Pay Taxes, for a better India!

Following the demonitisation spree, we had the union budget session 2017-18, where taxation was one of the most debated topics. Its been more than a month of concluding 50 days period of complete withdrawal of Rs. 500 and Rs. 1000 currency notes. We must understand that the primary reason of the demonitisation was to fight corruption and black money, which primarily arises from illegal income and tax evasion. As we are just fresh out of budget announcement, I thought it would be only appropriate to share some thoughts on the importance of taxation for any country. 
Government as an entity doesn’t have any money of its own; taxes are the main source of funding for the government. In India, we have two types of taxes, direct and indirect. Direct tax comprises of income tax, surcharge, gift tax, wealth tax, corporation tax etc. Indirect tax is a component added on a particular expense incurred by individuals on service received or buying goods, collected by the service providers or seller of goods in form of service tax or VAT.
The tax earnings are used for administration, infrastructure, education, security and defense amongst others. Government-run hospitals provide services for almost free of cost, government-run schools across the country educate children for negligible fees; provide cooking gasses for subsidized prices.  A major part of our tax contribution goes into our security and defense system. The taxes are utilised for maintaining law and order in the country, maintaining cleanliness by the municipal corporation etc. A major area of spending of these tax monies are towards healthcare and medical expenditure of the less-privileged children. All of these things cost money and while not everyone uses them every day, most of us use or benefit from them over time.
What government takes from in form of direct and indirect taxes is spent on the common development areas of the country. So, with increased tax income government can allocate more funds towards social benefits. 
India vs. developed countries
One may argue that Indian government doesn’t provide for medical and social securities like other developed countries, but we need to have a fair base for comparison. We must appreciate the fact that the developed countries have higher income tax earning. According to government data, only 4.1% of total Indian population pays taxes, while in the US, 45% population pays tax. The tax rates in these countries are comparable and higher than India.
Tax is the price we pay to live in a civilized society. An increase in a number of taxpayers is only a sign of prosperity of the country. The temptation towards evading tax is a crime (in making) towards the society. There are advocates of lower taxes who says, it helps in economic growth by reducing cost, it only benefits the traders and the upper segment of the society. In a holistic growth of socio-economic environment, taxes pay a key role.
Make use of 80C benefits
Image taken from wealth18

This union budget, the thresold limit for taxable income has been set above 2.5 lakh. Also, an additional benefits of making the first tax slab to 5% and for tax payersearning upto Rs. 3.5 lakh will get a rebate of Rs. 2.5 thousand. A majority of population within the 5% tax bracket, earning up to 4.5 lakh can completely save taxes by the 80C investment instruments. A fair exemption upto 1.5 lakh rupee can be claimed on various investments and expenditure listed by income tax department. Earning arising from long-term equity investment doesn’t attract any taxes, similarly for equity mutual funds. Also, ELSS schemes managed by mutual fund companies are specifically designed to get triple tax benefits with only 3 years lock in period. There are also other investment options like – PPF, Tax Saving Deposits, NSC and few more dedicated towards tax-saving purposes. Additionally, there is a special exemption up to Rs. 50 thousand for citizen who contributes towards NPS. Government also encourages taxpayers to build their homes by offering exemption towards repayment of loan and interest payout. One must utilize these benefits for saving taxes, creating wealth, securing health and donating for good causes. 
Higher income from taxes reflect a good health of the economy of the country, similarly, an individual who needs to pay tax only signifies that his income is high enough to contribute towards the wellbeing of the country. Discussion on positives and negative about taxes are debatable, we must look at taxes in a rational and positive light and its contribution towards the country as a whole.  The culture of paying taxes need to imbibed in our lives.

Top 5 tax saving mutual fund schemes (ELSS) for 2017

As we approach year end, our search for the best tax saving instrument under 80c ends at tax saving #ELSS mutual fund schemes. By far the best investment tool with triple exemption benefit (no tax to be paid for buying, accumulation, redemption) with the lowest lock-in period of 3 years and maximum exposure to the capital market for young professionals or anyone who wishes to focus on long-term wealth creation through equity market. For the beginners, ELSS is an actively managed equity fund by an experienced fund managers with an equally equipped equity research team. Over last 5 years, ELSS category has given over 12% tax-free annualised return on an average which is way higher than any other tax saving tools. Hence, it is my favourite tax saving instrument.
Top 10 reasons to invest in ELSS schemes
  1.  Minimum investment for a monthly investment is Rs. 500
  2.  No obligation of repeat investment in the same fund every year
  3.  No maturity/redemption obligation on completion of 3 years (unless specified by the   fund/scheme), can withdraw anytime once the lock-in period is over
  4.  It can be held as long as the investor wants, giving it a chance to build long-term wealth
  5.  The fund is managed by able fund management teams
  6.  Low fee structure and expenses, about 2-2.5% yearly
  7.  No long term capital gain tax
  8.  Investor has an option to chose between dividend or growth fund
  9.  The dividend earned on these funds are tax-free
  10.  SIP method of investing would help in cost averaging

Some point of concerns –
As it is a pure equity investment, it carries market risks, highly volatile

The SIP mode of investment signifies each purchase will have a separate lock-in period of 3 years


Top 5 #Taxsaver #ELSS schemes for 2017

ELSS Schemes
AUM in crore
Returns for 3 Years
Returns for 5 years
Ratings
#DSP-BR Tax Saver Fund
1420
25.5
20.8
5star
#Reliance Tax Saver
5579
29.2
21.3
3star
#Axis Long Term Equity Fund
9956
24.1
21.6
3 star
#Birla SL Tax Relief 96
2308
24.1
19.8
4star
#Franklin India Tax Shield
2196
22.9
17.9
3 star

I have listed 5 top ELSS scheme based on 5 parameters–
1. Funds with over 7 years existence
2. AUM over Rs. 1000 crore
3. Among top 10 fund house
4. Return analysis over 5 years
5. Rating consistency by CRISIL/ Value Research

This fund is out an out consistent over last 10 years. It has consistently beaten the index over 1 year, 3 year, 5 years return. This fund has out ranked most other funds in ELSS category in the period. Investment details The fund aims to generate medium to long-term return on majority investment in equity and equity related instruments. The fund has over 20% exposure in banking and finance sector however invested mostly in private sector banks, so less chance of getting affected by NPA. It has some quality cyclic stocks.

#Reliance Tax Saver Fund

ELSS fund with over 10 years existence, AUM over 5.5 thousand crore comes from a good pedigree. Rated 3 stars by CRISIL, the fund has beaten indices over 3 years and  5-year trailing returns. In the 1 and 2 year category, has been below the indices in many cases. It is a good investment with high-risk appetite. It has also given the highest return in the SIP for 10 years category. Investment details – This is a mid-cap, small-cap heavy fund, aims to generate wealth over long term. Fund manager looks for value buy of stocks with bottom-up stocks picking approach. The portfolio is well-diversified and spread across sectors. 
#Axis Long Term Equity Fund

With an AUM over 9,900 crores as of 20th Jan 2017, it leads the ELSS scheme in the top position. It has lagged in last 1 year in comparison to its peers and indices, but over 3 years, 5 years returns it is in the top 5 ranks. 
Investment details The scheme aims to generate regular long-term capital growth from a diversified portfolio of equity and related securities. It invests in companies with strong growth and sustainable business model. It has equity exposure up to 95%, given some trailing returns in the short-term but expected to even out over long term. It is still a good choice. It avoids buying companies which have excessive business uncertainty on account of cyclical, regulatory, political risks.

#Birla Sunlife TaxRelief 96   

A fund with good pedigree has a defined track history over20 years has a AUM of 2.3 thousand crore belong to good fund pedigree. In last 1year, it is trailing the index. While in 2, 3, 5 years returns, it has beaten indices return with significant margin. It has generated over 100% return over years. Investment detailsIt is a multicap fund with well-diversified portfolio. However, fund has a cyclical stock bias, which has its own effect on return cycles. Well diversified in its approach, the top 5 holdings only account for 26% of the portfolio.

#Franklin India Tax Shield
A fund with a track record over 7 years has been at par with index returns for 1 year and for over 2,3 and 5 years it has performed well above indices. This fund tends to be less volatile compared to its peers. Investment detailsThe process of the fund house is robust. This fund is known for having conservative approach, bottom-up style of stock picking and having growth style of investing. The fund with a large-cap bias which accounts for almost 60% of the portfolio has a 25% exposure in mid-cap, small-cap category.  Well diversified in portfolio construction, the top 5 holdings accounts for only 26% of the portfolio. 
Don’t break your head over minute investment return details, it is a game of sector allocation, Mkt-cap of companies and economic cycles. Choose a fund with a basic research and your investment style as criteria. #ELSS is nothing but an equity mutual fund and over long-term it is expected to give good returns, which also provide #tax benefits under income tax act, section 80C. However, it is advised to consult a professional financial planner before investing.
http://www.mymoneystreets.com/2016/11/include-dynamic-asset-allocation-funds.html

With the new hike in salary and the yearly bonus, plan tax saving before the Indian festivities blow your pockets

#classroom

Tax saving instruments and avenue especially for salaried individuals

We are almost halfway through this financial year 2016-17, however, many of us has got the revised paycheques with increment and bonus only in July/ August. The accounts team have given reminders for tax declaration forms. Let us quickly look at the lists of investment options where we can save some tax as well as utilise the fund in building wealth and help good cause.
Tax saving investments can be divided in 4 parts – 1. #Investments  2. #Insurance 3. Expenses 4. #Donations and social causes. In this post I intend to only identify the areas of investments. The next post will elaborate on the best ways to manage tax savings.
Tax savings instruments are introduced by government to promote savings practices, participating in the overall economy growth, encourage donation and charities for good causes and also rewarding investing in environmental-social sectors. It is not to be used as tax evasion tool in any form.
In the Income Tax act of India act, section 80C to 80U covers the tax exemption areas.
Tax saving eligible investments options

Categories
Details
Lock-in period
Minimum and maximum investment per year
Other benefits
Tax benefits
EPF
The amount is deducted from the salary by the employer. Employer also for makes equal contribution to the fund. This is a compulsory contribution.
As per new laws, one need to mandatorily keep the fund until 58 years of age
Minimum if 12% of Basic and DA. Benefit upto Rs. 1,50,000 investment per year
Employee can avail loan benefits and partial withdrawal allowed on resigning job. This account is transferable on job change
Maturity amount is complete tax free above 5 years
VPF
Voluntary Provident Fund, can be opted by an employee, carries same interest rate as
EPF
The lower limit not specified, however, upper limit is at 1,50,000
Loan facility/ partial withdrawal facility available
Tax free on maturity
PPF
Long term saving scheme by banks, return over 8% annually
15 years
Minimum Rs. 500 a year and maximum Rs. 1,50,000
Enjoys triple tax benefit. Partial withdrawal allowed 6th year onwards
Enjoys triple tax exemption benefit.
NSC
Eligible for deduction in the year they are purchased.
5 years, 10 years
The interest earned is non-taxable except last year
The interest earned in the last year is taxable.
Sukanya samridhi Yojana
Special saving scheme promoting development of girl child, enjoys higher interst rate than PPF
Until daughter turns 18 years
Minimum investment of Rs. 1000 year, upto 1,50,000
Enjoys triple tax exemption benefit. No tax on interest earned
Enjoys triple tax exemption benefit.
Tax Saving Fixed deposits
Eligible for deduction n the year purchased, banks and post office have this facility
5 years
Maximum Rs. 1,50,000
Interest earned is taxable on maturity
Senior citizen savings scheme
Deposit schemes in banks for senior citizens
Also enjoys higher interest rate
Insurance/ annuity plans (80CCC)
Premium paid for deffered annuity plans, life insurance schemes
NA
The upper limit is at 1,50,000
Enjoys triple tax exemption benefit
ELSS
Mutual Fund scheme, with 3 year lock-in period
3 year lock –in period
Minimum 5,000 Maximum investment 1,50,000 per year
Enjoys triple tax exemption benefit
 Rs. 1,50,000
Contribution towards pension account 80CCD(1)
Maximum deduction allowed is 10% of salary, and 10% of gross income for self-employed,
limit – Rs. 1,50,000
 Upto Rs. 1,50,000
Self contribution – Pension Fund/ Atal pension Yojana- 80CCD(1B)
Towards NPS/ Atal Pension Yojana
Deduction is allowed on contribution up to Rs 50,000. (This is additional to the available 1,50,000 limit)
 Rs. 50,000
Employer’s contribution -Section 80CCD(2)
Deduction is allowed for employer’s contribution to employee’s pension account up to 10% of the salary of the employee.
There is no monetary ceiling on this deduction.
 Upto 10% of employee’s salary
Equity Savings scheme 80CCG
A 50% deduction on tax on the investment. Person with salary less than 12 lakh
Rs. 50,000 is the upper limit
 50% deduction on the investment year

Other earnings eligible for tax saving
Categories
Details
Benefit
Interest earned from savings account
Tax savings claimed can be made on interest earned on savings account
Exemption upto Rs. 10,000 per year
#classroomseries

Expenses eligible for tax exemptions (Insurance and expenses) 
Categories
Details
Benefit
Life Insurance premium
Premium paid is eligible for tax benefit (for self, spouse, child)
valid on insurance policies if the premium is less than 10% of sum assured
Premium paid for medical insurance
Benefit upto 15,000 for self, spouse and children. Can be upto 20,000 if self/spouse is above 60 years
Additional deduction for 15,000 for parents and 20,000 if parents are above 60 years
Medical expenditure on handicap relative (80DD)
Expense on treatment, maintenance, rehabilitation and care
For 40-80% disability, fixed deduction of 50,000
Severe disability over 80%  – 1,00,000
Medical expense of self/ dependant (80DDB)
For the diseases specified in Rule 11DD. A certificate in form 10 I is to be furnished by the taxpayer from any Registered Doctor.
The maximum amount of deduction allowed from gross total income on condition that no medical reimbursement is received from any insurance company or employer for this amount
Person suffering from physical disability (80U)
Individual who suffers from a physical disability (including blindness) or mental retardation
Deduction of Rs. 50,000/-
Tuition fee
For children of the tax payer, school, college, university or any other institute within India
Capped at Rs. 1,50,000
Home loan
Principal repayment of home loan
Capped at Rs. 1,50,000
Home loan interest payment (80EE)
First time home buyers can avail this facility for self-occupied property 
The value of the house should be less than 50 lakhs and loan amount is less than 35 lakh. This is over and above the 2,00,000 limit
Stamp duty and registration for home buyers
Allowed under 80 C
Capped at Rs. 1,50,000
Deduction on house rent (80 GG)
This is available in case no HRA is attached in the salary structure and  not allotted accommodation by the employer
Maximum of Rs. 60,000 per annum can be claimed
Education loan for higher studies (80E)
Interest on the loan is eligible for tax benefit, can be upto 8 years or the interest payment completed whichever is earlier
Capped at Rs. 1,50,000
Social causes and donations
Categories
Details
Benefit
Donation towards social causes (80G)
Deduction up to either 100% or 50% with or without restriction as provided in Sec. 80G. click here for details
Donation over 10,000 cannot be by cash
Deductions on Contribution by Individuals to Political Parties (80GGC)
Political party registered under section 29A of the Representation of the People Act.
Cash contribution not allowed
 (80RRB)
Deductions on Income by way of Royalty of a Patent
up to Rs. 3 lakhs
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information used/referred from bankbazaar, cleartax, taxguru etc.
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