Lessons to be learnt from the Indian Election 2019

Congratulations to everyone.....

World's largest festival of democracy is over & strongest statesman of the world is at center again- So let’s find out what we can learn from this biggest democratic festival of the word’s

1. When it's about nation: Support the Nation.

2. When it's about army: Support Soldiers, they fight unconditionally.

3. When so many social schemes are on ground: don't say "Kya Kiya".

4. When institutions are working, to hide your inefficiencies: don't blame them.

5. Every success has a very hard work in the back ground. Don’t fall prey in short cuts.

6. A proper machinery, man power, planning and other resources are required. You can’t get a success without all these basics.

7. When democracy is prevailing: don't spoil image of nation on foreign soil.

8. When secularism is prevailing: don't coin word intolerance to appease communities.

9. When nation is rated as emerging global powers: don't say it's fudged analysis by rating agencies.

10. When leader is working with integrity: don't say he is corrupt without any concrete evidence.

11. When positivity prevails: don't spoil your image by talking or supporting negatives.

12. When victory is inevitable: respect the verdict unconditionally.

13. When in debate a friend gets annoyed: wait patiently, better sense will prevail, than leaving him.

14. When some sensitive topic about the history is being discussed, don’t talk casually “Jo Hua So Hua.”

15. Understand what your customers expect from you and Deliver those without demand.

16. This is 21^st Century, Technology plays important role. Do not underestimate the power of Social Media.

Jai Hind. Jai Bharat.

Check your Risk Profile

My Friend Raj is an engineer who is good in saving, He is saving money for past many years, however all his money is going in fixed Deposits. One day while discussing generally, he told me this and I asked him why is he keeping everything in FDs, he replied he is interested to invest in higher yielding comparatively risky investment avenues but he don’t know how much risk he can take and what is suitable option based on his own risk profile that’s why he ended up in FDs.

Well this is a very common thing I heard from many other investors. So the question is how to gauge your risk and then how to match the investment options with the risk profile. So let us simplify the Risk profiling.

1.      Segregate Goals             

Firstly we need to segregate each and every goal based on time and amount required. There could be different goals like next vacation tour in holidays, buying a car or, retirement planning etc.

2.      Setting Time frame        

After segregating the goals we need to setup a time frame for these goals, which will help them decide how much investment risk they can take for better returns. For example vacation holidays could be of short term like next summer season, buying a car may be a target of three years and retirement planning is required for the age of 60. Each goal has certain time line to achieve them.

3.      Choosing the Right Investment option  

Once goals are defined and time frame is fixed. The investment can be made based on the time horizon and fund requirements. Setting a time frame for goals will help to decide how much investment risk can be taken for better returns.

Here we need to understand that some of the investments may give high returns but the returns may be volatile over the short term. Such investments require a sufficiently long investment time frame in which the volatility will smoothen out. On the other hand very safe investment options for long term may not be able to match the return potential from the other investment options.

Sometimes we may be tempted to assign high return investments for their short- term goals if they have fallen behind in terms of the goal amount. But the risk in doing that is we may find that the value of the investments has dropped when the money is actually needed.

While selecting investments based on the time horizon of their goals, we should also remember that a longer investment horizon alone does not make a fundamentally bad investment less risky. We need to select only sound investment options/instruments after evaluating their strengths and features.

By aligning their investments to the goal horizon & time frame we can ensure that the level of risk is appropriate without being too high. This way we can put our savings at risk to earn good returns without putting our financial goals at risk from inadequate funds.

We also need to understand that every person has their own financial goals and risk appetite. While doing risk profiling we need to understand the same before selecting the investment options.

REITs: A New animal In the Investing World

  

What is REIT

Real Estate Investment Trusts (REITs) are similar to a mutual fund wherein investors pool funds which are invested by the sponsor of the scheme into the real estate asset class which acts as the underlying securities. However, the working of a REIT differs a lot. During the launch offer, an investor may buy REIT units which can then be traded on the stock exchanges and thus ensure liquidity. As per the rules, the minimum allotment will be in multiple of one lot each consisting of 100 units and after listing trading will be in multiple of one lot. The REIT shall issue units only in dematerialized form to all the investors.

The minimum subscription amount in REIT has now been reduced from the earlier limit of Rs 2 lakh to Rs 50,000.

India’s first REIT

The first REIT IPO by Embassy Office Parks, a Bangalore-based real estate developer backed by Blackstone Group LP, a global private equity firm, was open for investment between March 18 and 20, 2019. The Embassy Office Parks REIT raised ₹4,570 crore through the IPO. The per unit price of the REIT has been kept in the range of ₹299-300, with the minimum application bid of 800 units. This means that an investor will have to invest at least ₹2.4 lakh in this product. Thereafter, one can increase the lot size in multiples of 400 units. As on 26th April'19 closing price of it was Rs. 327 per unit.

Where it invests

As per SEBI guidelines,  REIT shall hold at least two projects, directly or through SPV, with not more than sixty per cent of the value of the assets, proportionately on a consolidated basis, in one project. Further not less than 75 per cent of the revenues of the REIT and the SPV, other than gains arising from sale of properties, shall be, at all times, from rental, leasing and letting real estate assets or any other income incidental to the leasing of such assets.

The investment can be made in under-construction properties, ‘completed and not rent generating’ properties subject to caps and conditions. REIT is also allowed to invest in listed or unlisted debt of companies or body corporate in real estate sector, mortgage backed securities, equity shares of listed companies, money market instruments and government securities amongst others.

Expected Returns from REITs

As per guidelines minimum 90% of net distributable cash flows of the SPV shall be distributed to the REIT. Further, not less than 90% of net distributable cash flows of the REIT shall be distributed to the unit holders; and any such distributions shall be declared and made at least once every six months in every financial year.

As a REIT investor, the earnings may be in the form of regular income and capital appreciation, if any. In Indian scenario, most industry experts expect return of about 8-12% percent from the REITs.

How REITs are taxed

How the income gets taxed in your hands depends on whether your REIT is passing it off as a dividend income or rental income.

Scenario 1:  If it’s the rental income that it is passing on- which would mostly be the case since REITs are meant to pass on at least 90% of its rental income, then it will be added to your overall income and get taxed at your income-tax rates. In this case REIT will deduct a tax at 10% (TDS) for resident investors and at rates in force (40%, at present) for non-resident investors

Scenario 2: If the income distribution is in the nature of a dividend, then there won’t be any dividend distribution tax or any tax in the hands of unitholders.

Capital Gain Tax:

If you sell your REIT units on the stock exchange after three years, you will need to pay a capital gains tax at 10% (plus applicable surcharge and cess). If you sell your REIT units within three years, a short-term capital gains tax of 15% (plus applicable surcharge and cess) will be imposed.

Things to look beyond

·     Returns can’t be very high as dividend yield might be between 6.5 and 8 percent. Even the capital appreciation can also be limited to single-digit.

·     Another concern is over the liquidity of these instruments. As REIT is a new product and it takes time to catch up. Hence there may be low liquidity in the secondary markets.

·       REITs are best considered as a means to diversify your portfolio across asset classes than for earning higher returns.

And Finally:

Real estate has always been considered an illiquid and a big-ticket investment. REITs provide an opportunity to diversify across real estate as an asset class. REITs are primarily a hybrid investment seeking capital appreciation and even income (rent) from the underlying securities of the sponsor. With twin benefits of REIT and the rules in place, one should expect the REIT to provide a new investment option to the Indian investors.

Elections and The Market

Every time when the elections are nearby, most of the people get worried about who will come to power, what will happen to the market and economies and my investment? This is a very common worry, as everyone wants certainty and clarity whereas elections are most of the time un-predictable.

Market do have impact by the Election results which can been seen by the previous occasions. In 2004 when the BJP-led NDA coalition lost the elections in a shock result, the BSE-30 Index collapsed from 5,358 on May 12, 2004 to 4,961 on May 21, 2004, a loss of -7.4 % in 7 days. When the UPA-2 was re-elected by a wider-than-expected majority in the May, 2009 elections the stock markets surged by +17.2% in one day on May 18, 2009. Trading was halted three times that day as the market hit 3 upper-limit circuit breakers during that truncated trading day. There was less than 90 seconds of actual trading on that day!

But do the Elections results have deeper, long term impact?  History shows that discussion on election results is a great conversation starter but it does not have long lasting impact on our investments! As the heat and dust on election campaign settles down and a new government comes into a picture and slowly starts working for long term policies, the market also settles down.

If we analyse economic growth since 1980, i.e. last 39 years the average real GDP growth was above 6%. In single party rules (all of Congress), for 1980-84 it was 5.9%, 1984-89 it was 5.4% and for 1991-96 it was 5.2%. On the other hand in co-coalition government of 1996-98 (Devegowda & I K Gujaral) & 1998-99 (Bajpayee Govt) actually it was higher at 6.1% & 6.7% respectively. Further in UPA-I the growth was 8.5% while in UPA-II it went down to 6.6%. For current NDA govt. the growth is 7.4% (based on new data series.

What it shows is that the coalition government has actually given better growth compared to single party government. Although it is not necessary, but what it means is that GDP growth depends on various factors and even a coalition govt can also deliver better results.

To summarise:

·        Elections don’t really matter over a longer period, India’s economy will grow.

·        Having a coalition government  can be even better sometimes than having a single-party government!

·       The rate of growth depends on various factors.

·     India growth story may remain intact as India is the domestic consumption based economy with 1.3 billion people who are going to add to the economy.  

So what should we do in this scenario?

Scenario 1 – If we believe that a BJP-led coalition will come to power;

Then we should increase allocation to equities to 60-70% and remaining amount can be split in gold and liquid funds.

Scenario 2 – If we believe that a Congress-led coalition will come to power;

Then we may continue with equities to 50-60% and remaining amount can be split in gold 20-25% and liquid funds 10-20%.

Scenario 3 – If we believe that some third party-led coalition will come to power;

Keep the equity exposure below 50% and remaining amount can be split in gold 25% and liquid funds 10-20%.

Please note that above mentioned portfolio allocation is a general advice and should not be considered as investment advice/recommendation, reader should consult their own financial advisor before taking any decisions.

HOLI: Various Colours of Life

Holi is the festival of colours. Colours are very important in life; they make the things beautiful and vibrant. Without colours life is like black & white TV of 80s. Every colour has its own aroma and importance. Let’s understand what they indicate and how it impacts our lives.

Black

Black is the colour of power, elegance, formality, death, evil, and mystery. It is associated with fear and the unknown (black holes). It also has a negative connotation (blacklist, black humour, 'black death'). However Black is also the signature colour of sophistication & royalty (the black party-wear), it dominates high-end makeup packaging and can even make inexpensive blushes and lipsticks seem more upscale.

White

White is associated with light, goodness, innocence, purity, safety, purity, cleanliness and virginity. It is considered to be the colour of perfection. As opposed to black, white usually has a positive connotation. In branding, white suggests simplicity and purity. (Seventy-five percent of top skin-care brands are packaged in white.) It also stands for modernity and honesty, which may be why Apple swears by it.

Red

Red is the colour of fire and blood, energy, war, danger, strength, power. This colour also shows the determination as well as passion, love and desire. Red is a very emotionally intense colour. It enhances human metabolism, increases respiration rate, and raises blood pressure. Although plenty of shops embrace this colour (and still find financial success), market experts warn that, just like a stop sign, a red placard can make consumers hit the brakes. It serves as an alarm, triggering a more careful consideration of our outlays.

Orange

This colour is associated with joy, sunshine, and the tropics. Orange represents enthusiasm, fascination, happiness, creativity, determination, attraction, success, encouragement and stimulation. To the human eye, orange is a very hot colour, so it gives the sensation of heat. Nevertheless, orange is not as aggressive as red. This colour is associated with equality and affordability, which is why we’ll find it at stores offering good value, like Big bazaar etc.

Pink

Pink, a delicate colour that means sweet, cute, romantic, nice, playful, charming, feminine, and tenderness, We see this colour with, flowers, babies, little girls, cotton candy, and sweetness. Pink is the colour of universal love of oneself and of others. This is the favourite colour of ladies especially the young girls.  It has calming effects, seeing pink slows people’s endocrine systems and tranquilizes tense muscles. How that might influence your wallet: Feeling relaxed may make it less painful to part with cash.

Green

Green is the colour of life. It represents renewal, nature, energy and is associated with meanings of growth, harmony, freshness, safety, fertility, and environment. Green is also traditionally associated with money, finances, banking, ambition, greed & jealousy. This is the colour of people who have eco-friendly and environment preservation in mind. Shoppers keep this colour to impress eco-minded clients.

Blue

Almost everyone (especially men) likes blue. Blue is the colour of the sky and sea. It is often associated with depth and stability. It symbolizes trust, loyalty, wisdom, confidence, intelligence, faith, truth, and heaven. Blue is considered beneficial to the mind and body. It slows human metabolism and produces a calming effect. No wonder it signifies trust and dependability and is a favourite logo colour for financial institutions to assure its customers for safety. Blue also improves customer loyalty: As per one Research Patrons are more likely to return to stores with blue colour schemes than to those with orange colour schemes.

Purple

Purple combines the calm stability of blue and the fierce energy of red. This colour is often associated with royalty, nobility, luxury, power, and ambition. Purple also represents meanings of wealth, extravagance, creativity, wisdom, dignity, grandeur, devotion, peace, pride, mystery, independence, and magic. Purple reigns in the beauty industry, especially in the category of anti-aging products. When people see it, they think of royalty. Consequently, a purple box may help persuade us that the product has special properties and is worth a princely sum.

Burgundy

Burgundy is a deep shade of red. It is named after Burgundy wine. This wine is named after the Burgundy region of France. This colour reminds us of all things rich and refined (just like red wine), so don’t be surprised if a dress in this colour costs more than a white one in a similar style. Its prismatic cousin, brown, has similar connotations of luxury.

Yellow

This is the colour of joy, happiness, intellect, and energy. Yellow produces a warming effect, arouses cheerfulness, stimulates mental activity, and generates muscle energy. Yellow is often associated with food. Bright, pure yellow is an attention getter, which is the reason taxicabs are painted this colour. A mainstay at fast-food restaurants, yellow evokes energy and increases appetite, perhaps explaining why your stomach may start to growl when you pass those golden arches.

As we can see that different colours have their own importance and impacts on our life, so next time when we are choosing something we can keep this in mind to have right impact for the same.

Woman's are Laxmi, They should also learn about Money

Generally, on an average, women live about a couple of years more than men. So in the older days of their lives, many of the women live alone for a few more years. Normally many of the women have relatively less knowledgeable about finance and investing, hence they face problems. So it's important that women should start learning about investing and participate in the family's financial planning process. There are some more reasons why, woman should know about investing and financial planning, like:

Lately we have seen that lot of women are becoming single mothers and without proper knowledge about money management they face financial difficulties. Women should learn about finance and investment so that they can address such issues.

We have seen various instances where after the sudden death of the husband, the lady has no idea about where and how her husband had invested. Hence women should insist on being part of the financial planning process for the family from the start so as to avoid such situations in future.

And yes, we all know that women are better savers then men, yet they don't invest properly. That is why they should learn to invest so that they can, on their own, create wealth in the long run.

Here are some easy steps which can be taken for starting the investments in a proper way.

1. Decide the purpose or goal of the investments, what for and how much you want to save.

2. Bifurcate the goals into short-term or for long-term goals

3. Look at your cash flows and the amount available for investments

3. Check your risk capacity (i.e. loss you can bear) so that proper investment instrument can be selected

4. Create an emergency fund and have Health Insurance

5. If you are a working woman and need to invest for tax saving purpose investing in ELSS scheme could be a good idea. You should also have Term Insurance if you are working woman.

6. If you don't have the knowledge it's always better take a guidance from the financial expert

7. Start saving in the different instruments available in the market based on expert’s advice and above mentioned parameters.

Many of the women are financially independent but still hesitate to take investment decisions on their own without their husband or father. However with little learning and guidance they can do better and be self-dependent with the matters related to money.

Manage your Wealth Smartly

In the current busy life many of us are so much occupied with our routine work that we keep on postponing the decisions related to our own wealth and money.  The pending nomination in the demat account; the incomplete change of address request; the matured deposits that are hopefully renewing or so many investments without properly tracking them are some of the issues which are very common with many of us.

It is very common to not to take any decision fearing it could be a wrong decision. Sometime multiple choices actually result into not opting for any and we keep on postponing. So what could be some action points so as to come out of this, let’s discuss them here:

1. Keep it Simple and Straight:

We should try to limit the number of saving accounts, Demat accounts etc. Now with PAN and Aadhar linked with all accounts it does not makes sense to have so many accounts. It is better to have one or two saving accounts (one for expenses and income and one for investments etc). For Demat accounts also its better to have one until unless we need other for some specific purpose. Make sure that nominees, address, email and mobile no is always updated.

2. Optimize Not Over diversify

We should optimize our assets/investments with limited no of stocks/bonds/mutual funds. There is no need to have a long list of investments to create big wealth in fact it could be counterproductive. As if good investments aren’t sizeable they won’t make any big difference, and bad investments will keep dragging the portfolio down. Keeping hundreds of stocks in small-small quantities won’t serve any purpose and will be difficult to track and manage also.

3. Plan when we won’t be here

We don’t know what will happen tomorrow. It is better to plan the things when we are in right shape of mind and body.  We should write a will so that there won’t be disputes later on. It is not required to identify each item of our wealth and list it. We can primarily indicate who will get what (beneficiaries) and who should ensure that the distribution is made according to the will (executor). The executor will take up the tasks of probating your will, making the lists, completing the paperwork, and ensuring that everything is settled as indicated.

4. Take an Expert’s help

We cannot do everything even if we have time as we may lack the expertise. So it is always better to take some expert’s help to get full picture of our assets/investments. Now days we can get consolidated statements from NSDL which could be useful to get a full and clear picture.

These simple and easy steps can actually make our life easy and simple for managing our wealth if done properly.

New Budget and New tax Planning

Recently announced budget gives lot of relief to those who are in middle income having annual income in the range of ₹ 7-10 Lakhs. Let us understand the same in more detail.

The additional Relief:

This budget has increased the limit under section 87A to give relief who are earning upto ₹ 5 lakhs. Till now, those earning up to ₹ 3.5 lakh a year were eligible for a tax rebate of ₹ 2,500. This year’s proposal has hiked this to ₹ 12,500 and raised the eligibility to ₹ 5 lakh.

However to get this relief we need to do some smart tax planning and need to plan the things in advance. Below are some fine prints regarding the same.

1. Plan Carefully: The proposal of this Budget needs to be carefully watched for as if a person’s income increases even a single rupee from 5 lakhs he is required to pay the entire tax and will not get any tax rebate.  Right now, anybody with an annual taxable income of up to ₹3.5 lakh is eligible for a tax rebate of ₹2,500 under Section 87A.

2. Consider all Income: Further all the taxpayers should know that the interest from fixed deposits, bonds and small savings schemes (except PPF) are fully taxable. It is added to the income of the taxpayer and taxed at the normal rate. If a person skips declaring this income in their return and claim the rebate they may get a shock if the addition of this interest takes their total income above the ₹5 lakh threshold and makes them ineligible for the rebate. Hence people have to plan in advance so that they actually are eligible for the rebate.

3. There is further Scope:  Budget proposals also encourages taxpayers to save aggressively in tax saving options. For instance, apart from the NPS benefit available under 80CCD(1) there is another Section 80CCD(2) which can further reduce the taxable income significantly. Under this, up to 10% of the basic pay of the employee put in the NPS by the employer is tax deductible. Further it makes sense to use the pension scheme for saving tax now as 60% of the maturity corpus of NPS is tax free and one can also withdraw for emergencies,

4. Benefit on TDS:  As per the new budget no TDS will be deducted from the interest income up to ₹ 40,000. A higher limit of ₹ 40,000 means that TDS will not be deducted till your interest income from bank FDs and post office deposit schemes crosses this limit. However, these interest incomes will still be taxable as per current income tax laws." If the bank fixed deposit holder does not have taxable income, he can declare so by submitting Form 15G or Form15H applicable. For example an individual with total income of less than ₹ 2.5 lakh in a financial year can submit Form 15G clearly stating his income and the interest received to avoid the TDS. 

5. Some other Deductions: If we also consider the deductions available on Housing Loan & Education loan interest, HRA and Standard deduction for employees and mediclaim benefits available to self and parents, an Individual having income at around 10 lakhs can manage to be zero tax payer, If planned smartly.

Yes; even if we are earning more than 10 lakhs a year we don't need to pay any tax but for that we need to plan properly and in advance so that there are no surprises.

My Personal Financial Constitution

1. I will keep all my expenses upto maximum 75% of my total net income

2. I will take loan only upto maximum 40% of my net income.

3. I will pay my all EMIs on time.

4. I will pay my entire credit card dues on or before due date.

5. I will save minimum 25% of my income for our future

6. I will keep minimum 3 months expenses as emergency funds

7. I will file my tax return on time.

8. I will take term insurance to cover my working life income.

9. I will buy health insurance to cover my own and family members’ medical expenses.

10. I will take risk based on my own personal appetite.

11. I will not invest in those things which I don’t understand.

12. I will commit only those expenses/investments which I can pay comfortably.

13. I will save for the things first rather than taking it on EMI.

14. I will plan my major expenses like buying a home, my retirement or children’s education/marriage well in advance.

15. I will review my investments once in a year.

16. I will keep the nominee names updated in all my accounts/assets/investments.

17. I will make a Will.

18. I will keep all my financial records at one place and update it regularly.

19. I will inform my nominee/family members about my financial records.

20. I will take all my financial decisions on time and will not procrastinate them.

21. I will take the experts advise for my investments.

Eleven Income Tax Saving options beyond 80C

As we reach in the last quarter of the financial year, HR departments of the companies start asking for tax saving declarations. Hence we rush to find out various avenues to save tax, the first option comes under section 80C where the limit of Rs. 1.50 lakh is available for each individual. This includes investments in life insurance premium, employee's contribution towards EPF (Employee Provident Fund), PPF (Public Provident Fund), ELSS Mutual Funds, Children's tuition fees, Pension Plans, Principal Repayment on home loans and a host of other investment options.

Generally most of us know about this and exhaust this limit Rs. 1.5 lakh. If have invested more under these options we won’t get any additional benefits. So what are the other options wherein we can invest and reduce our tax burden further, let’s find it out:

1. New Pension Scheme

New Pension Scheme provides an additional income tax deduction of Rs. 50,000 under Section 80CCD. This extra deduction of Rs. 50,000 on NPS increases the total deduction allowed under Section 80C and 80CCD to Rs. 2 lakh. Now government has allowed the withdrawal of 60% totally tax-free which makes it further attractive to reduce tax burden and save for our future.

2.  NPS investment made through Employer

We can save further under NPS if investments are made under corporate model. Under the NPS corporate model, an employee can deposit the contribution directly or route the contribution through the employer he or she is working with. Employer's contribution to NPS up to 10 per cent of basic salary (plus DA) is allowed deduction under Section 80CCD (2). There is no cap for this deduction but the total deduction claimed for contribution by the employer should not exceed 10 per cent of the salary.

3. Deduction of Housing Loan interest

If we have purchased a home by taking loan, we get exemption up to Rs. 2 lakhs under Section 24B of the Income Tax Act. If the purchased property is put on rent then, the borrower can only claim deduction of up to Rs. 2 lakh per year after adjusting for the rental income. And the amount above Rs. 2 lakh can be carried forward for eight assessment years.

4. Additional Deduction for first time home buyer

There is additional benefits to those persons who are buying a house for the first time (the person must not own any other residential property on the date of sanction of loan). An additional deduction of Rs. 50,000 is available under Section 80EE, over and above the limit of Section 24B on interest paid on home loans.

5. Deduction for Education Loan

A taxpayer can claim deduction for interest paid on education loan under Section 80E of Income tax. This deduction is available for self, spouse or children. There is no upper limit on the amount of deduction.

6. Mediclaim deduction for self, family and Parents

An individual can claim deduction of up to Rs. 25,000, if he or she is below 60 years of age, and Rs. 50,000 if above 60 years of age, towards medical insurance premium paid for self, spouse and children under Section 80D of Income Tax Act. Additional deduction of Rs. 25,000 is available if one has bought medical insurance for his parents. This deduction can go up to Rs. 50,000 if parents are above the age of 60.

7. Deductions for differently-abled

Government has provided extra deduction for differently-abled people under Section 80DD of IT Act. If an individual has dependants who are differently-abled, he or she can claim additional deductions up to Rs. 75,000 for expenses on their maintenance and medical treatment under this section. This deduction can increase to Rs. 1.25 lakh in case of severe disability.

8. Deduction under specific diseases

For certain critical diseases, an individual can claim additional deduction of up to Rs. 40,000 under Section 80DDB of IT Act, for treatment of certain diseases for self and dependants. The deduction can go up to Rs. 60,000 if the taxpayer is above 60 years and up to Rs. 80,000 if above 80 years.

9. Exemption for HRA

HRA stands for House Rent Allowance.

It is taxable under the IT Act subject to specified exemption limits. 

If you do one of the following then your HRA is fully taxable, not exempt if you:

       i.          Reside in your own house; or

      ii.          Do not pay rent for house occupied by you.

However, if you are living in a rented house and paying the rent, then HRA exemption can be availed for the period during which you occupy the rented house during the relevant tax year. 

Also, to claim the exemption, your employer is required to obtain appropriate and adequate proof of payment of rent for the entire period for which you want to claim exemption. 

An exception to the 'proof required' HRA rule is that, if you are a salaried employee drawing HRA up to Rs. 3,000 per month, you do not have to provide a rent receipt to your employer.

The maximum amount that can be claimed as an exemption under HRA is the least of

       i.      Actual HRA; or

      ii.      Rent paid in excess of 10% of basic salary + Dearness Allowance

             (DA) if in terms of service; or

     iii.     50% of basic salary + DA in case of Chennai, Delhi, Kolkata, Mumbai

             or 40% of salary + DA in case of other cities

10. Exemption for Rent payment

If you don't receive HRA from employer and make payments towards rent, you can claim deduction under section 80GG towards rent that you pay. The deduction is lowest of the following:

(a) Rs. 5,000 per month

or (b) 25% of total income

or (c) Rent paid less 10% of income

11. Donations for Charity

If you contribute to the society you will get some tax benefits also. Government allows, under Section 80G of Income tax up to either 50 per cent or 100 per cent deduction for the donations to charitable organisations subject to overall highest deduction allowed is capped at 10 per cent of the donor's total income.