5

Things To Do After You Buy A Health Insurance

Hi there

Usually, we have health insurance and discuss how to get health insurance. In this article, we discuss things to do after you buy a health insurance plan.


1.  Understand claim procedures

In the case of emergency hospitalization and in the case of planned hospitalization find out the documents and steps necessary to intimate the insurer. Copy this information from the insurer or TPA’s website onto a word processor, print it, and keep it along with the policy document and policy ID card.


2. Recognise that ‘cashless’ is not a right!

Health insurance comes with a right to claim reimbursement. However, cashless claims are more of a privilege than a right. It is quite possible that the insurer may either deny cashless or allow it partially and ask the insured to claim the rest of the expenses via reimbursement after the hospitalization is complete.


3. Prepare for the next premium

Even if you choose not to increase the cover each year, do not assume the premium will be the same next year. The premium could increase due to other reasons – age of individuals, the risk profile of the entire group covered by the group, underwriting test, and perhaps medical checkups too. Start an online recurring deposit that matures 6-8 weeks before the premium is due.  If you are comfortable, you can choose to put money aside in a liquid fund for your insurance.


4. Understand the implications of sub-limits

There is nothing wrong with buying a policy with room-rent sub-limits. The only precaution is to ensure that the room-rent is always lower than that allowed by the sub-limit. This is because every kind of hospital fee (medicines, doctor fees, etc.) is linked to the room rent. So if you choose a room rent higher than that allowed by your policy, you will only be reimbursed (or paid via cashless) a portion of the hospital bill.


5. Recognize the impact of non-medical expenses

Hospitalization is not only about paying hospitalization fees! There is a huge list of non-medical expenses that any patient could incur. There are some administrative expenses, household expenses (while you are hospitalized), support staff expenses, and some expenses which get rejected in your insurance. Even if you believe that your health insurance cover is sufficient, these expenses have to be paid. This is where your emergency fund will come in handy. So ensure that you have one in place.


6. Health Cover for family members

If you are the earning member it is very crucial to have your own insurance but it is equally important to have health insurance for your family members, as any medical emergency for them would result in a financial setback for you and the entire family.

If the budget is a constraint you can consider taking up a family floater plan - watch our youtube video on this.
 https://www.youtube.com/watch?v=F0JNvA5a_eQ&ab_channel=WealthCafeFinancial 

Health Insurance could be considered as one of the trickiest insurances to buy as the health issues are very different for each person and then each insurance company has varied insurance needs. As a practice, do understand the various clauses of your insurance and have an emergency fund in place to be stress-free of any unforeseen health issues.

Disclaimer: - The articles are for information purposes only. Information presented is general information that does not take into account your individual circumstances, financial situation, or needs, nor does it present a personalized recommendation to you. You must consult a financial advisor who understands your specific circumstances and situation before taking an investment decision.

To learn more - you can check our course - NM 102: Build a Safety Net. Use code SAVE20 for 20% off.

 

 



4

'Investing' in Real Estate?

Hello fellow investors!

Roti - Kapda - Makaan has been the three needs of us Indians and we strive to make that makaan a reality. Once the makaan works as a shelter it becomes our personal asset. When you go for the second or the third property for investment reasons then you should consider the following points before proceeding.

Yes, the returns are good in real estate. We have always stated that investments are not all about returns, it is about building your portfolio to become financially free. So instead of just comparing past returns of both asset classes and claiming equity is better than real estate or vice versa, we would like to consider other important aspects.


1. Real Estate will skew your Asset Allocation

Investing is all about the right asset allocation. Investing a major portion of your investments in real-estate could skew your allocation in that direction for a very long time.

Once the Real estate is added to your investments, your allocation is considered with 4 assets, Real Estate, Gold, Equity & Debt. Once you choose to buy real estate, it may take a few years for other asset classes to occupy a significant portion of your portfolio. Hence, you should check and consider the reasons for investing in Real-estate.

2. It is hard to assign “present value” and calculate ‘growth’

Most people talk about how much their property is worth without actually speaking to potential buyers. It is only when you do so, you realize what is the real selling price of it. People would rather wait and enjoy lower returns than sell their properties at a price lower than what they want/wish to receive.

There is no designated market price. He who haggles the best wins here. Because of the lack of such a standard price, it makes real estate risky as most times people are stuck with a price they have in their mind without actually checking it for real.

3. It is not liquid enough that you can sell whenever you want.

I am sure you have heard of this, you cannot sell a bathroom to meet a financial emergency unlike Equity, mutual funds, and some debt options which can typically be traded in small amounts and on any business day.

You need to have other liquid assets (i.e. have a balance allocation) to take care of your financial needs.

4. TAX cost, buying another property.

The tax on capital gains from real estate in a way encourages you to go ahead to buy another property. As per the law, if you want to avoid capital gains tax on real estate you should necessarily reinvest the same in another property or in section 54EC bonds (with low returns) for 3 years to ensure the capital gains are tax-free.

5. Difficult to sell emotionally

Many people post-retirement do not have enough fixed income and other liquid investments to manage their every day cashflows. They are still not able to liquidate their properties for cash and use it for a more relaxed late age. They have an emotional attachment towards it and then it gets rationally difficult to decide to sell.

6. Risk of renting out

No guarantee of regular income. One may need to constantly look for tenants. Issues with paying property and water tax, and the legal hassles associated with tenants not moving out!

We do not intend to discourage you from purchasing houses for the purpose of investments but it is about becoming aware of what are the issues you can face when you do so. Before taking the decisions about investing in real estate, do calculate your returns, the money you would make from the investments in real - estate, and know your numbers. A close analysis for real-estate purchases should be done in a similar way as you would do for any other asset.

Analyze your risk-taking capacity and your goals before you make the final decision.

Happy Investing!

Disclaimer: - The articles are for information purposes only. Information presented is general information that does not take into account your individual circumstances, financial situation, or needs, nor does it present a personalized recommendation to you. You must consult a financial advisor who understands your specific circumstances and situation before taking an investment decision.



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Income-tax Rates FY 2019-20 (AY 2020-21)

Before knowing the tax rates, it is very important to understand the terms Financial year (FY) and Assessment Year (AY).

The below-mentioned tax rates/ slab is on the income earned for the period 1 April 2019 to 31 March 2020. FY stands for the 'financial year' which is from 1 April 2019 to 31 March 2020. AY stands for Assessment year which 2020-21.

For individuals, the due date to file the income tax return for the income earned from 1 April 2019 to 31 March 2020 is 31 July 2020. However, this year due to COVID 19 economic relaxations, the due date is pushed to 30 November 2020

Income tax Rates 

Tax Rates for Individuals (below 60)

Income Tax Slab

(in Rupees)

Tax Rate for Individual Below the Age Of 60 Years
0 to 2,50,000* Nil
2,50,001 to 5,00,000 5% of total income exceeding 2,50,000
5,00,001 to 10,00,000 Tax Amount of 12,500 for the income up to 5,00,000

+ 20% of total income exceeding 5,00,000

Above 10,00,000 Tax Amount of 1,12,500 for the income up to 10,00,000

+ 30% of total income exceeding 10,00,000

Tax Rates for Senior Tax Payers between the age of 60 years to 80 years old

Income Tax Slab Senior Citizens (between 60 years – 80 years)
Up to 3,00,000 Nil
 3,00,001 to 5,00,000 5% of income exceeding 3,00,000
 5,00,001 to 10,00,000 Tax Amount of 10,000 for the income up to 5,00,000

+ 20% of total income exceeding 5,00,000

Above 10,00,000 Tax Amount of 1,10,000for the income up to 10,00,000

+ 30% of total income exceeding 10,00,000

Tax Rates for Super Senior Taxpayers above the age of 80 years

Income Tax Slab Very Senior Citizens of and above 80 years of age
Up to 5,00,000 Nil
 5,00,001 to 10,00,000 20% of income exceeding 5,00,000
Above 10,00,000 30% of income exceeding 10,00,000

Important Notes:

  • The income tax rates are applied to the annual income calculated. Thereafter Surcharge and Cess are added to the tax payable.
    • A surcharge is also applicable slab wise. The surcharge is calculated on the Tax amount. If the income is:
  1. Above Rs.50,00,000 and up to Rs.1 crore – then 10% surcharge is applicable
  2. Above Rs.1 crore and up to Rs.2 crore – then 15% surcharge is applicable.

In the Union Budget 2019-20, a new surcharge on income tax for super-rich individuals has been levied. So, individuals earning:

  1. Between Rs.2 crore and up to Rs.5 crore –then 25% surcharge is applicable;
  2. For Above Rs.5 crore – then a 37% surcharge is applicable.
  • An additional Cess of 4% for Health & Education is applicable to the income tax plus surcharge.
  • Section 87A allows tax rebates to Individuals whose total annual income falls below Rs.5,00,000. The rebate is limited to Rs.12,500 or the actual tax amount whichever is lower.

Income Tax Slabs for HUF

The Income Tax Slab for Hindu Undivided Family (HUF) is the same as the Tax slabs for Individuals under the age of 60 years in the year 2019 – 2020.

Income Tax Slabs for Partnership Firms

There is a flat tax rate for Partnership Firms and LLPs (Limited Liability Partnerships) and they are to pay Income Tax at the rate of 30%.

Added to the tax amount is:

  1. Surcharge on tax: 12% in cases where the annual income is more than Rs.1 Crore
  2. Cess for Health & Education: is at the rate of 4% - calculated on tax amount plus surcharge

Income Tax Slabs for Local Authorities

Local Authorities to are to be taxed at a flat tax rate of 30%.

Added to the tax amount is:

  1. Surcharge on tax: 12% in cases where the annual income is more than Rs.1 Crore
  2. Cess for Health & Education: is at the rate of 4% - calculated on tax amount plus a surcharge.

Income Tax Slabs for Domestic Companies

Domestic Companies have received a boost. With the turnover raised from 250 crores to 400 crores for a tax rate of 25%. The turnover slab wise tax calculation is:

Turnover Particulars Tax Rates
Gross turnover up to 400 Cr. in the previous year 25% (subject to conditions as set out in the Taxation Laws Amendment Ordinance, 2019)
Gross turnover exceeding 400 Cr. in the previous year 30% (subject to conditions as set out in the Taxation Laws Amendment Ordinance, 2019)

Added to the tax amount is:

Surcharge on tax:

  1. 7% in cases where the annual income is between Rs.1 Crore to Rs.10 Crore
  2.  12% in cases where the annual income is more than Rs.10 Crore

Cess for Health & Education: is at the rate of 4% - calculated on tax amount plus surcharge

Income Tax Slabs for Foreign Companies

Foreign Companies are taxed at a rate of 40%.

Added to the tax amount is:

  1. Surcharge on tax: 2% in cases where the annual income is between Rs.1 Crore to Rs.10 Crore
  2. 5% in cases where the annual income is more than Rs.10 Crore
  3. Cess for Health & Education: is at the rate of 4% - calculated on tax amount plus surcharge

Income Tax Slabs for Co-operative Societies

Income Tax Slab Income Tax Slab Rate
Up to Rs.10,000 10% of Income
Rs.10,000 to Rs.20,000 20% of Income exceeding Rs.10,000
Over Rs.20,000 30% of Income exceeding Rs.20,000

Added to the tax amount is:

  1. Surcharge on tax: 12% in cases where the annual income is more than Rs.1 Crore
  2. Cess for Health & Education: is at the rate of 4% - calculated on tax amount plus surcharge
  3. So, to calculate your tax liability for the year, you should keep a track of your annual income to know what Income slab you will be falling under for the year 2019 – 2020.

Income tax rates for a non-resident - Individuals

Income Slabs Income-tax rates
Up to 2,50,000 Nil
From 2,50,000 to 5,00,000 5%
From 5,00,000 to 10,00,000 20%
Above 10,00,000 30%
Ø  Surcharge: 10% of tax where total income increases Rs. 50 lakhs

15% of tax where total income increases Rs. 1 crore

Ø  Health & Education cess: 3% of tax plus surcharge

Capital Gains Taxation on Mutual Funds/Direct Equity

For Equity Oriented Schemes/Direct Equity

  • Long Term Capital Gains (units held for more than 12 months)
  • Short Term Capital Gains (units held for 12 months or less)

For non-equity oriented schemes

  • Long Term Capital Gains (units held for more than 36 months)
  • Short Term Capital Gains (units held for 36 months or less)
  Individual/ HUF Domestic Company NRI

Equity Oriented Schemes/Direct Equity

Long term capital gains 10%* 10%* 10%*
Short term capital gains 15% 15% 15%

Other Than Equity Oriented Schemes

Long term capital gains 20% (after indexation) 20% (after indexation) Listed - 20% (after indexation)

Unlisted - 10% (without indexation)

Short term capital gains 30%^ 30%^^/25%^^^ 30%^

 

 

 

Tax Deducted at Source (Applicable to NRI Investors)

 
  Short term capital gains$ Long term capital gains$
Equity oriented schemes 15% 10%*
Other than equity-oriented schemes 30% 10% (for unlisted without indexation) and 20% (for listed)

* Income-tax at the rate of 10% (without indexation benefit) on long-term capital gains exceeding Rs. 1 lakh provided the transfer of such units is subject to STT.

$ Finance (No.2) Act, 2019 provides for a surcharge at:

  • 37% on base tax where income exceeds Rs. 5 crore;
  • 25% where income exceeds Rs. 2 crore but does not exceed Rs. 5 crore;
  • 15% where income exceeds Rs. 1 crore but does not exceed Rs. 2 crore;
  • 10% where income exceeds Rs. 50 lakhs but does not exceed Rs. 1 crore.

Further, "Health and Education Cess" to be levied at the rate of 4% on the aggregate of base tax and surcharge.

@ Surcharge at 7% on base tax is applicable where the income of domestic corporate unit holders exceeds Rs 1 crore but does not exceed 10 crores and at 12% where income exceeds 10 crores. Further, "Health and Education Cess" to be levied at the rate of 4% on the aggregate of base tax and surcharge.

# Short term/ long term capital gain tax (along with applicable Surcharge and "Health and Education Cess") will be deducted at the time of redemption of units in case of NRI investors.

^ Assuming the investor falls into the highest tax bracket.

^^ This rate applies to companies other than companies engaged in manufacturing business who are taxed at a lower rate subject to fulfillment of certain conditions.

^^^ If total turnover or gross receipts during the financial year 2017-18 does not exceed Rs. 400 crores.

Further, the domestic companies are subject to minimum alternate tax not specified in the above tax rates. Transfer of units upon consolidation of mutual fund schemes of two or more schemes of equity oriented fund or two or more schemes of a fund other than equity oriented fund in accordance with SEBI (Mutual Funds) Regulations, 1996 is exempt from capital gains.

Income-tax implications on dividend received by Mutual Fund unitholders

  Individual/ HUF Domestic Company NRI

Dividend

Equity oriented schemes Nil Nil Nil
Debt oriented schemes Nil Nil Nil

Rate of tax on distributed income (payable by the MF scheme)**

Equity oriented schemes* 10% + 12% Surcharge + 4% Cess 10% + 12% Surcharge + 4% Cess 10% + 12% Surcharge + 4% Cess
= 11.648% = 11.648% = 11.648%
Money market or Liquid schemes /debt schemes (other than infrastructure debt fund) 25% + 12% Surcharge + 4% Cess 30% + 12% Surcharge + 4% Cess 25% + 12% Surcharge + 4% Cess
= 29.12% = 34.944% = 29.12%
Infrastructure Debt Fund 25% + 12% Surcharge + 4% Cess 30% + 12% Surcharge + 4% Cess 5% + 12% Surcharge + 4% Cess
= 29.12% = 34. 944% = 5.824%

* Securities transaction tax (STT) shall be payable on equity-oriented mutual funds schemes at the time of redemption/switch to the other schemes/sale of units.

** For the purpose of determining the tax payable by the scheme, the amount of distributed income has to be increased to such amount as would, after reduction of tax on such increased amount, be equal to the income distributed by the Mutual Fund. In other words, the amount payable to unitholders is to be grossed up for determining the tax payable, and accordingly, the effective tax rate would be higher. The above-mentioned rate is without considering the grossing up.

Surcharge mentioned in the above table is payable on base tax. Further, "Health and Education Cess" is to be levied at 4% on the aggregate of base tax and surcharge.

Disclaimer - The tax rates mentioned here are from the Finance Act 2019 and can be subject to changes. It is advisable to consult your tax consultant or financial advisor before finalizing your tax returns.

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TDS Rates for AY 2019-20

We have discussed in our previous articles about how to save income tax.

We have also stated that you must compute your taxable liability at the end of the financial year i.e. 31 March of the year to know your exact tax liability and pay the same to avoid any interest on delay in payment of taxes.

Many of us are not used to paying taxes as all the income that we received is already reduced by the tax. We receive post-tax income (also known as cash in hand).

TDS (Tax deducted at source) is the tax which is deducted by the income provider before paying you the income. For example- employers deduct taxes on the salary income, banks deduct taxes on the interest income etc.

Every budget, where the tax rates are updated, the TDS rates and applicability is also updated.

Apart from bank interest and salaries, there are many other ways your income can be taxed at source. We have listed the same below:

 

 

 

 

 

 

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Sukanya Samriddhi Scheme - points to note

Sukanya Samridhi scheme was launched in January 2015 to encourage savings for a girl child’s education. Till November 2017 more than 1.26 crore accounts have been opened across the country in the name of the girl child, securing an amount of Rs 19,183 crore.

Here are things to know about Sukanya Samriddhi account:

1) Under the new rules, known as Sukanya Samriddhi Account (Amendment) Rules, 2018, the minimum amount required for opening a Sukanya Samriddhi account has been brought down to Rs 250, from Rs 1,000 earlier.

2) The minimum annual deposit requirement, or the minimum amount required to be deposited in Sukanya Samriddhi account every year, has also been lowered to Rs 250, from Rs 1,000 earlier. These new rules came into effect from July 6, 2018.

3) The interest rate on Sukanya Samriddhi account is revised every quarter, like other small savings instrument such as public provident fund (PPF), and Senior Citizen Savings Scheme (SCSS). Currently, Sukanya Samriddhi account fetches an interest of 8.1% per annum, compounded yearly.

4) Tax exemption is also one of the greatest advantages of the Sukanya Samriddhi account.

5) Deposits in a Sukanya Samriddhi account may be made until the completion of 15 years, from the date of opening of the account. For example, if an account was opened on 10 April 2016, deposits can be made up to 9 April 2031. After this period the account will only earn interest as per applicable rates.

6) Contribution in to Sukanya Samriddhi account up to Rs. 1.50 lakh in a financial year qualifies for income tax deduction under Section 80C of Income Tax Act. The entire interest earned and maturity amount is also non-taxable. The maximum amount that can be deposited in a Sukanya Samriddhi account is Rs 1.5 lakh in a financial year.

7) Sukanya Samriddhi account will mature on completion of 21 years from the date of opening of the account.

8) A Sukanya Samriddhi account can be opened up to age of 10 years only from the date of birth of the girl child. A guardian can open only one Sukanya Samriddhi account in the name of one girl child and maximum of two accounts in the name of two different girl children in post offices and designated banks.

9) Partial withdrawal will be allowed on the account holder attaining the age of 18 to meet educational or marriage expenses. Withdrawal will be limited to 50% of the balance standing at the end of the preceding financial year.

10) Normal premature closure will be allowed for the purpose of the account holder’s marriage if she has attained the age of 18.

You can also check for other benefits provided by the government:

  1. Atal Pension Yojana
  2. Pradhan Mantri Jan Arogya Yojana (PMJAY)
  3. Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY)
  4. Pradhan Mantri Shram Yogi Maan-Dhan
income-tax-491626__340

How to save tax

Mid-January is a stressful time for most salaried individuals. Most of them are calling their CAs, talking to their friends or opening fixed deposits to make investments to avoid/reduce their taxes. It is the time when most offices require the employees to submit their investment proofs for availing the tax benefit.

Most of us know about the deduction of INR. 150,000 available to individuals. This deduction means that an amount of INR 150,000 is reduced from your total taxable income and then, the balance is taxable under the Act. Generally, people know that this INR 150,000 deduction is available when you invest in the Provident Fund (PF), an insurance policy or a new fixed deposit (FD) of 5 years every year.

These are not the only options available for tax savings. In our Article, taxation of salary, we discussed ways and reasons to make the most of your salary. Here, we are going to discuss, means made available to you under the Income-tax Act, 1961 to reduce your tax payable. To make use of any of these options, you will have to actually spend the money, invest it i.e. there will be an outflow of funds. You also need to have a backup and the relevant documents to claim the tax deductions.

The deductions for the following expenses/investments are allowed.

  • Popular INR 150,000 deduction: Claiming a deduction of INR 150,000 under section 80C of the Act can reduce your tax outgo by around Rs. 45,000 (for someone in a 30% tax bracket, calculation without considering cess). Also, the government has included many options under this to inculcate and increase the practice of investing and saving.
Product Tax Benefit
1. Insurance Policy Payments made towards the premium of self, spouse, and children. The debt should be made from the individuals' bank account who is claiming the tax deduction.
2. Provident Fund (PF) Payment made towards provident fund or superannuation fund
3. Tuition Fees Tuition fees paid to educate 2 children
4. Construction or purchase of residential house The principal amount of the loan towards purchasing or constructing a new house.
5. Fixed Deposit Investing in an FD for a period of 5 years or more and stay invested for 5 years.
6. Mutual Funds Investing in a specific tax-saving MF categorized as ELSS for a lock-in period of 3 years
7. Others National Savings Scheme, sukanya Samriddhi Scheme, Employee Provident Fund, Voluntary Provident Fund, Senior Citizens saving scheme, Unit-linked insurance plan, Infrastructure Bonds, NABARD Rural Bonds
  • Invest for retirement and taxes – Under section 80CCD (1B), an additional deduction of up to INR 50,000 for the amount deposited by a taxpayer to the National Pension Scheme (NPS) notified by the central government can be claimed. This is subject to the contribution being less than 10% of the basic salary of the employee. Contributions to Atal Pension Yojana are also eligible.
  • Employer’s contribution to NPS – Section 80CCD (2), an additional deduction is allowed for the employer’s contribution to an employee’s pension account of up to 10% of the salary of the employee. There is no monetary ceiling on this deduction.
  • Interest earned on the savings bank account:   A deduction of maximum INR 10,000 can be claimed against interest income from a savings bank account as per section 80 TTA of the Act. Interest from a savings bank account should be first included in other income and deduction can be claimed of the total interest earned or INR 10,000, whichever is less.
  • Health Insurance and preventive health check-up: A deduction of the amount paid towards health insurance premium of your family (including your spouse and children) and parents, which are different from the benefits, based on the costs related to health check-ups. The deduction limits are as follows:
Persons covered Exemption Limit Health check-up exemption Total
Self and family INR 25,000 INR 5,000 INR 25,000
self and family + parents (INR 25,000 + INR 25,000) = INR 50,000 INR 5,000 INR 55,000
self and family + senior citizen parents (INR 25,000 + INR 30,000) = INR 55,000 INR 5,000 INR 60,000
self (senior citizen) and family + senior citizen parents (INR 30,000 + INR 30,000) = INR 60,000 INR 5,000 INR 65,000
  • Save tax on loan taken for higher education- A deduction under section 80 EE is allowed to an individual for interest on a loan is taken for pursuing higher education. This loan may have been taken for the taxpayer, spouse or children or for a student for whom the taxpayer is a legal guardian. The deduction is available for a maximum of 8 years (beginning the year in which the interest starts getting repaid) or till the entire interest is repaid, whichever is earlier. There is no restriction on the amount that can be claimed.
  • Save while you pay for a disabled dependent: Under section 80 DD medical treatment for handicapped dependent or payment to specified scheme for maintenance of handicapped dependent '

Disability is 40% or more but less than 80% - Rs.75,000

Disability is 80% or more – Rs. 125,000

  • Medical expenses of a disabled Individual - Self-suffering from disability:
    An individual suffering from a physical disability (including blindness) or mental retardation. – Rs. 75,000

An individual suffering from severe disability – Rs. 125,000

  • Save tax while you donate: The various donations specified under section 80G are eligible for deduction up to either 100% or 50% with or without restriction as provided in section 80G. From FY 2017-18 any donations made in cash exceeding Rs 2,000 will not be allowed as deduction. The donations above Rs 2000 should be made in any mode other than cash to qualify as deduction u/s 80G.
  • Contributions given by any person to Political Parties: Deduction under this section is allowed to a taxpayer except for a company, local authority and an artificial juridical person wholly or partly funded by the government, for any amount contributed to any political party or an electoral trust. The deduction is allowed for contribution done by any way other than cash.

These deductions are the best ways to reduce your taxes and also save and invest your money. We have included all the sections for deductions above. However, if you have any query, please leave it in the comments below and we shall revert to you at the earliest.

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Mutual Funds Taxation

Income-tax on Long term gains made from mutual fund investments was introduced in the budget last year. It is very important to know how your mutual fund gains are taxed and report correct numbers in your returns.

3 Factors that determine the Mutual Fund Taxation

Any fund which invests 65% or more in equity is called as Equity Fund. For example, large-cap funds, multi-cap funds, small and mid-cap funds or equity-oriented balanced funds (where the equity exposure is 65% or more) are all called equity-oriented funds.

If the equity portion is less than that, then they are all treated as debt funds or non-equity funds. For example liquid funds, ultra-short term funds, short-term funds, income funds, gilt funds, debt-oriented balanced funds, gold funds, fund of funds or money market funds.

  • Holding periods of Investment–

The holding period for Equity and Debt Funds will be different for taxation purpose.

  Equity Debt
STCG If the holding period is less than or equal to 12 months If the holding period is less than or equal to 36 months
LTCG If the holding period is more than 12 months If the holding period is more than 36 months.


Mutual Fund Taxation FY 2018-19 -Capital Gain Tax Rates

Now that you have clarity on what is Short term capital gains (STCG) and Long term Capital gains (LTCG). Let us move further and understand the Capital Gain Taxation for mutual fund investors.

The biggest change from FY 2018-19 is the introduction of LTCG in Budget 2018. The table below will give you a brief of the same:

 Note: Surcharge @ 15%, is applicable where the income of Individual/HUF unit holders exceeds Rs. 1 crore. Also, surcharge @10% to be levied in case of individual/ HUF unitholders where the income of such unitholders exceeds Rs.50 lakhs but does not exceed Rs.1 Cr. Further, Health and Education Cess @ 4% will continue to apply on the aggregate of tax and surcharge.

Where an individual/HUF total income (income from all sources) is less than the slab rate, then any income from long term or short term is a part of the slab rates.

Short Term Capital Gains on Equity Mutual funds/Equity Shares

Cost price of MF (10,000*100) 1 January 2018 10,00,000
Selling price (10,000*120) 31 March 2018 12,00,000
Gains STCG 200,000
Tax payable (15%) 30,000

Note: There is no change in the STCG with the new amendment. STCG remains taxable as it always was. It is to be computed based on the equity or debt fund. There is no impact of 31 January 2018, cut off dates prices for STCG.

Long term Capital Gains on Equity Mutual funds

There is a cut-off date of 31 January 2018, which has been introduced for the purpose of computing LTCG. LTCG is to be computed in 2 parts:

  • Units purchased on or  before 31 January 2018
  • Units purchased post 31 January 2018

Gains up to Rs. 1,00,000 is exempt while computing LTCG from equity-oriented mutual funds or shares.


Long term Capital gains on mutual funds purchased before 31 January 2018 and sold after 12 months.

There was a benefit introduced to investors by considering the cost on 31 January 2018 for the purpose of computing LTCG. However, this method can be a bit confusing so you may take expert advice. We have described the same below for your understanding:

The Cost to be considered :

Higher of Actual cost or (the formula amount)

The Formula Amount is Lower of

  • The highest price of the unit on 31 January 2018 from all recognized stock exchange.
  • Actual Selling Price

For Example:

Date of buying – 1 April 2017

Date of selling – 31 April 2018

Number of Units – 10,000

Price of  MF on following Dates

Sr. No Dates Price
1 Date of buying (1 April 2017) – Actual Cost 100
2 31 January 2018 (highest price on cut-off date) 150
3 Date of selling ( 30 April 2018) 120

Step 1 – Calculate the Formula Amount i.e. Lower of (2) and (3) i.e. 120 (lower of 150 or 120)

Step 2 – Calculate the cost to be considered i.e. higher of (1) or Step 1 answer – 120 (higher of 100 0r 120)

Hence,

Cost price of MF (10,000*120) 12,00,000
Selling price (10,000*120) 12,00,000
Gains Nil
LTCG (10%) Nil

Things to Note:

  • Comparison of prices on 31 January 2018 is done to compute the considered cost price.
  • The highest price of the MF/share as on 31 January 2018 is to be considered for this calculation.
  • Final selling price is the lower of 31 January price or the price on the selling date.
  • Hence, this cost determination method may lead to nil gains, benefitting the investor.
  • The gains will not be Nil in all the cases.
  • This method will never lead to a long term capital loss for an individual/HUF.

Long term Capital Gains on mutual funds purchased after1 February 2018

No comparison of prices as on 31 January is required. However, the exemption limit of Rs. 1,00,000 is available.

Cost price of MF (10,000*100) 1 February 2018 10,00,000
Selling price (10,000*120) 10 February 2019 12,00,000
Gains LTCG 200,000
LTCG (10%) 20,000

TAX – Savings Equity Mutual Funds

Equity Linked Savings Schemes or tax saving mutual funds are one of the most sort out for financial products under section 80 C of the Income-tax Act, 1961.

ELSS comes up with a lock-in period of 3 years. It means that once you invest in ELSS, you cannot redeem your units before the expiration of 3 years. You can claim a tax deduction of up to Rs 1.5 lakhs and save taxes up to Rs 45,000 by investing in ELSS.

Upon redemption after 3 years, the long-term capital gains (LTCG) up to Rs 1 lakh are tax-free in your hands.  LTCG in excess of Rs 1 lakh is taxed at the rate of 10% without the benefit.

You can read about various ways to save taxes under section 80 C in out Article - How to save tax?

Note: It is not compulsory to redeem ELSS mutual funds after 3 years. You can stay invested for a longer duration. To maintain the 80C benefit, you must stay invested for 3 years.

Mutual Fund Taxation FY 2018-19 – Dividend Distribution Tax (DDT)

There are few investors who opt for dividend option in mutual funds. Hence, let us see the taxation on the dividend of such funds. Earlier there was no DDT for equity investors. However, from the Budget 2018, DDT @10% will be applicable to equity investors also.

Base Tax Rate Surcharge and Cess Total Tax
Equity Oriented Schemes Nil Nil Nil
Debt Oriented Schemes Nil Nil Nil

 

Tax Payable by Mutual Fund Companies

Equity Oriented Schemes 10% 12% SC + 4% cess 11.648%
Money Market/Liquid Schemes/debt funds 25% 12% SC + 4% cess 29.12%
Infrastructure Debt Fund 25% 12% SC + 4% cess 29.12%

Note: In spite of the 10% long term tax now payable on mutual fund investments. It is a very good form of investments and the gains made are far more to compensate the taxes to be payable on the Long term. However, it is advisable to get your returns working reviewed by an expert where you have a lot of equity/ mutual funds gains in a particular FY.

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How to save Income-tax on Health Insurance

Owning health insurance covers your basic risk of health and secures your family. We have discussed in detail what are things to note while buying health insurance.

What's more, the premium paid for health insurance also provides a tax benefit by reducing your taxable income and thereby your tax liability.  We are going to discuss the same here:

Deduction under section 80D of the Act

Premium paid for self, spouse and children

The premium paid towards health insurance policies qualifies for deduction under Section 80D of the Income Tax Act. The benefit is available to individuals on health insurance premium paid for self, spouse, children, and parents. Importantly, it does not matter whether the children or parents are dependent on you or not.

The quantum of tax benefit depends on the age of the individual who is medically insured.

You can claim a deduction of INR 25,000 for the premium paid for self, spouse, and children. If you and your spouse are of the age 60 and above, then you can claim a benefit of INR 30,000 for the premium paid.

Preventive Health Check-up

You can claim a deduction towards health check-ups too. It is included in the above limitations of INR 25,000 (or INR 30,000). Preventive health check-up of up to INR 5,000 is allowed.

Premium paid for parents

Premium paid for health insurance of parents/  guardians up to INR 25,000 is allowed. If they are above the age of 60, then you can claim a benefit of INR 50,000 for the premium paid.

Health checkup expenses for super senior citizens

Very Senior Citizens (who are above 80 years of age), can claim a deduction of up to Rs 50,000 incurred towards the medical expenditure, in case they don’t have health insurance.

Things to Note:

  • We have tabulated below the maximum health insurance and medical expenses you can claim under section 80D for the year ended 31 March 2019.

  • Health insurance premiums paid in cash will not be allowed as a deduction. It has to be paid from banking channels. A Health check-up of INR 5,000 can be paid in cash.
  • Premium paid for health insurance of your siblings is not allowed as a deduction.
  • *Nature of the amount spent on your senior citizens' parents and self-family can be towards medical expenditure as well.

To learn more - you can check our course - NM 102: Build a Safety Net. Use code SAVE20 for 20% off.

 

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    Budget 2019 Highlights - 7 things you must know

    1. The BIG change in Individual’s Income Tax Slab Rates

    Your tax liability if your income is up to Rs.5 lakh will turn to be ZERO. However, there is no tax slab changes from the Budget 2019.

    Latest Income-tax Slab Rates FY 2019-20 (AY 2020-21)
    Income slabs Individual aged (Aged below 60 years) Senior citizens (Aged 60 years and above but below 80 years) Super senior citizens (Aged 80 years and above)
    Up to 2,50,000 Nil Nil Nil
    From 2,50,000 to 3,00,000 5% Nil Nil
    From 3,00,000 to 5,00,000 5% 5% Nil
    From 5,00,000 to 10,00,000 20% 20% 20%
    Above 10,00,000 30% 30% 30%

     

    You notice that there is no change in the Income Tax Slab Rates for FY 2019-20. Then how can be it is judged that there is no tax on an individual whose income is up to Rs.5,00,00? There is a change in the rebate available to individuals. Read our Article - -

    2. Standard Deduction for Salaried individuals and pensioners increased from existing Rs.40,000 to Rs.50,000

    In the last year budget, Government introduced Rs.40,000 standard deduction available for all salaried individuals in lieu of the present exemption in respect of transport allowance and reimbursement of miscellaneous medical expenses.

    Now, this limit is raised from Rs.40,000 to Rs.50,000.

    3. TDS Limit on Bank FDs and Post Office Schemes raised from Rs.10,000 to Rs.40,000

    Earlier the TDS limit on the interest you earn was Rs.10,000. Now, this limit is raised to Rs.40,000.

    This seems to be the biggest relief to many of us. BUT keep one thing in mind that AVOIDING TDS does not mean AVOIDING TAX.

    4. The benefit of rollover of capital gains under section 54 of the Income - Tax Act raised

    The benefit of rollover of capital gains under section 54 of the Income Tax Act will be increased from investment in one residential house to two residential houses for a taxpayer having capital gains up to Rs.2 Cr. This benefit can be availed once in a lifetime.

    5. Your Income Tax Returns and Refunds will be processed within 24 hours

    The government has now approved a path-breaking, technology-intensive project to transform the Income-tax Department into a more assessee friendly one. All returns will be processed in twenty-four hours and refunds issued simultaneously. Within the next two years, almost all verification and assessment of returns selected for scrutiny will be done electronically through anonymized back office, manned by tax experts and officials, without any personal interface between taxpayers and tax officers.

    6. Income tax on notional rent on a second self-occupied house abolished

    Currently, taxpayers who own two residential houses, which are not self-occupied, are required to impute a notional value for rental income for one property and the value for the other house is taken as zero. The government proposed to exempt levy of income tax on notional rent on a second house self-occupied. Now imputation of notional rental value will apply if the taxpayer owns more than two self-occupied residential houses (i.e. to the third house)

    The deduction available on interest paid on the mortgage loan is restricted to INR 200,000 for both above residential houses, on which no notional rent imputation is required.

    7. TDS threshold for deduction of tax on rent increased

    TDS threshold for deduction of tax on rent is proposed to be increased from Rs.1,80,000 to Rs.2,40,000 for providing relief to small taxpayers.

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    Is the income up to Rs. 5,00,000 exempt as per the interim budget 2019?

    The income tax rebate has been revised by Budget 2019 and there is no tax on income up to Rs. 5,00,000.  However, this benefit is available to only those whose income is equal to or less than Rs. 5,00,000.

    This benefit is provided through the rebate available under section 87  A and not by amending the tax slab rates. It means if your total tax payable is lower than Rs.12,500, the amount will eligible for a rebate under Sec.87A.

    Refer our Article Income-tax slab rates for Individuals for FY 2019-20 (AY 2020-21)

    A summary of the Revised Income tax slab rates for FY 2019-20 (AY 2020-21)

    Income slabs Individual aged (Aged below 60 years) Senior citizens (Aged 60 years and above but below 80 years) Super senior citizens (Aged 80 years and above)
    Up to 2,50,000 Nil Nil Nil
    From 2,50,000 to 3,00,000 5% Nil Nil
    From 3,00,000 to 5,00,000 5% 5% Nil
    From 5,00,000 to 10,00,000 20% 20% 20%
    Above 10,00,000 30% 30% 30%

    Please note that there is no change in the income-tax slab rates, if your income is higher than 5,00,000, then tax will be levied on income from between Rs. 2,50,000 to Rs. 5,00,000.However, if your income is Rs. 5,00,000 and less, only then your tax liability is zero.

    Let’s explain you with an example

    Tax Rates and Slabs Income of 5,00,000 Income of 7,00,000
    Up to Rs. 2,50,000 Nil Nil
    2,50,000 to 5,00,000 (5%) 12,500 12,500
    Above, 5,00,000(20%) Nil 40,000
    Rebate u/s 87A (12,500) Nil
    Total Tax Payable Nil 52,500

    You may notice that up to Rs.5,00,000, even though there is tax liability, due to revised limits of Sec.87A, your tax liability becomes zero.

    However, if your total income is more than Rs.5,00,000 then you are not eligible to claim the deduction under Sec.87A. Hence, there will not be any benefit for those who are under higher tax bracket.

    Points to note

    • Individuals with income up to Rs. 5,00,000 will have no taxable income, however, tds will be deducted and you will have to claim a refund.
    • To claim a refund and use the benefit it is compulsory to file the income-tax return.
    • Do remember that the rebate should be applied to the total tax before adding the education cess (4%).

    For other Budget Updates, read our Article Budget 2019 Highlights - 6 things you must know.

     

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