What budget 2011 means for you? – I

February 28th 2011 was the day when finance minister Pranab Mukherjee announced his budget for the financial year 2011-12. Here are some of the propositions announced and their impact on your personal finances.

  • Increase in tax exemption limits by mere Rs 20,000 and : This means you will be saving just Rs 2060 across all the income categories and a mere Rs 1030 for senior citizens.
  • Senior citizen age set at 60 years: This is good for you if your age is between 60-65, as previously the age limit for senior citizen was 65 years.
  • No tax for senior citizens whose income limit is Rs 5 lakhs above 80 years: Excellent news for senior citizens with annual income of Rs 5 lakhs and whose age is more than 80 years, as they don’t have to pay any tax on their income.
  • Insurance products become expensive: FM has increased tax on insurance products that are primarily meant for investment. While originally you paid 1% as tax on insurance premium, now it has gone up to 1.5%. This means you will get lower returns from your insurance products. Also if you have invested in ULIPs, be ready to shell out more. Till date, you paid tax only on the fund management and mortality charges. But now you will also end up paying tax on allocation charges as well as administration charges.
  • Tax benefits on infra bonds to continue: Till now, you could save extra Rs 20,000 in addition to Rs 1 lakh by investing infra bonds. You can continue to enjoy this benefit even further.
  • No need to file tax returns if your salary is up to Rs 5 lakhs: This will bring cheer to plenty of salaried people, whose income lies between Rs 1 lakh to Rs 5 lakh. But if you have income from other sources like dividends, rent, interest etc., you’ll have to inform about the same to your employer. He will then issue you with a Form 16, which the government will regard as IT return.
  • Introduction of Sugam: Sugam is the new form the government plans to introduce in order to simplify the procedure of filing your tax returns. It is being done to promote electronic filing of tax returns along with payment.  

 

This is all about the effect of budget on the direct taxes. Next time we’ll see its effect on indirect taxes.

5 tips for successful tax planning

The season for tax planning is already upon us. 31st March is the deadline by which we all have to file our tax returns. Unfortunately most people wait for the deadline to loom large over their heads before they  start their tax planning. In the process, what they do is they invest in the first available tax saving avenues without looking at the returns generated by those avenues. As a result, while they do save tax, they end up getting poorer. So if you want to enjoy the best of both the worlds, here are some tips you need to follow.

  • Find out your requirements. Are they short-term or long-term? If it is short-term, then your better options are post office savings, ELSS and government bonds. For long term savings, you can opt for insurance policies, PPF tax-saving bank deposits and infrastructure bonds.
  • Are you looking for high returns? Do you have a high risk-taking ability? Then ELSS and ULIPs are your best bet. Otherwise stick to good old PPF, other insurance policies, bank deposits and bonds.
  • Are you looking to make a single payment at a single shot or make frequent payments? In case of the latter, opt for PPF or ELSS, where you can make payments at regular intervals. If not, go for bank deposits, bonds or post office deposits. However when it comes to investing at periodic intervals, ensure you complete the entire investment before the year end in order to avoid paying the tax.
  • Get all the knowledge abou the products you are investing in. E.g. many people think ELSS and ULIPs need to be held only for 3 years. But this is not true as these products are dependent on the markets. So if the markets are high at the time of investing, it may so happen they may have crashed at the end of the holding period. So at that time you may find you have been stting on the loss and so may have to hold on to the investment for a long time.
  • There are other factors that should be considered when deciding on the investment. E.g when selecting ELSS or ULIPs, you need to take into account the past performance and the fund management experience. In case of ULIPs particularly, charges play a determining factor in deciding the selection of ULIPs.

 

Once you can do that, you can get an investment mix offering you high returns.

Continue reading 5 tips for successful tax planning

Tips to lower your car insurance

Can you imagine a life without a car in modern times? Today having a car is a must for everybody. But owning a car also comes with its share of expenses. One of the major expenses associated with a car ownership is the car insurance. As it is an expense, it makes sense to reduce your premium amount. Here are few tips to lower your car insurance.

• Avoid certain cars like Qualis, Sumo and Tavera as they are used mostly for commercial purpose. Hence they attract higher premium for car insurance, even if you are buying them for your personal use.
• Always go for petrol engine, instead of diesel, LPG or CNG engine, as they attract 10-15% more premium. Similarly engines whose body is made from fibre have higher premium than those made by the metal.
• Include safety devices like seat belts, air bags etc. These devices will not only save you in case of accident, but will also lower your insurance premium.
• Reduce the number of accessories like audio, systems, air conditioning fitted to your car. These accessories do increase your insurance premium.
• Your profile also pays a vital role in determining your insurance premium. If you have ever been in an accident, your premium amount will go up.
• Shop around for good bargains, as different insurers offer different rates for the cover.
• Imported cars attract higher premium than the indigenous cars. This is because spares for imported cars are very expensive.

These tips will go a long way in saving you money on your insurance premium.

How to decide whether to purchase insurance from an insurance agent or your bank?

Today banks have ventured into other financial products, besides the traditional banking. This includes insurance as well. So you are now in a dilemma whether to buy insurance from your bank or an insurance agent. Well, here are the pros and cons of both the methods.

Pros:

  • Convenience: Your bank offers you lot of convenience like minimal paperwork and direct debit as they have all your personal data, and access to your bank account. This is not possible with an insurance agent.
  • Consolidated portfolio: You can get a consolidated overview of your portfolio, including your savings account, loans, insurance and investments. This helps you get a clearer picture of your finances, which is not possible with an insurance agent.
  • Customized products: Nowadays, insurance companies are offering insurance products specifically designed for the bank’s customers. This will help you get a good deal. You will not get any such deal with an insurance agent.

Cons:

  • No personalized service: The bank will not come over to your door to fill the forms and collect payment. It will just set up a direct debit on your account and it is your responsibility to ensure that there are sufficient funds in your account.
  • Lack of trust: There is a good rapport between you and your insurance agent. This is not possible in case of the bank.
  • Poor range of options: Many banks offer limited range of insurance products. But an insurance agent can offer you a wide array of products.

So weigh the pos and cons of both the alternatives before buying your insurance.

How to invest for people in their 20s

Raju is an engineering graduate working in an MNC. He earns Rs 50,000 a month. His company has given him a platinum credit card that allows him to spend as much as he desires. Raju takes full benefit of this card and spends all his monthly income on clothes, mobiles and eating out. He has totally ignored the concept of investing.

So if you are in this situation, here is how to invest if you are in your 20s.

  • Buy a health insurance: Today health care has become expensive. A simple visit to a doctor can set you back by as much as Rs 500. Hospitalization, medicines, medical examinations have all gone up. This is where having a good health insurance helps. Besides paying for any health expenses, you’ll also save money on premium, if you start early. It also gives you tax benefit under section 80-D.
  • Invest in equity mutual funds: Equities are the best bet to make money and become wealthy over a long haul. Also earlier you start you can get more by investing smaller amounts due to the power of compounding. Moreover in your young age, you have higher risk appetite, thus allowing you to go for aggressive investments. But a word of caution: DON’T GAMBLE OR SPECULATE.
  • Buy your own home: Earlier you buy your home, sooner you’ll find you have exhausted repaying the loan. E.g. if you take a home loan of 20 years, when you are 25, you’ll find you are debt-free by the time you reach 45. This means you’ll be debt-free by the time you retire.

These are some of the useful investment option for people in their 20s. follow them and you’ll grow healthy and wealthy in your old age.

Tips to select right medical insurance

The adage “Health is Wealth” is true. A couple of days in hospital will set you back by few lakhs of rupees and long-term illness can end up messing around with your finances Hence it is important for you to take care of your health by eating healthy, exercising and insuring it by buying a medical insurance. Here we discuss more about this type of insurance.

What is medical insurance?
Medical insurance is the insurance that compensates you for expenses incurred during hospitalization to treat the ailments suffered or accidental injuries experienced when the policy is in force. It means the insurance company bears the hospitalization expenses that you have to bear during the term of the policy.

Premium
To enjoy this benefit, you have to pay a certain sum as premium. Premium is computed using factors such as your age and health. As you grow older, the premium you pay goes up. However if you have not claimed any compensation and your policy is old, you can enjoy the benefit of either higher insurance cover without paying anything extra or by reducing the premium for later years.

Extra benefits
If you take medical insurance for your whole family, instead of only for yourself, you can get good discounts. Also since many insurance companies are offering the provision of cashless hospitalization by joining hands with third party administrators (TPAs), you don’t have to make any payment to avail of the medical treatment. Alternately, you can avail of the treatment, pay for it and then claim this amount from the insurance company.

Tax benefits
The premium paid is qualified for a subtraction from gross total income, and is Rs 20,000 for senior citizens and Rs. 15,000 for others.

Why be an early bird?
Earlier you take the insurance cover, the better as you can benefit from lower premium, since you are healthy and don’t suffer from any diseases. Most medical insurance products do not cover the existing ailments and so you can easily get a cover if you start early. Also medical check up becomes unnecessary at this time.

Points to consider when taking medical insurance:

  • Find out which illnesses are exempted.
  • Find out if the insurance cover pays for injuries caused by war, riots and terrorism.
  • Find out the diseases that are excluded during the initial policy period.
  • Find out if the policy offers cashless hospitalization and the hospitals that provide you with this facility.
  • What is the compensation offered for disability (partial and complete)
  • For dependents, find out the highest age for availing the cover.
  • Be aware of the benefits you are eligible for, if you don’t file a claim.
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