Financial Cocktail Samosas Bitesized Money Morsels For You, 19/01/2022

TDS deducted even when your income is less than the taxable limit?

So, your yearly income is less than Rs 2.5 Lakhs a year. You have some FDs whose interest is included in this amount. Tax rules say that you do not need to pay any income tax. But the bank still deducts a TDS (Tax Deduction at Source) and you have to file your Income Tax Return (ITR) to get it back after one year!

Why did it happen?
Because your FD interest income was more than Rs 40,000 and the bank doesn’t know that your total income, all sources included, does not exceed Rs 2.5 Lakhs in the year.

But no issues. The simple submission of a form 15G to the bank at the beginning of each financial year (in first week of April preferably) will do the trick. Through this form, you tell the bank that you are in no-tax bracket and that they should not deduct your TDS.

For senior citizens, ie those aged 60 years or more, the rules are more liberal. The tax- exempt limit is Rs 3 Lakhs in a year, the TDS deduction limit is Rs 50,000 instead of Rs 40,000 and the form to be used is 15H.
For those above 80 years of age, the tax-exempt limit is even higher at Rs 5 Lakhs.

What will happen if one forgets to submit the form in a particular financial year or submits it late?
The bank will deduct the tax and you have to claim the refund by filing the ITR.

(Contributed by Shaheen Akhtar, Associate Financial Planner, Team Prithvi, Hum Fauji Initiatives)

Investing in the name of your minor children can reduce your tax liability in the long run

Sukanya Samridhi Yojana (SSY) was launched by Govt, with the intent of providing a dual benefit of catering for the girl child while giving tax benefit to the parents. However, this scheme was more focused on promoting girls’ education in India and with an investment limit of Rs1.5 lakh annually only.

But you can reduce, or maybe entirely save, your long-term tax by still investing in the name of your minor child if you plan properly. See an example below.

You can invest regularly in Mutual Funds through SIPs or bulk amount or a combination of both in the name of your minor children for accumulating money for their higher education or marriage. These investments are done in the ‘name of child under-guardian a parent’s name’, eg, ‘Mohit Sharma, under-guardian Ajay Sharma’ where Mohit is the minor son. You can continue this till the children become adults, ie attain the age of 18 years.

When children become adults, the mutual fund(s) will need to be transferred in their name, removing the ‘under-guardian’ part. If the money is taken out at any point of time, the gains part, that is the profit, will be taxed in the hands of the child. But the beauty is that, most 18-23 year olds would have zero or an insignificant income to qualify for taxation since they may not be earning or earning a smaller salary at the start of their careers! So, the tax bracket is likely to be much lower than their parents – the family saves a lot of tax that way.

Above can be a powerful tool to plan for the long term goals of your children’s higher education and marriage while giving out hardly anything in tax.

So, saving in the name of children rather than in your own name can actually work as ‘आम के आम, गुठलियों के दाम ‘ for you. The goal will be fulfilled and that too in a very tax efficient manner.

But please remember, if money is taken out before the child becomes a major and there is any profit or gain there, the taxation rate will be that of the parent. This provision will further psychologically prevent you from taking out the investments prematurely, finally helping you meet the intended financial goal in the way it was intended to be met.

Should I give international exposure to my investment portfolio?

Indian Premier League (IPL) has been a great success for Cricket. It includes a combination of domestic players and foreign players playing together. Each country produces sportsperson with their own unique strengths and plus points. And when sportspersons from different countries play together, it gives a synergistic effect and 1+1 actually turns out to be 11 rather than just 2.

This synergy is the reason why many big corporate deals, like Joint ventures, M&A, and partnerships take place. For example, Maruti’s sales and service network + Suzuki’s Technology has made Maruti Suzuki the biggest car seller in India.

An international exposure has the power to provide that synergistic effect to investment portfolios as well. It will help to explore and gain from the strengths of investment avenues and stock markets of other countries of the world rather than restricting to home country’s strength areas only.

However, one needs to be very careful while introducing such international exposure in the investment portfolios. A good knowledge of the foreign country – its economics, stock markets, growth dynamics and industry – are essential to know. Global mutual funds act as the best starters that way, which are well analysed and diversified, to be a member of your portfolio and provide a synergy effect with restricted risk exposure.

(Above two samosas contributed by Jatin Uppal, Deputy Manager, Hum Fauji Initiatives)

Also Visit at: Financial Cocktail Samosas Bitesized Money Morsels For You, 12/01/2022

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