BasuNivesh moved to it’s own Domain “www.basunivesh.com” !!!

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I feel very happy to announce that “BasuNivesh” moved from this existing domain to new own domain www.basunivesh.com successfully. It is like moving from rental house to own house for me ūüôā

For readers- you will not loose any old contents but you feel some new changes in coming days. I am still working on the changes. All posts are available as it is in new domain. But I request all subscribes to do subscription once again to this new domain. You will receive mail regarding the same from official BasuNivesh mail soon.

I selected wordpress.org for creation of my new domain. I feel great freedom in all aspect than wordpress.com. I am thankful to all who helped me in this moving activity. Especially my brother, Abhinav, and BigRock team.

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Salary definition for calculations of Gratuity,HRA, EPF and Leave Encashment

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BasuNivesh now available in it’s own domain¬†www.basunivesh.com¬†from 22nd June 2012.

Salary consists of so many components like Basic, DA, HRA, Bonus, Commission, Allowances and Perquisites. But while calculating Gratuity, HRA,  EPF and value of perquisites for rent free/concessional house we need to consider  only few components of salary. So let us look into detail about those considerations.

1) Salary definition for Gratuity

A) Gratuity covered under Payment of Gratuity Act 1972-For this purpose salary means only Basic salary and Dearness Allowance (DA). No other salary components will not be considered for calculaiton.

B) Gratuity not covered under Payment of Gratuity Act 1972-For this purpose salary means  Basic salary, Dearness Allowance (DA) and Commission (if paid as a % of turnover).

Remember while considering salary in the case of  (B) Gratuity not covered under Payment of Gratuity Act 1972 DA need to be considered only if it is forming part of retirement benefit otherwise not to consider. Also Commission should be in the form of % of turnover not lump sum payment.

2) Salary definition for House Rent Allowance (HRA)-For calculation of House Rent Allowance (HRA) you need to consider Basic Salary, Dearness Allowance(DA) and Commission (if paid as % of turnover).

Again in this case too DA need to be considered if it is forming part of retirement benefit otherwise not to consider and Commission also need to % of turnover.

3) Salary¬†definition¬†for Employee Provident Fund (EPF)– For calculation of salary components under employer’s contribution towards¬†recognized¬†provident fund too we need to consider the same salary components of HRA i,e Basic Salary, Dearness Allowance(DA) and Commission (if paid as % of turnover). Also the above said conditions of considering DA and Commission too will apply here also.

4) Salary definition for Leave Encashment-In this case also you need to consider the same salary components as you considered for HRA and EPF.

5) Salary definition for rent-free/concessional house perquisite valuation-Below salary components are considered while calculating the valuation of perquisite.

a) Basic Salary;

b) Dearness Allowance (if terms of employment so provides);

c) Bonus;

d) Commission;

e) fees;

f) All taxable allowances (excluding amount not taxable); and

g) any monetary payment which is chargeabble to tax (by whatever name called).

But it does not include-DA if not¬†considered for retirement benefits, employer’s contribution to provident fund account of an employee, all allowances which are exempt from tax, any lumpsum amount received like Gratuity, Leave Encashment, VRS or¬†Commutation of Pension and value of perquisites (under section 17 (2)).

Hope I simplified the Salary definition for the calculation of above facilities.

IT Return filing changes (1st April 2012)

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BasuNivesh now available in it’s own domain¬†www.basunivesh.com¬†from 22nd June 2012.

Recently IT Department issued some changes related to IT Return submission effective from this FY. Let us look at the changes.

1) An individual or Hindu Undivided Family (HUF), if his or its total income, or the total income in respect of which he is or it is assessable under the act during the previous year, exceeds Rs.10,00,000, shall furnish the return for the assessment year 2012-13 and subsequent assessment years only through e-Return or electronic return format.

2) A resident Individual or a resident Hindu Undivided Family (HUF) shall furnish the return for the assessment year 2012-13 and subsequent assessment years only through e-Return or electronic return format, if he/it has-

a) Assets (including financial interest in any entity) located outside India or

b) Signing authority in any account located outside India.

3)¬†The prescribed ITR Form SAHAJ ‚Äď ITR1¬†(Form used by individual to file IT return if income derived from-Salary/Pension, Income from one house property and ¬†income from other sources but excludes where income from house property brought forward from previous year, winning from lottery and income from race horse) cannot be used by a resident Individual to file his return of income, if he has

a) Assets (including financial interest in any entity) located outside India or

b) Signing authority in any account located outside India.

4) Form SUGAM-ITR 4S (Form used by individual or HUF to file IT return if income derived from-business income and such income is computed in accordance with special provisions referred to in section 44AD and section 44AE of the Act, Salary/Pension, Income from one house property and ¬†income from other sources but excludes where income from house property brought forward from previous year, winning from lottery and income from race horse)¬†cannot be used by a resident Individual or Hindu Undivided Family (HUF) to file his/it’s return of income, if he/it has

a) Assets (including financial interest in any entity) located outside India or

b) Signing authority in any account located outside India.

For further clarification of above changes you visit below link of IT Dept too.

http://law.incometaxindia.gov.in/DITTaxmann/IncomeTaxRules/PDF/Ay-2012-2013/NotificationENG_2012.pdf

Budget 2012-Implications on your Personal Finance

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BasuNivesh now available in it’s own domain¬†www.basunivesh.com¬†from 22nd June 2012.

I updated few points on Budget speech of Finance Minister yesterday. Now actually we will look how Budget 2012 can affect your Personal Finance.

1) Tax Slabs Revised-Tax slabs are revised with major difference is, their is no different slabs for men and women. Both are treated as General category if their age is below 60yrs (Whereas their was different slabs for men and women previously if age is less than 60 yrs).

A) Below 60yrs of age men and women (General).

Upto Rs.2,00,000-Nil

Rs.2,00,001 to Rs.5,00,000-10%

Rs.5,00,001 to Rs.10,00,000-20%

Above Rs.10,00,000-30%

B) Age 60 yrs and more but below 80 yrs during any time of previous year (Senior Citizens).

Upto Rs.2,50,000-Nil

Rs.2,50,001 to Rs.5,00,000-10%

Rs.5,00,001 to Rs.10,00,000-20%

Above  Rs.10,00,000-30%

C) Age 80 yrs and above during any time of previous year (Very Senior Citizens).

Upto Rs.5,00,000-Nil

Rs.5,00,001 to Rs.Rs.10,00,000-20%

Above Rs.10,00,000-30%

2) DTC implementation deffered-Impact is bit positive, you can enjoy your investment in ELSS this year too. It is the only product available for tax savers where lock in is 3 yrs (Rajiv Gandhi Equity Scheme too have 3 yrs lock in but lot of disadvantages).

3) Rajiv Gandhi Equity Saving Scheme-This is the new scheme floated by Govt. Let us see it’s features. Your income should be less than Rs.10,00,000 to invest in this fund. Maximum you can invest is Rs.50,000. Availing benefit is 50% of what you invest i,e Rs.25,000. So if you are under 30% tax bracket then you will save Rs.7,500. Lock in period is 3 years. This scheme is exclusively for new investor. So¬†declaration of investment in shares for income tax returns will be needed for the scheme. As Equity Linked Mutual Fund and Rajiv Gandhi Equity Scheme both are available for investor this coming financial year, Equity Linked Mutual Fund looks good compare to this scheme. Because to avail tax deduction of Rs.25,000 you need to invest Rs.50,000 under Rajiv Gandhi Equity Saving Scheme, whereas you need to invest Rs.25,000 to invest in Equity Linked Mutual Fund under Section 80C. In Rajiv Gandhi Equity Saving Scheme maximum amount you can invest is Rs.50,000 but in case of ELSS you can invest upto Rs.1,00,000. So as of now ELSS looks better option than Rajiv Gandhi Equity Saving Scheme. Here as of now it is believed that the scheme is allowing investors to invest directly into Equity not linke ELSS (which is indirect way of investment). Now the question is, who will guide the new investor to invest directly into equity and how much new investor is comfortable of investing directly into equity? Future clarification of this scheme may have it. For time being let us wait and watch.

4) Savings Account Interest Exemption-This looks better option even though in plain looks like not lucrative. It has been announced that interest from savings account upto Rs.10,000 is exempt from tax. To generate Rs.10,000 as interest you need to invest aprox Rs.1,43,000 if your savings account fetching you around 7% interest. But if you invest the same Rs.1,43,000 in one year FD then you may get Rs.12,870 as a interest (interest rate considered is 9%). But this interest is taxable. If you are under 30% tax bracket then it may cost you Rs.3861 tax. Hence Rs.12,870 (return on FD)-Rs.3,861 (Tax on interest)=Rs.9009 which is less than the 7% return what you got from savings account. So overall this scheme looks better than one year FD for tax payers with highest income tax bracket. But figures may change if we calculate for lower tax bracket payers.

5) Life Insurance Premium-Previously annual premium you pay could not exceed 20% of Sum Assured to avail deduction under section 80C. But it is reduced to 10% of Sum Assured. Effective from policies issued on or after April 1, 2012. Suppose you opted Sum Assured of Rs.1,00,000 then previously you will get maximum Rs.20,000 as deduction but now Rs.10,000.

6) Health Check up expenses under Section 80D-Rs.5,000 is inserted for the health check up expenses under section 80D. But remember limit for Section 80D not raised instead this health check expenses too included with the existing limit of 80D.

7) Jewellery Purchase and Property deals (Other than Agriculture land)-Be ready to pay 1% TDS. Seller will collect this TDS if the transaction exceeds Rs.2,00,000 and sale is in cash. In case of property deals, a property buyer has to deduct 1% tax if deal exceeds Rs.50 lakh for urban properties and Rs.20 lakh for other areas. So if deal is of Rs.1 Crore, seller will get Rs.99 lakh and Rs.1 lakh will be deposited as tax by buyer.

8) Exemption of Advance Tax for seniors-It is not necessary to pay advance tax for seniors if income is not from “Profits and Gains of Business or Profession”

9) Relief from Capital Gain tax on sale of residential property(House or plot of land)-You will get relief from capital gain on transfer of residential property if you invested sale consideration in SME (Small and Medium Enterprises) in the manufacturing sector. But the amount must be utilize by the company to purchase new plan and machinery.

10) Security Transaction Tax (STT) reduced-Previously on Purchase/Sell of delivery based Equity shares or equity oriented mutual funds entered through recognised stock exchange will cost you 0.125% of STT but it is now reduced to 0.1%. Not a cheering news, because your broker may charge you more service tax as Service Tax is hiked now from 10% to 12%.

11) Hike in Service Tax and Excise Duty-In this budget, both the tax rates raised from existing 10% to 12%. So be ready to pay more for the service you get and on few goods which come under excise duty bracket.

These are the few points which I noticed from this Budget 2012 will affect your personal finance in positive way or negative way. Overall pathetic budget from government this time. Reason may be to save government from one more fiasco ¬†which they faced after Rail Budget 2012. Hope you enjoy the updation I made to my yesterday’s “Breaking News” items on Budget 2012.

Interest free Loan or Concessional Loan from Employer-Is it worth to take?

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BasuNivesh now available in it’s own domain¬†www.basunivesh.com¬†from 22nd June 2012.

It is always believe to be a good option to take Interest free loan or concessional loan from employer. But before going for this facility check the taxability aspect  too. Interest part of that loan is chargeable to tax as Perquisite. It is taxable on the following basis.

Step 1. Find out the “maximum outstanding monthly balance” (i.e., the aggregate outstanding balance for each loan as on the last day of the each month).

Step 2. Find out rate of interest charged by the State Bank of India (SBI) as on the first day of the relevant previous year in respect of loan for the same purpose advanced ( Housing Loan, Car Loan, Two Wheeler Loan, Educational Loan or Personal Loan) by it.

Step 3. Calculate interest for each month of the previous year on the outstanding amount mentioned in Step 1. at the rate of interest given in Step 2.

Step 4. From the total interest calculated for the entire previous year under step 3, deduct interest actually recovered, if any, from the employee during previous year.

Step 5. The balancing amount (i.e. Step 3 minus Step 4) is taxable value of the perquisite.

Will show you with one example which will make you clear on above steps. Suppose Mr.X took loan of Rs.8,00,000 from his employer  in the beginning of the year and the rate of interest chargeable for the same loan from SBI is 8%. But Mr.X is going to pay 7% as interest to his employer. What will be his taxable perquisite? Below table will clarify the method.

Interest will be calculated according to the method given above. No other method is allowed.

But below are the two exceptions for not consider this facility as taxable, which are as below.

1) If a loan is made available for medical treatment in respect of diseases specified in rule 3A (the exemption is, however, not applicable to so much of the loan as has been reimbursed to the employee under any medical insurance scheme).

2) Where the amount of original loan (or loans) does not exceed in the aggregate Rs.20,000.

Hope above few lines made you clear about the taxation part of Interest free loan or Concessional Loan from employer. Now think and decide is it worth??

NSC-Accrued Interest taxation and way to reduce it.

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BasuNivesh now available in it’s own domain¬†www.basunivesh.com¬†from 22nd June 2012.

Today I will show you how you can reduce your tax liability on Interest you earned by investing in NSC. Many investors may not know how to do it. As you all know, interest you¬†receive on your investment in NSC is taxable when it matures. It is taxable income under the head of “Income from Other Sources”. But their is a way to reduce a bit by following your accrued ¬†interest on yearly base. Before discuss further, we will glance at the features of NSC.

Tenure-5 Yrs and 10 Yrs

Min Amount-Rs.100

Interest rate-8.4% for 5 yrs deposit and 8.7% for 10 yrs deposit (Compounding Half Yly)

Tax Benefit-Avail upto Rs.1,00,000 by investing in NSC under Sec 80C of Income Tax.

Maturity Taxation-Interest is taxable under the head of “Income from Other Source”

Suppose you invested Rs.100 in 5 Yrs maturity NSC then you will get the tax exemption under Sec 80C when you invest. Hence after 5 year you earn Rs.50.89, which is taxable income under the head of “Income from Other Source”. But how to reduce tax liability on interest you earned? First you need to show each year’s accrued interest as income under the head of “Income from Other Source”. Afterwards for the same amount of interest you can avail deduction under Sec 80C as re-invested in NSC. But you can avail this facility till 4th year for 5 Yr Maturity NSC. I will show in below table how you can avail in below tableyou below, how much you can claim as re-investment for each year.

So, till the 4th year interest you can claim as re-investment and avail deduction. Suppose you didnt claimed yearly interest then the maturity accrued interest of 5th year will be calculated as Income from Other Source and it can be taxed as per your tax slabs. Hence it is better to claim on yearly base till 4th year to avail the exemption benefit (About NSC Tenure-10Yr, when I contacted local Post Office, even they dont have clarity about that.  Hence I avoided to mention about 10 Yr NSC). Hope this posting may benefit a lot of people. Happy Saving!!!

Tax Saving-What mistakes often we do?

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BasuNivesh now available in it’s own domain¬†www.basunivesh.com¬†from 22nd June 2012.

As this is peak time for all salaried class to look for Tax Saving Instruments, I thought to share how you can avoid doing the same mistakes again and again.

1) Insurance (Life and Health)- When I ask few salaried people about how they are planning about their tax saving then the first answer they say with big smile is, they have enough Insurance Payment to save tax under 80C (remember not enough cover). They share with proud that currently they purchased insurance plan either from friends or relatives who are agent of some particular company.¬†Neither¬†you nor your agent worked out how much Insurance cover you required or your ‚ÄúHuman Life Value‚ÄĚ and what is the future value of the returns you are going to get when your invested Policy matures. You may say with proud that you have cover of around Rs.10,00,000 for that you are paying around Rs.75,000 (aprox) then what will be the Rs.20,00,000 (Aprox Maturity Proceeds) value after 15 yr of 20 yrs of your policy maturity? It may be your 4-5 yrs yearly household expenses. Then what is use of purchasing such a plan which will not make you to sustain and not fulfill your financial goal?

Hence before purchasing Life Insurance always work out how much Life cover you need and what is the maturity value, not in today’s term but in future term. Also, is the maturity amount matches your any financial goal or not.

Health Insurance is usually taken care by Employer, but only few people know how much cover they have and who are all covered in that Insurance. In some cases people try to purchase through employer to seek cover for their spouse or parents (if are not covered by employer health insurance). But in this case also, employer chooses the company not the employee. Employer will deduct from salary for this and employees get relieved.

Have you ever thought which company the employer selected for covering your spouse or parents(who are not covered by employer), how the plan features are and is any other company providing better plan with competitive price in market? To my knowledge answer is always no no no.

Hence, please try to get knowledge about the health insurance provided by employer like how much SA covered, who are all covered, what are the plan features. If you are taking new insurance to cover non covered member of your family member then plan offered by your employer is good and competitive in price or not. Else purchase it in market by doing good homework.

2) Mutual Funds: It is always trend to invest lump sum by year end in Equity Linked Saving Scheme of mutual fund to save tax. But it is risky to enter equity market with lump sum investments and waiting for good returns after 3 years. Hence start in the beginning of financial year through SIP route which will reduce your risk of loss. Here again few people invest but never think is it worth to invest in equity mutual funds and wait for positive returns after 3 years. Also this invested money will be aiming any of the financial goals or not? In my view, if you have requirement of invested money at 3 years or within that period then never invest in Equity related market. You need to give sufficient time to grow it like 4,5yrs or more than that.

3) PPF-This is the good product for longer tenure and must be goal specific of maturity amount. But it is the product just to diversify your investments. Hence never invest all your money into PPF. Invest within 5th of each month instead of investing at year end. If you invest at year end then you will not get interest on the money invested for that year. But if you invest monthly then each month’s contribution will accumulate some interest.

4) NSCs and Fixed Deposits-Again these are low yielding products. Hence always keep in mind that how these are going to help you in diversifying your investments and how the maturity amounts can be utilized to achieve your financial goals.

5) Housing Loan-You take housing loan and take tax exemptions but you need to cover your life for the equal amount of Loan you have taken. Suppose something happens to you then your dependents may not be in a financial crunch to repay the loan. Hence suppose if you have taken housing loan of around Rs.50,00,000 then you have to take Life Cover of Rs.50,00,000 which covers till the last EMI ends. Nowadays bank started to offer this type of cover while giving loans. The best feature of this is, your Life Cover will also reduce yearly with the decreasing of Loan Amount you owe.

6) Infrastructure Bonds-This is the new avenue of investments started few years back. It is nice to invest in these Bonds if your overall investments under sections 80C, 80CCC and 80CCD is exhausted means including all three sections 1,00,000 permissible limit. You can claim deduction under Section 80CCF if you invested in Infrastructure Bonds. But remember that Bonds are not always risk free investments they tend to fluctuate with interest rate of market.

These are the few basic mistakes I noticed what people tend to make in a year end hurry to save tax. Hence plan your Tax Saving Options in such a way that it has to achieve both tax saving and your financial goals. If your only aim is to save tax then you will end up in a situation where you will not get cash flow for your desired goals.

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