Tax Time

January is here and HR department of your company would have sent by now emails asking for proof of tax declarations that you made in the beginning of the financial year.

Since most of us a love to wait till the last minute to make any investment for the purpose of saving any tax we are caught unaware by these emails and haphazardly make investments which may not fit in our long term financial goals. So we may end up buying products that are either totally ill suited for us or do not match our risk profile.

Relying on the expert advice of your LIC or mutual fund agent is not a very good thing. As we have seen in the Citi bank case the financial adviser may have his own interest in mind rather than yours.

So what to do?

I am giving below some simple steps that one needs to follow to reach to the right product selection for the purpose of tax savings. Please remember these are generic steps and the actual financial decision you should take after proper calculations and keeping your personal circumstances in picture.

1. Check with HR/Finance department how much you need to invest. You may have received an increment since last year or have added some other source of income which could be taxable e.g interest from the FDs, rental income etc.
2. Decide for how long you want to invest. If you want to invest for less than 3 years then you are out of luck as no tax savings product has a lock in period of less than 3 years. So if you need the money in next 3 years forget the tax savings and put the money in liquid, low risk product like FD or debt mutual fund. Don’t even consider equity or equity linked mutual funds for the same.
3. From the total amount you need to invest reduce the total investment already made e.g any insurance premium that you have already made, any EPF contributions that you are making through your employer. Any donations that you may have made that will be reduced from the total income. ( Please check with your finance department if they will allow the credit in form 16 or you have to get it in you tax return)
4. Now you will have the total amount that you need to invest in the tax savings products.
5. Calculate any prior commitments that you may have for any tax savings instrument like LIC or other insurance policies. This will get subtracted from the total amount.
6. Now say you have 40K to be invested further in the tax savings products.
7. Check if you are adequately insured. If there are insurance gaps in your portfolio first thing you should go amongst the tax savings instrument is to go for a cheap online term insurance.
8. If still some amount is left and you are willing to invest then go for Tax Saving Equity funds. If you are not willing to go for Equity schemes you can go for other instruments like NSC etc. But normally they should be taken only in the end once your insurance, PPF and Tax savings equity schemes have been covered.
9. Once you have 1lakh Rs invested and you still have some more tax obligation you can then look at Infrastructure bonds where you can invest another 20K over and above the 1L limit in normal tax saving instruments.
10. Do not invest in tax savings instruments more than you need to, because you will not get any additional tax benefit and your money would be still locked and not available to you during the locking period.
11. Collect the receipts for all investments and submit the photocopies to your companies finance/HR department.

By falling these simple steps you can ensure that you get adequate tax savings and invest in the right instruments that fit in your long term financial goals

Thanks for reading.

Real Estate Scam

The Real Estate scam that has come to the notice of public after CBI made some high profile arrests, asks for a debate.

In one of my blogs—“Games Builders Play”, I have mentioned that we need a regulator for the real estate market. Is it not surprising that we have regulators for Banking, Mutual Funds, Stock markets and Insurance but no regulator for Real Estate market?

While Real Estate is something where a person puts in his life’s savings and is typically the largest investment for most of us. As in a MF or Insurance policy or even in stock market you can start investing with as little as Rs. 500, but for investing in real estate which in majority of the cases is also the primary dream home one needs to shell out a few lakh rupees and take a mortgage that one will be paying till one retirement years.

Any ways one unique thing about this scam is that it was announced by CBI and was not sniffed out by media hounds. This tells us a few things:

• Politicians are not involved in this at least to begin with. Or the politicians did not received there pound of flesh so decided to teach lesson to the people involve as to how dare they have the ***** to do a scam on there own.

• The announcement was done after market hours which means it was a planned to have a minimum impact on the stock market. ( It is a different thing that some people seemed to know it before hand as LIC Housing finance stock tanked around 18% that day)

• If the government is worried about the stock market tanking it means the government wants the stock market to go up.

• But don’t feel all “lovey dovey” about the government that it wants the stock market to go up. There is a reason why MMS and his pack of pro-reform poodles want the market to go up, and the reason is simple the government wants to raise close to 50000 Cr Rupees from stock market by bringing IPOs and FPOs of government owned companies. And the amount can not be raised if the market tanks.

• So by deductive logic stock markets are not going to tank too much till the time the government has met its target of raising the monies from the stock market. What will happen after that is anybody’s guess.

But till then my guess it markets will not tank beyond a certain limit as yours and mine hard earned money in LIC and SBI will be used to keep the market stable. The worst part is we don’t have the right to complain as we elected the government but guess what next one is also going to be same. As they say “ Jaise Saapraaj, vaise hee Naagraaj” i.e. The king of snakes is same as king of cobras!

Thanks for reading, would love to hear from you.