This move by the government may not be very encouraging for investors but it does not spell doom yet. We try to give a clear idea here, on the implications of the newly introduced clause of LTCG tax on your earnings. In other words, we equip you with relevant information so that you can zero in on the perfect investment strategy that best suits you.

Important points:

• The LTCG tax is 10 per cent with no indexation benefit for equity investments.
• LTCG exempt is up to Rs 1,00,000: This is a universal annual limit that includes LTCG earned from all the equity investments put together. For example, if you earned a total LTCG of Rs 1,50,000 by selling various investments throughout the year, the taxable LTCG is only Rs 50,000. The tax liability is Rs 5,000 (10 per cent of 50,000).
• Exemption till 31st March 2018: This means that if you book LTCG before March this year, you are not liable to pay any tax even if the gains exceed Rs 1,00,000.
• Cost reset date is 31st January 2018: If LTCG is booked in the next financial year (starting 1st April 2018) the cost price of the investment will be adjusted to the price as on 31st January 2018 for the tax liability calculation. However, if the investor has earned a loss with respect to the original purchase price, there is no LTCG tax to be paid.

Let's see how this plays out in different scenarios for investments made before 31st January, 2018:

Scenario 1
Purchase price on 1st January, 2013: Rs 100
Price on 31st January, 2018 (reset date): Rs 300
Selling Price on 1st March, 2018: Rs 350
As the long term investment is sold before 31st March, 2018, there is no tax liability.

Scenario 2
Purchase price on 1st January, 2013: Rs 100
Price on 31st January, 2018 (reset date): Rs 300
Selling Price on 1st June, 2018: Rs 350
As the long term investment is sold after 31st March, 2018, there is a tax liability to be paid. The deemed cost price for the tax calculation will be Rs 300. Thus, LTCG will be Rs 50 (350-300).

Scenario 3
Purchase price on 1st January, 2013: Rs 100
Price on 31st January, 2018 (reset date): Rs 50
Selling Price on 1st June, 2018: Rs 110
In this scenario, the cost price on the reset date is below the original purchase price. Hence, the tax liability will be computed on the original price ignoring the price on the reset date. Thus, investor is deemed to have earned LTCG of Rs 10 (110-100) and the tax liability is Rs 1 (10 per cent of 10).

Scenario 4
Purchase price on 1st January, 2013: Rs 100
Price on 31st January, 2018 (reset date): Rs 130
Selling Price on 1st June, 2018: Rs 110
Here the investment is sold below the deemed cost price of Rs 130. Investor will not have to pay any LTCG tax even if the selling price is above the original purchase price.

What should you do now?
Nothing. Stay put. Don't sell investments only because LTCG tax has been introduced. This would be simply foolish. Any move taken while in a state of panic can only lead to losses.

Paying taxes reduces the returns earned. But if the investments are held for a longer period of time, tax liability reduces considerably. The trick is to hold onto the investments longer to avoid booking  higher taxes on LTCG.

We demonstrate in the table below that the longer you hold on to an investment, the tax drag reduces and returns increases.

As you can see, if the investment is sold after 10 years the post-tax return for the investor is 14.1 per cent as compared to 13.5 per cent after one year. Thus, the investor is better off by deferring the tax payment.

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there is a rush among salaried employees to invest as they have to submit proofs to their employers. In order to get tax benefits on investments and insurance, a tax payer can invest up to Rs 1.5 lakh in Public Provident Fund, Employees' Provident Fund, National Savings Certificate, life insurance premium, five-year deposits in banks or post office and equity-linked savings schemes.

Under section 80D of the Income Tax Act, 1961, one can take health insurance for up to Rs 25,000 for self, spouse and dependent children. One can get tax reduction of Rs 5,000 on preventive health checkups annually. Also, additionally health insurance premium paid for parents is tax deductible up to Rs 25,000. And if the taxpayer's parents are senior citizens (60 years and above) then the maximum allowable deduction is Rs 30,000.

Under Section 80CCD, a taxpayer can also invest up to Rs 50,000 a year in National Pension System to get tax deduction. This is above the limit of Rs 1.5 lakh under Section 80C. Also, under Section 24 of the I-T Act one can get tax benefits of up to Rs 2 lakh a year on home loan interest repayment for a self-occupied house.

In order to make tax-saving investments earn higher returns in the long-run, one must look at equity-oriented financial instruments like equity-linked savings scheme (ELSS) of mutual funds and National Pension System.

Equity-linked savings scheme

With the stock markets gaining new highs, ELSS of mutual funds are increasingly finding more takers.

Data show that ELSS category has reported an annualised return of over 18% in the past five years, which is double than most of the debt-oriented tax-saving instruments. If a tax payer invests up to Rs 1.5 lakh in ELSS in a year, then he can save as much as Rs 46,350 in taxes a year in the highest 30% tax bracket.

In ELSS, an investor will not have to look at the performance of individual stocks regularly as the investment is done in diversified stocks and sectors. The funds have a lock-in period of three years, which is the lowest lock-in period as compared to other tax-saving instruments like Public Provident Fund, National Savings Certificate and 5-year bank fixed deposits.

Tata India Tax Savings Fund, says ELSS is a good option for an investor to take exposure to equities as it comes with an added benefit of tax savings on investments up to a specified limit. To benefit from the compounding effect, one has be patient and remain invested during market ups and downs. Even in ELSS category, instead of investing through lumpsum, informed investors do prefer to invest through SIP route, which gets reflected in increasing proportion of SIPs in ELSS funds

National Pension System (NPS)

It is an ideal investment tool for retirement planning. For non-government employees, up to 50% of the contribution can be invested in equities (index funds) and the rest between corporate and government debt paper. It works like a mutual fund, as one buys units of the fund at a certain NAV. There are two ways to get higher tax benefits in NPS—employer contributions to your NPS account and self-contributions.

Under Section 80CCD, a tax payer can investment up to Rs 50,000 to get tax benefit, which is over and above the benefit available on Rs 1.5 lakh under Section 80C. However, one should try to invest more to create a sizeable corpus for retirement needs.

Also, if the employer contributes to the taxpayer's NPS account, he gets to claim tax benefits. Contributions made by employer are allowed under Section 80CCD(2). This deduction does not have a monetary restriction, but the total deduction claimed for amount contributed by the employer should not exceed 10% of your salary. Employer can make this contribution apart from contributing to EPF. However, this will reduce one's take-home pay, but will save on tax and create a corpus for retirement needs.

At the time of maturity after the age of 60, an investor will withdraw 60% of the corpus including the returns and invest the rest for compulsory annuity. One has to pay tax on 20% of the withdrawal. Products like PPF and EPF are tax-exempt at all the three stages — investment, accumulation and withdrawal. Subscribers of NPS Tier-1 account can now make tax-free partial withdrawal of up to 25% of contributions for certain specified circumstances after 10 years of being in the scheme.

SIPs are when Stock Market is high volatile. Invest in Best Mutual Fund SIPs and get good returns over a period of time. Know Top SIP Funds to Invest Save Tax Get Rich

For further information on Top SIP Mutual Funds contact Save Tax Get Rich on 94 8300 8300

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IDFC Sterling fund is a small & mid cap strategy with at least 70% invested in these stocks. The fund went through a challenging time after the exit of Kenneth Andrade, but with Anoop Bhaskar taking over the reins in May 2016, reinforces our faith in the fund. Anoop is amongst the most astute investors, especially in the small & mid cap space. While investing, he looks for companies which have decent amount of promoter holdings, good cash generation, low leverage, and profitability over a cycle. He avoids businesses that show profitability in spurts. Given the fund's small/midcap bias, it gives Bhaskar an opportunity to play to his strength. Subsequently he tries to ferret out companies that are cheaper than their peers and historical valuations. Currently, he has aligned the portfolio to benefit from the recovery in India's economic cycle. Under Anoop, the fund has performed well and expect the fund to continue to deliver performance over the long term.

SIPs are when Stock Market is high volatile. Invest in Best Mutual Fund SIPs and get good returns over a period of time. Know Top SIP Funds to Invest Save Tax Get Rich

For further information on Top SIP Mutual Funds contact Save Tax Get Rich on 94 8300 8300

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You can write to us at

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Managing finances with fluctuating incomes

You may choose the satisfaction of working on your own terms over the comfort of a regular salaried job. However, this choice typically comes with the uncertainty of not receiving a predictable income each month. Most prudent financial actions such as budgeting, savings and investments work on the assumption of a predefined regular income, out of which you will meet expenses, save and also invest for future goals.

If your income does not fall in the pattern of regular, defined receipts then you may have to make a few changes in how you go about to reach the desired outcome of a secure financial future.

Track and fix to budget

It is not enough to track just your expenses to be able to draw up a workable budget. When your income is unpredictable, it is also necessary to track the trends in past income to be able to estimate future income.

One way to do this is to take your average income over the last 12 months. Another, more conservative, view is to take the lowest income over the previous 12 months. This approach will eliminate the risk of the average income coming up higher because of a few months of very high income, which is not representative of the actual income being earned.

Either way, these are just estimates and therefore it is important to apply rigour in estimating expenses and sticking to the budgeted levels. Track expenses over a few months and categorize them as necessities that have to be met each month, priorities that you would like to meet when income is available and discretionary expenses that can be cut back or eliminated completely, if necessary.

The necessities include: housing (whether rent or mortgage), food, transportation, expenses related to the family, insurance and health expenses. This is the minimum level of income you need in a month. The aim should be to limit fixed and mandatory expenses when income is variable. If you are starting your earning career with variable income, then add fixed expenses—such as mortgages—only after you have built up your cash flows to some level of predictability. If you are switching from a stable income profile to a variable income one, then take the time to pay down your debts so that there are fewer mandatory expenses to be met once you switch. Include taxes in the list of expenses to be met.

Another precaution is to set aside each month the sum of money required for any expenses that are due annually, such as taxes. If you do not do this, you are likely to be faced by a large outflow in one month, without having the funds to pay for it.

Build a cash reserve to normalize volatility

You will know only at the end of the month whether you actually made the minimum income you require to meet expenses. A cash buffer will help bridge the gap, if any. It will also help meet expenses if the cycles for income and expenses are different. You can draw from this cash buffer when you need to but make sure to replenish it as and when you receive any income. The cash buffer should not be seen as an additional income stream. Do not confuse it with an emergency fund. The cash buffer is only for you to manage any temporary shortfall or delay in expected income.

Apart from this buffer, you need to have an emergency fund to meet other conditions such as: loss of income-earning opportunities, medical emergencies or other large expenses that were not budgeted for. If you have time to plan your move to a variable-income situation, then build your cash buffer and the emergency fund before you make the switch.

If you have already made the switch , then create the buffer by allocating funds to it each month and make it part of the essentials till you have an adequate corpus. Start with a 6-month buffer initially. Increase this if you find that your income fluctuates more than expected.

Giving savings their due

A fluctuating income is not a signal to switch off saving and investing for your goals. Since you would be giving up on employer's contributions to your retirement corpus and other financial benefits, it becomes more imperative that you start early and stay the course.

Make the savings component a part of your base needs and pay it out to yourself before meeting any other expenses. Don't let go of your goals. In fact, set specific ones. It will keep you from splurging that extra income in the months that you are flush with funds. Break down large goals into monthly saving targets. Track your progress regularly so you can make up for any slips.

Define your savings as a percentage of your expected income and increase the percentage over time as income moves up. While a portion of the savings should be invested with a focus on long-term goals, some portion of the savings should also be invested with liquidity in mind. This is important till adequate cash buffer and emergency fund are built up.

Consider building a portfolio to generate a passive income stream from dividends, interest and rental receipts to augment your income. This will help stabilize the income to some extent and help in managing finances better.

Have a system in place

It is important to have a system in place to manage your finances efficiently. Designate a bank account to hold the income from your professional or business services as and when you receive it. Pay yourself a monthly salary—as fixed in the budgeting exercise—into a separate personal account and use this account to meet your expenses and make investments.

There may be periods in which income levels may be high and the business account may be flush with funds. Don't consider this as money available for splurging. Use it to stock up your cash reserve as much as required, then ensure your emergency fund is adequately funded, and then meet your investment targets; before considering the amount to meet any expenses that is already listed as priority.

Not knowing how much you will earn from month to month can be overwhelming. Discipline is the key to making your finances work with a fluctuating income. You need discipline to stick with the budget, to exercise restraint in expenses when income levels are high and to resist the urge to use the cash buffer as an extra stream of income. It will give you a feeling of control over your finances as well as your life.

SIPs are when Stock Market is high volatile. Invest in Best Mutual Fund SIPs and get good returns over a period of time. Know Top SIP Funds to Invest Save Tax Get Rich

For further information on Top SIP Mutual Funds contact Save Tax Get Rich on 94 8300 8300

OR

You can write to us at

Invest [at] SaveTaxGetRich [dot] Com

Thanks to Aadhaar, it is now possible to open a trading and demat account with a broker online. Since all processes are completed online, the account activation takes only a few minutes.

Who can use this facility?

Only those who have valid Aadhaar card with an active Aadhaar-linked mobile number and email id can use the facility to open trading and demat accounts using e-KYC facility.

Soft copies needed of Aadhaar card PAN card

Cancelled cheque as bank proof

Income proof in case one wants to opt for derivatives segment

Signature of the applicant

PAN and Aadhaar validation

To begin with, the applicant must visit the broker's online portal to open a new trading and demat account. On entering basic details such as name, mobile number, PAN and Aadhaar number, a verification OTP will be sent to the Aadhaar registered mobile number.

Account opening

Once validation of PAN and Aadhaar is completed, the applicant needs to select the market segment he wishes to trade in, address that he wants to use, the brokerage plan he wants to opt for, other personal details and bank details. Document proofs must be uploaded when prompted.

In person verification

After details are furnished and documents uploaded, the applicant will have to go through an in-person verification process.Document proofs and physical presence of the applicant will be verified through a video session by the broker's official. Once accepted, the applicant will be prompted to affix e-sign and an OTP will be sent to the registered number. On entering the number, e-sign will be affixed, the e-KYC process will get completed and a unique client code (UCC) will be generated.

Since non-individual clients do not have Aadhaar, they are not eligible for this facility.

In case the mobile number is not mapped to the applicant's Aadhaar, he can fill up the form online, take a print, sign and send the same physically to the broker's office.

Invest Rs 1,50,000 and Save Tax up to Rs 46,350 under Section 80C. Get Great Returns by Investing in Best Tax Saver ELSS Funds. Save Tax Get Rich

For further information contact SaveTaxGetRich on 94 8300 8300

OR

You can write to us at

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Best SWP Funds Online 

For regular returns, investors opt for fixed deposit, company deposit or small saving schemes. These suffer from disadvantages when it comes to taxation, falling interest rates & liquidity in case of some emergency.

SIPs are when Stock Market is high volatile. Invest in Best Mutual Fund SIPs and get good returns over a period of time. Know Top SIP Funds to Invest Save Tax Get Rich

For further information on Top SIP Mutual Funds contact Save Tax Get Rich on 94 8300 8300

OR

You can write to us at

Invest [at] SaveTaxGetRich [dot] Com

SIPs are when Stock Market is high volatile. Invest in Best Mutual Fund SIPs and get good returns over a period of time. Know Top SIP Funds to Invest Save Tax Get Rich

For further information on Top SIP Mutual Funds contact Save Tax Get Rich on 94 8300 8300

OR

You can write to us at

Invest [at] SaveTaxGetRich [dot] Com