Some Finer aspects of Income Tax savings - Part 2

I am sure many of us will be sitting on unrealised losses (i.e losses which we have not booked by selling the loss making stocks and are holding them back in the hope that it will go up in the future) in the recent turmoil in the stock market. If the investments are less than a year old, you one put it to good use and lower your tax liabilities for the current financial year. As per law, one can book their losses on or before March 31 this year and buy back those positions in the next financial year i.e April 1st (provided you believe that the stocks will actually recover atleast in the next financial year). By doing so, the tax on short-term capital gains (if any) can be set off to the extent of the short-term capital losses. Also, at the same time one holds the assets that one had prior to booking the loss.

The key is to sell it before March 31st and buy it back on or after April 1st.

Short-term capital losses for the year can be set off against any capital gains, short or long term, reported under the head, income from capital gains. In case the gains are lower than the losses, the excess short-term capital losses can be carried forward and set off against capital gains for eight successive assessment years.

However the long-term capital losses on security transactions liable to securities transaction tax cannot be offset against any income, and cannot be carried forward for offsetting against any future gains.

However, investors have to bear in mind that short-term capital loss (STCL) first has to be adjusted with any short-term capital gains and only then with long term capital gains on transactions not liable to STT (like sale of gold, real estate, etc)

Some Finer aspects of Income Tax savings - Part 1

While most of you would be aware of the benefits of Section 80C and the fact that upto Rs 1 Lakh invested in Mutual funds or PPF, or PF or payment of insurance premiums etc, there are some other ways to pay lesser income tax and that is what i am going focus on.

Now a days, many people have bought houses and would be claiming the deduction upto Rs 1.5 lakhs for the interest paid in the case of self occupied houses.

However, there are many who have more than one house. In those cases, one can offset expenses made to maintain that house in the form of maintenance fee, interest paid against the borrowing etc and only pay the tax for the net amount. Also, there is no limit on the amount of deduction for the interest paid on the borrowings.

Say one has an income of Rs 1 lakh from an house property but has paid more than Rs 1 lakh in the way of interest for the borrowing made to buy this property, then the next loss can be offset against the income made by the person and shown as loss from the property. However, one cannot show any loss till such time that the house is completed or possession/registration taken for the house.

So go ahead and claim the loss if any or atleast end up lesser tax on the rental income in the case of the purchase of a house from borrowed money.

UTI Long Term Advantage Fund Series II

UTI has come out with a Mutual Fund called "UTI Long Term Advantage Fund Series II" which is a 10-year close-ended Equity Linked Savings Scheme with tax benefit. Upto Rs One lakh invested will give the investor a tax benefit under the Section 80C of the Income tax act. The Investment objective of the scheme is to provide medium to long term capital appreciation along with income tax benefit.

It will endevaour to invest in equities of well managed high quality companies that have the potential to grow at a reasonable rate in the long term. It will also invest in emerging growth companies that are believed by the Asset Management Company to have the potential to offer appreciation potential greater than the growth in the relevant stock market indices, in the long term. It will also aims to build and maintain a diversified portfolio

Asset Allocation
Equity: 80%–100% of the assets
Debt & Money Market Instruments: 0% – 20%

Scheme details
Issue Close Date March 19th
Type of Fund - 10 year close ended

Options - Growth Option and Dividend Option with Payout and Reinvestment
Minimum Amount - Minimum initial investment is Rs.500/- and in multiples of Rs.500/- thereafter with no upper limit. However, as per section 80 C of the Income Tax Act, 1961, the tax benefit will be available only upto a maximum amount of Rs.1,00,000/-
Redemption - Redemption Facility The Scheme will offer redemption / switch-out of units on any business day before the maturity but after the expiry of initial lock-in-period of three years period from the date of allotment at the relevant redemption price.

Entry Load: The scheme, being a close-ended scheme, is not permitted to charge Entry Load.
Exit Load : Nil. In accordance with SEBI (Mutual Funds) Regulation, NFO expenses not exceeding 6% of the amount mobilised, will be charged to the scheme and will be amortised over a period of 10 years. If the investor opts for the redemption before the completion of 10 years proportionate unamortized portion of the NFO expenses outstanding as on the date of the redemption shall be recovered from such investors.
Benchmark - BSE 100

Increase in income tax slabs

The present tax-free limit of Rs 1.10 lakh for non-senior men is being hiked substantially to Rs 1.50 lakh for the assessment year (AY) 2009-10 while for non-senior ladies this is being hiked from Rs 1.45 lakh to Rs 1.80 lakh.

Senior citizens will not have to worry about tax so long as their income does not overshoot Rs 2.25 lakh.

The first slab rate of 10 per cent applies on income between Rs 1,50,001 to Rs 3, 00,000; the second slab rate of 20 per cent applies on income between Rs 3, 00,001 to Rs 5, 00,000 and the maximum rate of 30 per cent on income exceeding Rs 5 lakh.


To put things in a clearer perspective let us take the case of a salaried male with an income of Rs 5 lakh. Ignoring education cess, the present present tax liability works out to Rs 99,000.

This will now come down to as low as Rs 55,000.

Thus across the board, there will be reduction in tax for every tax payer from the next assessment year. This is definitely good news and will add to the pockets which can be considered as some sort of increment that one will get.

Reliance Equity Saving Fund Series - I

Reliance AMC has launched out with closed ended Mutual fund "Reliance Equity Saving Fund Series - I" which is 10-year Closed-end Equity Scheme. The primary objective of the scheme is to generate long-term capital appreciation from a portfolio that is invested predominantly in equities along with income tax benefit.

Under normal circumstances, the asset allocation pattern of the scheme shall be as under:
Equity and Equity Related Instruments: 80% - 100%
Debt and Money Market Instruments (including Securitised Debt): 0 – 20%

The scheme may invest in equity shares in foreign companies, ADRs / GDRs and instruments convertible into equity shares of domestic or foreign companies and in derivatives as may be permissible under the guidelines issued by SEBI and RBI. As the scheme is governed by ELSS guidelines, such investment will be made, if the ELSS guidelines permit.

The fund managers will follow an active investment strategy taking defensive / aggressive postures depending on opportunities available at various points of time. Subject to Regulations, the asset allocation pattern indicated above may change from time to time, keeping in view market conditions, opportunities and political & economic factors.

It must be clearly understood that the percentages stated above are only indicative and not absolute and that they can vary substantially depending upon the perception of the AMC, the intention being at all times to seek to protect the interests of the Unitholders. Such changes in the investment pattern will be for short term and defensive considerations. However, such changes at all times will comply with ELSS notifications. The asset allocation pattern will be in line with the rules and guidelines of ELSS notifications also.


Scheme Details
Issue Closes: March 17, 2008
Type: Close-ended, equity scheme
Plan : Dividend Payout Option and Growth Option
Minimum Investment: Rs. 5,00. Additional amount in multiples of 500 thereafter. However, as per section 80 C of the Income Tax Act, 1961, the tax benefit will be available only upto a maximum amount of Rs.1,00,000/-.
Entry Load: Nil as it is a close ended scheme
Exit Load: Nil. However, in accordance with the SEBI (MFs) Regulations, NFO expenses not exceeding 6% of the amount mobilised, will be charged to the scheme and will be amortised over a period of 10 years. If the investor opts for the redemption before the completion of 10 years, proportionate unamortized portion of the NFO expenses outstanding as on the date of the redemption shall be recovered from such investor.
Benchmark : BSE 100
Recurring expenses : 2.5% per annum which includes marketing, investment management and operational costs.

Liquidity - The amount invested in the scheme shall be subject to a lock-in of 3 years from the date of allotment and thereafter redemption will be available only during the Specified Redemption Period i.e. first five Business Days on a monthly basis at NAV based prices. Eligible investors in Reliance Equity Linked Saving Fund - Series I are entitled to deductions of the amount invested in units of the scheme, subject to a maximum of Rs. 100,000/- under and in terms of Section 80C (2) (xiii) of the Income Tax Act, 1961. The Scheme does not asssure or guarantee any returns.

Switch - in from other schemes in Reliance Equity Linked Saving Fund – Series I, will be available only during NFO and at the applicable load structure from these schemes, if any.

Switch - out: Available only during the Specified Redemption Period after expiry of lock-in-period of 3 years, at the applicable load structure in the respective schemes.

NABARD launches Tax Savings Bond on Republic day

NABARD (National Rural Development)hasd launched Rural Bonds on Republic day. Subscription to these bonds will be eligible for deduction under Section 80(c) of the Income Tax act. The issue price is Rs 1000 per bond with minimum subscription of 5 bonds and thereafter in multiples of 1 bond. The bonds will of 5 years tenure and will carry a coupon rate of 8.25% for general public and 8.75% for senior citizens.

The income from this bond will be taxable in the hands of the investor.

In the next blog, i will mention about the various investment options that are available to individuals today with respect to saving tax under Section 80(c).

Medical Insurance insights

I am pretty sure that many of you would not have taken any kind of medical insurance under the pretext that the company provides the same for the family.

However, I am sure most of you would have taken some kind of life insurance policy by now and would probably be having a couple of life insurance policies. It is quite possible that many of you would have taken medical illness raider or some kind of a dreaded disease benefit as well as part of the overall cover and have combined the life insurance cover with the medical illness benefit. So far so good that you have done a wise thing.

However, have you folks claimed the income tax benefit that ones as part of Section 80D of the income tax rules. This benefit is over and above the Rs 1 Lakh deduction that one can get as part of Sec 80C (investment in PF, PPF, ELSS, Pension schemes, qualified bonds etc). Typically part of the insurance premium that you pay for your policy which has illness or medical insurance related benefits goes towards medical insurance premium for which you can get income tax benefits under Section 80D.

When you get the receipt for the insurance premium payment, there will be separate mention of the amount that one can get as a rebate for Section 80C and Section 80D. So please relook at your premium receipts and make sure that you get the benefit of Section 80D.

Here is a small note on Sect 80D - Under this section, the income tax assesse can claim a benefit of upto Rs 10000 per annum for the premiums paid towards medical insurance. The amount of the premium (Rs. 10,000) is fully deductible under Section 80D of the Income Tax Act. Thus, you save Rs. 3366 on your tax payable if you are in the highest income tax bracket.

Increase in Tax collections - How does it affect you

The existing taxpayers are paying more taxes this year, thanks to higher incomes from a booming economy and improved compliance with tax laws. Also contributing to the direct taxes are the addition in the number of new tax payers.

In April-October 2007, personal income tax collections of the Centre grew 39.39 per cent at Rs 49,890 crore, significantly higher than Rs 35,805 crore collected in the same period last year. The buoyancy in personal income tax collections can be attributed to both deepening and widening of the tax base.

Tax experts also emphasise that while salary levels have seen significant rises, avenues for financial savings remain limited at around Rs 1 lakh a year, thus bringing more income to taxation.

At the same time, the number of new tax payers has seen a steady increase. In 2004-05, there were 15.97 lakh new assesses and the number went up by 19 lakh in 2005-06 and 21.28 lakh in 2006-07.

The direct tax base as on end-March 2007 stood at 3.19 crore assessees, with majority of them coming under the category of ‘individuals’. The corporate tax base has been more or less stagnant in the recent years and comprised about 1 per cent of the total direct tax base.

Despite this, corporate tax revenues continue to be buoyant, with collections during April-October this year recording 45.71 per cent growth at Rs 78,785 crore (Rs 54,072 crore). The overall direct tax collections for the period under review grew over 40 per cent to Rs 1,28,864 crore, up from Rs 90,180 crore in April-October last year.

Given the huge backdrop in the collection of Taxes by the government, there are already talks that the tax rates might be reduced etc. Here are some of the options that the Finance has in front of him for the next year that will be presented in teh budget in Feb. Also, this could be a last budget before the next general elections and hence there is a possibility that the Finance minister will give more sops than the usual. Some of the sops that could be expected are

1. Reduction in the Tax rates for the different slabs
2. Alteration in the tax slabs
3. Increase in the Standard deduction
4. Reduction in the surcharge or abolition of the same.