Many investors park their surplus money in debt schemes in an attempt to earn higher returns than Bank FDs. However the recent incident of Franklin Templeton MF winding down six of its debt schemes has dented investor sentiment and sparked speculation about the safety of their investments.

The news came as a shocker to the investors because the six schemes, the fund house, and the fund manager had a good performance record. Investors in the wound up debt schemes of FTMF are now left with no choice but to wait for the fund house make repayments.

If you are one of them, surely you want to know about the timeline of payouts from the respective schemes.

Here is what you should know first…

Before returning the money to unit holders, the fund will have to repay the borrowings by the respective schemes that was taken to fund the heightened level of redemptions. Keep in mind that the repayment of borrowings does not impact the value of money to be returned to the unit holders, though it can delay the start of pay out to unit holders.

The repayment of the borrowings that the fund has taken, along with the cash flows it receives in the respective schemes based on the maturity of the underlying securities in the portfolio as well as coupon receipts will determine the payout to the unit holders.

Moreover, the fund will seek pre-payment from issuers of the underlying securities and will look to sell portfolio holdings in secondary market at fair value.

Table 1: Maturity profile of wound up FTMF schemes

Data as on April 23, 2020
(Source: Franklin Templeton Mutual Fund)

Franklin India Ultra Short Bond Fund (FIUBF) and Franklin India Low Duration Fund (FILDF) are the schemes with shorter maturity. If you are an investor in this scheme, you may expect a significant payout within 2-3 years. However, to recover the entire amount you may have to wait up to 5 years.

If you are wondering why a scheme with average maturity of just 0.44 years and 1.45 years will take around 5 years to repay the entire amount?

This is because the maturity of some underlying securities is much longer (around 4-5 years), even though the schemes belong to low duration category. Additionally, the schemes have borrowings in the range of 6.5% and 8.5% respectively, which have to be repaid first.

Whereas, if you are an investor in Franklin India Dynamic Accrual Fund (FIDA), Franklin India Short Term Income Fund (FISTIP), Franklin India Credit Risk Fund (FICRF), and Franklin India Income Opportunities Fund (FIIOF) your wait will be longer. These schemes primarily invest in medium to long duration securities.

These funds had to sell a number of their short term and liquid securities in the portfolio to meet redemptions. Hence, to get a significant payout from these schemes you will have to wait at least 4-5 years. The year wise expected cumulative cash flows is given in the table below.

Notably, FIIOF is the longest duration fund from among the six funds that have been wound up. It will only be able to repay a very small portion (5%) in the next two years.

Another key reason that could delay the payout from these schemes is the high borrowing rate. FISTIP has 28% of its assets as borrowings; FIIOF has 26%; while FICRF also has significant 16% as borrowings. Furthermore, factors such as credit issues or payment delays faced by any of the investee companies could negatively impact cash flows.

Table 2: Cash flows expected by FTMF across different time period

(Source: Franklin Templeton Mutual Fund)

Many of the securities with longer maturities have regular interim cash flows and features such as interest rate resets or call/ put options, which significantly reduce the effective maturity and the same has been factored into the calculation of the Macaulay Duration.

FTMF said that it would actively explore opportunities with a goal to facilitate repayment prior to the maturity of the portfolio investments. To do this it will seek prepayment from the issuers of the underlying securities and look to sell the securities in the secondary market.

However, the current market scenario is rife with risk aversion and illiquidity. The fact that wound up schemes have high holding of lower rated securities, FTMF will have to wait for the market conditions to go back to normal to liquidate the portfolio at the earliest, without causing value erosion for investors.

Way ahead for debt fund investors

Keep in mind that debt funds are not risk-free. Investment in debt funds carry various risks relating to liquidity, credit quality, and interest rate. Therefore, before investing in debt funds understand the various risks involved and invest in schemes where the portfolio risk aligns with your own risk appetite and financial objective.

In this market environment, it would be preferable to invest in instruments issued by government and public sector enterprises, and stay away from those having high exposure to private issuers.

Fund houses, namely ICICI Prudential AMC, Reliance Mutual Fund and Birla Sun Life Mutual Fund, have launched an add-on feature, which is providing life insurance cover to the investors. The life insurance cover provided is available to investors of select schemes of these fund houses and is directly proportional to the monthly SIP investments being made by the investor. This feature provides coverage against the uncertainties of life besides enabling investors to accumulate wealth.

How does it work?

In order to be eligible for the insurance cover, the SIP registered should be for a period of three years and above. The cover is 10 times the monthly SIP installment in the first year, which increases to 50 times in the second year and then 100 times third year onwards. There are caps to maximum cover by these AMCs. The following table gives an idea of how this life cover feature works:

What if an investor exits mid-way / stops SIPs / withdraws partially?

If the investor discontinues the monthly investment before three years, the insurance cover stops immediately.

However, in case the SIP with insurance is discontinued after three years, the insurance cover is available equivalent to the value of SIP units so allotted as per the valuation on the first business day of the month in which renewal confirmation is given.

Merits

One of the key advantages of SIP with insurance cover is that the scheme provides a free group insurance cover to the investor without any extra cost. This insurance coverage shall continue to pay the SIP amount in case of premature death of the investor to achieve his investment goals.

Demerits

This add-on insurance feature is not available under all schemes and therefore it provides limited choice to the investor in terms of selecting the funds. The insurance coverage is provided to only the first unit holder and is not extended to joint/ second unit holder.

Mutual fund investments are subject to market risk. Insurance coverage has to be settled with AMC or though group insurance provider. Please read the offer documents before making any investment decision.

Arabinda Kundu

10.08.19

Courtesy : Economics times, money control.

The introduction or rather reintroduction of long term capital gains taxes on equity mutual funds including ELSS(equity linked savings schemes) has made some novice investors a bit jittery. A lot has already been written and said about long term equity gains taxes on equity schemes. In short, considering the potentially high returns, Rs. 1 lakh annual gains taxation threshold and the grandfathering of returns till 31 st  January 2018, equity schemes still hold the edge over competing investments. This also holds true for ELSS funds that investors choose for making tax saving investments. In case you are still on the fence regarding if there are any benefits of opting for tax saving mutual funds over traditional tax saving investments, the following are seven top reasons to choose ELSS.

1. Short Lock-in:

All tax-saving investments feature a lock-in period which currently varies from 3 years to 15 years. During this lock-in period you are not allowed to redeem your investment or make withdrawals except for some specific emergencies. As per existing rules, among the available tax saver investments in India, ELSS i.e. tax saver mutual funds have the shortest lock-in period of 3 years. This allows you the ability to shift to a different investment option within a relatively shorter period of time in case your chosen investment is not performing as per your expectations. Obviously in case of tax saver schemes with longer lock-in period, you do not receive the same flexibility.

2. Flexibility to Choose Investment tenure:

The flexibility of mutual fund schemes is unmatched even in case of tax saver investments as you have the option to choose your investment tenure beyond the 3 year lock-in. In case of most other tax saving investments you have to invest in blocks of 5 years or more beyond the initial lock-in period. This is not the case with ELSS schemes – you can stay invested for a day or even for decades after completion of the initial three year lock-in period. Typically staying invested in a top rated ELSS mutual fund for a longer period offers you greater compounding benefits.

3. Potentially Higher Market Linked Returns:

ELSS are market-linked diversified equity schemes, this gives them an edge over fixed return investments that offer tax benefits. The main problem that fixed rate tax saving schemes such as PPF have is that inflation reduces the actual returns generated by these investments over time. Fortunately being market-linked, tax saver mutual funds can provide potentially higher returns that can beat the adverse impact of inflation in the long term. This is the key reason why many individuals who make investments with the intention of planning for retirement or other future expenses have moved away from old school options such as fixed deposits and PPF to mutual
funds and ELSS instead.

4. Compounding Benefit:

Compounding is what makes today’s investments more valuable in the long term and equity linked savings schemes can potentially deliver superior compounding benefit when compared to traditional tax saving investments. This is because the returns offered by traditional instruments such as tax saver fixed deposits and PPF tend to offer a lower rate of return than the average ELSS. This causes the compounding of the initial investments to grow slowly and reduces the overall benefit of compounding for you in the long term. In case of mutual funds such as ELSS, the potential returns being higher, these compounding benefits tend to add up faster for investors. It must however be pointed out that ELSS returns do not have a fixed ROI, hence during some periods, returns will be considerably higher than during other periods with historic long term average returns of equity schemes recorded at 12% per annum.

5. Option of SIP Investment:

SIP or systematic investment plans are akin to recurring deposits for ELSS investments and currently this route has emerged as the key driver of equity mutual fund investments in India. For starters, a SIP allows you to invest over the long term in small installments so you do not need to worry regarding upsetting your monthly or annual budget. SIP is also suitable for individuals
who tend to have trouble saving as the amount gets debited automatically from your bank account. This way you will end up saving money for the future instead of spending it all. Last but not the least, SIP also provides the benefit of rupee cost averaging to investors. The NAV of an ELSS fund changes daily and investing via SIP eliminates the need for investors to time their entry into the market by providing an average value of units (rupee cost averaging) over the chosen investment tenure.

6. High Levels of Transparency:

Mutual fund houses i.e. asset management companies (AMCs) who manage ELSS and other mutual fund schemes are regulated by SEBI (Securities and Exchange Board of India). As per SEBI guidelines, AMCs have to make periodic disclosures regarding key information of all schemes managed by them. Information provided through these mandatory disclosures include net asset value (NAV), assets under management (AUM), scheme returns over different periods, total expense ratio (TER), current asset allocation, etc. While some of these have to be
reported daily, others need to be reported as per a monthly or quarterly schedule. As of now, no tax saver investment in India features a higher degree of transparency than ELSS. Hence tax saver mutual funds ensure that you always have the latest information regarding the status of your investments.

7. Ease of Investment:

The advent of Internet and related technology has significantly eased the pains related to making tax saving investments. However many traditional tax saving schemes such as PPF still require you to physically queue up at a designated bank or post office so that you can subscribe to the chosen instruments. Not in case of tax saver mutual funds. After having adopted Aadhaar-based eKYC, the industry as a whole allows investors to start investing online without having to leave the comfort of their home or office. You can of course still complete an in-person biometric KYC at designated RTA locations, but the advantage of a completely-online cKYC for tax saving investments is currently only available to mutual fund investors.

Courtesy: Paisabazaar
July 10, 2018

Children’s day is round the corner and it is the right time to start thinking about our children’s future. November 14, the birthday of our first Prime Minister Jawaharlal Nehru is celebrated as children’s day as he always loved children and took measures for their growth and development.

Children play completely different and the most important role in our lives. For some, they act as an emotional support system; they are the most precious gifts anyone can have. All of us want our kids to do something different, better and beautiful. But what is our responsibility as a parent?

It’s we who play a major role in shaping our kid’s life. So how we support them at each and every phase of life both emotionally and financially is very important supporting your kid financially even before they are born is something that is in your hands. There are a lot of children’s gift plans available in the industry.

What is children’s gift plan?

Children’s gift plan is a mutual fund type. It is a hybrid mutual fund (solution oriented).The objective of these funds is to generate wealth for kid’s future goals like education, higher studies, marriage, etc. These funds are best suited for long term investors.

Features of children’s gift fund:

1. These funds are long term investment plans.
2. They can have a lock- in period of 5 years or till the kid turns 18 years
3. No tax benefit is given.
4. As the intention is to achieve long term goals like education or marriage and discourage early withdrawals, these funds have higher exit load as compared to other mutual funds.
5. The exit load may range from 3 to 4%
6. Grandparents can also investin the name of their grandchildren.
7. At the time of redemption, money is sent to the beneficiary’s account only. (kid’s account)

How is children’s gift fund different from normal mutual funds?

These funds are designed specifically for the above theme, however, the choice of securities or portfolio composition is like any other hybrid or equity fund. The performance of these funds varies as per the market too. The functioning is like any other normal equity fund.

There are certain limitations as well.

If you invest your money in such theme based funds, and the performances over medium to long term are not favorable, there are lesser chances of redemption because of lock in period in some mutual funds.

Also even after the lock in, there is no tax benefit. There is nothing in these funds which is not available in plain vanilla equity or hybrid fund. In the latter, you always have a choice to change your investment pattern and align your investment strategy as per the changes in the market. The only thing you have to focus more is being disciplined in terms of investment and not redeeming before you achieve your goal.

Have a look at the performance of children’s gift funds available in the market.

We are all familiar with investing in mutual funds. But, did you know that you can also invest in mutual funds in the name of a minor (child under 18 years of age). While we will get into the merits and demerits of investing in the name of a minor later, it is first essential to understand how the entire process works.

How to go about investing in MFs in the name of a minor?
The parent / guardian will have to open a mutual fund folio in the name of the minor child. Remember, the minor ‘s investment in the mutual fund cannot be held in joint names. It has to be necessarily held in the name of the minor only. Since the minor is not permitted to take financial decisions in her own name, there will have to be a designated parent or guardian who will be the custodian of the account. While the minor will be the first and sole holder, the guardian can be either of the parents or any legally appointed guardian.

Interestingly, if you are planning for the long term, you can also do a systematic investment plan (SIP) in the name of the minor. The debits for the SIP can either come from the parent ‘s designated bank account or it can come from the child’s minor account, which is under the designated guardianship. One thing is important here. All minor SIPs will automatically cease to exist on the minor attaining majority (age of 18). From that point, she becomes the investor and will have to go through KYC in the proper format.

What are the documents required for investing in the name of a minor..
For opening a minor’s mutual fund folio, there are 2 key documents required.

Firstly, the proof of age and date of birth of the minor is required. This can be either provided in the form of the birth certificate issued by the municipal authorities or a passport.

The second document is required to establish the relationship between the minor and the guardian. In case of parents, the birth certificate or the passport mentioning the name of the parent is sufficient. In case of a legal guardian, a copy of the court order will be required.

In addition, the parent or the guardian to whom the minor is attached will have to be KYC-compliant as per the extant SEBI regulations. As stated earlier, the SIP will be valid only till the minor attains the age of 18 and automatically cease after that. Post that date, the minor turned adult will have to go through the entire KYC process in her own name. There are also cases when the guardian may have to change. In that case, a no-objection-certificate (NOC) will be required from the current guardian. Also the court order appointing the new guardian will be required. Needless to say, the new guardian will also have to be KYC compliant before becoming guardian to a minor.

What about dividends and capital gains on funds held by minor
As per the existing provisions of the Income Tax Act, all income of the minor will be clubbed with that of the parent or the designated guardian. Any such income will be taxable in the hands of the parent or guardian with whom the minor’s income is being clubbed. Of course, dividends are tax-free in the hands of the investor and so are long term capital gains, when held beyond a period of 1 year. But in case the minor’s fund is sold before the completion of one year, it will be treated as short term capital gains and included in the total income of the parent or guardian and taxed at their peak applicable tax rate.

Is it a good idea to buy MFs in the name of a minor?
There are actually two ways to look at it. Firstly, when you are planning for your child’s future, it always makes investment sense to demarcate the investments for your child’s future separately. Otherwise, investments are fungible and such funds tend to get used for other allied purposes. To that extent it instills discipline in the financial planning process. There are also child plans of mutual funds that you can select from, but that comes with a lock-in period and hence may not suit your requirements.

The argument against investing in the name of minors is that it takes away your flexibility. The day the minor turns 18 and attains majority, you will have no control over how she wants to use her funds. That is something you need to keep in mind. Another way will be to invest in your own and designate the child as the specific nominee for that particular investment. That will ensure discipline in investment; at the same time giving you adequate flexibility. The choice is entirely yours!

A golden rule to follow in tax planning is “The key to smart tax planning is to keep it simple”. One doesn’t have to seek advice from multiple sources and get confused in the process. Plan everything well ahead in the year, instead of the last-minute tricks. You can take advantage of the various exemptions and deductions with simple methods to minimize your tax liability during a financial year.

Use these three steps to make sure that your tax planning is smart. These three steps will ensure that you are on the right track of smart tax planning:

STEPS FOR TAX PLANNING

1. Take advantages from the components of your salary

Some components in your salary structure have provisions of exemptions and deductions under the Income Tax Act. The perks, perquisites or tangible benefits that you are entitled to can be claimed up to some amount as deduction or is exempt in some cases. Few of them have been discussed below:

• House rent allowance: If you are staying in rented accommodation and paying rent then you can claim exemption with respect to the house rent allowance (HRA) u/s 10(13A).
• Education allowance: Any allowance received for education up to Rs. 100 per month up to maximum of two children and hostel stay of employees’ children up to Rs. 300 per month up to maximum of two children from the employer can be claimed u/s 10(14).
• Leave Travel Allowance: Under this, two trips in a block of 4 years, i. Exemption limit where journey is performed by Air – Air fare of economy class by the shortest route or the amount spent, whichever is less ii. Exemption limit where journey is performed by Rail – Air-conditioned first class rail fare by the shortest route or the amount spent, whichever is less

2. Investment in Deductible Options

• Section 80C states the most useful options to maximize take-home salary and lower down the tax pay-out. It offers as much as Rs. 150,000 in terms of tax benefit that can reduce tax outgo by Rs. 45,000 for assessee in 30% tax bracket, when calculated without surcharge and cess.
• Use ‘must-have’ options- Life Insurance and Employee Provident Fund. Expenses like life insurance premium paid and contribution to EPF, school fees can be claimed under 80C.
• You can claim principal repayment towards the home loan, by furnishing a proof of the same u/s 80C. You can also claim tax benefits u/s 24 towards the interest payment on your home loan up to Rs 2, 00,000 in a financial year.
• You can claim a deduction of up to Rs. 25,000 in a financial year for medical insurance premium, provided the installments is for you, your spouse, and your dependent children, as per section 80D.(Rs 30,000 if age of insured is 60 years or more)

Tip: Deductions under this section can be directly claimed in the tax return, and not necessarily claimed through your employer. Most importantly, you have to make these investments by 31st March 2019 for tax benefits for FY 2018-19.

3. Tax Filing

Filing your ITR leads to the right outcome in your tax planning. In order to avoid last-minute hassles, file your returns well in advance. You can do so by e-filing your returns on the income tax department website or other ITR portals.

Points to remember in tax planning:

• Make sure your immediate and mid-term financial needs are covered as most of these investments have a minimum lock-in period of 5 years.
• It’s important to consider several investment opportunities before making a final decision. Ensure that your need of tax saving is not getting fulfilled at the cost of poor returns from that investment.
• Be fully aware of the objective of an investment, its gestation period and maturity terms and conditions.
• It’s not a year-end activity so avoid hasty decisions of investing in tax saving schemes that don’t give you benefits in future. Simple management and strategic decisions at the right time is all you need for smart tax planning!

• Save or InvestBefore we embark on a journey towards financial independence, let us first understand the basics of savings and investments. A disciplined investor creates a balance between the two.Saving is the process of parking hard cash in extremely safe and liquid securities. The primary aim should be capital preservation and the secondary goal getting some returns, if possible. This can include savings accounts and certificate of deposits among others.

  Investing is the process of using money/capital to generate a safe and acceptable return over a time-period. An investment can include real estate, gold coins, stocks, mutual funds and small business to name a few.

  Differentiate between saving and investment

  Saving

  • Savings are ideally smaller, for short-term goals in the near future like a vacation, emergency etc.
  • Liquidity is high, giving ready access to cash when needed.
  • There is typically no risk involved.
  • You can earn interest on your savings.

  Investment

  • Investments involve putting money to work to create wealth for achieving long-term goals like child’s education, house etc..
  • Liquidity is usually not easy when you invest money.
  • Risk involved is usually high.
  • Investments have a potential to yield higher returns, where investments appreciate over time.

  How much should one save and invest?

  Savings is the foundation to build your financial goals. Savings will provide you the capital to design your investments. The two basics that ideally need to be followed are:

  • As a thumb rule, your savings should be enough to cover personal expenses like loan payments, insurance, utility bills etc. and any unforeseen expenses.
  • Any specific purpose that will require a large corpus of fund in five – ten years should be investment driven. For eg. purchasing a home after say five years will require a steady investment objective today.

  Define your goals

  • While saving, your primary goal is to secure your money without losing any of its value. Though saving money preserves its nominal value, it’s opportunities to grow are limited.
  • While investing, you give your assets the potential to grow over a time-period. Typically, you re-invest your interest, dividends and other capital gains. More often than not you are willing to take risks while investing your money. But with the appreciation in money, also comes the risk of losing money. Hence, keeping a long timeframe is usually recommended to recover from any decrease in value.

  Explore options

  Here are the potential choices to be considered for savings:

  • Savings accounts
  • Money market accounts
  • Certificate of deposits (CDs)
  • bonds
  • There are a host of investment options as well:
  • Individual Securities such as stocks and bonds
  • Pooled investments such as mutual funds
  • Real Estate
  • Gold

  How to make financial planning work for you

  Goal	Situation	Save(Or)Invest
  Buy a car	You intend to buy a new car within a year.	Save
  Down payment for a house	You would like to move into your new home in another 3-5 years	Save
  Child’s higher education	Your toddler just started pre-school. Probably at least 15 years later you will need a lump sum amount	Invest
  Have a comfortable retirement	You have just turned 30, you plan to retire at 60. 30 years of prudent saving will take you through	Invest

Income Tax Update: Budget 2019-20

• No Income tax for individuals with Annual Taxable Income of up to Rs. 5 lakh. No change in Income Tax Slabs
• Surcharge increased by 3% for individuals with Income of Rs. 2-5 crores and by 7% for income more than Rs. 5 crores.
• Aadhaar card can now be used interchangeably for PAN card. Thus, you no longer need PAN to file income tax returns.
• Additional deduction of Rs. 1.5 lakhs for interest on home loan availed for purchase of Affordable houses of up to Rs. 40 lakh till March 2020.
• Income tax deduction of Rs. 1.5 lakhs for interest on loan taken to buy an electric vehicle.
• The annual turnover limit for corporate tax of 25% increased to Rs. 400 crores.
• TDS of 2% on cash withdrawal of more than Rs. 1 crore in a year from a bank account to discourage business payments in cash.
• Excise Duty on fuel hiked by Re. 1.

Major Changes made in Income Tax Slabs FY 2018-2019

This financial year witnessed changes which have undergone quite a few alterations in FY 2018-2019. Let’s have a look at the changes upcoming this financial year 2018-2019:

• Tax Rebate for Middle Class:  Individuals having a net taxable income up to Rs.5 lakh has been provided with a full tax rebate under section 87A of the Income Tax Act, 1961. This has been the centre point of interim budget 2019 in terms of changes in taxation.
• Standard Deduction: The interim budget 2019 announced to increase the standard deduction limit from Rs 40,000 to Rs.50,000 for salaried employees.
• TDS Threshold on Rental Income: In the interim budget 2019, the TDS threshold on the rental income has been increased from Rs.1.8 lakh to Rs. 2.4 lakh. Also, the income tax exemption from notional rent for unsold properties has been increased from 1 year to 2 years
• TDS Limit on Interest Income: The budget also provided for no TDS deduction on interest income earned from banks or post office deposits up to Rs. 40,000 annually. Earlier this limit was up to Rs.10,000.

Updated: 29-07-2019 06:04:24 AM

Income tax is referred to as a progressive tax i.e. the rate at which tax on income is payable increases with the income of the assessee. Income tax slab rates specify the threshold annual income limits at which a higher or lower rate of tax is applicable. In the following sections we will discuss the income tax rates for FY 2018-19 (AY 2019-20) and some other key features of income tax in India.

Income Tax Slabs for Assessment Year 2019-2020

As per the Union Budget of 2018, below are the various slabs according to which income tax is assessed in various categories of income tax assessee.

Resident Individuals & Non-Resident Indians

Under existing rules of the Income Tax Act, 1961, resident Indian and non-resident Indians (NRIs) are taxed according to the same income tax slabs and rates. The following are the IT slabs and slab rates for AY 2019-20 in case of resident and non-resident Indians aged less than 60 years:

Additional Components

1. 1. Surcharge: In case income is more than ₹ 50 lakhs and less than ₹ 1 crore, the surcharge is applicable at a rate of 10% of the income tax. For income, more than ₹ 1 crore, a surcharge of 15% is applicable on income tax on the amount exceeding ₹ 1 crore.
   2. Health and Education Cess: “Education Cess” and “Secondary and Higher Education Cess” will be replaced by “Health and Education Cess” at the rate of 4%, on the amount of tax computed, inclusive of surcharge.
   3. The interim budget 2019 has provisioned to provide a full tax rebate to individuals having a net taxable income (income adjusted after eligible tax deductions) up to Rs 5lakhs. It means that the maximum tax rebate provided under section 87A has been increased from Rs. 2,500 to Rs. 12,500. Individuals having net taxable income up to Rs. 5lakhs can claim the tax rebate under 87A and thus effectively pay zero tax.

Hindu Undivided Families (HUFs)

Hindu Undivided Family (HUF) is headed by a Karta (designated head of the family). HUF has a legal identity similar to that of an artificial judicial person for taxation purposes. The following are the Income Tax slab rates applicable to HUF for AY 2019-20 (FY 2018-19):

Additional Components

Surcharge: In case income is more than ₹ 50 lakhs and less than ₹ 1 crore, the surcharge is applicable at a rate of 10% of the income tax. For income, more than ₹ 1 crore, a surcharge of 15% is applicable on income tax on the amount exceeding ₹ 1 crore.

Health and Education Cess: “Education Cess” and “Secondary and Higher Education Cess” will be replaced by “Health and Education Cess” at the rate of 4%, on the amount of tax computed, inclusive of surcharge.

Associations of Persons, Bodies of Individuals and Other Artificial Judicial Persons

As per the definition provided by the Income Tax Act, 1961, an Association of Persons (AoP) and Body of Individuals (BoI) refer to an association/integration of two or more people with the intention of making profits. These are among the commonest examples of artificial judicial persons and are liable to pay tax as per the following income tax slabs:

Additional Components

1. 1. Surcharge: In case income is more than ₹ 50 lakhs and less than ₹ 1 crore, the surcharge is applicable at a rate of 10% of the income tax. For income more than ₹ 1 crore, a surcharge of 15% is applicable on income tax on the amount exceeding ₹ 1 crore
   2. Education Cess: Extra 2% is applicable on the income tax amount plus applicable surcharge.
   3. Higher Secondary & Higher Education Cess: Extra 1% is applicable to the income tax plus surcharge applicable for all tax payers.

Senior Citizens

Senior citizens in India are defined as individuals aged over 60 years and less than 80 years as per current tax rules. The following are the AY 2019-20 income tax slab rates for senior citizens applicable to earnings for the financial year (FY) 2018-19:

Additional Components

1. 1. Surcharge: In case income is more than ₹ 50 lakhs and less than ₹ 1 crore, the surcharge is applicable at a rate of 10% of the income tax. For income, more than ₹ 1 crore, a surcharge of 15% is applicable on income tax on the amount exceeding ₹ 1 crore.
   2. Health and Education Cess: “Education Cess” and “Secondary and Higher Education Cess” will be replaced by “Health and Education Cess” at the rate of 4%, on the amount of tax computed, inclusive of surcharge.

Super Senior Citizens

Under taxation rules in India applicable to income earned in FY 2018-19 for ITR filing in AY 2019-20, super senior citizens are defined as individuals who are aged 80 years and more during the applicable fiscal. The individuals feature IT slab and income tax rates that are different from that of other tax assessees as follows:

Additional Components

1. Surcharge: In case income is more than ₹ 50 lakhs and less than ₹ 1 crore, the surcharge is applicable at a rate of 10% of the income tax. For income more than ₹ 1 crore, a surcharge of 15% is applicable on income tax on the amount exceeding ₹ 1 crore
2. Health and Education Cess: “Education Cess” and “Secondary and Higher Education Cess” will be replaced by “Health and Education Cess” at the rate of 4%, on the amount of tax computed, inclusive of surcharge.

Partnership Firms

The applicable tax rate for any Partnership Firms & Limited Liability Partnerships (LLP) is at a flat rate of 30%.

Additional Components

1. Surcharge: In case income is more than ₹ 1 crore, the surcharge is applicable @ 12% over income tax amount.
2. Health and Education Cess: “Education Cess” and “Secondary and Higher Education Cess” will be replaced by “Health and Education Cess” at the rate of 4%, on the amount of tax computed, inclusive of surcharge.

Local Entity / Authorities

The tax rate applicable for Local Authorities is on a flat rate of 30%.

Additional Components

1. Surcharge: In case income is more than ₹ 1 crore, the surcharge is applicable @ 12% over income tax amount.
2. Health and Education Cess: “Education Cess” and “Secondary and Higher Education Cess” will be replaced by “Health and Education Cess” at the rate of 4%, on the amount of tax computed, inclusive of surcharge.

Domestic Entity Companies

The tax rate applicable for any Domestic Companies is at a flat rate of 30%. However, if the gross receipt of the company does not go beyond ₹ 250 crores in the previous year, the company has to pay taxes at a rate of 25%.

Additional components applicable to Domestic Entity Companies are:

1. Surcharge:In case income is between ₹ 1 crore and ₹ 10 crores, the surcharge is applicable @ 7% of the income tax amount. However, if the amount exceeds ₹ 10 crores, the surcharge payable is at a rate of 12%. The income tax department provides marginal relief to companies in special cases:

(i)  Where income exceeds one crore rupees but not exceeding ten crore rupees, the total amount payable as income-tax and surcharge shall not exceed total amount payable as income-tax on total income of one crore rupees by more than the amount of income that exceeds one crore rupees.

(ii)  Where income exceeds ten crore rupees, the total amount payable as income-tax and surcharge shall not exceed total amount payable as income-tax on total income of ten crore rupees by more than the amount of income that exceeds ten crore rupees.

2. Health and Education Cess:“Education Cess” and “Secondary and Higher Education Cess” will be replaced by “Health and Education Cess” at the rate of 4%, on the amount of tax computed, inclusive of surcharge.

Foreign Entity / Companies

Additional Components

1. Surcharge: In case the income is between ₹ 1 crore and ₹ 10 crores, the surcharge is applicable @ 2% of the income tax amount. If income is greater than ₹ 10 crores – 5% of the income tax amount is charged as surcharge
2. Health and Education Cess: “Education Cess” and “Secondary and Higher Education Cess” will be replaced by “Health and Education Cess” at the rate of 4%, on the amount of tax computed, inclusive of surcharge.

Co-operative Societies

Urban / Semi urban/ Rural excluding Self Help Group (SHG) and Agricultural Societies.

Plus:

1. 1. Surcharge:In case income is more than ₹ 1 crore, the surcharge is applicable @ 12% of the income tax amount.
   2. Health and Education Cess:“Education Cess” and “Secondary and Higher Education Cess” will be replaced by “Health and Education Cess” at the rate of 4%, on the amount of tax computed, inclusive of surcharge.

Income Tax Slabs Comparison FY 2019-20 Vs FY 2018-19

Income Tax Slab for individuals less than 60 years of age and HUF

Key Comparisons:

• Income Tax Slabs remain unchanged for FY 2019-20 and AY 2020-21 for all citizens (including Senior Citizens).
• Standard Deduction for salaried taxpayers has been increased from Rs. 40,000 to Rs. 50,000.
• Education Cess on Income Tax has remained same at 4%.
• No further changes in the corporate tax. Corporate tax rate has been maintained at 25% for domestic companies with a turnover of up to Rs. 250 crore.

The income tax slab is a table that shows the threshold limit beyond which a specific tax rate is applicable and various deductions are made as per the applicable rate. To better understand the working methodology of the income tax slab, one has to first understand the vital elements based on which tax slabs are fixed.

Income Tax Act, 1961

The provisions of income tax are contained in the Income Tax Act, 1961 which extends uniformly to the whole of India and has been effective since 1962. The act contains provisions for determining taxable income, tax liability, procedure for assessment of penalties, etc.

1. Annual Amendments –Since the Income Tax Act is a revenue law, it requires amendments whenever the government wants to make changes in it. Under the annual amendment of existing revenue generation requirements, the Government proposes its finance bill, which directly decides the threshold limits for various tax rates which are commonly referred to as Income Tax
2. Income –Income in broad terminology is defined as any receipt in the form of money or money’s worth which occurs with a certain regularity or expected regularity from a definite source.

Key factors based on which, income tax slabs are applicable include:

• Income of assessee
• Residential status of the assessee
• Assessment year
• Rate of tax
• Charge of income tax
• Maximum amount / threshold limit till income is not chargeable/taxable
• Gross income

The income tax slab is applicable to:

• Any resident individual with regular source of income
• A Hindu Undivided Family (HUF)
• A company
• A firm
• An Association of person (AOP) or a Body of Individuals (BOI) whether incorporated or not
• Any local authority

Income Tax Slabs on Dividend

Dividend income received by individuals is taxed based on the source of dividend income i.e. the type of entity declaring the dividend income.

Income Tax Slab for NRI

For the Financial Year of 2018-19, the tax slabs and rates are as follows:

Health and Education Cess – 4%

Income Tax Slab for Expats

For the Financial Year of 2019-2020, the tax slabs and rates are as follows :

Income Tax Slab for Freelancers

The income tax slab rates as same for all individuals. For Freelancers, the tax slab and rates are as follows :

Additional Components

1. Surcharge: In case income is more than ₹ 50 lakhs and less than ₹ 1 crore, the surcharge is applicable at a rate of 10% of the income tax. For income more than ₹ 1 crore, a surcharge of 15% is applicable on income tax on the amount exceeding ₹ 1 crore
2. Health and Education Cess: “Education Cess” and “Secondary and Higher Education Cess” will be replaced by “Health and Education Cess” at the rate of 4%, on the amount of tax computed, inclusive of surcharge.

Income Tax Slab for Doctors

The income tax slab rate is same for all the salaried persons residing in India. Income tax slab rate for doctors are as follows:

Plus Surcharge:

• 10% of tax where total income exceeds Rs. 50 lakh
• 15% of tax where total income exceeds Rs. 1 crore
• Health & Education cess: 4% of tax plus surcharge

Income Tax slab for Pensioners

Below mentioned is the income tax slab rate for the pensioners:

Surcharge: 10% of income tax, where total income exceeds Rs.50 lakh up to Rs.1 crore.

Surcharge: 15% of income tax, where the total income exceeds Rs.1 crore.

*Income tax exemption limit for FY 2019-20 is up to Rs. 3,00,000

Frequently Asked Questions

Q- Are income tax slabs same for all individuals?

Yes. Income tax slab rates are the same for all individuals within a specific segment such as those aged less than 60 years, senior citizens (60 years to less than 80 years) and super senior citizens (80 years and above) all feature the same income tax slab rates. This holds true irrespective of whether these individuals are salaried, self-employed, unemployed or freelancers.

Q- Who decides the IT slab rates and can they change?

The income tax slab rates for the applicable financial year are notified by the Finance Act and passed by the parliament every year. As they are notified every year through the Finance Act, slab rates are subject to periodic change. The last time slab rates underwent a change was in FY 2014-15 when the minimum exemption limit was increased to Rs. 2.5 lakh from the earlier Rs. 2 lakh limit.

Q – What is the benefit of having slab rates in income tax as opposed to a single rate of tax as in case of GST?

Income tax is charged on the earnings of an individual whereas GST is charged on the consumption of goods and services. Income tax slab rates are designed to provide relief to those with lower income and maximize tax collection from higher income individuals. This system of taxation which features an increase in rates as the taxation criteria increases is known as progressive taxation. GST on the other hand is consumption-based so those who consume pay more tax and it stands to reason that higher income individuals will consume more and pay more tax through indirect taxes such as GST. Thus in effect both the income tax slab rate system and the GST method lead to the same result just by different routes.

Q- Are there separate slab rates for men and women?

Not anymore. But earlier there indeed were separate slabs for men and women in India. For example for FY 2010-11, the basic exemption limit for men aged up to 65 years was Rs. 1.6 lakh annually while women aged up to 65 years of age had a higher basic exemption limit of Rs. 1.9 lakh. This is no longer the case as for FY 2018-19.

Q – To whom do the current income tax slab rates apply?

Every individual whether a resident or non-resident no matter what his/her age whether salaried, self-employed or unemployed is covered by the applicable income tax slab rate and minimum exemption limit. Additionally, applicable slab rates also cover various non-individuals such as HUF (Hindu Undivided Family), AOPs (Association of Persons), BOIs (Body of Individuals), firms, LLPs (Limited Liability Partnerships), companies, local authority and other artificial judicial persons are also covered by the income tax slab rates.

Q – How do I calculate my tax liability using the slab rate for taxable income of Rs. 5.2 lakh in AY 2019-20 if my age is less than 60 years?

Income tax calculation in AY 2019-20 applies to annual earnings in FY 2018-19. For the applicable AY, basic

exemption limit is Rs. 2.5 lakh, and the slab rate is 5% for income of Rs. 250,001 to Rs. 5 lakh. Income above Rs. 5 lakh will have a 20% tax rate as per IT slabs for AY 2019-20. So you have a tax liability of 20% on Rs. 20,000 = Rs. 4,000. Additionally, 5% tax on 2.5 lakh (Rs. 5 lakh – Rs. 2.5 lakh) = Rs. 12,500. Thus your total tax liability for AY 2019-20 is Rs. 16,500. You can of course get the same result using a free online income tax calculator.

Our goals can only be reached through a vehicle called Plan, in which we must fervently believe, and upon which we must vigorously act. There is no other route to success.” —Pablo Picasso

If you are investing without a goal in mind, then you are not saving enough for your future needs. Having a goal-based investment plan is both very important as well as useful.

What is a goal?

A lot of us think that dreaming about a house or a car is a goal. But the actual goal is where your name few things very clear in mind.

• What is my goal? – give a name to your goal
• When do I want to achieve this? – decide a time horizon
• How much money do I need to achieve this goal?-Decide the monetary value of your goal

Once you have the above 3 things in your clear conscious, you are all set to take the next steps.

Mistakes to avoid while doing goal-based investment:

Not having target amount in mind: All of us want to more and more returns, but having a target amount in mind will help you to make decisions like how much do you need to invest, till when to hold and when to sell your investment. It will act as a balance between savings and expense.

Not considering inflation: The prominent reason we save and invest is to beat inflation so we can still buy the same things and live the same lifestyle even after 10 years. Always consider inflation while deciding your target amount. Calculate the future value of your goals. There are lots of calculators available in the market which can help you to do so.

Not saving enough: The most common mistake done at the time of doing goal-based investment is we overestimate our savings. Once you have determined the future value of your goal or inflation-adjusted value now it’s time to do a backward calculation and figure out how much money has to be invested regularly.

Steps to follow for a goal based investment.

Step 1 – Asses your financial situation

Whether you are looking to action a specific need or simply want the peace of mind that your finances are in good shape the financial health check will do the job. The free financial health check service is a review with one of our highly trained Wealth Coaches, over the phone or face to face.

Step 2 – Decide Goal

• Decide the priority of the goals
• Determine how much can you save and how much saving is needed for your goal
• Start investment
• Review and rebalance your past investments
• Once you follow the above steps to decide your goal and defined how much amount you will need for it and in how many years.

Step 3– Decide the priority of the goals: There are few things we have to focus on while prioritizing.

It can be done based on time left for the goal. Like 6 months, 1 year, 10 years

Another way can be based on criticality- This means how important the goal is, can you compromise on the monetary terms etc.

For example – Goal like kids education can neither be postponed nor be compromised in terms of money requirement. So this goal should have higher priority. Whereas going for a world tour can be delayed by a few months and there is a possibility to compromise in budget requirements too, so this can be a nonfatal priority.

Based on the criticality and time left for the goal, the portions of savings should be allocated to it accordingly.

Step 4: Determine how much can you save and how much saving is needed for your goal

It’s always advisable to save at least 25% of your total monthly income; this can be dependent on your goals too. Another factor which you have to look at is your debit or credit card outstanding.

While designing a savings and investment plan, focus primarily on your debts and design a plan to clear them too. Debts take away a big portion of our savings in terms of interest. Understand and use your credit cards wisely.

Step 5: Start investment:

This is another very critical step which will need a lot of attention and precision. Always take professional help if you don’t understand financial products. Choosing a right product is very important.

• Choose a product which suits your risk profile.
• Don’t overestimate returns from any product especially if you are investing in equity related instrument.
• Always diversify your investments, keep your portfolio a mixture of debt and equity products
• Always keep some portion aside for emergencies too so any contingency won’t disturb your investment.
• Design an effective tax plan too.

Step 6: Review and rebalance your past investments:

Once you start investing always keep a track of your investment and add or remove investment only if it is very important, don’t freak out if the short term fluctuation is not favoring your investment. Stay invested in the longer term.

Unlike other saving schemes like Fixed Deposit (FD), Public Provident Fund (PPF) and National Savings Certificate (NSC), Equity-Linked Savings Scheme (ELSS) offer the shortest lock-in period with a higher return on investment. For the majority of earning citizens of India, retirement saving is one of the most ignored goals as it is distant and one does not feel a dire need to address it.

However, the desire to save tax could be help us to meet two goals – tax saving and retirement planning – with one single investment. Usually, investments leading to tax saving are done annually to save tax for that fiscal year. Under the Income Tax Act of India, section 80C allows maximum deduction of INR 150,000 from your total annual income. ELSS is one such instrument that let you claim these benefits. ELSS is riskier than those fixed income alternatives under section 80C, but it generates the higher rate of returns which are partially taxable as compared to the fully taxable returns from FDs and NSCs. ELSS is the best way to save tax and invest for retirement, especially for the young earners.

How to invest in ELSS

ELSS is an equity-linked savings scheme, which means the amount will be invested in equities and they need time to perform. As compared to investment schemes like FD, PPF, NSC, and NPS (National Pension Scheme) which usually have the lock-in period of 5 years, 15 years, 5 years, and till retirement respectively, ELSS has the shortest lock-in period of just 3 years.

After the lock-in period gets over, the scheme becomes an open-ended scheme and the funds invested become eligible to be withdrawn. However, it is advisable that instead of withdrawing the funds let them remain invested until about five years before you retire.

To start saving for retirement CLICK HERE 

Since equities are more volatile, any fresh investments and the ongoing open-ended investments in ELSS within 5-7 years of retirement must be considered only after assessing your risk profile. So here is how it will work. Say, you invest INR 8,000 monthly in ELSS for 25 years towards retirement. Expecting a long term rate of return as 15% per annum, the maturity amount will be somewhere close to INR 2.6 Crores, which could be a hefty amount in one’s retirement portfolio in addition to other investments made as part of retirement planning.

Now before you decide which scheme to invest in, you need to reach a conclusion as to how much you would want to save as your retirement benefit.

How much to save

You need to calculate an exact amount of post-retirement monthly needs and then start saving accordingly to avoid over/under-investing.

Here is how you can do that in 5 simple steps:

1. Get hold of your present monthly expenses at current costs
2. Get the number of years left for your retirement
3. Inflate the present monthly expenses at around 5%. The amount you will get is the monthly expenses that you would likely to incur once you have retired after adjusting for inflation.
4. Now estimate how much amount you need to meet your inflated monthly expenses.
5. At the last step, you will have to find out how much monthly savings would you need to accumulate till retirement. There may be other savings too that you have planned, so consider them too.

How to choose ELSS

Selecting a single best ELSS is not an easy task. There is some ELSS that has more exposure to large-caps, while some perform better with mid-cap or multi-cap stocks. It’s found better to invest in not more than 2-3 diversified ELSS and ensure that they belong to different industries and market capitalizations.

How to save through ELSS

You can invest in ELSS through two of the way. One is depositing a lump sum amount into the chosen ELSS at regular intervals. The other way is to invest a fixed amount at regular intervals also called as SIP (Systematic Investment plan). By the latter way, you are not trying to capture the ups and downs of the market, but the cost of your investment will be scattered over a period of time. This is most preferable for the young earners.

Invest in ELSS instantly >>                              OPEN AN ACCOUNT NOW 

What’s your action after investing in ELSS?

You don’t have to worry about the ELSS during the lock-in period. However, once the lock-in period ends, you need to review the performance of the schemes you have invested in. If your ELSS is performing, there is no need to redeem it. One thing that you need to restrain yourself is being tempted from the fund’s return in isolation. Compare the scheme’s return with its benchmark return. Not a scheme which is consistently unable to cross its benchmark return should be in your investment portfolio. Also, observing the category average returns against its peers will give you an idea about how good/bad your investment is. There can be several reasons for that, and you need to explore all of them before deciding to switch on to others.

54EC bonds, or capital gains bonds, are one of the best ways to save long-term capital gain tax. 54EC bonds are specifically meant for investors earning long-term capital gains and would like tax exemption on these gains. Tax deduction is available under section 54EC of the Income Tax Act. 54EC bonds do not allow any tax exemption on short-term capital gains tax. Invest in 54EC bonds to get benefits of tax deduction. The maximum limit for investing in 54EC bonds is Rs. 50, 00,000. The eligible bonds under Section 54EC are REC (Rural Electrification Corporation Ltd), PFC (Power Finance Corporation Ltd) and NHAI (National Highways Authority of India) and IRFC (Indian Railways Finance Corporation Limited).

Listed below are the Key features of Capital Gains Bonds:

Capital Gains Bonds are issued by the below Corporations:

Disclaimer: Interest Rates are subject to revision by the respective Companies/Government from time to time. Saffollya Investment Advisory LLP acts as a referral agent to these companies and the offer is brought to you by the companies subject to fulfillment of eligibility criteria, terms and conditions etc. Investors are advised to read the Terms and conditions offered by respective companies carefully before taking any investment decision.

Frequently Asked Questions

Who can invest in 54 EC bonds?

The following can apply:

Resident Individuals

Hindu Undivided Families (HUF)

Firms

Companies

Banks, Commercial RRB, Co-operative Banks

Financial Institutions

Company

Mutual Funds

Insurance Companies

Eligible NRIs (as per applicable law and regulations)

What is the mode of application & payment?

You can apply for the 54 EC bonds offline with physical forms. The payment can be done through cheque, DD or RTGS

In what form can 54 EC bonds be held?

The bonds can be held in physical or demat form.