Tax: 5 reasons why insurance won't save tax

1. No deduction: Under DTC, an insurance policy that offers a cover of less than 20 times the annual premium won't be eligible for tax deduction.

2. Tax on maturity: If the 20 times life cover condition is not met, even the income accruing from the policy will be taxable

3. Lower limit: The tax deduction limit for life insurance will be reduced from the present 1L to 50000 per year. The 50000 limit would also include the amount paid for tuition fees of children as well as medical insurance

4. Tax on withdrawals: Partial withdrawals from an insurance plan before maturity will be taxable under DTC

5. Tax on surrendering: The surrender value of a plan will also be taxable.

6. ULIPs has a lock-in period of 3 years. This has been extended to 5 years now by IRDA.

MF: Updating address in fund investments

If an investor has changed his house and wants to update the new address in his mutual fund details, he will have to write to each fund house that he has invested in. Instead, if he just updates his address with a central agency named CDSL Ventures Ltd (CVL), all his folios across funds would get updated. CVL is also responsible for processing the KYC. CVL updates the address of the investor and the same gets communicated to all the investment houses. The process of address change takes around 10 days.

Steps:

1. Fill up the form and submit documents for verification to the designated point of service (POS). Forms can be downloaded from http://cvlindia.com/include/pdf/individual.pdf

2. The POS will give an acknowledgement. A copy of this has to be enclosed with mutual fund purchase documents.

3. If you want to change the address and also apply for redemption, give at least 10 days for the update before redemption

4. KYC is mandatory for all joint holders but address in a folio is only of the first holder. No need to make changes for all the holders.

Points to note:

KYC first: Investors have to be KYC compliant first before updating their address details:

CVL is the only route: Fund houses and registrars will not accept change of address requests from investors. this is done only through CVL

PAN: Your PAN is used to identify all the folios held by you across funds. Quoting the correct PAN enables updating the records correctly.

NRI: Those who provide overseas address will have to get it verified by their bank or consulate.

Why are research reports - stocks free?

In India, research reports are free, so research in effect is a cost centre

 

The positives:

* Analysts find undervalued stocks and recommend these stocks to existing and prospective clients who can profit from this.

* brokers who cover institutional clients will cover large caps

 

The not so positives:

* The prime objective of a research report is to induce a transaction. It allows the sales force to go out into the market, sell stocks and generate commissions. Every transaction brings in broking income

* It is essential to bring out a "buy" report. This will help target new and existing clients. A sell report will impact only those clients who hold that stock. By perception, people rather buy low and sell high. Not many people involve in short selling.

* At times, the owner of a broking firm or the portfolio of a broking firm might have a stock that is not doing well. It might then release a Buy report which might cause interest in the market and thus help increase its price.

 

Solutions:

* An investor should be able to differentiate reports based on which broking house is originating the report

* There is a disclosure section, large brokerages state whether they own the stock or a sister firm of the brokerage has an investment banking relationship with the company. This is something a retail investor should look for.

 

Bidding for a house

Source: ET Wealth-10Jan 2011
Auction Facts
why?
Property cheaper by 15-20% than market price
How?
* Banks advertise in local dailies with property details, date and place of auction
* Bidders can visit the property
* Submit expression of interest by specified date
* Submit earnest money
* Attend the auction
* Banks also give home loans for auctioned property
Watch Out
* Bank may ask for part of reserve value immediately after the bid
* Buyer has to bear all outstanding dues on the property
Further,
1. Buyer should check important documents such as possession record in title before bidding. The title of the property can be verified at registry offices.
2. An investor should also verify municipal records to find out whether any tax is outstanding
3. An investor should check with the society for any outstanding maintenance or electricity dues.

When to Break an FD

Source: ET-Wealth-10Jan2011

* There is a reduced interest to 5% in the example.
* Over an above that there is a 1% penalty. This is confusing.

Gratuity

Source: ET Wealth-10Jan2011

* Gratuity is a lump sum amount paid to an employee on retirement. Companies use it as a retention tool.
* You get gratuity if you have completed five years in a company. There is a cap of 10lakh
* Gratuity calculator:
(Your last drawn monthly salary(basic + DA) /26)*15*X=Gratuity
26=1 month
15=15 days of service in a year provided as DA
X = No of years worked
* If you completed 7 years of service and your last drawn salary was 45K per month, then gratuity = 1.8L
* This is mandatory for companies with more than 10 employees on their payrolls to give gratuity to employee on resignation, retirement and termination of service
* Condition of 5 years of service is relaxed in case of death or permanent disablement of the employee.
* Tax exemption has been raised to 10lakh.

Tax:Education loan to lower tax

Source: ET-Wealth-3Jan2011: 8 Tax Saving Secrets

Use education loan to lower tax

The rising cost of higher education is forcing people to borrow money to pay the fee of their children’s professional courses. The taxman is sympathetic and offers a deduction that can lower the cost of the loan. The interest paid on an education loan is fully deductible from taxable income under Section 80E. Till a few years back, this deduction was available only to the borrower. Now, even a parent or a spouse can avail of it. What’s more, this now includes loans taken for vocational courses. “If a parent or legal guardian takes the loan, he can claim deduction for the interest paid for up to eight successive years, starting from the year in which the interest is first paid,” says Shanbhag.

However, loans taken for siblings and other relatives do not qualify. Also, the lender must be a recognised financial institution; loans from employers or individuals do not count.

How much tax can you save: If you take a Rs 10 lakh education loan at 10% interest for 8 years, you can save Rs 1.41 lakh in tax in the highest tax bracket. This will bring down the effective cost of the loan to 7% per annum.

Proof required: Loan statement from lender.

Highlights - Ajay

* Even a parent or a spouse can avail of it

* Loan can be taken for vocational courses as well