" Financial Planning "

Retirement is the period of your life when you are no longer working and you need to fund your day today expenses from your savings. Retirement planning is a part of overall financial planning process and it enables a person to enjoy the desired post retirement lifestyle. When you stop earning, you would certainly want to maintain the same (or even better!) standard of living. Post retirement, a person does not have his monthly paycheck and will have to depend on the annuity he receives from his investment corpus. Planning for the sunset years acquires added importance because people over-estimate what they have and under-estimate how much they need post retirement. People live longer today and are lot healthier today. They spend more years in retirement and therefore they need to save more to cover the risk of living more than their life expectancy. Retired people love pursuing new interests such as playing golf, going abroad etc and therefore post retirement life style is extravagant than those prior to retiring.

 

When planning for retirement we do not know how much is enough? Although, we can draw up a plan that includes future cash flows, savings and spending assumptions, it is not always possible to accurately assess this corpus amount.

 

To compute retirement corpus, following variables are considered:

• Life expectancy
• Rate of return from existing equity and fixed income securities.
• Annuity from insurance schemes, pension schemes from Govt. / Pvt. sector etc.
• Tax slabs.
• Rate of inflation.
• Growth rate in salary / business income.
• Household expenses and saving rate.

To achieve your life dreams, even when you stop working, one should follow the under mentioned basic principles.

• It is a myth that one should start planning for retirement when you are 40 plus. If you start early, you can build large corpus for retirement. Remember the power of compounding!
• Define your need and financial objectives.
• Seek advice of a financial planner, who shall chalk out a plan for you. A financial planner can guide you to invest in appropriate asset class to build corpus for your retirement.
• Diversification and optimal asset allocation in accordance with one's risk appetite is a key to successful financial and retirement planning.
• Review your plan at regular interval to ensure you are on track.

Retirement is an exiting time, but it can be a scary one unless you have a retirement plan

Tips to lower your Tax bill

Taxes are said to be as inevitable in life as death and it is our social responsibility to pay them. Taxes are burdensome for all taxpayers. Saving money in taxes is high priority in Financial planning exercise. There are legally permissible ways to reduce taxes and retain more of your hard-earned money in your savings kitty. There are various tax deductions available under the present Income tax act and you should take advantage of them.

Here are some tips to lower your tax bill:

Deductions under Section 80C

Section 80C tends to be most popular since you can get an exemption of up to Rs 1 lakh on contributions to a wide range of investments.

Broadly these deductions can be classified into two options:
 

• Investment Oriented &
• Non Investment Oriented

Investment Oriented options would comprise of the following.

- Premium paid on life insurance policies
- Payment for deferred annuities
- Contributions to provident funds
- Contributions to super-annuation funds
- Contributions to Unit Linked Insurance Plans
- Subscripttion to notified security
- Subscripttion to NSC
- Payments towards annuity plans of LIC or other insurers
- Subscripttion to notified mutual funds or UTI
- Subscripttion to Home Loan Account Scheme of National Housing Bank
- Investment in companies engaged in providing infrastructure facilities
- Term deposits (5 Years)
- Senior Citizens' Saving Scheme.

Non -Investment Oriented options would comprise of the following.
 

• Payments for acquisition of a residential house
• Tuition fees paid for education of children

Section 80C provides for an outright deduction on certain contributions/payments subject to following conditions:

- The contributions/payments must have been made during the relevant previous year
- The aggregate amount qualifying for deduction should not exceed Rs.1 Lakh.

Section 80 D - Medical insurance

If you take a medical insurance plan for yourself, your spouse, dependent parents and dependent children, you can under Section 80D claim deduction up to Rs 15,000 for the premium paid. A bonanza is available in the form of an additional deduction of Rs.15,000 towards medical insurance premium paid for your patents. For senior citizen taxpayers, the limit now has been enhanced to Rs.20,000. One condition being that the premium should be paid through a cheque.

In case you have paid any amount for the medical treatment of any disabled person dependent on you then again you are entitled to a deduction in the range of Rs. 40,000 to Rs. 75,000.

However, to claim any deduction under this section, certification by a medical authority is mandatory.

Interest component of home loan - Sec 24 (b)

Your home is not only your living shelter but also your tax shelter. You can claim a deduction for the interest paid on a housing loan, even on loans taken for repair, renewal or reconstruction of an existing property. The interest component of home loan is allowed as a deduction under the head 'income from house property' under Section 24(b) up to a limit of Rs 1.5 lakh a year in case of self-occupied house.

One condition being that your house must have been financed by a housing loan taken after April 1, 1999. It is also essential that the acquisition or the construction of the property is completed within three years from the end of the financial year in which the loan is taken.

Cash gifts

Cash gifts received from specified relatives are exempt from income tax, and there is no upper limit also. Similarly, cash gifts of any amount and from anyone received during your childbirth, marriage or any other specified event are totally tax-free.

However, if you receive a cash gift of more than Rs 50,000 from a friend, you are required to pay tax on the excess amount exceeding Rs 50,000.

Charity - Sec 80 G

You get a tax relief if you donate to institutions approved under Section 80G of the Income Tax Act. The rate of deduction is either 50 or 100 per cent, depending on the choice of fund.

There is no restriction on the amount of charity. However, donations must be made only to specified trusts. Also, only donations of up to 10 per cent of your total income qualify for such a deduction.
 

What is the provision for deduction in respect of donation?

After computing the Gross Total Income, assessor can deduct the amount of donations, which he made to certain funds, charitable institutions, in accordance with the provisions of the Income Tax Act.

 

Deduction is allowed depending upon the status of the donee, as follows:
 

• After applying a qualifying amount
• Without applying the qualifying amount

Again in some cases, deduction is allowed to the extent of
 

• 100% of the donations and in some cases;
• 50% of the donations

Sec 80GGB and Sec 80GGC

New sections introduced to allow deduction for entire donation to electoral trusts while computing the income of the donor.

 

Education – Sec 80 E

Scope of deduction in respect of interest on loans taken for pursuing higher education has been extended to cover all fields of study, including vocational studies pursued after completion of schooling.

Capital Gain Tax

A Capital Gain can be defined as an income generated by selling a capital investment. A capital investment can be anything from securities, both listed and otherwise, paintings, houses to family businesses. It is the difference between the price originally paid for the investment and money received upon selling it. A capital gain can be categorized under the following heads, depending on how long the investment has been under your possession:

 

Short-term: If you sell an investment within three years from the date of its purchase, it will be defined as a short-term capital gain. But if the investment is in the form of mutual funds/listed securities, the allowed time duration is one year.

 

Long-term: If you sell an investment after three years from the date of its purchase, it will be defined as a long-term capital gain. However for mutual funds and listed securities a one year period constitutes a long-term capital gain.

 

Short term capital gains needs to be added to your income and will be taxed at the highest marginal tax, except in case of equity mutual funds and direct equities. Equity investments attract a 15 % short term capital gain tax.

 

Long term gains from equities and equity mutual funds are exempt from tax .Calculation of tax on long term investments in other listed securities and in residential house involve calculation of indexed cost of acquisition. The cost index table is available on the income tax website. This is how it works.

 

Say a property was purchased in Jan 2004 for Rs. 30 lakhs and was sold in May 2007 for Rs. 50 lakhs, the gains will be calculated as follows

- Cost Index 2003-2004 is 441
- Cost index 2007-2008 is 551
- Indexation factor = 551/441 = 1.249
- Multiply this factor by the cost of acquisition = 30 lakhs*1.249=34.7 lakhs
- Capital gains = Sale Price - Indexed cost of acquisition=50 lakhs - 34.7 lakhs = 15.4 lakhs.

 

Costs associated with the purchase of property like stamp duty, registration and transfer fees etc. can be added to cost of acquisition. Other costs that too can be indexed are

• If there is any cost of improvement for the asset.
• The expense that is incurred on the transfer of the asset.
• Interest on loan taken to purchase house property can be added to cost ( provided it has been allowed as a deduction under any other section)

Individuals and Hindu Undivided Families (HUF) enjoy capital gains tax exemption from capital gain tax on residential property only if the profits earned from the sale are invested again in a new residential house, or if the gains are invested in notified bonds. For buying new residential property a period of two years and three years in case of under construction property, after sale date is allowed. In this period the capital gains need to be invested in a Capital tax saving deposit with a bank. If investors do not wish to take this exemption they can pay tax @ 20 % after calculating indexed cost. For listed securities (other than equities) and debt mutual funds one has an option of either paying 20% with indexation or flat 10 % without indexation benefit.

 

Tax Liability for FY 2009 - 2010

Estate planning

Will or Trust?

The assets of someone who dies without a Will or a Trust is disposed of by operation of law, which may not be according to the wishes of the deceased person. Estate planning is a process of arranging and planning your succession for management and distribution of your wealth in a systematic and pre-determined manner to your heirs and to other beneficiaries. The most common vehicles for this purpose are the drafting of Wills and setting up of Trusts. Estate may include any movable and or immovable property like equity shares, bonds, deposits, jewellery, cash, bank balance etc that then gets passed on to the next generation. In order to make the optimum use of wealth created over a period of time and to protect it for the near and dear one's it becomes crucial to plan. Both wills and trusts are designed to do the same thing - to pass on assets at death. Both can be very effective, but they use different methods to do it. Wills and trusts are essentially two different tools that accomplish the same goals. Deciding which tool is better for you depends on personal situation. What is right for one person might be very wrong for another person. Therefore, you need to fully understand these differences in order to decide which method is better under your circumstances. Many assume that they only need a simple will to best take care of their affairs when they pass away, and that only the wealthy need to have a trust.
 

Estate planning through Trust involves much more than merely making a Will. Trust is effective not only during the lifetime but also after death. Estate Planning through a trust route is one of the most reliable ways to assure that your assets will be managed for your family and loves ones as you had intended. In Estate Planning through Trust route, the person who owns the estate sets up a Trust, appoints trustees to manage the trust, transfers his estate to the trustees and names the beneficiaries of the trust.
 

There are certain advantages on why one should opt for a Trust over Will:
 

• The primary disadvantage of a Will over is that it can be disputed after the death of a person making the Will. Even the best-drafted Wills can be challenged. Also, mental soundness of a person making the Will can be challenged in the court of law. Disposition of assets through Trust ensures passing on assets without causing any untoward problems for your heirs.
• Will is a legal declaration of your desire to distribute property during the lifetime of a person but intended to take effect after his death. Trust involves transfer of your estate to a trustee for the advantage of certain beneficiaries while you are alive. Trust leads to efficient management of your estate during and after your death.
• A trust is not subject to probate and can be kept confidential, whereas a Will becomes public document once probated.
• A Trust saves some Probate Court expenses.
• Probate is a sometimes a big hassle for survivors. There are numerous filings and notices, and sometimes delays occasioned by the necessity of getting Court approval for so many things.

Excellent bro.

veryyyyyyyyyyyyy usefulllll

useful article........pls post few more tips

for HNI salaried employees, or salaried employes having

high CG form ESOP sale...

casudhir.mumbai @ gmail.com