10:34 Rahul: hi
gm
me: hi gm to u too
10:36 so waht's up?
10:38 Rahul: fine how r u
me: i'm fine too
10:41 so any new query
Rahul: no exemption for ULIPs under new dtc?
10:43 me: ha ha ha
Rahul: y
me: i think u r giving a lot of importance to DTC
but my dear friend
10:44 it's merely a proposal
Rahul: no jst going thorugh dtc
me: & final drafting may be different from what we r seeing as of now
Rahul: u r right but i m jst going thr it
10:45 me: regarding
ULIPs
10:46 if u r following my posts regualrly
u have noticed that I'm not a great supporter of ULIPs
Rahul: ys i know that
me: so no matter what direction DTC takes on ULIPs
I'm not interested
10:48 Rahul: ok
10:58 me: Dear Rahul After discussing DTC on taxation on life insurance policies claim i recheked
Rahul: ys
me: & to my utter surprize my earlier stand is correct
Rahul: means
10:59 me: Computation of income from residuary sources
55. The income computed under the head "Income from residuary sources" shall be the
gross residuary income as reduced by the amounts referred to in section 57.
u were talking about this one right
Rahul: income from other sources
11:00 me: that's called as income from residuary sources
in DTC
11:01 Rahul: ys
me: now read the section 57
which deals with the deduction available for residuary income
11:02 Rahul: its in typical finance language
me: Deductions
57. (1) The amount of deductions referred to in section 55 shall be the aggregate of -
(a) the amount of expenditure specified in sub-section (2), if -
(i) the expenditure is laid out or expanded, wholly and exclusively, for the
purposes of making or earning the gross residuary income; and
(ii) it fulfills all other conditions, if any, specified therein; and
(b) the amount of deductions specified in sub-section (3) subject to the fulfilment
of the conditions, if any, specified therein;
Rahul: cant get it
me: let me complete
(3) The amount of deduction referred to in clause (b) of sub-section (1) shall be the
following -
(a) any sum received under a life insurance policy, including the sum allocated
by way of bonus on such policy, if -
(i) the premium payable for any of the years during the term of the policy
does not exceed five per cent of the actual capital sum assured; and
(ii) the sum is received only upon completion of the original period of contract
of the insurance or upon the death of the insured;
now sum up this way
11:03 the income which is not covered under normal sources like - salary, capital gain, business income, houseproperty etc.
'll be considered as residuary income
right
now while calculating Tax liability on Res. income under section 55,
we can avail deductions under section 57
11:04 now under section 57
sub section 3
there is clearly mention that
the amount of claim in case of received on the death of life insured is Tax free
11:05 so i hope in case of term plan now ur worries r over
Rahul: ys
me: so as per our earlier chat no need to increase our term cover from 25L to 35L :)
11:06 :)
Rahul: so even endowment plans / whole life cover when ur prem is not exceeding 5% of total SA is tax free? isnt it like this?
me: in simple words
11:07 what u r paying as annualized prem.
ur sum assured should be around 21 times or even more to get tax free return
say u r paying 1K mly. prem. it means 12K annualized prem.
11:08 so ur Sa should be at least 2.5L or even more
happy ?
Rahul: thnks
my confusion is over now
11:09 me: my pleasure
11:10 actually
the more u explore the financial world
more u 'll be able to understand
& believe it or not
all the people who interact with me
Rahul: thats right
me: teaches few things to me
like in ur case
11:11 I revisit the DTC again & again
to understand
the Tax implication on claims of life ins. policies
11:12 Rahul: what do u think when dtc wl be implement
11:13 me: in all probaility not b4 than 1st April 2012
Rahul: after rewriting
me: & may be 2013-2014
at least from next year i.e. april 1, 2011
it's going to miss the deadline
Rahul: thats sure
11:14 me: had u gone thru one of my post on PPF in post DTC era on OLM Facebook
Rahul: but i think they have to implement it from 2012 becuase again in 2013 there wl be election season and preparation for general election in 2014
11:15 me: well let's see how the things pan out in near future
Rahul: no i haven't
me: just check that
Rahul: ok
whats that about
11:16 me: It 'll help u to understand the importance of PPF in POST DTC era & specially keeping in mind the EET
Rahul: is PPF good option after EET ?
me: answer is very simple
yes
but the only rider
attached
pool ur money in PPF for ur retirment goal
11:17 & don't try to redeem early i.e. in ur earning year
even if u r redeeming partly
try to avoid
11:18 Rahul: ok
11:29 Rahul: power problem
me: no prob.
Rahul: so jst asking ppf is good option post dtc?
11:31 me: read my reply to u in continuation with my post on OLM FB
Rahul: ok
me: PPF may be a good retirement tool
under DTC & EET
11:32 Rahul: one que
me: 2 question plz.
arre yaar u r free to ask as many u want to
Rahul: is it necessary to make contribution to ur ppf account once u extend it 4-5 yrs
11:33 me: yes every year at least minimum 500 Rs.
Rahul: ok
me: & it's not 4-5 years but a fixed term of 5 years
Rahul: in every 5 yrs slot
me: yes
Rahul: not my means for (4)
me: once u avail the facility of extension of ur acct.
u w'd have to pay annual minimum amount regularly
11:34 Rahul: and in extention period u 'll get interest of 8%
on ur current balance
me: yes
11:36 Rahul: jst an example. my ppf acc wl get over in 2023 (15 yrs). at that time i wl be 43. so i can extend it for 15 yrs more. when i turn 58 i can withdraw it.
11:37 is it good idea
me: nope
11:38 Rahul: then
me: keep extending ur PPF acct. for a block of 5Y every time
& run it for ur age 75-80 or even beyond
the interesting part is in post retirement life
once ur other savings r also settled
11:39 U may start withdrawing partially from PPF acct.
aS IN POST RET. LIFE
the Tax. slab 'll come down
the impact of taxtion on withdraw 'll be less
11:40 In fact I'll prefer to start withdraw only after attaining Sr. Citizenship
Rahul: ok
me: in case in future
Govt. amends rule to start Sr. citizenship from age 60 onwards
we may start withdraw from 62 or 63 age
age
11:41 had u checked a post regarding Tax free retirement income on my blog
Rahul: no
pls give me web add of ur blog
11:43 me: http://asanideasforwealth.blogspot.com/2008/11/taxfree-income-for-retiree.html
Rahul: thnks
jst ckng
me: read it in ur free time
Rahul: ys
me: although it was an personal plan
but it may give guidelines to others too
Rahul: sure
11:44 me: after finishing ur reading
plz. don't forget to post ur views on the same in the blog itself
Rahul: sure
11:49 Rahul: do u think govt retain EEE for pf & ppf in new dtc?
11:50 bcoz i think so.
me: nope
11:51 after all my input in yesterdays chat I think u may judge urself why it's better on Govt.'s part to keep EET for all saving instruments
there is more to it
in post DTC era
11:52 the basic limit of zero tax of 1.6L or 1.9L or 2.4L (as the case may be)
'll be increased time to time as per the requirement
Rahul: ys ur right. but acrdng to me govt should exempt home loan, hra, elss. bcoz limiting the instrument to save tax is not good.
me: so over all the direction is right
11:53 regarding home loan
the benefit is continue
if the house in question is on rent
for self occupied house
Rahul: no hra is @ rented house
me: the rationale behind the withdraw of incentives
11:54 as there is no income
how can be a setoff
Rahul: what @ elss?
me: actually under DTC the govt. is trying to change our behaviour for saving from Tax saving orientation to our goal based saving
11:55 at present majority of public invest only with the intent of saving tax & not as per their requirement in the long term
11:56 Rahul: ys. but there r ppl who merely not jst invest to save tax
me: which creates unduly pressure on the economic system
Rahul: ys
ur 100% right.
me: as the saving rate in india is high but it's not that much productive
there is more to it
11:57 at present a majority of public is below the 10L income
under DTC it means a majority of tax payer 'll fall in the 10% tax slab
now interesting thing is
11:58 if u invest ur full quota of 3L Rs. to avail Tax benefit up to it's maximum
ur saving 'll be this 10% income tax only
but as & when these savings 'll mature
11:59 in all probaility ur income level 'll be either between 10-25 L or beyond 25L
so on maturity of ur savings u w'd have to pay more tax than what u have saved earlier
so in a sense there is no need to invest blindly
invest as per ur requirement
12:00 regarding ur HRA benefit
how many persons can actually calculate their HRA tax liability
that's why i said simplicity is the need of our
as & when DTC is impleneted
12:01 our pay package 'll also be simplified
a lot of clutter is there in the form of Tax free & taxable allowances
once all these garbage is out
the salary slip as well as computation of tax liability 'll be very easy
12:02 Rahul: no HRA calcn is different what i m saying is govt should allow HRA as a tax exempted
me: hey dear
12:03 once u start demanding a certain thing as tax exampted
another section of society 'll demand another thing & the demand list 'll go on endlessly
12:04 Rahul: thats key
me: as i said earlier
Rahul: before going to public govt should have come to CII and public as what they want
12:05 me: we the people who r in the transition phase r in trouble
Rahul: it should make thing simple and smoother in implement it
no i m not aganist dtc
me: hey dear u r at fault
12:06 by writing the draft of DTC & inviting the comments
Rahul: but govt would have done it then it wl be simple to implement
me: Govt. is doing the things u want to
till date DTC is not implented
Govt. is still inviting comments
12:07 just answer me the simple question
if the DTC was not written
on what grounds, basis I & u 'll argue
12:08 Rahul: thats also right.
12:09 but govt can ask what changes u want to do in the tax sys to make it simple?
12:10 me: arre bhai by inviting comments on DTC - Govt. yahi to kar rahi hai
12:12 Rahul: jst going thr ppf in olm fb
12:13 very informative topic
12:15 me: my pleasure
12:16 Rahul: jst askng what would u amend in the present draft dtc, if u give a chance?
12:17 me: some provisons on NRI public r very harsh
i want to make some changes there
Rahul: like
me: well as of now i can't comment
12:18 Rahul: ok
me: as i w'd have to recollect all those first
Rahul: and for us and corporate
me: these r mainly regarding the taxation of NRIs in India
12:33 i think the most effect of the dtc (if implemented) to the upper middle class ppl whose earning is 5-6 lac pa
12:34 me: nope
the effect of EET 'll be positive on the most wealthier persons in india
Rahul: jst one example
12:35 a person who is earning 50k pm
having 15k emi home loan, 20k total expenses, 15k savings & investment
12:36 he wl not get tax benefit for 15k. thats loss to him.
12:37 me: plz. read my reply above
12:38 the most beneficial ,EET 'll be for the wealthiest persons
Rahul ys
thats true
me: regarding ur example
Rahul: but what bout ppl like us
12:39 me: yes there is a loss of Tax saving partly for the person in question
ok let's calculate the exact impact
on this person
of 6L yly income in pre DTC & post DTC era
Rahul: ys
12:40 me: if u r the person, in the example above
plz. put the nos.
like income, EMi, saving, etc.
Rahul: salary 50k pm
home loan emi 15k pm
12:41 tax savings 1 lac pa
medical ins 8k pa
12:42 me: may i start?
Rahul: ys
me: in this case as on date
i assume the interest part is full 1.5L Rs.
Rahul: ys
me: but do remember
with each passing year
12:43 as u r also paying a part of princiapl amt. too in ur EMI
this interest part 'll also come down but on the other hand
ur salary income '
'll increase
Rahul: ys
me: so after 2-3 years
ur income may be around 7.5L Rs. or even more
but the interest part may 1.2L or even less
12:44 so there is double loss for u
salary is increasing & interest part is decreasing
ultimately it's increasing ur Tax liability in the higher slab
now for ur present situation
a. annual taxable income = 600000
12:45 B. loss on house property = 150000
C. net taxable income = 450000
12:46 D. Deduction under section 80 = 108000
E. Effective Taxable income = 342000
F. Tax on E above = 14000 @ 10% + 8400 @ 20%
= 22400
12:47 add cess @ 3% on it
G. total Tax liability = 23072
now as i said earlier
after 2-3 years
12:48 the above equation 'll change due to increse in salary & decrease in home loan interest
that calculation 'll be like this under current Tax rules
A. Gross Taxable income = 750000
B. loss on house property = 120000
12:49 C. net income = 630000
D. decutions under sec. 80 = 108000
E. Effective Tax. income = 522000
12:50 Tax on E = 14000+ 40000 + 6600 = 60600
12:51 Tax with cess = 62418
now consider the same 7.5L income under DTC
Rahul: ys
me: as by then DTC 'll be implented
12:52 A. Taxable income = 75000
12:53 B. Saving under section 66 (replaced section for 80) = 108000 (due to increase in ur salary u may increase a part here but for calculating on mathcing parameters i'm not increasing ur saving rate under DTC)
C. Effective Taxable income = 642000
12:54 D. Tax on C above @ 10% = 48200
12:55 E. with cess @ 3% = 49646
here the zero tax limit is constant @ 1.6L Rs. for all the 3 cases as discussed above
12:56 now i already knew ur answer after reading all these calculation regarding DTC
Rahul: what
me: finally u r happy that DTC is to be implented
12:57 bcoz
u r not able to save tax on ur home loan
still ur tax libaility is down by some 13K Rs.
12:58 Rahul: in 2nd case i don't understand the calc part
me: & in the future as & when ur income level increases the effective saving under DTC 'll be higher
plz. tell i'll try to elaborate
12:59 Rahul: taxable income 522000 then u have to deduct 160000 from it
13:00 me: ok i got it what u want to know
sample this
zero tax = 160000
13:01 Tax @ 10% from 1.6L to 3L = 14000 (on next 140000)
Tax from 3L to 5L = 40000 (on next 2L)
Tax from 5L to 5.22L = 6600 (on next 22000 Rs.)
got it
13:02 as per the next slab rate
20% & 30%
respectively
14:43 me: i'm back
14:44 so after all the calculation for ur future income under pre DTC & post DTC, what's ur take
14:45 Rahul: yes
14:46 me: i'm sure
after going thru all these nos. u w'd n't complain much now for DTC
14:47 in continuation to our calculation
Rahul: its definitely good but then also i have my own views on home loan, elss, a little bit on EET
bcoz i m not fully convinced
14:48 me: let's assume ur case to ur income level around 10.5L Rs. after say 7 years from now onwards
by then ur interest portion of home loan 'll come down to around 80K level
so ur calculation 'll be like this
14:49 A. Income = 1050000
B. loss on house property = 80000
C. Net income = 970000
Saving under section 80 = 108000
14:50 D. Efective Taxable income = 970000-108000 = 862000
14:51 Tax on 8.62L = 54000 for 5L Rs. + 108600 (@ 30%)
total Tax = 162600
With cess = 167478
14:52 this is ur calc. for pre DTC
now we calculate for post DTC
A. income = 1050000
B. Saving = 108000
C. Taxabler income = 942000
14:53 D. Tax on C = 78200
(10% of 942000-160000 = 782000)
14:54 E. With Cess Tax = 80546
now u can see urself
14:55 the higher u r moving into ur income level the more beneficial DTC is for u
Rahul: now thats the point. as i said in my earlier post this dtc is more beneficial to the ppl wid more income
me: whaich i told u earlier
Rahul: but what about the ppl with lower income like 5 lac
14:56 i have gone through ur example
earlier
me: hey dear i already calculate for ur case of lower income
Rahul: i have gone through ur example
earlier
me: even for their too DTc is going to benfit
14:58 the reason is simple
The people in the lower incopme level
14:59 Rahul: but if a person having other benefits like LTC, medical reimbursement, children education etc
me: r already around the minimum Tax slab due to various incentives so for them it doesn't prove a major benefit in the DTC
Rahul: then what happens
me: but as i said
the same person 'll not remain in the same income level for long & due to this income rise that the real benefit of DTC 'll start poring on him
15:00 regarding LTC - plz. check carefully
to avail taxfree status
u w'd have to spend actually
15:01 & even there, the exemption is only for the journey part & not for the hotel or fodding etc.
so in effect
Rahul: also leave encashment,
me: if u opt to avail tax free LTC & that too only 2 times in a block of 4 years
Rahul: gratuity
me: ur actual expenses 'll be very high
15:02 Rahul: vrs
me: leave encashment at present is tax free upto a max. limit of 300 days
beyond that it's taxable as usual
Rahul: ys
i know
me: for gratuity
the limit is 3.5L only
15:03 beyond that the same is taxable even at present
so in a sense
these r not the isolation cases
& there is mnore to it
15:04 Leave encashment as well as Grt. r received as part of ret. benefit & as per DTC if the same r invested in a Ret. saving product the same 'll remain tax free
15:05 of course the income received from such ret. product 'll be taxable
i mean pension
15:07 Rahul: an example
15:09 Suppose a middle class person earning monthly salary of Rs 40,000 (4.8 lax pa) currently manages to maintain a zero tax status by availing tax-free LTC & medical perks of Rs 70,000, deduction of interest on housing loan of Rs 1,50,000 and repayment of such loan of Rs 1,00,000 eligible for deduction u/s.80C. What wl happen to him after implementation of dtc?
15:10 me: well ur calculation is not true
it's not a practical one
Rahul: y
15:11 me: as i sadi earlier LTC is available for only 2Y in a blocl of 4 y or for simplification of tyhe matter
every alternate year only
15:12 at the same time
as i said
earlier to avail tax free statsu of ur LTC
this person w'd have to travel actually with his family
& my dear friend
15:13 due to other expenses on account of accomodation & fodding as well as purchasing
there is no merit in this Tax free perks
regarding other tax free perks
15:14 it's a technical jargon & it's only help to the CAs or Tax consultants tyo deal with such numerous Tax incentives which r otherwise non understandable easily to a common man like u & me
15:15 Rahul: so here is my view about dtc
it's good but need some amendments in it
15:16 me: & plz. do remember that same person 'll not remain in the so called zero Tax pay structure for long
Rahul: bcoz it has several loop holes in it
me: due to pay hike he 'll come into Tax slab
Rahul: ys
15:17 me: actually the most touching prt for me of the DTC is - It's so simple that even a common man can calculate her Tax liability with out any problem & with out any help of any Tax consultant or CAs etc.
15:18 can u do so right now for ur current income
Rahul: ye
me: another good part
Rahul: i m doing my tax related work myself
me: of DTC
Rahul: without any CA
me: the children tuition fee benfit is intact
15:19 & there r several person who have actual saving in the form of tuition fee & normal 80C - more than 1L but can't avail the same beyonf the 1L limit
15:20 but under DTC without much effort they can do so
u can handle ur case on ur own is good
but how many persons r there who can handle on their own
15:21 Rahul: tuition fees are tax exempted under new dtc?
me: at present tuition fee r part of section 80C
in DTC
Tuition fee r part of section 66 within the overall limit of 3L Rs.
15:22 i know slowly & slowly u r relizing the benefits of DTC :)
15:24 Rahul: i have changed my mindset up to some extent regarding dtc but still i feel some clause has to change
15:25 me: well that's why i said
slowly u r realizing the benefits
also there is more to it
the human nature aklways resists any change
15:26 the same reflects in case of DTC too
it's not the case of u or me any individual
i'm tlaking in general
15:27 Rahul: it's human nature like a book called "Who moved my cheese" by spencer johnson
15:29 me: so i'm not complaining u
in fact i;m happy wityh u that
after so much discussion between U & me
at least now u r open to have a clear view on DTC & not a biased one
15:30 now onwards if somebody asks u for ur comments on DTC
now onwards
U can certainly show the +ives & -ives of DTC
15:31 but finally i know U 'll put more weight on -ives of the DTC
;)
Rahul: :)
15:32 me: the more u 'll interact on all these financial matters
the more u 'll gain in terms of knowledge & info
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