than punt for the short. Poor timing because it adds (negative) grist to the mill.

For young economists who seek to understand India's sectors, the annual budget speech should be required reading. Each year there is a magnificent excise tax tweak to the most obscure of industries — this year being no exception. Writing paper, packaged coconut water, puffed rice and sterile dressing pads, well you get the point. Better to let this budget rest in peace. And invent a new process that focuses on making things happen

Seven ways to survive a Stock Market Correction!!

Here are seven simple ways to survive a stock market correction as an investor:

1. Stop Listening To Analysts

Most analysts in the media instead of providing you with a solution will just confuse you. Somebody will say everything is doomed while others will say things are great in the long term. Forget listening to analysts- most of them won’t be of any help. The reason people listen to analysts is because they are looking for peace and hope. In reality, you will get none of that by listening to somebody else. Peace and hope are all within you.

2. Stop Staring At Your Portfolio Every Thirty Minutes

Another mistake people make is that they get up every morning and wait for the markets to open. Once markets open they start staring at their stock prices. A fall makes you feel worse and small rise makes you feel a little better. This won’t help either. Instead keep track of the fundamentals of your company every time the results are out. If your company is profitable and growing - be happy. If it isn’t, find out if you need to exit. The stock price will catch up in the near future if business is growing. Do you stare at your money kept in a bank FD everyday? Most probably not. Use the same principle when you invest in stocks or mutual funds.

3. Be Patient

Patiennce is virtue. Many of you might not have a lot of cash to buy cheap now; however be patient with whatever you have bought. Even the youngest billionaire on Earth today is 23 years old. It took him 23 years to be a billionaire and he didn’t do it in few days or weeks. The youngest billionaire probably in history is 23-year-old Mark Zuckerberg - the founder of the social networking site-Facebook.

4. Speak To Actual Investors With Experience

Instead of interacting with analysts or your broker, speak with people who are actual investors and who have been in the market for longer periods of time than you. They will tell you how they have survived various stock market corrections and what has made them richer. Read and learn more about people who have actually created wealth and sustained it over a long period of time.

5. Stop Following Crazy Tips

Please for heaven’s sake stop following ‘hot’ tips which promise to make you a millionaire in a matter of months. Maybe the ‘hot’ tip is only meant for billionaires who would end up as millionaires in case they do follow the tip. If it seems too good to be true, it is probably just a scam, which hopes to take money away from retail investors and put them in the hands of greedy manipulators. Similarly stop following rumors about how fundamentally strong companies are going to be shut down and go bankrupt in the next few months. Use your own head and trust yourself.

6. Understand Market Cycles

Every asset class has a cycle. Stock markets, mutual funds, real estate all move in cycles. Realize that nothing can keep going up forever in a single direction. There will be phases when prices will come down and again move up. If you go back into history you will see several instances when stock prices came down, however over a period of time quality companies always reward investors. Understand market cycles, and don’t become a slave to them.

7. Follow The Guru

Today the richest man on earth, Warren Buffett, is an investor who has created wealth because he has stayed away from what everybody else is doing and has simply invested in quality companies for the long term. He invested in Gillette, for the simple reason that he believed that men won’t stop shaving. It makes sense to follow, as I call him, “The Guru” and think long term and remember people who create wealth do things that others don’t.

If you follow the simple techniques above you will be a much happier and a calmer investor.

Investing is about controlling your emotions and being disciplined about what you do.

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