Tax Savings And Products From Life Insurance Companies

wealthymattersInsurance companies provide insurance and that’s very important in itself. But long after some people have met their safety needs and perhaps even accumulated so much wealth and secured it in a way that makes life insurance plans to provide for bereaved dependents superfluous, you find them still opting for investments in products from life insurance companies….Ever wonder why ?The answer is that, never mind what most run-of-the-mill financial advisors say, a FEW of these plans do provide excellent returns, and help create wealth,  provided a person is wealthy enough to be able to wait the decades to realize the benefits of these returns or better still think in multi-generational terms. Further, intelligently played , these products offer a way of mitigating the risk of falling interest rates on savings that all of us face. Next factor in tax and the numerous tax advantages products from life insurance companies offer and you start seeing the wisdom in what these wealthy people do.

Aegon Life has published a tax guide on it’s website to help you explain all things related to taxes and tax-planning.

However, if you’d like to educate yourself in peace before dealing with any sales pitches, here’s what you need to know: Read more of this post

Donating To A Political Party – Section 80GGC

wealthymattersThe entire amount donated by an individual to a recognized political party is allowed as deduction under Section 80GGC of the Income-Tax Act while computing  gross total income. 

The donation should be made to a political party registered under Section 29A of the Representation of the People Act to avail of this deduction.

With effect from FY14, cash donations to political parties don’t qualify for tax reliefs. So take care to make the payment through banking channels — cheques, demand drafts, credit or debit cards and internet banking — if you are planning to claim tax deductions.

This exemption is part of Chapter VI-A deductions. And under the law, the total deductions under Chapter VI-A cannot exceed the gross income. Other benefits under Chapter VI-A deductions include tax-saving investments under Section 80C, health insurance premium under Section 80D and interest on education loan under Section 80E, among others. These can be claimed against your income from salary and house, but not all sources of income. The Chapter VI-A deductions cannot be claimed against incomes taxed at special rates, such as long-term capital gains, short-term capital gains which are taxed at 15% under Section 111A and winning lotteries or games, which are taxed at a flat rate of 30%. 

Also, most employers usually don’t factor in such donations in employees’ investment declarations and Form 16. So, while your tax-saving investments under Section 80C are taken into account to calculate your tax , exemptions related to donations don’t receive a similar treatment.Employees  have to claim a refund at the time of filing their income tax returns.

Investing In Urban Residential Real Estate In India


The travails of the Western world might put a question mark on the expression “as safe as houses”. but in India, urban real estate continues to make sense as an investment option.

Here are the reasons:-

First:In the US, the average members in a household are 2.6. In India, there is an estimated shortage of 21 million housing units and unless there is a dramatic increase in supply, the shortage is  not likely to come down because there is  a sizeable young population adding to the demand .Also Indians will continue to migrate to cities and 50% of the country will be urbanized by 2044.As families often resort to step-migration many TierII towns will do as well as the major cities as investment destinations.

Second:The high rates of inflation and wage rises are bound to make houses more expensive to build in future.So residential real estate investments are bound to hold their value and possibly continue to give good capital gains. Read more of this post

Last Chance ELSS

wealthymatters.comELSS =Equity Linked Savings Scheme ,is a special category of mutual funds that invest predominantly in stocks. They are very comparable to diversified equity funds. The only differences between regular diversified equity funds and ELSSs are the 80C tax benefits on investments upto 1 lakh and the lock-in period of 3 years,incidentally the least among all 80C tax-saving avenues. It means that once you invest in an ELSS , you cannot withdraw your investment for a period of 3 yearsHowever,the DTC proposes to phase out the tax breaks on ELSS , so this avenue may be closed in the coming years.But, you can still invest in it this year and get tax breaks.

The best ELSSs have not done too badly during downturns and have given excellent returns in boom times.The reason has been the lock-in period. These funds have not suffered due to large scale redemptions when the market sentiments have tanked.Moreover, fund managers  keep a portion of the mutual fund corpus, around 7-10%, as cash,even in good times, so that they can meet all redemption requests. This cash is invested in very short term debt investments, generating meager returns. This impacts the overall returns of the mutual.Since the fund manager of an ELSS knows that  funds cannot be withdrawn for 3 years, he can invest all the funds in equities and keep less money as cash and provide good returns in the long term. Read more of this post

Tax – Saving Fixed Deposits

In Budget 2006, the government extended tax benefits under section 80C of Income Tax Act, 1961 to five-year tax-saver deposits. As per this provision, a tax-payer is eligible for exemption on five-year deposits on investments up to Rs 1 lakh. These fixed deposits are locked in for a five-year period . There is no option of premature withdrawal. Also, you cannot pledge this type of term deposit as collateral to secure a loan to meet liquidity needs. Similarly, banks do not offer overdraft facility on tax-saver deposits.Unlike the plain vanilla fixed-deposit products, these tax-saver FDs do not have the sweep-in facility. This means a person cannot link fixed deposit to their savings account so that the surplus funds in the savings account can be automatically invested in this fixed deposit.In addition, there is no overdraft facility available on the tax-saver FD. As this instrument of saving money is special due to its tax-saving status, banks do not extend relationship benefits on the tax-saver FD. Read more of this post

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