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INFLATION ADJUSTED RETURNS:The rising Influx of Money in Markets from Thousands to Lakhs clearly shows how majority of ...
19/10/2017

INFLATION ADJUSTED RETURNS:

The rising Influx of Money in Markets from Thousands to Lakhs clearly shows how majority of us are turning their expenses into investments the pattern of savings showed a drastic change in the demographics of people instead of keeping money in Locker, Cupboard people believe it will help them in their bad times However we are not aware somewhere that everthing has its Value so do Money .Money Losses its value from time to time . An amount you have today might not has the same value in Future.
To Help you with the Example:
Assume you want to buy cookie which cost you Rs.100 today the same cookie you go and buy in next year might not cost you the same The quantity of cookie must be the same but not the cost which would be Rs.106 or 104 assuming 6% or 4% inflation.
The motive behind this article to explain you that before taking any investment decision either FD, Mutual Fund or other instrument always look for the inflation adjusted returns.
Agents will tell you the return for this particular product is 10% though it actually must be.
But we as an investor has to taken an effort to check how inflation is impacting your returns no Agent will tell you that , it is you who needs to calculate.
Question arises How do i calculate the same?
Here is the Formula.
IAR=( 1+ Rate of Return/1+ Inflation Rate - 1)
For Eg.
If you want to invest in an instrument which gives you 10% return and assuming the inflation rate at 4% p.a .
Equation= 1+10/1+4-1
Therefore : 1+0.10/1+0.04-1 ( Dividing 10 or 4 by 100 )
So, 1.10/1.04-1 will come as 5.76%
5.76% is the Inflation Adjusted Return on the above mentioned Rate of Return.
Please! note it might help You
Read to Lead.
Regards,
F.C.S

GIFTING PROVISION READ BEFORE YOU AVOID. SEC 56Gifts if given to a relative who is define relative in income tax Act. Su...
13/09/2017

GIFTING PROVISION READ BEFORE YOU AVOID. SEC 56
Gifts if given to a relative who is define relative in income tax Act. Such as (Father, Mother, Spouse etc.) is totally exempted from the Tax in the hands of the receiver under Sec. 56 of IT Act.
If you come in a Either 10, 20, or 30 percent slab you can reduce your tax outgo by gifting part amount of Money to your Parents Father or Mother both subject to 3 Lakh slab p.a each for senior citizen above 60 years of age If they invest this amount and earned the interest on same it will be consider as their Income it will not get Clubbed with yours as in the case of Non working Spouse or minor child it will get clubbed with your Income.
However if you gift Money to your Non working Spouse the money earned on it will get clubbed into your Income.
The same apllies to the Minor child but their is a small deduction of Rs.1500 for each child subject to Max. Two child.
Its Always advisable to take professionals help befote taking any Step.

Regards,
Finanta Consultancy Services.

04/04/2017

Long Term Capital Gains:

The formula to calculate the cost inflation index is as follows:

Cost Inflation Index (CII) = CII for the year the asset was transferred or sold / CII for the year the asset was acquired or bought

Suppose, you purchased an apartment for Rs.110000 lakhs in the year 01st April 1981 and sold it for Rs.25 lakhs in Jan 2015.

The CII for the year the apartment was bought in is 100 , CII for the year the apartment was sold in is 1024.( Released by gov in every Financial Budget)

The cost inflation index is 1024/100 = 10.24

While computing tax, CII is multiplied with the purchase price to arrive at the indexed cost of acquisition. This is the actual cost of the asset.

Therefore, the indexed cost of acquisition = 1,10,000 X 10.24= Rs.11,26,400

The long term capital gain= sale value of the asset- indexed cost of acquisition i.e., 25,00,000 - 11,26,400 =13,73,600

The tax liability if you use the indexation method is charged at 20 percent. The tax liability will be 20% X 13,73,600= Rs.2,74,720
When you take indexation it helps you save taxes. It helps you adjust the purchasing price of the apartment with the current market prices.
The Apartment which cost you 1.10 Lakh in year 1981 would cost you Rs. 11.26Lakh in 2015 thus when we minus the 2015 cost of asset we get Long Term Capital Gains .i.e Rs.(13.73Lakh)

Note: We have not taken Cost of Improvement in the above example there are various ways to prevent yourself from being taxed on Long Term Gains,we will cover the topic soon.

Regards,
Sufiyan Ansari

27/03/2017

Power of Sec 44ADA
Presumptive Taxation:
The above sec is only for Professionals:
- Lawyer
-Doctor
-Engineer
-Accountant
-Consultant
It is obligatorty for them to maintain books of Accounts if total income Exceeds 1.5 Lakh or Gross Receipts Exceeds 25 Lakh undet Sec 44AA and Sec 44 AB respectively
For Eg: Ram who is a Doctor has Total Gross Receipts of Rs.10Lakh where he earns a profit of Rs.7 Lakh We will compute his Income With Regular Slab method and Presumptive taxation Method:
Regular Method: where Ram's Income tax slab is 3 Lakh then his Total taxable Income is Rs.4 Lakh (7Lakh- 3Lakh)
Total Income Tax paid by Ram is Rs.50k @5% 20% Computaion.
Presumptive Method: where we assume 50% of Gross Receipts as Income i.e Gross Receipt is 10 Lakh 50% would be 5 Lakh his total income would be Rs. 2 Lakh (5 Lakh - 3 Lakh Slab) Total Tax paid by Ram is Rs. 10k.
You will end up saving 40k Tax on your Income if you opt for presumptive Taxation.
Regards,
Sufiyan Ansari

21/03/2017

How FD's are chasing only inflation.
Let me help you with a suitable Calculative Example:
For Eg. You have 100000 in hand you are planning to invest in FD's ,Rate of interest on above is 6.90% p.a Since FD's are taxable TDS Deducted will be as per your tax Slab we will calculate FD's Post Tax Return:

Post Tax Return = Taxable interest yield * (1-Marginal Rate )

Here marginal rate is your Tax Slab Rate Suppose 10% Decimal (0.10) when divided by 10/100 .

Post Tax Returns = 6.90* 0.9=6.21% p.a

The things which cost You 100 today will cost you 106 after One year because time value of money decreases , when we minus inflation rate assuming 6% we will left with only 0.21 %

i.eRs. 210 in hand the above example clearly reiterate the Capacity of FD to beat inflation Rather increasing your wealth.

Regards,
Sufiyan Ansari

28/02/2017

Inflation reduces the asset value over a period of time. Indexation helps us to counter the erosion in the value of our assets over time. You can increase the purchase price of the asset using the inflation index. This reflects the inflation-adjusted price in the year the asset is being sold. The cost inflation index for the financial year 2016-17 is 1125

If you have sold an asset that you held for more than 2 years, you can take advantage of the indexation As per 2017 budget.
Stay Glued for Cost Inflation Index Calculation.

22/01/2017

Mutual Funds : A fund or corpus in which people invest their money Either Via SIP ( Systematic Investment Plan) or Lumpsum Starting from Rs500 , there are fund houses who collects money from people and invest that money in shares and securities by daily tracking the market.
Two Types of Mutual Funds and Their Tax Factor: Equity( High Risk )and Debt (Low Risk)
FOR EQUITY FUNDS AND STOCKS
If you invest in stocks, equity funds or equity oriented balanced funds, the profits will be considered short term gains if you sell within 1 year. The tax will be 15% of profit.

If you hold for more than a year, profits will be considered long term capital gains and will be TAX FREE.

FOR DEBT FUNDS AND DEBT ORIENTED BALANCED FUNDS
If you invest in debt funds or debt oriented balanced funds, the profits will be considered short term gains if you sell within 3 years. The gains will be added to you income and taxed at normal rates.

If you hold for more than 3 years, profits will be considered long term capital gains and will be Taxed at 20% after indexation. Indexation takes into account the inflation during the period of holding and accordingly adjusts the buying price. This lowers the tax considerably
Regards,
Sufiyan Ansari

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