Why You Should Rethink Fixed Deposit Investments

Fixed deposit rates have come down over the last few months and are expected to fall further. Analysts say investors should look at other avenues to maximise returns at a time when interest rates are headed lower.

Here are some options that may offer higher returns.
1) Tax-Free Bonds: They are issued by government-backed entities and have low default risk. Interest is typically paid annually and is not subjected to tax, unlike fixed deposits. Such bonds can also be purchased from the secondary market, where tax-free bonds like NHB are yielding around 7 per cent for a 9-year residual maturity. In contrast, a fixed deposit for a similar tenor from SBI is offering 8.25 per cent, says Vishal Dhawan of Plan Ahead Wealth Advisors. Investors in the 30 per cent tax bracket will have to pay taxes on the interest earned on fixed deposits, so the 8.25 per cent rate translates to 5.70 per cent on a post-tax basis. If interest rates fall further, bond prices will appreciate, increasing returns.

2) Debt Funds: Fund managers remain bullish on debt mutual funds that invest in longer tenure government and corporate bonds, given the prospect of further rate cuts. In the past one year, the average mutual fund return from schemes that invest in medium to long-term government bonds is 17.65 per cent, according to Value Research, with the top performers fetching returns of more than 20 per cent. Debt mutual funds are also more tax efficient than FDs.

3) Systematic Withdrawal Plan (SWP) in debt funds is a good option for those investors who want to withdraw money from an existing mutual fund at predetermined intervals. There are two options. In the fixed withdrawal option, investors get specified amount on a monthly/quarterly basis, while in appreciation withdrawal, only the appreciated amount can be withdrawn on a monthly/quarterly basis. As compared to bank fixed deposits, systematic withdrawal plans are also more tax efficient. They also don't attract TDS (tax deducted at source) unlike bank FDs.

4) Corporate deposits are a good option, but investors should focus only on top-rated schemes, analysts say.

5) Monthly Income Plans (MIPs) offered by mutual funds are a good option for investors who can take moderate amount of risk. Such schemes invest bulk of their portfolio in debt securities and the equity allocation remains typically capped between 10 per cent and 25 per cent.

Income Tax return Amendment

CBDT has notified Income Tax Return Forms SAHAJ (ITR-1), ITR-2 and SUGAM (ITR-4S) for AY 2015-16.
Key changes of new forms are as follows:

• Aadhaar number to be mentioned in the ITRs
• New 'Schedule BA : Details of Bank Accounts' introduced. Assessee will now have to disclose details of all bank accounts held during the year (including opened/closed)
• New 'Schedule FT : Details of Foreign travel and expenses' incurred by the assessee during the year
• Introduction of EVC for verification of return of income filed as an option to send ITR-V to CPC, Bangalore

Comments:

Earlier even after electronic filing, taxpayers had to post a physical copy of the ITR-V, to the income tax department, Bengaluru within 120 days of filing of return. Under new forms, Taxpayers with Aadhar cards are exempted from submitting their ITR V by post after filing their returns online. This will make the online filing procedure truly paperless. The new ITR forms- ITR 1 (Sahaj), 2 and 4S for FY 2014-15 (assessment year 2015-16) will link your EVC system verified Aadhar Card to the ITR forms and the verification of the return shall take place electronically.

CBDT has also amended Rule 12 of the Income Tax Rules, 1962 expanding the scope of e-filing.

1. Returns can be furnished in any of the following manner
   1. Electronically under Digital Signature; or
   2. Transmitting the data in the return electronically, under electronic verification code; or
   3. Transmitting the data in the return electronically and thereafter submitting Form ITR-V; or
   4. Paper form
2. e-Filing NOT mandatory for:
   1. Individuals above 80 years and are furnishing ITR-1 or ITR-2
   2. Individuals/HUF with total income upto five lakhs
3. Individuals claiming refund should mandatorily e-file the return
4. Mandatory e-Filing with Digital Signature in the below mentioned cases
   1. Companies
   2. Assessees whose accounts are required to be audited U/s 44AB of the Act;
   3. Political party filing ITR 7
5. ITR 1 and ITR 4S shall not be applicable to persons, who is a resident and has
   1. Assets (including financial interest in any entity) located outside India
   2. Signing authority in any account located outside India;
   3. Income from any source outside India.

Reference:

http://www.incometaxindia.gov.in/Pages/downloads/income-tax-return.aspx

http://www.incometaxindia.gov.in/communications/notification/notification41_2015.pdf

PPF Account Offers Loan Facility: 10 Things to Know

Public provident fund (PPF) is among the most popular investment options for long-term savings. Deposits made under PPF also qualify for tax benefits. PPF subscribers can also avail loan benefits against their deposits.

10 Things to Know About the Loan Facility

1) A PPF subscriber can avail loan between the third and sixth financial year of opening the account. For example, if the account was opened in the 2011-12, a subscriber can take a loan between 2014-15 and 2017-18. PPF accounts follow an April-March year cycle.

2) The amount of is restricted to 25 per cent of the balance at the end of the second year preceding the year in which the loan is applied for. For example, if the loan was applied in 2015-16, 25 per cent of the account balance at the end of 2013-14 can be taken as loan.

3) However, no loan can be taken from the can be availed from seventh year of opening the PPF account as it qualifies for partial withdrawal.

4) The loan (principal) is repayable either in lump sum or in installments within 36 months.

5) The interest portion of the loan has to be repaid by two monthly installments after the principal is paid off.

6) Interest is charged at 2 per cent more than a subscriber receives on the PPF.

7) Meanwhile, the balance amount in the PPF account accumulates interest.

8) If the loan is not repaid within 36 months, interest at 6 per cent more than what subscribers receive on their deposits is charged.

9) The interest on outstanding loan which has not been paid before 36 months or paid partly will be debited from the subscriber's account at the end of each financial year.

10) A second loan can be taken on full payment of first loan.

Sukanya Samriddhi Account Vs PPF: 10 Things to Know

The recently launched Sukanya Samriddhi Account and Public Provident Fund (PPF) can be useful instruments for saving for the future needs of the children. The Sukanya Samriddhi Account can only be opened in the name of the girl child while PPF scheme can be availed by all. Experts say PPF scores over Sukanya Samriddhi Account in terms of liquidity (partial withdrawal facility) and other flexibilities. But Sukanya Samriddhi Account could potentially give higher returns, they add.

Eligibility: A Sukanya Samriddhi Account can be opened by the guardian in the name of a girl child till she attains the age of ten years. Only one account is allowed per girl child. Parents can open this account for a maximum of two children.

Limit: An investor can open PPF accounts in the name of minors but a maximum of Rs. 1.5 lakh can be deposited every year including all the accounts. In case of Sukanya Samriddhi Account, a maximum of Rs. 1.5 lakh can be deposited per account.

Account Opening: A Sukanya Samriddhi Account can be opened with an amount of Rs. 1,000 while it is Rs. 100 for a PPF account. Both these accounts can be opened at post offices and banks.

A charge of Rs. 50 will be levied both in Sukanya Samriddhi Account and PPF if the minimum contribution is not made every year.

Minimum and maximum contribution: In an Sukanya Samriddhi Account, a minimum of Rs. 1,000 has to be deposited every year and the maximum limit is Rs. 1.5 lakh. And there is no limit on number of deposits either in a month or in a financial year.

In case of PPF, an individual but has to deposit a minimum of Rs. 500 in a financial year while the maximum limit is Rs.1,50,000. And deposits can be made in lump-sum or in 12 installments.

Maturity: The Sukanya Samriddhi Account can be closed after the girl child in whose name the account was opened completes the age of 21. If account is not closed after maturity, the balance will continue to earn interest as specified for the scheme from time to time. The maturity period of a PPF account is 15 years but it can be extended in blocks of five years.

Taxation: In terms for taxation, deduction up to Rs. 1.5 lakh is allowed under Section 80C in both the Sukanya Samriddhi Account and PPF. Also, both the schemes qualify for tax-free status on withdrawal and interest income.

Withdrawal: Partial withdrawal is permissible every year from the seventh financial year of opening the PPF account. In case of Sukanya Samriddhi Account, up to 50 per cent of the accumulated amount can be withdrawn after the account holder turns 18 while full withdrawal is possible after she turns 21.

Interest rate: The interest rate on Sukanya Samriddhi Account and PPF is not fixed. The government will every year declare the interest rate of the scheme. For 2014-15, the government would be paying 9.1 per cent interest on Sukanya Samriddhi Account against 8.7 per cent on PPF.

Loan: A loan facility is available from the third financial year of opening the PPF account. In Sukanya Samriddhi Account there is no such facility.

What Experts Say: Anil Rego, CEO of Right Horizons, a wealth management firm, said the choice between Sukanya Samriddhi Account and PPF is a trade-off between more flexibility and higher returns. PPF offers more flexibility while Sukanya Samriddhi Account can potentially give higher returns, he added. Investors with surpluses can look at the distributing their investments in both the schemes, Mr Rego added.

Suresh Sadagopan, the founder of Ladder 7 Financial Advisories, says both the Sukanya Samriddhi Account and PPF are similar schemes in nature in the debt space under Section 80C. The Sukanya Samriddhi Account is a good alternative if investors are comfortable at locking their money for a long time, he added.

How You Can Save Rs. 4.44 Lakh in Taxes Per Year

Finance Minister Arun Jaitley on Saturday said an individual tax payer will get tax benefit of Rs. 4,44,200 after taking into account the tax concession given to middle class tax payers in the last Budget and this Budget.
Here is the mathematics behind Mr Jaitley's statement:
Deduction under Section 80C is Rs. 1.50 lakh
Deduction under Section 80CCD is Rs. 50,000
Deduction on account of interest on house property loan (Self occupied property) is Rs. 2 lakh
Deduction under section 80D on health insurance premium Rs. 25,000
Exemption of transport allowance is Rs. 19,200

Rs. 1.50 lakh + Rs. 50,000 + Rs. 2 lakh + Rs. 25,000 + Rs. 19,200 = Rs. 4,44,200

Check Your Tax Office Jurisdiction Before Filing Returns

Check details about your new tax assessment range if you are going to file income tax returns, apply for refunds or conduct any I-T related business in future.

A huge cadre restructuring in the I-T department, with the creation of over 20,700 posts recently, has brought about a number of changes in the existing jurisdictions of assessing officers (AOs) of the department across the country.

"A huge cadre restructuring has been effected in the Income Tax department across the country recently. With new posts and charges in place, a number of taxpayers will find that their AOs and assessment jurisdictions have changed. But there is nothing to panic," a senior officer in the department said.

Taxpayers, the officer added, should check their new jurisdictions by undertaking a simple search on the designated I-T online portal which shows an individuals' or taxpayers' AO by punching PAN card details.

One can log on to www.incometaxindiaefiling.gov.in and click the link 'know your jurisdictional AO' to check under what assessment range their I-T cases would be assessed in the future. The department's Systems wing has already punched and put in place unique details of every permanent account number (PAN).

"Not everyone's AO would have changed under the new exercise but it is recommended that the taxpayers undertake this simple step of checking their AO by using their PAN card details. In case of online filing of I-T returns, the system will automatically find the AO of the filer," the officer said.

The officer also said that the "aim of the restructuring is to check the skewed distribution of posts in the department and to ensure identical hierarchal structure so that the department can effectively tackle taxpayers grievances and issues and ensure better tax collection".

The government had approved the ambitious cadre restructuring of the department in May, 2013 and had created 20,751 posts, in various ranks, in the department.

According to an earlier blueprint prepared to implement this proposal on the ground, the I-T department hopes to mop up additional revenue of more than Rs 25 crore by opening 1,080 assessment offices for taxpayers and increasing the number of tax collectors in every office.

According to the blueprint, the number of assessment units of the department would be "increased by 1,080 from 3,420 to 4,500 for strengthening the tax administration".

The restructuring of the department also aims to expand the reach of those I-T offices which deal with "critical" areas of international tax, investigations, and TDS (tax deducted at source) as the action undertaken by these wings add to the revenue collection in a big way.