Your Checklist On Taxes For The Financial Year End!

We are just a few days to go before this financial year (2019-20) comes to a close. Though you have time till July 31st, 2020 to file your income tax returns, there are a number of activities that you need to do by March 31st, 2020 to claim the benefits in this assessment year (AY 2020 – 21). The finance minister came out with a series of extensions in dates till June 30th, 2020; but this is restricted mainly to tax saving investments.   Thus, you may have a bit of a breather on your tax saving investments.  Here is a checklist of items that you should go through to make sure that you have availed all the tax benefits available under different provisions of the Income Tax Act.

 

  • Set off your capital gains for the year with the losses:  If you do have capital gains for the year upto January 2020 when markets were relatively buoyant, you would have a number of stocks or even mutual funds that would be showing losses.  You can book some losses and set off the capital gains. You would want to optimise your capital gains in a difficult year. Do check if you have exit loads on your mutual funds before booking the losses.  This needs to be executed by March 31 for one to avail of the benefit.
  • Section 80C: You can claim deduction of up to Rs 1.5 lakhs from your gross taxable income by investing in schemes eligible u/s 80C. These schemes are EPF, VPF, PPF, NSC, tax saver bank FDs, life insurance premiums, mutual fund ELSS etc. Tax payers who are not getting a salaried income and not having PF and other tax saving investments must make sure that they avail maximum benefits. Senior citizens and parents of girl children can claim deductions by investing in Senior Citizens Savings Scheme and Sukanya Samruddhi Yojana subject to the overall Rs 1.5 lakhs 80C limit. Investors paying home loan EMIs can claim deduction for principal payments made during the financial year. Benefit extended till June 30th.
  • Section 80D (Medical insurance): You can claim Rs 25,000 of additional deduction for medical insurance premiums for yourself and your family (seni or citizens can claim up to Rs 50,000). You can claim a further deduction of Rs 25,000 for medical insurance premiums of dependent parents (Rs 30,000 if your parents are senior citizens).  Benefit extended till June 30th.
  • Section 80CCD (NPS): You claim additional Rs 50,000 deduction, over and above Section 80C limit of Rs 1.5 lakhs, by investing in National Pension Scheme. You can claim total deduction of Rs 2 lakhs by investing Rs 1.5 lakhs u/s 80C and Rs 50,000 in NPS. Benefit extended till June 30th.
  • Section 24 (Interest payment on home loan): You can claim up to Rs 2 lakhs deduction for interest payments in your home loan EMI for self-occupied house. If you are paying home loan EMIs for a let out house, the loss is restricted to Rs 2 lakhs in a financial year.
  • Section 80E (Interest payment on higher education loan): If you have taken loan for your, spouse or children’s higher education, then the entire interest payment can be claimed as deduction from your gross taxable income.
  • Section 80G (donations to charities): Donation made to tax exempt charities is allowed to be claimed as deduction at the rate of 50% or 100% (of the contributed amount) depending on the charity and as per approval granted by prescribed income tax authorities.

 

  • Check your surcharge bracket:  You maybe able to claim exemptions/deductions and set off your losses to reduce your net income to below the surcharge brackets (Rs 50 lakh / 1 Cr / 2 Cr / 5 Cr) if your income is on the border.  Plan before March 31st, because only tax saving investments are extended till June 30th.

 

  • Pay Advance Tax by March 31st: Tax payers who have income from other sources (e.g. rent, FD interest, capital gains etc) should make sure that they pay advance tax by March 31st, 2020. If you have worked in two different companies, you are likely to have to pay additional taxes for the year when you consolidate the two form 16s. If do not pay Advance Tax on time, you will have to pay interest @ of 0.75% per month of delayed tax payment (reduced from 1% per month for the period upto June 30th), even if you file your IT returns on time. For example, if your tax obligation over and above tax deducted at source (TDS) on March 31st is Rs 5 lakhs, you will have to pay Rs 16,250 as interest if you are filing your ITR and paying tax on July 31st

Summary

You can save a lot of money in taxes by availing the benefits available under different provisions of Income Tax Act. In this article, we have shared with you a checklist of items that you should review and make sure that you get maximum benefits. In addition to the tax savings avenues shared in this article, there may be other depending on your specific situations. If you need help with your tax planning feel free to email us at contactus@righthorizons.com .

Is a no risk product available in the market


There is nothing like a no risk product. Let me give you and example. We normally consider government bonds are risk free. Investors into government bonds of Greece lost about 50% of their principal.

* Similarly, one feels that bank deposits are safe. However, this actually depends on the creditworthiness of a bank.
Your bank fixed deposits are protected only upto Rs 1 lakh by a deposit insurance.
* The other aspect to keep in mind as is today prevailing in developed countries, is that the returns that you get out of a fixed deposit are so low that they are insufficient to take care of various needs.
* Today, pension funds in Japan have not much option but to invest in equities if they have to deliver any positive return to pay annuities.

Hence, it is important that every individual spends time not only in assessing what the returns a product would give, but also what is the risk of a product. And there is nothing like no risk.

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Market: 2k18 “The year gone by”..

2018 was one of the most difficult year for investors as benchmark Nifty gave only 3.2% whereas broader markets like Mid cap and Small caps where down by 15.3% and 23.6% each  respectively. Only Bankex, FMCG and IT are closed on a positive note, while rest all indices closed lower. The markets also witnessed major events like NPA clean-up, NBFC re-financing issues, RBI Governor exit, that could fundamentally change the structure of the economy. It is however important to highlight that the government proactively acted on the above issues.

Where do we stand today:

Data throws up a mixed bag when we look at valuations and compare it with December 2007, closer to the previous market peak.  On Price/Earnings for Nifty 50, we are valued similar to the last peak at 26.6 in Dec 07 Vs 26.4 in Dec 18, but when we look at other valuation parameters like Market Cap/GDP, we are much lower.

As pointed by Warren Buffett, the percentage of total market cap (TMC) relative to the US GNP is “probably the best single measure of where valuations stand at any given moment.”

//(GDP & GNP Definition and the difference

GDP is the total market value of goods and services produced within the borders of a country.

GNP is the total market value of goods and services produced by the residents of a country, even if they’re living abroad. So, if a U.S. resident earns money from an investment overseas, that value would be included in GNP (but not GDP).

Further, markets have steep falls when they run up significantly and the economy is overheated.  Despite the fact that markets have moved up over the last couple of years, this is much muted compared to what you normally see in a bull market.  Economic parameters are also muted.

Various Indicators- Current Vs Dec 07

US Markets take a tumble

US markets have seen a large correction since October 2018 with the DowJones was down by 18.8% before recovering some of the losses. Though the US markets have been one of the best performers, we are relatively bearish on US stocks vis-à-vis Indian stocks. In the case of the US, both market and economic performances have been strong over the past few years and we believe US stocks/ESOPs could be impacted over the next year.

 

The General Elections in India to pave the way forward

Every general elections year is always a volatile year as you get huge moves in Index on both the sides and 2019 is not going to be different, as we step into general elections.

The election result may impact the economy’s road map ahead. In Jan 2018, many experts were cautious because of high valuations in mid and small caps without having earning growth.

The whole matrix has changed in 2019 as stocks have given significant corrections and earnings growth also picked up in 2018. We expect 2019 to be a year of net positive investment for both FII’s and DII’s, unlike 2018 where only DII’s were supporting Indian markets.

This is not the year for light-hearted investors who get worried when they see 10%- 15% down move in the Index. Past data shows that those who stayed invested in these volatile period were the biggest beneficiaries including in years of coalition governments.

If we analyze last 5 general election data, Nifty has never given negative return in an election year. In 1999, 2004, 2009 and 2014 Nifty has given 51%, 18%, 80% and 39% each respectively. Equity markets always ride on fear and hope and this year would be no different.

Everywhere we are hearing that central elections are there and markets will be volatile, but holding on to your investments at these times might reward you significantly. The recently concluded State elections resulted in BJP losing in all 3 major states. Now markets have given big thumbs up to the result and up by more than 5%.

This signifies value buying is emerging and we should be invested at these time irrespective of any party takes control of government with majority mandate.

Historical Calendar Year returns in an election Year

Past data shows that we may have a pre-election rally.

Keeping in mind the above data points, we believe that while markets are likely to be volatile, it would end the year on a positive note.  Subsequently, I expect both economic parameters and markets to gather momentum.

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Asia Stocks Edge Up; Japan Yields Hold Gain on BOJ: Markets Wrap

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China Plans Retaliation for Any Amount of U.S. Tariffs

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