Is tax eating away a major chunk of your salary?

A few years back, a text message popped up: “Dear Customer, salary of Rs. ABCDE for the month of May 2017 has been credited to your account XXXXXXXXXXXXX”.

Happiness?? Not for me. Not when I was expecting a six figure salary but ended up with a five figure one, all thanks to the tax that I had been paying so diligently.

The emotional impact was of a nature that I felt compelled to consult a tax consultant. And to my absolute horror, I discovered that I was solely responsible for the reduction of a digit in my monthly pay package. Before I could get into any further depression, my consultant served me with the much needed ray of hope – several ways of saving tax to increase my income in hand.

1. If you live in a rented accommodation, you can save some tax

A salaried employee living on rent can save some tax by presenting the rent bills to his organization. Such expenses can be claimed under the House Rent Allowance (HRA) offered by the company.

2. Did you know you can reduce taxes by holidaying??

Leave Travel Allowance (LTA) can be claimed twice in a block of every four years. You can get your actual travel bills reimbursed for any travel that you might have done. However, every company has policies relating to what qualifies for LTA. If unclaimed against travel, LTA becomes fully taxable.

3. Check if your salary includes medical allowance

More often than not, medical allowance is part of the CTC. Medical expenses to the extent of Rs. 15000 are exempted from tax in any financial year. However, one usually needs to submit actual medical bills to one’s company to get the same reimbursed. So now you can worry a little less about the rising medical costs!!

4. Save tax as you invest your money under section 80C

Under section 80C, we can make investments into several instruments and the amount of investment made is deductible from our taxable income. However, the upper cap of such benefit is Rs. 1,50,000. Public Provision Fund (PPF), Employee Provident Fund (EPF which is part of your salary) and Tax Saving mutual funds are a few such instruments which fall under this category.

5. Planning for retirement can help reduce tax further

While section 80C gives benefits of up to Rs. 1,50,000, section 80CCD(1B) gives a further benefit of up to Rs. 50,000. This benefit accrues by way of investing in the National Pension Scheme or NPS. Also, investing in NPS helps generate better returns as compared to bank deposits as they have a diversified exposure across asset classes. But, the only consideration with NPS is that you cannot withdraw your  money till you attain the age of 60.

 How do we help?

At CAGRfunds, we help you plan your tax outgo by making you aware of expenses that you can claim as deduction. We also apprise you of various investment avenues which either help reduce tax or earn tax free returns. For example, after studying one’s profile, we recommend the best tax saving (Under section 80C) mutual funds. We also help plan tax by educating our investors about benefits of equity and debt mutual funds vis-à-vis other products.

Wedding on the cards? Here are 6 financial planning tips for the newly – weds!

It is the wedding season and some of you who have recently gotten married or are about to tie the knot in the next few weeks must be aware of the enormous scale of wedding expenses. While it could be difficult to limit these expenses, post your wedding some cognitive steps should be taken for financial planning together with your partner. In order to preempt the chances of encountering incompatibility in financial matters, couples should opt for a plan that is fully acceptable to both partners and promises security for the future.

So before you fly up and away for your coveted honeymoon, here are 6 financial planning tips for you to be aware of.

1. Share and pool ideas to formulate an effective plan

It is very important that newly-wed couples engage in honest conversation that will serve to build a healthy climate of understanding and trust between them. Whereas the couple’s individual financial planning mechanism may have been flawless and effective before marriage, the need for absolute clarity on the way forward is critical to a future that is free of conflict and financial hassles.

2. Decide on a joint or a separate account

In a marriage, the importance of trust cannot be minimized and the couple’s financial standing, as individuals, occupies a space that revolves around the pivot of trust. The couple should not shy away from fundamental decisions such as whether to opt for a joint bank account, where the cash flow can be viewed and managed by either, or separate accounts, especially if both partners are earning members. In either case, it is best not to compromise on the aspect of mutual trust.

3. Build a fund for emergency situations

While the individual partners may have been inclined to spend money lavishly or feed off parents’ income before marriage, it is time for discipline and a sense of responsibility, once the equation changes with the newly wedded status. Adversities, especially those that arise due to financial pressures, should be anticipated and planned for.  Such challenges can take the form of an unexpected illness, a loan repayment schedule interruption or even a failed job. Ideally, this fund should amount to the sum of the expenses of a few months.

4. Save prudently

Saving is a habit which like any other, grows on people. The couple should earmark a fixed amount that will go into their savings. This amount should be determined after accounting for regular and incidental expenses that will be necessary for both sustenance and for lifestyle choices. The ground rule should be that finances are planned to allow for a reasonable and consistent remittance towards savings.

5. Invest smartly

Savings by itself is not sufficient to cater to all our future goals. Income declines or ceases altogether, as life advances and states such as retirement become a reality. It is at such junctures in life that we need a hefty corpus to sustain our lifestyle. It is therefore inevitable to continuously invest your savings in instruments that suit your profile. Inflation and the galloping cost of living can strain the best of financial plans. As such, it may be a wise decision to make the money in a savings account generate enhanced monetary benefits through judicious investment.

6. Get an Investment Plan

It is possible that prior to marriage, the couple had adequate allocation to different asset classes on an individual basis. However, post marriage, one should always look at the combined portfolio. This leads to a need for redesigning your investment plan. The help of a financial expert can be a practical and productive consideration, in this regard.

Everything that you wanted to know about an SIP

SIP or Systematic Investment Plan – A term which has off late been doing the rounds in the world of investing. Every financial advisor you meet will recommend a few SIPs to you. Do you often feel bogged down by the what(s), why(s) and how(s) of these SIPs? Read on to find out everything you need to know about SIPs before you move on to start one.

  1. Mode of investment and not a fund: SIPs are a mode of investment and not the fund or the instrument where you invest. Therefore SIPs don’t represent any asset class. They are a way of investing in any of the asset classes. In other words, they are more of an approach to investing.
  2. Defined periodic instalments: As the term indicates, SIPs are defined instalments which get invested on a pre decided date every month or quarter. For example, you can decide that Rs. 10,000 should get invested on the 10th of every month.
  3. ECS / Deducted directly from bank: Every SIP application is accompanied by a NACH mandate also known as an ECS mandate. By signing the mandate you authorize your bank to debit the pre decided amount on the specified date. This means that you do not need to put a separate transaction every month to make your investment. For example, when you sign the mandate, your bank automatically debits Rs. 10,000 on the 10th of every month and this gets invested without any action on your part. At CAGRfunds, we have introduced the concept of 1 mandate, which means you do not need to sign separate mandates for separate SIPs. One mandate for any number of SIPs across any number of mutual funds.
  1. Pre decided funds: When you make an application for registering a SIP, you also decide the funds where the investment shall happen every month or quarter. O every month, Rs. 10,000 gets automatically deducted from your bank account and gets invested in the fund you had selected.
  2. Start date and end date: You can choose the start date and end date of your SIP. Most funds have a criteria for minimum number of instalments (wither 6 or 12). However, having a perpetual SIP is beneficial for those who want to create wealth in the long run and want to follow a disciplined approach for the same.
  3. Any number of SIPs: You can have any number of SIPs. Each SIP is for a particular fund that you decide and hence you can have as many SIPs as the number of funds you decide to invest in.
  4. ELSS SIP: Taxation is a necessary evil and none of us should leave an opportunity to save our taxes. Section 80c of the IT Act gives us a benefit of Rs. 1,50,000 which we can deduct from our taxable income. Some of us who are more aware and believe in the potential of wealth creation through equity investment, choose to invest in ELSS funds (Tax saving mutual funds). However, very few of us choose the SIP route. ELSS investments if made through SIPs, helps reduce the risk arising out of market volatility to some extent. For example, you need to invest Rs. 60,000 to cover your 80C investments and you choose to invest in ELSS funds. You should invest Rs. 5,000 every month over a period of 12 months rather than invest Rs. 60,000 as a lump sum investment at one go.

How do we help?

At CAGRfunds, we help you with all your financial queries. Whether it is about a SIP or otherwise, we promise to give an answer to each one of them. For any query, post a comment to this article. Or whatsapp us on +91 9769356440