All about ULIPs

As I mentioned in my earlier post, ULIPs are more insurance kinda thing than an investment option. So if the motive is to invest NEVER opt for ULIP due to its heavy charges and load structure, but if you are looking for an insurance plan then ULIP is best to get investment benefit too. Also, ULIPs are helpful only in long term plan. Most ULIPs return in negative in case of withdrawl before 5 ( or 7 sometimes) years coz of two fold reason
1. Heavy changes imposed
2. withdrawl penalty

Although ULIPs offered by different insurers have varying charge structures broadly, important charges that you should know are -

Policy administration charges - These charges are deducted on a monthly basis to recover the expenses incurred by the insurer on servicing and maintaining the life insurance policy like paperwork , work force etc.

Premium allocation charges These charges are deducted upfront from the premium paid by the client. These charges account for the initial expenses incurred by the company in issuing the policy- eg. Cost of underwriting, medicals & expenses related to distributor fees. After these charges are deducted the money gets invested in the chosen fund. eg, the allocation charges may be 60% or 70% which directly means that if you are paying Rs. 100 to insurer, only Rs. 40 or Rs. 30 is going in your account and rest is commission.

Mortality charges Mortality expenses are charged by life insurance companies for providing a life cover to the individual. The expenses vary with the age and either the sum assured or the sum-at-risk which is the difference between sum assured and fund value of the insurance policy of an individual. Mortality charges are deducted on a monthly basis.

Fund management charges A portion of the ULIP premium, depending on the fund chosen, is invested either in equities, bonds, g-secs or money market instruments. Sometimes it is a combination of these. Managing these investments incurs a fund management charge (FMC). The FMC varies from fund to fund even within the same insurance company depending on the underlying assets in the fund. Usually a fund with higher equity component will have a higher FMC

The important thing to note about ULIPs is that the overall charge structure for the plan comes down substantially over a long term. However it may be noted that insurers have the right to revise fees and charges over a period of time. Better is to have a close look at the terms and conditions. Also, most agents also make fake promises at the time of selling policy, so better is to ask evidence of whatever he promised before entering into transaction. You can do some bargain too with the agent, if you have done some research for other ULIP products.

Permanent Account Number (PAN)

Permanent Account Number (PAN) refers to a ten-digit alphanumeric number, issued in the form of a laminated card, by the Income Tax Department in India. It is a must to have a PANnumber for all those who file their income tax returns, because from 2005 onwards, it has been made mandatory by the Income Tax Department to quote the PAN on return of income as well as on all correspondence with any income tax authority in the country.

Also, it is now compulsory to quote PAN in all documents pertaining to financial transactions notified from time to time by the Central Board of Direct Taxes, such as sale and purchase of immovable property or motor vehicle or payments in cash, of amounts exceeding a certain limit to hotels and restaurants, or in connection with travel to any foreign country. It is also mandatory to mention PAN for obtaining a telephone or cellular telephone connection. Likewise, PAN has to be mentioned for making a time deposit exceedingRs. 50,000/- with a Bank or Post Office or for depositing cash of Rs. 50,000/- or more in aBank.

How to apply for a PAN ?

(Manual Application)
Applying for PAN is a simple and convenient procedure. All you need to do is submit the application form 49A . The PAN application can also be downloaded from the website of UTI Investor Services Ltd (the authorised agency to manage IT PAN service Centres in various cities) or from the website of National Securities Depository Ltd (NSDL) or printed by local printers or photocopied (on A4 size 70 GSM paper) or obtained from any other source. The form is also available at IT PAN Service Centres and TIN Facilitation Centres.
You will need a recent colour photograph (stamp size: 3.5 cm x 2.5 cm) to attach on the form. You must mention the designation and code of the concerned Assessing Officer of theIncome Tax department in Form 49A. You can get this from the IT PAN Service Centresmentioned in the websites listed above. Also, the application shall have to be accompanied by a proof of identity as well as a proof of residence.
The filled application form has to be submitted at your nearest IT PAN Service Centre orTIN Facilitation Centre along with the requisite fee (INR 95 currently) . The location of such centres can be searched online by using the facility given below :
- IT PAN Service Centres (http://www.utitsl.co.in/pan/search.php)
- TIN Facilitation Centres(http://www.tin-nsdl.com/TINFaciliCenter.asp)

(Online Application)

Applications for fresh allotment of PAN can also be submitted through the Net. Further, requests for changes or correction in PAN data or a request for a newPAN card (for an existing PAN) may also be made through the Internet (https://tin.tin.nsdl.com/pan/index.html). If an application for allotment of PAN is submitted through theInternet and payment made through a 'nominated' credit card, the PAN is allotted on priority and communicated through email.
To track PANcard application status visit https://tin.tin.nsdl.com/tan/StatusTrack.html. A complete application with paper work & successful payment usually takes 7-10 days for a PAN card to be recieved.

For more details visit http://www.tin-nsdl.com .

Govt has decided to follow biometric identifications for new PAN card applicants from Jan 2011. So as of now, its not required to visit NSDL centers to apply a PAN card but from Jan'2011 onwards, it would be mandatory.

All about Provident Fund

What is Provident Fund (PF)?
The Employee Provident Fund(EPF), or provident fund as it is normally referred to, is a retirement benefit scheme that is available to salaried employees.
Under this scheme, a stipulated amount (currently 12%) is deducted from the employee’s salary and contributed towards the fund. This amount is decided by the government. The employer also contributes an equal amount to the fund. However, an employee can contribute more than the stipulated amount if the scheme allows for it. So, let’s say the employee decides 15% must be deducted towards the EPF. In this case, the employer is not obligated to pay any contribution over and above the amount as stipulated, which is 12%. If you urgently need the money, you can take a loan on your PF. You can also make a premature withdrawal on the condition that you are withdrawing the money for your daughter’s wedding (not son or not even yours) or you are buying a home. To find out the details, you will have to talk to your employer and then get in touch with the EPF office (your employer will help you out with this).

Return on Investment
Interest will be calculated for the amount deposited into the PF scheme. The rate of interest is 8.5% at present, this rate will be decided by the govt. on the budget times. The interest payable also will be added into the PF amount.

Tax Exemption on PF
The amount you invest is eligible for deduction under the Rs 1,00,000 limit of Section 80C. If you have worked continuously for a period of five years, the withdrawal of PF is not taxed. If you have not worked for at least five years, but the PF has been transferred to the new employer, then too it is not taxed. The tenure of employment with the new employer is included in computing the total of five years. If you withdraw it before completion of five years, it is taxed. But if your employment is terminated due to ill-health, the PF withdrawal is not taxed.

What is Form 13?
Form 13 is used for transferring your PF account from one employer to the another employer. You can download the form 13 from http://www.epfindia.nic.in/forms/13revised.PDF. Just fill up with required deatils and submit to your present employer. Your present employer will complete it and then will send to your previous employer who will initiate the transfer.

Some Employers maintain EPS & PF as two different accounts and some only PF account. So when you need to mention the EPS account number in the PF transfer form itself while initiating the transfer.

80C tools explored

These tools you can use to get a quick idea of what to do & how to do for 80C deductions. For details, just ping me up.

Equity Linked Savings Scheme (ELSS) - Some mutual fund (MF) schemes specially created for offering you tax savings, are called Equity Linked Savings Scheme, or ELSS. The investments that you make in ELSS are eligible for deduction under Sec 80C. Most popular are - SBI Magnum Tax gain, BNP paribas Tax saver, Canara Robecco Tax saver etc.
Recommendation - It's famous for its good returns but as it's totally dependend on share market, its more risk prone too. So the point here is, if you can invest some time into share market too, this is one of the best option for tax saving. Best thing here is unlimited profit & unlimited loss.

Provident Fund (PF) & Voluntary Provident Fund (VPF) - PF is automatically deducted from your salary (currently 12%). Both you and your employer contribute to it. While employer’s contribution is exempt from tax, your contribution (i.e., employee’s contribution) is counted towards section 80C investments. You also have the option to contribute additional amounts through voluntary contributions (VPF). Current rate of interest is 8.5% per annum (p.a.) and is tax-free if withdrawn after 5 years.
Recommendation - The usual way of regular savings. Better to go for default PF percentage deduction only. Best thing in this is, its risk free & assured returns kind of thing.

Public Provident Fund (PPF) - Among all the assured returns small saving schemes, Public Provident Fund (PPF) is one of the best. Current rate of interest is 8% tax-free and the normal maturity period is 15 years. Minimum amount of contribution is Rs 500 and maximum is Rs 70,000. A point worth noting is that interest rate is assured but not fixed. You can go to post office or bank ( SBI & Allahabad bank) to open one for you
Recommendation - If you feel yourself cool while dealing with Govt banks/offices staff, or luckily you have a nearby SBI branch where at least one employee is happy with his/her job or like your face to the extent that he/she can listen to you, go for it.

Life Insurance Premiums - Any amount that you pay towards life insurance premium for yourself, your spouse or your children can also be included in Section 80C deduction. Please note that life insurance premium paid by you for your parents (father / mother / both) or your in-laws is not eligible for deduction under section 80C. If you are paying premium for more than one insurance policy, all the premiums can be included. It is not necessary to have the insurance policy from Life Insurance Corporation (LIC) – even insurance bought from private players can be considered here. Here you can also go for ULIPs. ULIP is again a share market linked plan so you need to keep a watch on the NAVs. ULIP stands for Unit linked Saving Schemes. ULIPs cover Life insurance with benefits of equity investments.They have attracted the attention of investors and tax-savers not only because they help us save tax but they also perform well to give decent returns in the long-term.
Recommedation - Opting to it means you are more intrested in insurance than savings. Also, make sure you have read all terms & conditions before investing coz it also attracts heavy charges (mostly in ULIP).

Home Loan Principal Repayment - The Equated Monthly Installment (EMI) that you pay every month to repay your home loan consists of two components – Principal and Interest.The principal component of the EMI qualifies for deduction under Sec 80C. Even the interest component can save you significant income tax – but that would be under Section 24 of the Income Tax Act. Please read “Income Tax (IT) Benefits of a Home Loan / Housing Loan / Mortgage”, which presents a full analysis of how you can save income tax through a home loan.
Recommendation - Obviously go for it, if you are elegible.

National Savings Certificate (NSC) - National Savings Certificate (NSC) is a 6-Yr small savings instrument eligible for section 80C tax benefit. Rate of interest is eight per cent compounded half-yearly, i.e., the effective annual rate of interest is 8.16%. If you invest Rs 1,000, it becomes Rs 1601 after six years. The interest accrued every year is liable to tax (i.e., to be included in your taxable income) but the interest is also deemed to be reinvested and thus eligible for section 80C deduction.
Recommendation - Again, its a slow way of growth. totally your call.

Infrastructure Bonds - These are also popularly called Infra Bonds. These are issued by infrastructure companies, and not the government. The amount that you invest in these bonds can also be included in Sec 80C deductions.

Pension Funds – Section 80CCC - an investment in pension funds is eligible for deduction from your income. Section 80CCC investment limit is clubbed with the limit of Section 80C – it maeans that the total deduction available for 80CCC and 80C is Rs. 1 Lakh.This also means that your investment in pension funds upto Rs. 1 Lakh can be claimed as deduction u/s 80CCC.
Recommendation - same as for ULIP.

5-Yr bank fixed deposits (FDs) - Tax-saving fixed deposits (FDs) of scheduled banks with tenure of 5 years are also entitled for section 80C deduction.
Recommendation - Again, its a slow way of growth. Point to be noted is, interest is also taxable here. so returns is also less.

Senior Citizen Savings Scheme 2004 (SCSS) - A recent addition to section 80C list, Senior Citizen Savings Scheme (SCSS) is the most lucrative scheme among all the small savings schemes but is meant only for senior citizens. Current rate of interest is 9% per annum payable quarterly. Please note that the interest is payable quarterly instead of compounded quarterly. Thus, unclaimed interest on these deposits won’t earn any further interest. Interest income is chargeable to tax.

5-Yr post office time deposit (POTD) scheme - POTDs are similar to bank fixed deposits. Although available for varying time duration like one year, two year, three year and five year, only 5-Yr post-office time deposit (POTD) – which currently offers 7.5 per cent rate of interest –qualifies for tax saving under section 80C. Effective rate works out to be 7.71% per annum (p.a.) as the rate of interest is compounded quarterly but paid annually. The Interest is entirely taxable.

NABARD rural bonds - There are two types of Bonds issued by NABARD (National Bank for Agriculture and Rural Development): NABARD Rural Bonds and Bhavishya Nirman Bonds (BNB). Out of these two, only NABARD Rural Bonds qualify under section 80C.

Others: Apart form the major avenues listed above, there are some other things, like children’s education expense (for which you need receipts), that can be claimed as deductions under Sec 80C.

Income tax Exemptions

Tax saving is directly proportional to knowledge of tax saving intruments. So here is the list for all available tax saving clauses you can use to get max tax benefits -

Income Tax deduction - Section 80C
Tools - Provident Funds, Life Insurance premia, ELSS, Bank deposits (>5 yr.), tution fees, principal part of EMI on housing loan, etc.
Max Exemption limit - Rs. 1,00,000.

In budget 2010, the FM has also increased the limit of deduction available under section 80C. He has allowed an additional investment of Rs 20,000 for infrastructure bonds taking the total of the limit under section 80C from the current Rs 1 lakh to Rs 1.2 lakh

Income Tax deduction - Section 80D
Tools - Premium in health insurance of you, your spouse, children or dependent parents
Maximum Exemption limit - Rs. 15000(for senior citizen Rs. 20000)

Income Tax deduction - Section 80DD
Tools - Medical treatment (including insurance) of disabled dependent
Maximum tax exemption limit - Rs. 50000 (Rs. 75000 if disability is severe,e.g. >80%)

Income Tax deduction - Section 80E
Tools - Interest paid on educational loan taken for higher education of you, your spouse or children.
Maximum tax exemption limit - no limit :)

Income Tax deduction - Section 80GG
Tools - House rent in excess of 10% of income, if no HRA is received.
Maximum tax exemption limit - Rs. 2000 per month or 25% of your gross salary, whichever is less.

Income Tax deduction - Section 24
Tools - Interest paid on housing loan.
Maximum tax exemption limit - Rs. 1,50,000

Income Tax deduction - Section 80G
Tools - Donations
Maximum tax exemption limit - 100% of donation amount for special funds , 50% of donation amount for all other donations.

This is just a brief idea of what exactly you can think of regarding tax savings. you'll see detailed analysis of all the above in coming posts.

Income Tax Slabs (FY 2010-2011)

Finance minister,Pranab Mukherjee, has announced the new tax slabs for finance year 2010-11. In new tax slab,basic tax exemption limits are same as in the old tax slabs but finance ministry has broaden the tax slabs.

The new and revised tax slabs/rates for the financial year (FY) 2010-11 / Assessment year (AY) 2011-12 are as follows:

New Income Tax Slabs/Rates for individaul Men (below the age of 65 years) -
Up to Rs 1,60,000 ------ No tax / Total Exemption
1,60,001 to 5,00,000 --- 10%
5,00,001 to 8,00,000 --- 20%
Above 8,00,000 --- -----30%

New Income Tax Slabs/Rates for Resident Senior Citizens -
Up to Rs 2,40,000 -----No tax/Total Exemption
2,40,001 to 5,00,000 -- 10%
5,00,001 to 8,00,000 ---20%
Above 8,00,000 ---------30%

New Income Tax Slabs/Rates for induvidual Women (below the age of 65 years) -
Up to Rs 1,90,000 -------No tax / Total Exemption
1,90,001 to 5,00,000 ----10%
5,00,001 to 8,00,00 -----20%
Above 8,00,000 ---------30%

Don't snatch my money, plss

Growing income also leads to worries and this happens most of the time coz of income tax. Through this blog, I am trying to discuss basics of income tax in india and some insights to get maximum exemption with minimum efforts. It covers all from income tax slabs to tax saving tools & other relevent details.
Will love to see your views, queries and suggestions here.