FUN or FINANCE...??? (Series: P4)

STOCK MARKETS in GENERAL:

ECONOMIC DOWNTURN:

STOCK MARKET CRASH for LAYMAN:

FUN or FINANCE...??? (Series: P3)

CREATIVE INVESTING

PANIC SELLING

REALITY OF MOST NON-PROFIT ORGANISATION:

FUN or FINANCE...??? (Series: P2)

CREDIT CARD SITUATION

BULLS & BEARS

STOCK MARKET BOUNCE-BACK

FUN or FINANCE...??? (Series: P1)

FINANCE: 

    

FINANCIAL CRISIS & Its AFFECT ON COMMON MAN:

MARKET SLOWDOWN:

MYTHS & REALITY about TAXES (In INDIA)

Myth: Tax Deducted cannot be recovered?

Reality: This is a myth and the most common. The reality is that if your income is below the taxable limit, then you can claim a Refund by filing a return.

Myth :Tax Filing is very tedious and needs a lot of time, money and expertise?

Reality: Tax filing is a straight forward simple job. It can be done investing a limited amount of time and needs very limited expertise. The IT dept has also appointed tax agents who can do this job

Myth : Having a Pan Card makes it compulsory to file returns?

Reality: This is not true. Having a pan card does not make it compulsory to file returns.  If your income is taxable in a particular year then you have to file returns. However, if your income is below the taxable limit you can still have a Pan card and not file tax returns. PAN card can be used as a Photo Identity proof and when required for filing INCOME TAX RETURNS.

Myth: IF tax is deducted at source no returns are required to be filed.

Reality: This is only true if your entire tax liability is deducted at source and you don’t have any other source of income. If you have any other taxable source of income then it is mandatory to file your returns and pay your taxes.

Myth: There is a deadline to file my Return and the RETURN once file, cannot be revised:

Reality: The last date of filing returns is till 31^st July each year. However, if you miss the deadline you can still file your return. Belated Return- The last date of filing the returns is 31^st July but if you miss the deadline you can file a late return of 31^st March 2012. If there is a tax liability then interest will be charged at 1% per month. The income tax department may impose a penalty of Rs.5000/- for late filing of returns.

Revised Return-If you find any errors or omissions in your return you can always revise your return at a later date. The same also can be filed till March 31 ,2012.  If any errors are noted after the return is filed, it is best to get the same corrected with the income tax department to avoid any future consequences

Myth: I can invest only in LIC to save TAX?

Reality: Section 80C has various options which shall quality as a TAX deduction. However, it is a common myth that an LIC can be only bought to save taxes. Please see below the options available to save taxes. 

CURRENT TAX RATES & OPTIONS TO SAVE TAX

CURRENT TAX RATES

No income tax is applicable on all income up to Rs. 1,60,000 per year. (Rs. 1,90,000 for women and Rs. 2,40,000 for senior citizens of 65 and above and must be resident of india)

From 1,60,001 to 5,00,000 : 10% of amount greater than Rs. 1,60,000 (Lower limit changes appropriately for women and senior citizens)

From 5,00,001 to 8,00,000 : 20% of amount greater than Rs. 5,00,000 + 34,000 ( Rs. 31,000 for women and Rs. 26,000 for senior citizens)

Above 8,00,000 : 30% of amount greater than Rs. 8,00,000 + 94,000 ( Rs. 91,000 for women and Rs. 86,000 for senior citizens)

OPTIONS TO SAVE TAXES

Section 80C provides the following deductions if invested during the financial year. The total limit under this section is Rs. 100,000 (Rupees One lac) which can be any combination of the below:

• ·         Contribution to Provident Fund or Public Provident Fund (PPF)
• ·         Payment of Life Insurance Premium or investment in Pension Plans
• ·         Investment in Equity Linked Savings schemes (ELSS) of mutual funds
• ·         Investment in National Savings Certificates (interest of past NSCs is reinvested every year and can be added to the Section 80 limit)

·         Tax saving Fixed Deposits provided by banks for a tenure of 5 years. Interest is also taxable.

·         Payments towards principal repayment of housing loans. Also any registration fee or stamp duty paid.

·         Payments towards tuition fees for children to any school or college or university or similar institution. (Only for 2 children) or towards coaching fee of various competitive exams.

·         Post office investments The investment can be from any source and not necessarily from income chargeable to tax.

From April, 1 2010, a maximum of Rs. 20,000 is deductible under section 80CCF provided that amount is invested in infrastructure bonds. This is above the 80C exemption of Rs.100,000/=

Section 80D: Medical Insurance Premiums: Health insurance, popularly known as Mediclaim Policies, provides a deduction of upto Rs. 35,000.00 (Rs. 15,000.00 for premium payments towards policies on self, spouse and children and (read as in addition to) Rs. 15,000.00 for premium payment towards non-senior citizen dependent parents or Rs. 20,000.00 for premium payment towards senior citizen dependent). This deduction is in addition to Rs. 1,00,000 savings under IT deductions clause 80C

LIC OF NOTIONAL LOSSES AND PROFITS

Last week, there was this news item in a number of newspapers about the Life Insurance Corporation discovering (or admitting to, it wasn’t clear which), a Rs 14,000-crore shortfall in three guaranteed return annuity schemes that it runs. This shortfall has come to happen because these schemes were launched with guaranteed returns of around 12% during the 80s and 90s.

Now, the fixed income returns that are realisable in the Indian economy are sharply lower and so there’s a gap between what the assets in these schemes should be worth if they are to meet future liabilities and what they are actually worth.

In its defence, LIC has offered two mitigating factors — one, that these losses are notional. And two, the shortfall will be compensated by other plans — there are always some plans which have a surplus and some in deficit. This is encouraging to hear but nonetheless a little problematic.

Firstly, I think the experience of the 2008 economic crisis has made all of us a little skeptical of the actual nationality of notional losses. I often wonder why companies dismiss notional losses in such an off-handed manner while never managing to do the same for notional profits.

After all, if some schemes are always in deficit and in some in surplus, then the surpluses must, correspondingly, be precisely as notional as the losses. Why don’t we ever hear a company management say, “Listen, don’t pay any attention to all these gains we have on our investments — they are mere notional profits. They are irrelevant.” Why this step-motherly treatment for notional losses alone?

In any case, the root cause of this gap doesn’t sound notional to me. A gap between the returns that are guaranteed is not only real but more alarmingly is very likely to grow at an exponentially higher rate. Fixed income returns in India are likely to be lower than the 12% the schemes need in the foreseeable future. Quite possibly, the annual gap will be at least three to four per cent on a sustained basis. This means that the shortfall, whatever it is, will grow at a compounding rate. The guaranteed schemes yet have a few decades more to run. A three per cent p.a. gap will compound to 80% in twenty years and to 165% at 5% a year over the same period. It’s very likely that the gap will always be a manageable proportion of LIC’s total asset base, but it certainly will be a far from trivial amount.

Still, as an LIC customer, you needn’t ever worry. If there’s an organisation in India that really is too big to fail, then that’s LIC. No matter how much it mismanages its products or its investments, the Government of India will step up to the plate. Whatever be the shortfall, the taxpayer will fill it. And that’s the real guarantee.