Personal Finance for Starters
By : Manish Chauhan
http://www.jagoinvestor.com
Agenda
Basics
Section 80C
HRA
LTA and Medical Exemptions
Tax Calculations
Tax Slab and example
Power of Investing Early
Understanding Equity and Debt
Investments Options
What is Insurance
Insurance Options
4 most important things
Objective
of the
session
To make you understand
basic concept of Investments
and Taxation
Basics
You declare your Investments
Your tax liabilities are calculated and
TDS is cut and paid to Govt
Then you invest declared
amount as declared and your actual
tax is calculated at the end
Finally
if your Tax = TDS , you do nothing
if Tax > TDS , you pay to govt
if Tax < TDS , govt (do not) pays to you
Section 80C
.
Govt says that if you invest in any product covered
under Sec 80C, you do not pay tax on that amount
subject to limit of Rs 1.1 Lac .
Under Sec 80C
- Mutual Funds (ELSS)
- PPF and EPF
- 5 yrs Fixed Deposits
- ULIPS / ULPP
- NSC
- Life Insurance Premiums
- Home Loan Principle amount
HRA
HRA you can claim is minimum of
- The actual amount of HRA received.
- 40% of salary (basic component + dearness allowance). This
increases to 50% if you are renting out the house in Delhi,
Mumbai, Chennai or Kolkata.
- Rent paid minus 10% of Salary (basic component + dearness
allowance)
LTA and Medical Reimbursment
LTA
Limit of Rs 50,000 per year
It can be claimed 2 times in 4 yrs block
Block is decided by Govt , the current block is 2006-2009 .
You must be on leave while travelling
Medical Bills
Limit of Rs 15,000 per year
Doctors Visit fees and Medical Bills
Calculating Tax
Exemptions
Taxable Salary
=
Gross Salary
Exemptions
Deductions
- HRA
- Gratuity
- LTA
- Medical Bills
- Transport Exemption (800 pm)
- Interest for Home Loan (sec 24)
- Others
Deductions
- Investments under Sec 80C
- Medical Insurance Premium (80D)
- Education Loan Interest (80E)
- Donations (80G)
- Medical for Handicapped Dependent
- Others
Tax Slab and Example
Example
Tax Slab
Taxable Salary = 4.4 Lacs
Upto 1.6 Lacs : No tax
1.6 lacs 3 lacs : 10%
3.0 5 lacs : 20%
5 lacs + : 30%
Exemption Limit
Men = 1.6 lacs
Women = 1.9 lacs
Senior Citizens = 2.4 lacs
Upto 1.6 lacs = 0
From 1.6 3.0 = 14,000 (10% of 1.4 Lacs)
From 3.0 4.4 = 28,000 (20% of 1.4 Lacs)
Total
= 42,000
Power of Early Investing
Ajay starts investing
3,000 per month at
25 till 60
Investment : 12.6 lacs
Corpus : 1.95 crore
Robert is late and
starts investing 6,000
when he is 35 till 60
Investment : 18 lacs
Corpus : 1.15 Crore
Power of Early Investing
Ajay invests 5,000 for
10 yrs and stops for
next 25 yrs .
Investment : 6 lacs
Corpus : 1.97 crore
Robert is late and
starts investing 5,000
when he is 35 till 60
Investment : 15 lacs
Corpus : 1.52 Crore
Understanding Equity and Debt
Equity
Debt
- Ownership
- Risky
- Loan
- Fixed Returns
- Excellent Return in long run
- Risk goes down in Long Run
- For Short Term
- Bank FD , Govt Bonds,
- Shares and Mutual Funds
- Equity gives Returns
Liquid Funds
Investment Options
Equity Diversified Mutual Funds: Track Record High Returns over long term ,
Extremelly tax efficient .
Balanced Mutual Funds : For people who want to take less risk than Diversified
Mutual Funds .
ULIPs : Only for Long Term investors and smart people who can use switching
at right time with discipline and under the importance of Asset Allocation .
PPF : Very Important for long term , 100% secure debt portfolio . Can not be
used in Legal proceeding too .
Pension Plans (ULPP's) : Can be used for Retirement . Same structure as ULIPS
for Investments .
Fixed Deposits : You know in advance the return you are going to get .
NSC/KVP/RBI Bonds/Endowment Plans : I am not excited with these
What is Insurance
Why
- Cover Life and Health risk
- Security to Family
Why Not
- For Investment
- Only for Tax Savings (should not be the primary reason) .
Misellings
- No proper information given
- For meeting sales targets
- No proper products sold because of personal benefits like
commissions.
Insurance Options
Endowment or Money back Plans
- Safety
- very less returns (5.5 - 6%)
- No ability to fight Inflation
Term Insurance
- Only Life Cover provided without Returns
- very cheap premium
- Recommended for everyone
ULIPS
- Long term Products (10+ yrs)
- Complex a bit and advised for someone who can utilize
the features like Switchings .
4 most Important things
Return : Good
and Resonable
Returns which
can meet your
financial goals
Risk : Should
Your
Financial
Life
cover overall risk
factors like Life,
Health, any other
Liquidity : This
Simplicity : Your
means availibility of
money anytime you
need it . It
should
be atleast 3-4 months
of Expenses
overall Financial Life
needs to be simple
enough for you to
understand it . Simple
is best
Additional Readings
5 Elements : http://www.jagoinvestor.com/2008/10/5-elements.html
Pillars of Success : http://www.jagoinvestor.com/2008/10/pillars-of-success.html
Power of Compounding and Early Investing : http://www.jagoinvestor.com/2008/01/power-ofcompounding-and-early.html
Creating Long term Wealth : http://www.jagoinvestor.com/2008/08/creating-weatlh-we-are-going-todiscuss.html
Diversification of Portfolio : http://www.jagoinvestor.com/2008/04/what-is-diversified-portfolio-andhow.html
How to do your own Financial Planning : http://www.jagoinvestor.com/2008/05/factors-to-considerwhile-doing.html
Early Investor , Smart Investor : http://www.jagoinvestor.com/2009/02/early-investor-smartinvestor.html
How to choose a Mutual Fund :http://www.jagoinvestor.com/2009/01/what-to-look-for-whilechoosing-mutual.html
Portfolio Rebalancing : http://www.jagoinvestor.com/2008/07/portfolio-rebalancing-today-i-amgoing.html
Q&A's
Q&A
