Saturday 13 March 2010

Tax rate on Long Term Capital Gains

Q. If my only income is property (NormalMale)L.T. Gain-3.5 lac for Ast. Y.09-10,what rate be taxed.Whole @20 or for 3.00-lac@10% & for Bal.50000/-@20%? - Mohit gupta


Ans. Dear Mohit, Here I assume the gain amount of 3.5L Rs. is indexed gain amount. If not calculated already plz. calculate the same. Now comes the question of tax rate on ur indexed LTC gains. Plz. note as ur only source of income is this LTCGain amt. U may set off ur basic exemption limit of 1.6L Rs. so u w'd have to pau Tax on remaining Gain amount = 350000-160000 = 190000 Rs.


As the Indexed LTCGs are taxed @ 20.6%, for ur LTCG the Tax = 190000 * 20.6% = 39140.

Thanks

Ashal

Thursday 11 March 2010

Guaranteed income for a lady with zero risk tolerance

Q. - My friend`s sister is getting married at the age 43. After having worked in many companies she was able to save an amount of Rs. 69 lakhs. All this amount is parked in FDs in a few banks. After marriage she does not plan to go to work, but is insistant that financialy she wants to be independent and wants to receive fixed income from the proceeds of the 69 L throughout her life. She says she cant take any risk with her saved funds. Can she approach an insurance company, say LIC or HDFC Standard Life and buy annuity for a term of 30 years ? If yes, what could be the monthly amount ? She is very clear she does not want to invest in shares or life insurance, as the husband will, through his income will cover for insurance etc. Please help. Thanks, Y Pal.

Ans. Dear Y pal, Here is the path.

1. Invest 4.5L Rs. in POMIS to earn 3K Rs. mly.
2.
(a) Invest around 10L Rs. in LIC`s Jeevan Akshay VI plan Option (i). It`s an immediate annuity plan. the mly. earning `ll be around 6800 Rs.
(b) Invest around 10L Rs. in LIC`s Jeevan Akshay VI plan Option (ii). the mly. earning `ll be around 6400 Rs.
(c) Invest around 10L Rs. in LIC`s Jeevan Akshay IV plan Option (iii). the mly. earning `ll be around 6000 Rs.

Till now around 35L Rs. r invested & she is able to earn a gtd. income of appx. 22K Rs.

For remaining 34L Rs. invest 20L Rs. in Bank FDs of various term say 1,2,3Y for her emergency & liquidity needs.

For Last 14L Rs. invest the same in Birla MIP II savings 5 Plan (growth option) to give a kick in return for her future life against impact of inflation.

As u said she is risk averse on her capital, I have not advised any higher Eq.% related instruments. In case of Birla MIP, the max. Eq. component is limited to just 5%.

Thanks

Ashal

Q. - Superb ashalanshu ! I will convey your suggestions verbatim to her. Thanks a lot. Regards, Y Pal.

Ans. - Dear Y Pal, thanks for ur regard & joy. Now onwards the most important work starts. Knowing the kind of money the lady in question has, the agents of LIC as well as other Ins. cos. executives of Banks etc. all `ll try their level best to sell some thing which is not meant for her. So she should remain straight in her demands of products.

There is one important thing - from the gtd. mly income of around 22K Rs. her annual gtd. income `ll be around 2.65L Rs. Now add the Bank FD interest to it (from Bank FDs of 20L Rs.) her total income in all probability `ll be around 4L to 4.25L Rs. I assume she may earn around 1.25L to 1.75L Rs. interest on these bank FDs (interest rates r going up). It means she w`d have to pay income tax. But as per the proposed budget for FY 2010-2011, she may invest a max. of 1.2L Rs. in section 80C instruments & another 15K Rs. in mediclaim policies under section 80D. thus total investment in Tax saving instruments `ll be around 1.35L Rs. & her net income (post Tax saving investment) `ll be 2.65L to 3L Rs. As her age is only 43Y, her zero tax limit is 1.9L Rs. Above this she w`d have to pay Income Tax @ 10.3% rate = 8 to 11K Rs. as Tax. appx.

Post Tax her net income for consumption `ll be around 2.55L to 2.9L Rs.

Now comes the last question, where to invest for 1L rs. of 80C Tax saving?

Ask her to open a PPF acct. if not opened already & to deposit the max. possible 70K Rs. from 1st to 5th april @ the start of every FY. For remaining 30K she may invest in ELSS (Tax saver MFs) if she is ready to take this small amount of money on risk otherwise the Tax saver bank FDs r the final way.

thanks

ashal

Q. - Thanks ashalanshu once again. So kind of you. I dont think she has done so much forward planning which is to invest the returns from investments into tax saving 80C. Even I did not think from the tax saving angle. Thanks for your kind help. Regards....Y Pal