Be wealthy with equity mutual fund investment

If your investment is not able to beat inflation its worthless investment because, it is losing its real value with time. Most of the safe investment options offer you a return that is just good enough to beat inflation. There have been several instances in last 15 years when the return on fixed deposit, which is a safe fixed income investment option, was even less than the inflation rate. So such an investment at best helps you just to hold on to the value of your saving. It does not give you any extra return. So unless an investment generates a return much more than inflation it cannot be considered a good investment.

Will tell you how equity mutual fund helps you generate higher return and what should be your basic preparation when going for equity mutual fund investment.

Let us understand how inflation and return are linked

Let us consider a scenario in which you have Rs 1 lakh of saving at present and wish to invest it for next 15 years during which inflation remains at 7%. Now, Depending upon your investment option and annual return it generates your maturity amount will vary. If your safe investment generates an annual return of 6% return, your saving will lose its value over 15 years and will be worth only Rs 86,005. If you manage to generate a return equal to inflation that is 7% then your savings will just be able to maintain it value of Rs 1 lakh. At 8% return your savings will grow to Rs 1.16 lakh. At 9% it will grow to Rs 1.34 lakh. At 10% it will grow to Rs 1.56 lakh. At 12% you will have a corpus of Rs 2.07 lakh. Similarly at 15% your investment will grow to Rs 3.17 lakh. But the question now is how to generate a return which continuously beats inflation in the long run.

How equity beats inflation and gives superior return

The answer is that your money should work hard and generate higher return rather than just holding on its value against inflation. To do so you will need to look for equity investment which is known to generate higher return over a long period. We can verify this with Sensex which gives us indication of broader equity market return. For instance, for any investment period of 15 years from January 1980 till February 2004 your return on investment would have been more than 9% at 97% of the occasions. 

At around 94% occasions your return would have been more than 10%. 

At around 80% occasions your return would have been more than 12%. 

And at around 38% occasions your equity investment would have generated a return of more than 15%. So if you wish to generate wealth, equity is the best investment vehicle to do so.

Maturity amount on monthly investment at different return

When the time horizon for your equity investment is long the best way is to go for small but regular investment. If you go for a monthly investment of Rs 5,000 for a period of 15 years then at 8% annual return the maturity amount that you will get after 15 years will be Rs 16.88 lakh. If the rate goes up to 9% then the maturity amount rises to Rs 18.33 lakh. At 10% annual return you will get an amount of Rs 19.92 lakh. 

However if your return on investment is 12% you will get Rs 23.57 lakh. And in case the return is 15% then the maturity amount rises to Rs 30.46 lakh. Such high return is rarely possible through fixed deposits which are safe but give very low return. So, your best chance to generate high return is to invest in equities.

Invest in equity through MF

Though equities offer best return potential but also come with a corresponding risk. So unless you understand the risk, getting into equities blindly could be a risky proposition. First thing you should keep in mind is that equities investment needs high level of capital market knowledge, excellent skill to indentify right investment opportunities and superior expertise to manage investments. Having these skills is not everybody’s cup of tea. However, there are market experts who are skillful in managing investment and also offer their services to layman investors. This is done through an investment tool called Mutual Fund which offers such a mechanism in which experts manage investment for a large pool of small investors. They keep a track of market movement round the clock. Therefore it is best for a new investor to invest in equities through mutual funds. While fund managers work on your investment you can concentrate on increasing your income and savings. With time as your market awareness grows and you become confident about stocks you can start investing directly into equities.

Manage your exposure based on your risk appetite

Even when you invest in equities through MF it does not become completely risk free and will be subjected to market related volatilities. As one should not keep all eggs in one basket similarly even though equities have high return potential, you should not put all your savings completely in equities. You should assess your risk appetite and limit your equity exposure accordingly.

Your ability to take risk will depend upon many factors such as assets, liabilities, income, expenses, future goals, time left to achieve these goals, stability of future income, risk mitigation measures such as insurance and so on. However it will be difficult for you do the exercise of assessing exact risk appetite without a professional financial planner. But there is an alternative in terms of a simple way of doing it. You can follow a thumb rule of measuring your risk appetite. This is called rule of 100. 100 minus your age is your risk appetite. This gives you a broad indication of how much of your savings should go towards equity investment. So if your age is 30 years your risk appetite is 70% so you can investment upto 70% of your savings in equities for long term. Similarly if your age is 50 years you should not invest more than 50% in equities. If your age is 70 years you should not have more than 30% exposure in equities.

Regular Review is a must

Equity Mutual Fund investment is a field in which you cannot rest indefinitely after parking your money. Due to heightened competitions among the established companies and rush among startups jostling to break into the league of successful companies, the scenario may change very quickly. Though you get some sense of relief by investing in MF as you do not have to monitor your investment on day to day basis which otherwise is required in the case of direct stock trading, however you would at least need to review your investment into equity mutual funds on a quarterly basis, which is after interval of 3 months.

Investing in ELSS Tax Saving Mutual Funds - Avoid These Mistakes

Equity Linked Saving Schemes popularly known as ELSSes have off late become one of the most preferred ways of saving income tax under section 80C. The reasons are quite simple and which are favorite to all inventors. This fund comes with least lockin period of 3 years which is lowest among all the tax saving options. On top of that this fund category is known to have generated substantially high return historically. However even a very good plan many times does not work if not executed properly. Similarly there are some very common mistakes which people do and these are very specific to ELSS. These mistakes can potentially harm your investment in big way. Being aware of these mistakes can help you avoid and even rectify them.

1 Considering it same as other tax saving option under section 80C

The first mistake that people do is to consider ELSS investment similar to other section 80C investment options. We come across many people who consider it to be similar to other options like PPF, NSC and Sukanya Samriddhi Yojna. However, the truth is that ELSS has one of the highest levels of risk among all the section 80C investment options. This is an equity investment and carries the risk of volatility and market correction. So you should be aware about this risk before investing. However, if you still decide to invest then you should be prepared to face the corresponding risk also. If you do not want to take any risk then it’s better for you to stick with fixed income products which can give you assured return..

2 Last minute bulk investment

The second big mistake, which most of people do is to invest in last minute. It is an irony that more than half of the ELSS investments are done in the last quarter of financial year from the month of January to March every year. March alone, which is last month of a financial year, contributes more than 20% of all ELSS investment. This is mostly done to utilize the last minute window of tax saving under section 80C.

Bulk investment always comes with the risk of timing the market. It will be sheer luck that you find the timing right but it’s not a method to depend upon. There is good chance that you will end up with wrong timing. It has largely been the case as there were many better investment opportunities than the last 3 months when people typically invest in ELSS. What if the market was at short term peak when you entered, and soon after your investment, it gets corrected? Your loss would be significant and it will take quite a long time for your investment to recover.

SIP or a systematic investment plan is a better way for an average investor to enter the market at regular intervals so that you incur an average cost. Whenever market is high your SIP installments buy lesser units and whenever the market falls it buys more number of units with the same SIP installment amount. So on average it helps you mitigate the risk of timing the market. From the beginning of next financial year you should make sure that you start an SIP quite early.

3 Each year investing into a new ELSSes

The third big common mistake which many people do is to buy too many schemes. This happens because they do bulk investment at the end of the year as said earlier. They remain idle during initial 9 months. Not only this, to use their entire limit of section 80C they divide their bulk investments into 2 to 3 new schemes based on last minute recommendations. As they do it every year, so typically in 5 year time they end up with more than 10 ELSS schemes. This creates the problem of over diversification. Rather than investing and sticking to some better performing plans their investment is scattered all over the places. As a result rather than having high return they end up having an average return. High number of schemes also makes it difficult for you to monitor and review all your investment timely and appropriately. Therefore it would be much better if you can identify one or two right ELSSes and continue with an SIP for longer period so that it takes care of your each year tax saving investment requirement.

4 Going for dividend option

The fourth common mistake which most of the people do is to select the dividend option while investing in ELSSes. This happens because many people try to circumvent the lock-in period. What they want is, while their money is locked in, they can still get some liquidity during the lock in period through the dividend option. Mutual funds do not pay dividends from their own pocket. But they pay dividends only from your money. The money that you get as dividend loses the opportunity to grow with the same return which your locked-in money grows. As a result the maturity amount that you get becomes less attractive. If you go for dividend reinvestment option then it would cause another problem. Each time a dividend is reinvested it gets locked in for next 3 years. Even after long investment you would not be able to withdraw the entire amount at once. It’s better to go for growth option in which your gains keep growing with the rest of the invested money.

5 All ELSS fund are not the same

The fifth common mistake that people do is to consider all ELSS funds as same because all offer the same tax benefit in terms of equity investment and have same lock-in period. However, just because these funds offer similar tax benefit does not necessarily mean that they are same especially in terms of return and risk metrics. Just like other normal equity funds ELSSes may differ widely on account of the kind equities they invest into. Some may be large cap focused with lesser risk some may be midcap oriented with higher risk and other may be small cap focused with highest risk while some may also be multicap focused with moderate risk. Some may focus on another theme of their choice with divergent risk factor. So going just by their return and selecting funds for investment may not be the right way. You need to understand their investment objective and then identify a right fund which matches your investment objective and your risk appetite.

6 Redeeming all funds just after the lock-in

The sixth mistake that people do is to redeem their ELSS investment just after 3 years of investment when the lock-in period gets over. Was your purpose just to save taxes and not to get good return or fulfill a life goal? What if the market has seen some correction or has remained stagnant. You will miss the next surge whenever that will happen. Equity investment is ideal when you remain invested for longer period like starting from 5-7 years to help you accrue a substantial sum of money and meet a major life goal.

ELSS is very good investment option which can help you meet most important financial goals of your life but only when you avoid doing these very common mistakes.

टैक्स सेविंग इन्वेस्टमेंट की कोई जरुरत नहीं

क्या हर साल जनवरी, फरवरी या मार्च में आप टैक्स बचाने के लिए इन्वेस्टमेंट करतें हैं ? क्या आप भी उन लोगों में से एक हैं जो हर साल एक नए टैक्स सेविंग इन्वेस्टमेंट में पैसा लगाते रहते हैं? आपको कैसा लगेगा अगर मैं कहूं कि आपको इससे कोई फायदा नहीं होने वाला | यानि कि आप को इस इन्वेस्टमेंट से टैक्स बचाने की कोई जरुरत ही नहीं है | 

क्या आपने ये मालुम करने  की कोशिश की कि आपको इस इन्वेस्टमेंट की जरुरत है भी की नहीं | जिस सेक्शन 80 C में फायदा पाने के लिए आप ये इन्वेस्टमेंट कर रहे हैं शायद उसकी लिमिट कई अन्य तरीकों से पहले ही पूरी हो चूकी हो, तो आपका टैक्स सेविंग इन्वेस्टमेंट किसी काम का नहीं होगा |

बहुत ही काम लोग सेक्शन 80 C के सारे विकल्पों को जानकर निवेश का फैसला कर लेते हैं | ये इनकम टैक्स का ऐसा प्रावधान है जो डिडक्शन के माध्यम से आपको अपना टैक्सेबल इनकम कम करने में मदद करता है | अगर आपका टैक्सेबल इनकम कम होता है तो जाहिर सी बात है की आपको कम टैक्स भी देना होगा | इसलिए पहले ये समझना ज्यादा जरुरी है कि सेक्शन 80C में आप क्या क्या कर सकते हैं |

इसके तहत आप कुछ चुने हुए इंवेस्टमेंट्स और खर्चो के लिए डिडक्शन का फायदा ले सकते हैं | इसमें ज्यादा से ज्यादा आप हर फाइनेंसियल ईयर में आप डेढ़ लाख रुपये तक का डिडक्शन क्लेम कर सकते हैं | अगर सारे माध्यमों से आप डेढ़ लाख रुपये से ज्यादा पैसा खर्च या इन्वेस्ट करते हैं तो भी आपको डेढ़ लाख रुपये से ज्यादा डिडक्शन का फायदा नहीं मिलेगा |

अगर आप 30 या उससे ऊपर के आयु वर्ग में हैं, तो तो ज्यादा संभावना है कि आपको कोई इन्वेस्टमेंट की जरुरत नहीं होगी | आइये जानते हैं कैसे | अगर आप सैलरीड एम्प्लॉई हैं तो ज्यादा सम्भावना होगी कि, आप अपने बेसिक सैलरी का 12 % EPF में, या 10 % NPS में, निवेश कर रहे होंगे | अगर आप हर महीने 3,000 रुपये EPF में कटवा रहे हों, तो साल भर में ये राशि 36,000 रुपये हो जायेगी | 

सेक्शन 80 C में इन्वेस्टमेंट के आलावा आपको होम लोन के मूल राशि की वापसी पे और बच्चों के स्कूल फी पे भी डिडक्शन का फायदा मिलता है | ऐसे ही अगर आप होम लोन का औसतन 5,000 रुपये हर महीने मूल यानी प्रिंसिपल के रूप में भुगतान कर रहे हों, तो साल भर में ये राशि 60,000 रुपये हो जायेगी | अगर आपके दो बच्चे हैं, जो कि रेगुलर स्कूल जा रहे हों, और आप 2,000 रुपये हर बच्चे की फी भर रहे हों, तो ये राशि साल भर में 48,000 रूपए हो जायेगी |

शुद्ध जीवन बीमा यानी टर्म इन्शुरन्स, जो कि एक इन्वेस्टमेंट  ना होकर केवल एक जीवन बीमा होता है, वो भी आपको सेक्शन 80C का फायदा देता है | अगर आपने इसमें ५० लाख रूपए का लाइफ कवर ले रखा है तो ज्यादा संभावना है कि आप कम से कम 500 रुपये महीना या साल का 6000 रुपये प्रीमियम के तौर पे, भुगतान कर रहे होंगे |

इन सब खर्चों को मिलाके आप 80 C के डेढ़ लाख रुपये का लिमिट आराम से क्रॉस कर जाते हैं | यानी कि अगर आप इससे ऊपर कोई इन्वेस्टमेंट करते हैं तो आपको डिडक्शन का कोई फायदा नहीं होगा |

कुछ लोग जो कि ज्यादा EPF या NPS में योगदान कर रहे हों, वो बहुत पहले ही अपना 80C लिमिट क्रॉस कर जाएंगे | मेट्रो शहरो में रहने वाले ज्यादा तर लोग बच्चो की कहीं ज्यादा स्कूल फी भर रहे होंगे | ऐसे लोगों को भी टैक्स सेविंग इन्वेस्टमेंट की कोई जरुरत नहीं होगी | होम लोन में भी जो लोग ज्यादा बड़ी राशि, EMI में दे रहे होंगे, वो कहीं ज्यादा प्रिंसिपल का भुगतान कर रहे होंगे | 

ये ज्यादा उचित होगा कि आँख मूँद कर हर साल टैक्स सेविंग इन्वेस्टमेंट करने के बजाये आप हिसाब कर ले | इसलिए सबसे पहले आप अपने इन सारे खर्चो और योगदानो को जोड़ ले और तब अगर ये डेढ़ लाख रुपये के नीचे रहता है तभी टैक्स सेविंग इन्वेस्टमेंट की सोंचे |

टैक्स सेविंग इन्वेस्टमेंट कोई नुक्सान पहुंचाने वाली चीज नहीं है लेकिन फिर भी आपको हर इन्वेस्टमेंट एक सही मकसद एवं सही अनुशासन से  करना चाहिए तभी ये आपको आपके लक्ष्य की प्राप्ति करने में मददगार साबित होता है |

Pay no income tax on Rs 12.75 lakh of income

Do you know that, with new budget proposals, there will be no tax if your taxable income is Rs 5 lakh, but wait, even with higher income of Rupees 12 lakh 75 thousand, you can end up paying no income tax at all.

Budget 2019 has brought many things to cheer about but the most important thing which people look is whether they would be able to save more income tax or not?

This year, the answer is yes, if your taxable income is less than Rupees 5 lakh you will not need to pay any income tax. This has become possible with the section 87A rebate which has been raised from Rupee 2,500 to Rupees 12,500.

But if your taxable income is above Rupees 5 lakh there is not much to help you in saving any significant amount of income tax.

However, one advantage which all salaried taxpayers will get is - increase of standard deduction from Rupees 40,000 to Rupees 50,000.

You can save tax on higher income

But what if I tell you that you can end up paying no income tax even with much higher income? Yes, that is very much possible with usual spending and investing actions. Income tax law allows you to claim many rebates, exemptions and deductions for the expenses incurred for various purposes. And if you happen to be eligible for these benefits you may save substantial income tax.

Let us see how it works. The budget proposals will kick in next year so new benefits can be claimed only for the income earned during next financial year starting from April this year.

To understand it better, let us first see, even this year, how these exemptions, rebates and deductions can save your income tax on much higher salary income.

For your income earned during current financial year 2018-19 you can avoid paying even a single penny of income tax if your income is even this year 8 lakh15 thousand and you happen to tick the right boxes.

Here are all the deductions that you can easily get

ü Standard deduction of Rupees 40,000
ü Section 80C deduction of Rupees 1.5 lakh
ü additional deduction of Rupees 50,000 on NPS investment
ü on  home loan interest of Rupees 2 lakh
ü on health insurance premium of Rupees 25000 for self, spouse and children
ü and health insurance premium of Rupees 50,000 paid for senior citizen parents

All these deduction add up to Rupees 5 lakh 15 thousands. So if your annual earnings from salary is Rupees 8 lakh 15 thousand and you apply a deduction of Rupees 5 lakh 15 thousand, your taxable income will reduce to Rupees 3 lakh. At this income you would have needed to pay a tax of Rs 2,500. However, Income upto Rupees 3.5 lakh makes you eligible for section 87A rebate of upto Rupees 2,500.  So after applying this rebate your payable tax is reduced to zero.

Much higher saving with Budget 2019

With budget 2019 proposal you will end up paying nill tax even on a higher income of Rupees 10.25 lakh. This will be possible because of enhanced standard deduction of Rupees 50,000 and section 87A rebate of Rupees 12,500 which will kick in next year.

If you meet all the deduction requirements then you would be eligible for a total deduction of Rupees 5 lakh 25 thousand.This will bring down your income of Rupees 10 lakh 25 thousand to Rupees 5 lakh. As next year, due to higher rebate up to income of Rupees 5 lakh, you will not be needed to pay any tax.

No tax even on Rs 12.75 lakh income

What if we tell you that you can pay zero tax even on much higher income? Yes, that’s true there are few more avenues left with which you can save more. As like in the current case of Rupees 10 lakh 25 thousand income if you meet all these deduction requirements then you can pay nill tax on income of even Rupees 12.75 lakh. But this will differ on case to case basis. One avenue is deduction for interest paid on education loan under section 80E. So if you are paying around Rupees 1 lakh of interest on account education loan for yourself or your child, then you can claim it as deduction.

The additional exemption through HRA

The next significant tax saving avenue is House Rent Allowance even when you have a self occupied house. As we have already calculated home loan interest for a self occupied property so HRA benefit will come with certain conditions. You can claim HRA benefit only when you have a self occupied house with active home loan in a different city but you are living on rent in the city of your work.

So if you can get an exemption of Rupees 1.5 lakh on account of HRA then your total additional deduction would be Rupees 2 lakh 50 thousands. Therefore you will pay no tax on the income Rs 12 lakh 75 thousands.

PPF से कैसे बने करोड़पति?

Public Provident Fund यानी कि PPF ना सिर्फ एक लोकप्रिय टैक्स बचाने वाला Product है बल्कि ये एक बेहतरीन निवेश का भी माध्यम है| विशेषकर उन निवेशकों के लिए जो share market के जोखिम से दूर रहकर fixed income प्रोडक्ट में निवेश करना पसंद करते हैं| ये बात बहुत ही काम लोगों को मालुम होगी कि PPF में निवेश करके आप करोड़पति भी बन सकते हैं|

विश्वास नहीं होता न ?

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PPF सर्वश्रेष्ठ कैसे?

 सबसे पहले ये जानते हैं की PPF एक बेहतरीन टैक्स सेविंग फिक्स्ड इनकम प्रोडक्ट, है क्यों? पहली बात तो, भारत सरकार की बैकिंग होने से, PPF सबसे कम जोखिम वाला प्रोडक्ट बनता है| फिक्स्ड इनकम वाले सुरक्षित विकल्पों में ये सबसे ज्यादा ब्याज देने वाले प्रोडक्ट्स में से एक प्रोडक्ट है| डेढ़ लाख तक का PPF निवेश हर फाइनेंसियल ईयर में Section 80C में टैक्स बचाने में मदद करता है| यही पैसा अगर आप बैंक के फिक्स्ड डिपाजिट में लगाएंगे तो ब्याज की आमदनी पर आपको टैक्स देना पड़ेगा| लेकिन PPF में निवेश अवधि के बाद आपको जो maturity अमाउंट मिलता है वो भी पूरी तरह से टैक्स फ्री होता है| लम्बी अवधि में कम्पाउंडिंग के जादू से ये आपके निवेश को चक्रवृद्धि दर से जबर्दस्त तरीके से बढ़ाता है|

उठायें लम्बी अवधि का फायदा 

वैसे तो PPF एक लम्बी अवधि का निवेश है जिसमे आपको कम से से कम 15 साल तक निवेश करना पड़ता है| लेकिन आप इस 15 साल के बाद भी चाहे तो अपने पैसे को ना निकालकर उसे बढ़ने के लिए छोड़ सकते हैं| PPF में हर साल - जो की फाइनेंसियल ईयर होता है - आपको कम से कम 1000 रुपये निवेश करने होते हैं| ज्यादा से ज्यादा भी हर फाइनेंसियल ईयर में आप डेढ़ लाख रुपये - जो की सेक्शन 80C की लिमिट है - आप निवेश कर सकते हैं| अगर आप अनुशासित तरीके से लगातार निवेश करते रहते हैं तो इस लम्बे समय में आपका निवेश कई गुना बढ़ जाता है| 

आइये जानते हैं कैसे| 

अगर आप मैक्सिमम राशि के लिए जाते हैं और मासिक निवेश का रास्ता चुनते हैं| तो हर महीने आपको 12500 रुपये अपने PPF अकाउंट में जमा कराने होंगे| अगर ये निवेश आप 15 साल तक जारी रखते हैं और ब्याज दर अगर अभी के ब्याज दर के बराबर रहता है जो कि 8.1% है तो 15 साल बाद आप जो राशि पाएंगे वो होगी 45 लाख 4 हज़ार रुपये|

आपको ये महत्त्वपूर्ण बात बता दे कि पिछले तीस सालों में PPF का न्यूनतम ब्याज 7.6 प्रतिशत के नीचे नहीं गया और ज्यादातर 9% के ऊपर रहा है| तो आप समझ सकते है की ये बढ़त कम से कम है|

लेकिन एक करोड़ कैसे ?

लेकिन फिर भी आपके लिए ये यकीन करना मुश्किल होगा की ये राशि एक करोड़ कैसे बन सकती है| तो लीजिए हम आसान कर देते हैं आपकी मुश्किल| 

PPF निवेश में एक विकल्प - जैसा कि  मैंने पहले बताया - ये भी होता है की 15 साल की परिपक्वता के बाद भी आप चाहें तो अपना पैसा निकालने के बजाये उसीमे निवेश करना जारी रख सकते हैं| ये रकम भी लगातार PPF के ब्याज दर से बढ़ती रहती है| तो अगर आप इस निवेश को अगले आठ साल तक जारी रखें तो ये बढ़ कर बन जायेगी –

जी हाँ - पुरे एक करोड़ चार लाख रुपये| यानी की आप मात्र 12500 रुपये हर माह निवेश करके अगले 23 साल में करोरेपति बन सकते हैं|

केवल 15 साल निवेश करके एक करोड़ 

अगर आप 15 साल बाद मासिक निवेश को रोकना चाहे तो रोक कर भी आप करोरेपति  सकते हैं| बस थोड़ा समय ज्यादा  होगा इसको बढ़ने के लिए| जैसा की विकल्प है आपको जमा राशि 15 साल बाद निकालनी नहीं है| इसको PPF में ही छोड़ दे बिना कोई अतिरिक्त निवेश के| अगर PPF का ब्याज मौजूदा 8.1% या उससे ऊपर  बना रहता है तो केवल अगले दस साल तीन महीने में राशि 1 करोड़ हो जायेगी| 

ये पावर ऑफ़ कम्पाउंडिंग का कमाल है जिसमे ज्यादा  वक्त देने पर आपकी लम्बी अवधि का निवेश आखिरी सालों में बहुत ही तेजी से बढ़ता है| आप अपने बच्चे के भविष्य के लिए जैसे की उच्च शिक्षा, कारोबार या शादी या अपने खुद के रिटायरमेंट के लिए| 

PPF के माध्यम से 23 से 25 साल में एक करोड़ रुपये जमा कर सकते हैं बशर्ते आप शुरुआत जल्दी करें|

HRA Income Tax Saving Simplified

Each year January is the month, when most of the salaried employees get reminders from their HR team for submission of income tax proof. Most of the self employed people, on the other hand, are reminded about the same by their Chartered Accountants

This is the time when individual tax payers make last minute attempt to save whatever income tax they can. While you are doing your tax saving calculation, we will tell you about the important ways through which you can save maximum amount of tax.

House Rent Allowance is one of the most important tax saving tool that helps many people save significant amount of tax. However, most of the people get confused as how much they can save through HRA

Do not worry. In this blog, we explain to you the simplest way to calculate your tax saving through HRA, which will help you in managing your tax savings this year.

In order to keep getting such important information related to your day to day personal finance need, please subscribe to our blog.

City of residence

Before getting into calculation part first thing you need to understand is importance of city of residence.

The city of your residence matters because the quantum of HRA exemption allowed is linked to this.

If you are living in any of the four metro cities like Delhi, Mumbai, Kolkata or Chennai, the maximum HRA that is exempted is 50% of the sum of your basic salary and dearness allowance.

However, if you are living in any place other than these metro cities then the maximum HRA that is exempted is 40% of the sum of your basic salary and dearness allowance.

Next thing that we will need is to verifying your salary slip

HRA must on salary slip

Just by being a salaried employee and paying a rent does not automatically makes you eligible for the HRA exemption.

For being eligible for this income tax exemption the HRA must be a part of your salary.

To verify this you must look at your salary slip whether it clearly states the HRA amount on it.

Many people working on consultancy basis or on contract do not get HRA so they cannot claim this exemption.

The calculations

Now we can move on to understand as how much of your HRA actually is exempted from tax

Any amount that is written on your salary slip as HRA does not automatically qualify for full exemption as there is a method to calculate HRA exemption limit.

Let me now explain how it works. It is actually a three step process

Under the first step you need to keep the amount of HRA that you actually receive as part of your salary. It is subjected to maximum limit of 50% or 40% of basic salary plus DA based on your city or residence as I explained earlier.

For Instance if you are living in a metro city like Delhi then you can have 50% of your basic salary plus DA as HRA. So if you actually receive a higher amount, then you should calculate only the 50% as eligible amount under this step. In our case we have taken Rupees 1.8 lakh as HRA which is also equal to the maximum amount of 50% eligible based on city of residence.

In the second step you need to determine the actual rent paid by you. This does not include any maintenance charges or charges for electricity, water, security and other services. In our case we have taken the actual rent to be Rupees 12000 monthly which comes out to be Rupees 1.44 lakh annually.

In the third step you need to first find out 10% of your basic salary plus DA. In our case as the annual basic salary plus DA is Rupees 3.6 lakh therefore its 10% comes out to be Rupees 36000.

Now we have to deduct this amount from the actual rent to get the amount of rent paid in excess of 10% of your basic salary plus DA. In our case when we deduct Rupess 36000 from Rupess Rs 1.44 lakh we get the amount as Rupees 1.08 lakh.

The least amount among these three steps is the amount of HRA that is exempted from income tax.

So in our case among the three amounts of Rupees 1.8 lakh of HRA received, Rupees 1.44 lakh of actual rent paid and Rs 1.08 lakh as excess rent paid as more than 10% of your basic plus DA the least amount is Rupees 1.08 lakh.

Therefore your exempted HRA amount is Rupee 1.08 lakh. So you will have to pay income tax on remaining HRA amount of Rs 36000 as it will become part your taxable income.

The Documentation

Once you have determined your exempted HRA amount you would need to arrange the desired documents to claim your HRA exemption.

If you are paying less than or equal to Rs 3000 per month as rent then only a declaration from you about the same would be sufficient.

If you are paying a rent above Rupees 3000 per month but less than Rupees 8333 then you would need to submit at least quarterly rent receipts for each quarter.

In case you are paying a monthly rent above Rs 8333 that is more than Rupees 1 lakh in a year then besides at least quarterly rent receipts you would also need to get the copy of PAN of your landlord and submit it for claiming HRA exemption.

However, if you are paying a monthly rent which is more than Rs 50000 then you would need to deduct a TDS at the rate of 5% and submit it with tax authorities and get a challan for it. For claiming HRA exemption you would need to furnish this challan with all the rent receipts.

No HRA as salary

What if you do not receive HRA as part of your salary? You would not be eligible to claim the exemption from tax for paying your house rent under the section 10 (13A) of the income tax act.

There is a way

So is there a no way you can get some relief for paying house rent? The good news is that yes you have a way to get some tax relief under section 80GG of the income tax act. Under this you can claim a maximum HRA deduction upto Rupee 5000 per month or Rupees 60000 in a year.

जानिये पैसे दोगुने होने का वक्त - 72 का फार्मूला

निवेश के क्षेत्र में सबसे महत्त्वपूर्ण बात होती है| अपने लक्ष्य  के लिए सही राशि का अनुमान एवं बचत की सही दर का अंदाजा होना| आज हम ऐसे आसान तरीके बताएँगे जिससे आप ये काम बहुत ही आसानी से कर सकते हैं| ऐसी ही महत्त्वपूर्ण जानकारी पाते रहने के लिए हमारे ब्लॉग को सब्सक्राइब करना न भूलें| अपने विचार कमेंट करके हमें बताएं| 

  

भविष्य के लिए सही राशि का अनुमान लगाने के लिए सबसे पहले आपको निवेश का समय चुनना होगा| उदहारण के लिए अगर आप अभी अभी माता या पिता बने  हैं तो पहली चिंता होगी अपने बच्चे के भविष्य के लिए अच्छी राशि जमा करना| ये राशि हो सकती है अछ्छी उच्च शिक्षा के लिए अपना नया  कारोबार शुरू करने के लिए या धूम धाम से शादी करने के लिए|

72 के फॉर्मूले को आप इस वीडियो से भी समझ सकते हैं | 

वजह जो भी हो सबसे कठिन काम हैं अंदाजा लगाना की जब आपका बच्चा 18 साल का या 21 साल का या 25 साल का होगा तो आपको कितने पैसे के जरुरत होगी| तो लीजिये हम आसान कर देते हैं मुश्किल| सबसे पहले तरीका है बहत्तर का फार्मूला| क्या है ये बहत्तर का फार्मूला?

इस फॉर्मूले के लिए आपको जरुरत है किसी निर्धारित चीज की आज के कीमत, उसके बढ़ने की दर और उसमे लगने वाला समय| जिस कोर्स में आप अपने बच्चे का दाखिला करवाना चाहते हैं अगर उसका फी आज 5 लाख रुपये है तो 8 प्रतिशत महंगाई की वजह से 18 साल बाद ये कितनी राशि होगी ?

कीमत के वृद्धि दर या ब्याज के दर से 72 को विभाजित करें| विभाजन के बाद जो परिणाम बताता है किसी राशि को दोगुना होने में लगने वाले समय को|

अगर वृद्धि या ब्याज दर 6% है तो 72 को 6 से विभाजित करने पर 12 मिलेगा|

अगर वृद्धि या ब्याज दर 8% है तो 72 को 8 से विभाजित करने पर 9 मिलेगा|

अगर वृद्धि या ब्याज दर 9 % है तो 72 को 9 से विभाजित करने पर 8 मिलेगा|

अगर वृद्धि या ब्याज दर 10% है तो 72 को 10 से विभाजित करने पर 7.2 मिलेगा|

आने वाला परिणाम ही पैसे दोगुने होने में लगने वाला समय है.| इस फॉर्मूले का इस्तेमाल आप अपने फिक्स्ड डिपाजिट के दोगुने होने में लगने वाला समय निकालने में भी बड़ी आसानी से कर सकते हैं |