What is GST i.e. Goods & Services Tax?

You all must have heard a lot about the new tax regime GST i.e. Goods and Services Tax, which is being touted to be one of the biggest taxation, reforms in India. Let’s demystify this tax and understand it better.

What is the GST?
Goods and Services Tax i.e. GST is a comprehensive tax which will be levied on manufacturing, sale & consumption of goods and services at a national level and is being touted to be one of the biggest taxation reforms in India. In, simple words, it is a tax levied at every stage whenever a consumer buys goods or services and this way of taxation is already in force in 150 countries. It will convert the whole country into unified market and replace all the indirect taxes currently in place with the one single tax system.

What is the need of introducing GST?
Currently in India, there are various taxes being managed differently by central and state government like you have Central excise duty, service tax & customs duties at Central level and VAT (value-added tax), entertainment tax, luxury tax or lottery taxes at State level. Everything will get replaced by one single point of taxation i.e. GST.

It would facilitate more seamless movement across nation and will reduce the overall transactional cost of running the business and thereby also reducing the compliance of following multiple tax rules and obligations. This is highly relevant in todays time looking at the growth Indian economy can achieve and to come alongside the other developing nations as it will reduce corruption and bring more efficiency of running the businesses.

Will it help the Common Man?
As mentioned above, we have a very complex tax structure system in India which makes it very difficult for any Business as they are expected to pay and fulfill lot of legal obligations. GST will help n simplifying the process to a great extent and there by will reduce the overall operating costs, which will ultimately be passed on to consumers. Since it is also going to increase India’s GDP and income overall, consumers can expect more indirect benefit after its rollout.

How will it help our Country?
GST will increase the overall GDP (Gross domestic product) of India and will increase its total revenue collections. It will also facilitate more exports and has the potential of boosting employment apart from inviting more foreign investors.

What will be the impact of GST on businessmen?
Let’s understand it with an example, say you have a manufacturing unit in Mumbai for producing boxes for which you have to pay excise duty to the Central Government and also need to file a separate tax return. The moment you supply your product to other retailers, you are liable to pay VAT and file its return. And the moment you expand to other markets say Madhya Pradesh; you will be liable to pay Central Sales Tax because it involves multiple states.

The entire process involves multiple transactions and compliances, which will be removed, or I would say come down to a much lower level after the introduction of GST. This will help big time to all the businesses big or small in bringing down their compliances.

Let’s hope that this new tax regime will simplify our lives, which is right now surrounded by complex web of tax.

Should you invest in High valued Stocks?

Have you ever wondered that why the price of certain stocks like MRF or Page Industries are so high, you might have thought that it is overpriced, like if you see, one share of MRF is close to Rs. 40,000/-.

Or is it that the promoters do not want to opt for a stock split or what exactly is the reason? Should a retail investor think of investing in these kinds of stocks also? Let’s understand: –

So, if an investor is having a good risk appetite and can invest for a long-term period then yes, they one can think of buying these high valued stocks as well. In the last five years, MRF stock had given around 5.4 times returns, PAGE had generated 17 times & Bosch around 4 times. The returns have been astonishing and mouthwatering for any investors but if you look at the history, you will find that a retail investor usually stay away from such stocks because of its high price, they completely ignore the fact that there are many other factors to decide before buying a stock like its face value, MOAT, Fundamentals etc.

Since stocks like these have an earning visibility and an investor mostly prefers its MOAT, Earning Visibility & Monopoly as associated with these companies over their valuation as per PE multiple; which leads to its higher valuation. MOAT is a term to define a competitive advantage one company has over other companies in the same industry. For e.g. Page industries, which manages Jockey brand and is the market leader in its category. And as per market rules, people pay a premium for such MOATs, which made its share price look overpriced, but it is not a bubble but the quality of a company, which is reflecting, in stock price.

With regards to earning visibility & growth, companies, which can grow at the rate of 20 or 30% annually for the next 15 to 20 years and are trading at a PE of 30/40 will be an attractive buy. The founders or investors of these companies are assured and confident of the company’s growth and does not part away with their holdings unless there is some negative news or effects.

In Contrast: Charm of penny stocks!

In contrast to high value stocks, there are many Penny stocks in the market, which looks very attractive to invest because of its low pricing, and most investors believe that it cannot go further down or even if it goes, the loss would not be much. That exactly is the trap as the amount of loss should be calculated in percentage terms, for e.g. if your 10 rupee shares falls to Rs. 2 and another 100 rupees share falls down to Rs. 20, in both cases loss is 80%. Your investment of say Rs. 10,000/- in any of these stocks would come down to the same level irrespective of its initial price. We have recently seen the same trend with Kingfisher stock. Apart from this, penny stocks also suffers from high manipulation and susceptible to fraud.

What should a retail investor buy in the current market scenario?

Currently we are in a bull market but that does not mean that market will only move in the upward direction. In fact bull market also has its timely correction, which we have seen recently. So as a retail investor, always buy a stock backed by strong fundamentals and a good management & corporate governance.

Financial planning Tips in case of Divorce!  

Continuing the series of “Women and Her Financial Planning” let’s understand in this article about some important financial planning tips for a woman undergoing Divorce. What happens if your partner whom you choose to walk your life with, doesn’t want to be anymore by your side and things which didn’t threaten you, is haunting you now?

Yes, I am talking about divorce when one of you decide to part ways, the time, when you shouldn’t be carried away by sorrow but need to act to foresee the future financial needs.

The first step

One should try not to mix the emotional quotient with financial matters which mostly worsen the entire proceedings. The key is to identify your present and future cash flow requirements and make a stock of things including maintenance of child.

Effective financial planning

This is the foremost thing one should do. Ultimately, you’ll be at loss if you don’t plan it. And that will substantially drop your living standard. Women who devote full-time or part-time get substantially less from earning because of managing their home, raising children, etc. and were not having any right on her spouse’s earnings. But now modification is done, equitable distribution of marital property is allocated.

Acquire you share

Rapidly the definition of “Assets” is changing. Family wealth is now known as “career assets”. Under this it includes benefits of employment like pensions, health insurance cover, and the calculated sum of future earnings; which then gets divided at the time of divorce.

Joint Assets & Liabilities

In case the property is owned jointly then the women will get her share as per the latest property valuation. Ideal way is to make a list of all your assets inlcudig fixed investments like property or insurance etc.  This will help you mutually before you set out to take a help of a lawyer or a legal counsel. Your assets will be divided based on your individual contribution if you fail to reach to an amicable arrangement.

Alimony

Married women receive alimony, post- divorce. The following factors decide the duration and amount to be paid as alimony.

  • The amount and duration of alimony generally depend upon how long the marriage existed because marriages that lasted more than 10 years are entitled to be granted a lifelong alimony.
  • Depending on the age of the spouse: Normally a young working woman gets alimony for a short period of time, if the court finds that she can manage financially through career excellence prospective.
  • If the woman is suffering from poor health, the husband is subjected to pay higher alimony to provide proper medication and well being. The terms & conditions of alimony in India vary according to the law.

Divorce advice for mothers

It is very difficult for a woman in India to become financially independent post divorce more specially when she was depending on her husband’s income for raising kids. It has been seen that a living standard of a mother post divorce comes down to almost one third of what it was before divorce and the same has very excavating effect affecting her ability to rise in career & life. However a women should not get distressed and take focused steps to enhance her skill set and also take keen interest in managing and building her finances.

Important Financial Planning Tips For a Widow!

As we know that losing a spouse prematurely is surely one of the worst phase of a woman’s life coupled with the trauma of handling the legal and financial matters; let’s understand some very important financial planning tips for a widow and why it is so  important:

Why it is very critical?

This is critical in India because of the fact that women tend to pass control onto their closed family member specially husband. While blindly following someone close in the family is not at all wrong, but the same dependence may result into a situation which impacts the entire life when one is left alone. Therefore, to ensure financial security in today’s world, it is very important for a woman to have a clear understanding about their overall financial planning.

Assess your needs!

First thing which you need to do is to have a thorough assessment of all the things which has changed and specially those on which you were depending on your spouse. There could be instances where you may have to make few compromises, so don’t take any hasty decision. Make an inventory of investment your spouse had done like insurance, pension, savings, etc. And then find out how much you’ll need more to proceed with a financial plan.

Know your risk appetite!

The result of thorough assessment of your financial standing will help you know your risk appetite and to further plan about how to manage investment going forward.

Invest wisely!

After knowing your standing and the risk you can take, now comes a very crucial step is to manage the corpus which is left behind. You need to plan well, considering your present and future needs and then create a diversified portfolio consisiting of PPF/FDs/Mutual Funds/Property etc.

Get an Insurance!

You also need to assess your insurance needs both medical and life because in case anything happens to you then your dependants will be left in a big soup. So buy an insurance policy which satisfies all your needs & which can bear loss at the time of emergency.

Spend & save smartly!

Leaving a life without your better half will be extremely difficult and unpredictable and your Lifestyle won’t be the same and your spending too will need an assessment. You must start to save from a very early stage which will help in achieving your financial goals.

Re-check & Revise your financial plan!

You need to review your financial plan again and take the help of a planner if needed. Updation in insurance and other saving accounts, documents are important apart from keeping a check on the market change in your investments like equity market, risk-appetite, goals, inflation, etc., which calls for a change in your asset allocation.

Retirement Planning!

You also need to plan for your retirement and start saving as much as you can. You need to get out of all the debts and EMIs before your retirement time comes apart from thinking of an alternative source of income that can stretch your financial stability.

Look for an occupation!

If you feel that how much you have now isn’t enough, then find an occupation. Your earning will boost your financial stability. Anything full/part time will make a significant difference, so make a start and grow financially and intellectually as well.

Timely claim for Life Insurance!

You must claim for your husband’s life insurance policy in time and as per the policy document. Do not forget to get the death certificate, check one of my previous article on death claim to know more about the process.

 

Financial Lessons to be learnt from Nepal Earthquake!

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Part- I

We all have seen the recent earthquake in Nepal and its aftermath on public lives, have you ever wondered how severely these natural calamities affect ones financially? Let’s discuss the financial lessons learnt from these disasters and how you can protect yourself getting affected by them financially.

1) How important is it to guard oneself financially, against these natural calamities?

Whether it is a calamity or something else, which severely affects a person’s financial life, should always be protected because financial freedom and security is one of the paramount objectives of doing the entire financial planning. It is very important to guard oneself against any natural calamity because that has the effect of completely wiping out all the belongings and leave a person without food, water, clothing and shelter. If you aren’t prepared for it then one might just lose all of their belongings and may get wiped out financially.

Worst case, these disasters may even bring injuries which can make them physical unfit to work for time being to life and their entire life will go haywire without a sound financial back up.

2) How can one get financially prepared to protect them against any disaster?

Well, irrespective of the fact that whether one is a victim of a disaster or not, person should always have a foolproof financial plan to protect their financial life from any unfortunate event. While talking about disaster affecting financial life, there is little which one can do to prevent it but certainly there are steps which one can take to protect their families from getting financially hit in case a disaster occur. Following are the ways one should follow to prepare themselves against any disaster:-

C) Regularly review & Monitor all your insurance Policies & Coverage.

  • Insurance Audit: first thing you should do it is to do a through insurance audit, it means calculate how much insurance is needed to protect your family in case of any unfortunate event affecting you severely. Second step is to identify the need of buying adequate cover for Home Insurance, Life Insurance and Personal accidental policy.
  • Check Inclusions & Exclusions:The biggest disaster would be a situation that in spite of having an insurance plan in place, one doesn’t get the cover or get insufficient amount. This happens mostly because of the various exclusions as attached to one’s insurance plans. First thing to check before buying a cover is to know what all it covers!
  • Review by a financial planner: if needed, get your insurance audit done by an ethical financial planner so that you can buy a product, which is based on you & your family’s health and life insurance needs. 

B) Do you have an Emergency fund?

As you are aware that in case of any natural calamity, we will find most of our financial institutions getting closed down or ATMs going out of order for a no. of days to months together. What will you do in this scenario? Always have your emergency fund ready for meeting any unpleasant financial situation; ideally you should always have at least 6 months of provision to manage your household expenses.

C) Prepare an Inventory of all your Possessions & Belongings.

The first thing before buying a cover for any probable disaster is to make a list of an inventory of all the assets & personal belongings. It will be required to assess what’s been lost at a later stage and this will help during the process of insurance claim. You can also digitally record it either by a video shoot or photos for your own reference. You also need to keep a back up of this written/digital record for a ready reference and don’t forget to update it whenever you make any major purchases.

D) Handy information for all your policies!

You should prepare a list of all the policy you have in terms of its Policy numbers, contact details like telephone Numbers, Email ids and claim settlement process. Give it to a trusted family member or a friend to be stored at a distant place.

E) What are the other documents to be kept safely?

Some of the other documents you need to have a back up are as follows:-

  • All your Insurance policies.
  • Your property titles, deeds etc.
  • Registration papers for your car and other assets.
  • Last 8 year’s Tax and financial records.
  • Your originals will or power of attorney, if any.
  • Details of all the liabilities like credit card statements/ home loan/personal loans etc.
  • Details of jewelry and other personal belongings.
  • Share Certificates/ Demat account details for stocks/ bonds/Mutual funds.
  • Any other documents having a financial bearing.

3) Are there any financial products available in the market to safeguard against this?

We do have various policies that cover property and life from any natural calamity like fire, floods or an earthquake but still we do not have any ‘natural catastrophe cover’ for specifically catering to the dire need of protecting against these natural disasters. There are majorly three types of financial products in the form of an insurance policy available in India which can help you cover in different ways as follows: –

Home insurance

The first thing, any natural calamity affects is usually the property. Many times we have seen people buying cover to protect against basic fire insurance, which covers their house against fire or lightening, storms or even floods. Any cover against earthquake generally comes as an add-on due to the fact that it depends primarily on the geographical location your house falls in. You can also protect your house by buying an overall householder’s package policy, which apart from protecting your house from fire also protects you from burglary or any other mechanical or electrical breakdowns.

Personal accident insurance

Any natural disaster may have the effect of seriously injuring or making a person disabled for life. To provide compensation against any such calamity having a bearing on your working conditions, personal accident policies are in place. These plan covers death, permanent disability, permanent partial disability and temporary total disability.

This plan also comes as a part of your household policy but one can always buy it separately after analyzing the pros and cons of buying a customized product than a ready made product.

Life insurance

What is worse than loosing a life in case of any natural calamity and leaving a family without a future? To offset this, always make sure to have an adequate insurance cover to protect your family even in your absence. Buy a good term insurance plan to meet your financial needs based on your overall comprehensive financial planning.

Let me explain these plans in detail in the upcoming & concluding part of this article, till then do your financial audit and protect yourself from any sort of financial disaster. Keep reading this space and stay tuned.

 

To Be continued…

How to set up a legal structure of your Start Up?

UnknownAre you a budding entrepreneur with/ an idea which can take you places! So, if you have a business idea and you are about to take a plunge to start your own business but don’t know how to go about forming your company legal set up, here is a guide to understand about available options in India for registering your company or a firm. Let’s understand in detail about how to go about registering your billion dollar idea:-

In India, you can start your business by choosing any of the available legal structure as follows:

  1. Sole Proprietorship
  2. Partnership Firm
  3. One Person Company
  4. Limited Liability Partnership (LLP)
  5. Company (Private Limited or Public Limited).

Let’s understand in detail:-

Sole Proprietorship: 

This is the easiest and the simplest form of business entity to establish in India because there is no specific requirement for its registration. When you are all alone i.e. starting your business on your own, the business will be in your individual name and you will be called its Sole Proprietor. Though you can get a Trade Name for your business like ABC Consulting/XYZ Interiors Solutions/ABC Boutique/Studio etc. but the business and the ownership is not separate from each other and you i.e. the sole owner command the complete control over all the aspects of the business. You however need to apply for a Shop and Establishment License to run your business and this is the only legal formality which is applicable to get a legal status as a sole proprietorship firm. This Shop Act license requirement also depends and varies from State to State in India. The cost for getting this license is very minimal and ranges between Rs. 1500 to 3500/- only; overall cost to start a proprietorship will be less than Rs. five thousand. The next step is to open a bank account (current) in your name or a trade name which you want and you are all set to run your business.

Apart from that you do not need to enroll specifically with any other government organization for registering yourself as a sole proprietor. However if your business or profession requires you to charge and pay Service Tax or VAT or any other legal duty and taxes or it requires you to get a specific license for e.g. Food license to run a restaurant or a café/chains then that needs to be applied separately. But these legal duties and licenses are applicable based on the nature of your business or profession and needs to be applied for irrespective of you being a sole proprietorship or running a Private limited company. So Shop Act license is the only thing which gives certain legal status to your business/profession and another important thing you need to do is to protect your trade name and intellectual properties. Apply for a Trade Mark, Copyright or even file for a Patent wherever applicable to protect your idea/business process from getting copied by others. The only challenge a Proprietor has is the unlimited business liability which means if you have taken any loans or having outstanding liabilities and you default on the payments then your personal assets can be attached to recover the money by your creditors.

Partnership Firm

If you have another co founder or a partner in the proposed business or a profession then you want to protect each other’s interest in terms of the amount of money, time and ideas you are bringing on the table then you can look forward to form a Partnership Firm. When two or more people come together to share the profits and losses of a business without any formal entity, they are said to be running a general Partnership firm, it can have a maximum no. of 20 partners. This will help you put down all your internal arrangement on paper and gives a legal status and helps to resolve any issues later on as everything had already been documented in terms of who commands what share of firm’s assets/profits, capital contribution, profit & loss sharing ratio or salary to partners etc.

For forming a partnership firm you need to buy a stamp paper (based on capital introduced) and make a legal contract, the same can be registered with the registrar of office or you even run your partnership business without registering it. Though in that case it may not command a legal status but in any case it does not prevent its partners from suing each other in a court of law. You can again name the business i.e. Trade Name and start a business, the cost to form a simple unregistered partnership firm will again be less than Rs. five thousand except legal stamp duty which again is caped at Rs. five thousand on a higher side. Here also your personal assets can be attached in case your partnership firm defaults on the payments to creditors or bank etc.

One Person Company

During the makeover of Companies Act, the newly enacted companies act has introduced a new form of entity that is called One Person Company i.e. OPC. This is relatively a new concept in India but a very prevalent concept in the other parts of the world like US, Singapore, China etc. The very reason to introduce this concept is that is to mitigate the risk involved in running a business wherein the owner i.e. a sole proprietor as seen in my last article is solely responsible to make good all the losses his or her business had made. OPC gives a legal status of a company which is run by one person only and he or she being the shareholder as well as a director. The process of setting up OPC is same as private limited company and the name will carry a suffix OPC similar to “pvt ltd.”

The biggest advantage of a company is that it has a separate legal identity than of its owner and in case the company is involved in a legal controversy then its owner cannot be sued in his personal capacity for any payments defaults. But setting up OPC requires lot of paper work as compared to its raw version ie sole proprietorship and another disadvantage is that it is taxed at 30% flat. I will write a detailed article on OPC in upcoming articles.

 

Limited Liability Partnership (LLP)

To mitigate the drawback of partnership firm i.e. unlimited liability of its partners, a new form of partnership had been recognized by an Act of the Parliament which is similar to Partnership but with a difference of protection of limited liability of its partners. The liability of each partner is limited to the extent of their investment in the firm and it commands a legal status. I would say this is an upgraded version of a simple partnership firm and a lower version of a private limited company, it lies in between. This needs to be registered with the registrar of companies and cost including stamp duty etc. will range from Rs. ten thousand to Rs. 15000, this is relatively a new concept in India and need to be used carefully as it comes with certain legal obligations which you have to mandatorily follow like filing regular form 8 and 11 irrespective of whether you are making profits or not and any defaults will run in to per day fine. Apart from that this is more suited for a business wherein third party liabilities are more or a franchise kind of a business where you would like to protect your personal liability getting attached in case of any business payments defaults or losses.

The only challenge is that if you are bullish on your business and sure that you can scale it up and you can build a brand similar to a great successful start ups to a hugely successful start ups like flipkart, zomato or Red Bus then you definitely need outside funding/investors to pump money to manage and scale it up and these venture capitalists or different group of investors do not prefer investing in LLPs. Mostly they ask you to have a private limited company. So be clear about your long term plan before you decide to go with LLP looking all the parameters as mentioned above.

Private Limited Company

It is a form of company registered under Companies Act with limited members between 2 to 200 and starts with a minimum capital of Rs 100,000/-. It is also a separate legal entity & liability of the shareholders is limited to their share capital or agreed amount. For carrying out the business, directors are appointed by the Shareholders and legal compliances in case of a Private Limited Company are much more as compared to a Partnership firm or an LLP. These are mostly held by family, friends and relatives and now a days investors because private companies can issue stock, however these shares does not trade on any stock exchange and it cannot issue any public offering, IPOs.

It also has limited liability for its shareholders which mean that if the personal assets of shareholders will not be attached in case of defaults in payments. The biggest advantage is that a private limited company gives a very strong legal identity to the entity of any organization and it has the best scope for expansion because it is easy to raise capital from investors. The only issue is that it has lot of legal obligations to be complied round the year like getting the books audited even though the company does not earn or filing regular ROC forms or regular minutes of meetings or resolution for every other thing or annual general meeting etc. This is suited for a mature business or in case a startup which is promising and need funds to expand or mange operations, either case private limited will only serves the purpose. The cost to register a private limited company ranges from Rs. 20000 to 25000 and it also has a high cost of maintaining its legal obligations round the year and the most importantly if you decide to close it down, then that would be a herculean task in itself, so choose carefully.

Public Limited Company

It is similar to a private limited company with a benefit of having an unlimited no. of shareholders with a minimum of 7 members to start with. Establishing a public limited company is advised only after achieving a scale in a business as it has lot more compliance to be fulfilled than the other entities. It can be either listed in a stock exchange or not. This is suited purely when the funds needed are of huge amount and has achieved a very high maturity in terms of operations. Opening or closing a public limited company takes a lot of time and cost and managing its day to day legal obligations again calls for a high maintenance. It is a ultimate destination for any entrepreneur to start his or her company and take it to a level wherein it can be made in to a public limited company.

Conclusion:

As we have seen various options for giving a legal status to your business or a startup and if you are one of those budding entrepreneur looking forward to set up his or her business and still confused about how to go about registering the company then I would strongly suggest you to start small and take baby steps and never register your entity without knowing about what you are getting in to. This is because choosing a legal entity can have far more implication than you might have thought more especially in terms of

  1. Scaling up
  2. Funding, Investors
  3. Exit option
  4. Introduction of new co-founders
  5. Legal compliances
  6. Others

Keep the above factors in mind and if you are alone and in the very initial stage of your business, start with a sole proprietorship to keep your time and monetary cost at a very low level and as you progress gradually and you need of getting more people in the form of partners/founders or investors then you can go to the next level and form a partnership or a private limited company suiting to your long term goals with respect to your company.

Be careful while fixing the nuts and bolts in setting up the legal structure of your company as it has far more implications as mentioned above, so be smart and start smart.

 

What is Sukanya Samriddhi Scheme?

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Sukanya Samriddhi Account is a welcome step by the govt. of India which is a part of its “Beti Bachao – Beti Padhao” initiative and was launched on 22nd January 2015. It is a small savings scheme, which can be opened by the parents or a legal guardian of a girl child in any post office or authorized branches of some of the commercial banks. Let’s understand in detail: –

What is the Return on Sukanya Samriddhi Scheme?
The interest rate offered on this scheme was flagged off with a 9.1%, which is further increased to 9.2% for the financial year 2015-16. This interest rate is not fixed and is subject to a revision every financial year like PPF.

Who can open this account?
Parents or a legal guardian can open an account in the name of a girl child right from the birth of a girl child till she attains the age of ten years. Government has allowed a one-year grace period to make the eligible age till 11 years of completion.

How many accounts one can open?
Only one account can be opened per girl child to the maximum limit of two children except in a case of twins or triplets, wherein this facility would be extended to the third child which means you can even open three accounts in case you are blessed with twin girls on the second occasion or in case the first birth itself results into three girl children.

What is Minimum & Maximum Investment amount I can make?
To keep your account active, you need to deposit a minimum of Rs. 1,000/- in a particular financial year, failure to do so will make this account inactive. The same can be activated again by paying a penalty of Rs. 50/- along with the minimum amount required to be deposited for that year i.e. Rs. 1,000/- at present. The maximum amount, which can be invested in this, is Rs. 1,50,000/- in a year and there are no limits to the no. of times you can make these contributions.

What is the duration of Sukanya Samriddhi Scheme?
The total duration of the scheme is 21 years and it will mature on the completion of 21 years right from the date of opening of this account. One can even continue to earn interest as specified every year if account is not closed after completion of 21 years.

Do I need to make contribution every year?
No, you have make contribution to this scheme for the first 14 years only eventhough the scheme has a duration of 21 years, post that there you do not need to deposit further amount but your account will keep earning the interest rate applicable for the remaining 7 years.

Can I close it Prematurely?
Yes, this account can be closed prematurely when your daughter completes 18 years of age and provided she gets married before the withdrawal. Since the maximum permissible age is set as 10 years, the scheme by default carries a minimum duration of 8 years.

Can I make a Partial Withdrawal?
Yes, you can withdraw partially to the extent of 50% of the balance standing at the end of the preceding financial year but only in a case when your daughter attains the age of 18 years. This make sure that you have a lock-in period of at least 8 years and one cannot withdraw any money form the account before that.

Who will receive the Maturity proceeds?
On maturity of this account, the entire proceeds i.e. account balance along with the interest as accrued on the account will be paid to the account holder i.e. girl child directly. It gives a good financial independence to the girl, which indeed is a good move.

Can I make online payments to this scheme?
No online payments can be done at the moment and deposit can be made only by cheque, cash or a demand draft.

Taxability of Sukanya Samriddhi Account!
The best part of this scheme is that it offers complete tax-free treatment on interest income and as well as the maturity proceeds. It comes under EEE regime i.e. it is totally exempt at all the stages like on deposit, exempt on returns, exempt on maturity.

Tax benefit for investment made in Sukanya Samriddhi Account!
Now the erstwhile popular section 80C also includes the investment made in Sukanya Samriddhi Account to the extent of maximum limit of Rs. 150000/- , all the contributions to the limit as mentioned will be eligible for tax saving u/s 80C apart from PPF/MF ELSS/Insurance premium/NSCs/PF etc.

Conclusion: Should you open Sukanya Samriddhi Account for your daughter?

On closely observing the scheme you will find that it is very similar to one of the other most popular tax free tax saving investment option i.e. PPF (Public Provident Fund) which offers tax free returns of 8.7% and keeps changing every year as notified by the government. The other similarities are in terms of its lock-in, passbook facility, partial withdrawal and taxability; so the question, which needs to be asked whether Sukanya Samriddhi scheme is better than PPF or any other fixed returns bearing instrument per se?

If you look at the overall intention of the government, then I think it is a well-intended financial product but still cannot beat PPF except with slightly higher rate of returns. But at any point of time, it is way better than all the traditional so called child insurance plans i.e. insurance policies which are prominently sold in the disguise of safeguarding your children’s future, rather it only safeguards the agents future, so in comparison to those wrongly bought or sold child plans, Sukanya Samriddhi schemes is a good option to go with. After all having a girl child is a bliss and why not secure our ghar ki Laxmi by investing for her better future, beti bachao- beti padao!

Should you invest in NPS (National Pension Scheme)?

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Does National Pension Scheme (NPS) offers better retirement solutions!

In the recently announced budget Mr. FM had allowed an additional deduction on account of investing in NPS; it was made available to public around six years ago but it did not garner any attention because of the complex procedures in opening NPS account and its tax treatment at the time of maturity too played a role in dissuading investors.

The recent announcement in the Budget did not alter any of features of NPS but the additional deduction of Rs 50,000/- under Section 80CCD is surely going to be a great incentive. The said limit is over and above your existing limit of Rs 1.5 lakh u/s 80C.

 

Should you invest in NPS?

Though the additional benefit under tax is a great boost and makes it an attractive investment option for retirement but one should not just go with the tax benefits only but you should only invest in NPS based on your assessment of overall risk and after your comprehensive financial planning.

Why I am telling you this is because of the limit NPS puts on the maximum exposure to equity allocation and has been capped at 50% of the entire corpus. If you are young then it seems to be more conservative for you based on a logic that if you are investing in NPS when you are say around 30 years of age or less and have more than 25 years of retirement time. If that is the case then also you can invest in NPS as one of the retirement planning product but do invest separately in other equity related instruments like ELSS or direct equity.

The other reason is also based on the fact that if you see a longer horizon then ELSS tax saving mutual funds schemes will be able to generate much better returns in comparison to NPS due to no restriction on equity investment. Please check the table to see the comparison between the returns of NPS and MF ELSS.

 

Equity Funds

Annualized Return (%)

NPS Funds

1 YEAR

3 YRS

5 YRS

PRU ICICI PENSION FUND

45.84

21.10

14.06

KOTAK PENSION FUND

44.69

20.30

13.78

RELIANCE PENSION FUND

46.27

19.94

13.47

SBI PENSION FUND

44.80

20.63

13.46

UTI RETIREMENT SOLUTIONS

44.04

20.00

13.08

Mutual Funds : ELSS category average

66.61

25.44

15.83

 

How much to invest?

You can invest the amount of Rs 50,000/- at one go also or even can divide the amount in a monthly mode the way you invest via SIPs of a mutual fund. There are three types of funds, which you can choose from, and these are “E” (equity market), “G” (Government Securities) and “C” (Fixed instruments & other than government securities.

 

Tax treatment on Maturity!

At the time of retirement; minimum 40% of pension wealth is required to be invested for purchasing an annuity and maximum 60% of the pension wealth can be withdrawn in lump sum. And the 60% of the corpus you are allowed to withdraw will be taxable. Now if you compare the same with any other retirement products say PPF or a Provident Fund both are tax-free on maturity.

 

 

How to calculate and Pay Advance Tax?

Don’t miss your date with taxes: 15th March 2015!

What is Advance Tax?

Advance Tax is part payment of one’s tax liability before the end of the fiscal year i.e. 31st March. The provisions of the Income Tax Act make it obligatory for every individual, salaried/ self-employed professional, businessman and corporate to pay Advance Tax, on any income on which TDS is not paid.

Do I need to Pay Advance Tax?

An individual is liable to pay advance tax if he has income from interest, commission, rent, business or profession, etc, on which no tax has been deducted at source (or tax has been deducted at a lower rate). Advance tax liability arises where the balance tax liability is R10,000/- or more.

If you are salaried person with only salary as the sole source of income, Advance Tax would not be applicable as tax deducted at source would be taken care of by your employer. If you have other sources of income, such as, income from capital gains, shares and mutual funds, income from house property, etc.; Advance Tax is mandatory.

How to Calculate Advance Tax?

While calculating Advance Tax payable, taxpayer needs to make only a projection or estimate of his income, as the actual income could be calculated only by the fiscal year end.

  • Using the projected income for the fiscal year, the tax payable is to be calculated as per the tax slabs applicable for the current financial year.
  • From the tax so computed, subtract the tax deducted at source, if any.
  • Include educational cess while calculating advance tax.
  • The amount arrived at is the advance tax payable, in instalments.

 

When do I have to pay Advance Tax?

 For Non-Corporate Assessee- Individuals

  • On or before 15th September – not less than 30% of tax payable
  • On or before 15th December – not less than 60% of tax payable
  • On or before 15th March – not less than 100% of tax payable

Which means that if your income tax liability for a year is Rs 1,00,000/-, then you should pay advance tax of Rs 30,000 by 15th September, another Rs 30,000 by 15th December and rest Rs 40,000 by the end of 15th March.

 

What is the Penalty if I don’t pay Advance Tax?

If during the year, you have not paid advance tax instalments or have paid lesser than the percentage specified, you will be required to pay interest of 1% per month under section 234C of the IT Act. If you have not paid any advance tax during the year or advance tax paid was less than 90%, then you will be liable to an additional interest of 1% per month under section 234B of the IT Act.

Penalty under Section 234C

In case if you don’t pay your due advance tax installment in time then you will be charged a simple interest of 1% for the next 3 months on the amount of shortfall,this penalty is purely due to the delay in paying the due advance tax amount.

Penalty under Section 234B

If the total advance tax paid on the last due date i.e. 15th March is less than 90% of your total advance tax liability then you will be charged an interest rate of 1% on the balance amount for every month till the time you complete the payment. It means let’s say if your total income tax liability is Rs 1,00,000/- and if you have not paid anything on or before 15th  March then you would be charged 1% on the entire outstanding balance of Rs. 1 lakh in this case each month, unless you pay it, so if you pay in June , then you will be charged for 3 months penalty and it would be Rs 3,000 in total other than penalty under sec 234C.

 

How to Pay Advance Tax?

You can pay Advance Tax as per the following process:-

  • Challan no ITNS 280 should be filled out with all the correct details of the taxpayer
  • The filled challan along with amount should be submitted to any bank accepting tax payments.
  • Keeping in view your convenience you can also pay tax online through any bank facilitating e-payment of taxes you can visit https://onlineservices.tin.egov-nsdl.com/etaxnew/tdsnontds.jsp and select Advance Tax option and after filling the other reqiured fields and details can proceed to make online payment.

Dear readers, in case you have missed out on the earlier two due dates and have not paid your due advance tax then please do it right away as It is just a click away.

How People convert Black Money to White!

imagesWe Indians have heard this black money issue a lot over the last few years, this whole issue of black money has many facets to it, and in this article I am highlighting the ways in which an individual converts his or her black money to white. In no way I intend to encourage people to use any of these methods and it is purely to make you aware how people does it.  Let’s see and understand the concept of black money.

What is black money?

Black money means that income on which there no income tax has been paid and which has never been put on the accounting records.

Popular ways to convert black money to white:-

1. Getting money as a Gift

One of the most popular ways for converting black money to white is to get a gift from a relative. It applies in cases wherein a person’s relative has white money means money lying in his or her account and the person intend to convert similar amount (or more or less) of black money lying with him. The relative issues a cheque as a gift and the person will give back the cash to the relative.

Why people opt for this route is that any money received from a relative is tax free as mentioned in my previous column.

2. Showing Cash Income from Profession

People also convert their black money by filing tax returns in their relatives name like wife or parents who otherwise does not have any income. They show income from tuition fees/professional fees or commission earned in the name of their relative and later justify it by filing their taxes with income as mentioned above.

3. Loan Entry

Another method which is closely link to the above mentioned option of using relatives is showing money received by a third party (not only restricted to a relative but even a friend or so) as a loan entry. This way people part away with black money and get white money in their account and show it as a loan in their balance sheet/books, which is never going to be repaid.

4. Trust Formation & Charity

This is again one of the popular methods of converting the money by   forming a trust for a social cause like forming a charitable trust. People who have huge black money mainly adopt this route and donate black money to these trusts as charity, there are lot of trust which are operating like this and even offers income tax benefits to the donor u/s 80G of IT act.

5. Investing in Life Insurance/KVPs & other products

There are couple of investment option wherein one can invest in Cash like the most popular is your buying an insurance policy for which you can pay in cash and when the maturity period arrives say at the end of 10 or 20 years you will get a cheque and all your black money will get converted in to white.  The main logic is that IT department cannot go back and ask you the source for a policy which has been purchased 10 or 20 years back.

Even you have these KVPs i.e. kisan vikas patra resurfaced again recently to be used by people for converting their cash. However there is a maximum limit of Rs. 49,000/- for buying a policy or any other investment product. But people have an answer for this also and a way out is to either buy multiple policies/multiple names or investing in these policies by getting a demand draft made from a small sahakari banks for an amount more than fifty thousand.

6. Real Estate/Property Market

This is a sector wherein the majority of black money is parked, lot of people use property deals to convert their black money to white mainly because the real value of a land or a flat or any other property is always higher than its municipal value used for paying stamp duties.

It gives a huge scope for paying very less amount in white and the remaining in black and person can keep going on playing in the real estate market to convert black money to white while selling or purchasing properties.

7. Sale of Jewelry

This is one of the most common method by going to a known jeweler and giving him the black money and he will give you a cheque for the same amount after reducing some taxes like VAT and this transaction is done on the pretext that you have sold your personal jewelry to the said jeweler.

8. Showing Income as an Agriculture Income

In case a person possess a land which is termed as an agriculture land as per the act then they tend to show their black income by way of showing it as an income of agriculture activities like agri products or plantation or garden or nursery etc.

 

DISCLAIMER:-

I once again do not recommend readers to follow any of these steps and the above article is purely to make you aware about the numerous ways people use to convert their black money. And I firmly  believe that every Indian should do a thorough tax planning  as per our Income Tax Act and should always abide by our tax laws by begin on the right side of it, always!

After all it’s your life, why complicate, just make it large!!!