These might be low priced due to some reason such as these are of the companies looking for a way to raise capital. These might have good management, better future prospects but with insufficient funds due to which their share is low-priced. It is a matter of fact that a smaller company tends to grow faster and thus their stock tend to move at faster pace. With this Optimism in mind, don’t forget Penny stocks could be worth millions as well. So before underestimating them; keep it in your mind that it might be great opportunity turning your small capital into big amount
Penny stocks are considered more risky investments due to greater volatility factor. Secondly, these are generally traded in lots of 1000. So even if the price goes down by 1 buck, you will loose 1000 bucks in fraction of seconds. Thirdly, penny stocks might not be so frequently traded on stock exchanges. Suppose some rumor broke out and you just wish to exit the stock. But since the stock’s trading volume is low, you do not find buyers to buy your stock. Keeping aside all these factors, a well planned strategy might take you to diamonds hidden inside a coal mine. But before you really enter into the arena ask yourself few questions:
What is there in that penny stock attracting you to buy it?
What is the price at which you must exit the stock?
Once decided upon the stock to buy, exercise your mind to know is it really worth buying? Below are the three criterion helping you take a final decision.
Company fundamentals: Good cash flow is the most important consideration in choosing a penny stock. Spare sometime in knowing company fundamentals in addition to its goodwill and future projects. If a company has a good chance of success, please go for it.
PE and PEG ratio examine the PE ratio of the stock you and compare it with its peers doing well in the market. A safer way however is to find out the Price/Earnings/Growth (PEG) ratio (PE ratio divided by the projected growth in the next 3-5 years). Remember you will choose a stock with higher PE but lower PEG.
Trading volume: Assume yourself in a situation when you want to sell your stock but no one is ready to buy it. Stocks with low liquidity are difficult to buy or sell for the prices you want. So think twice before you buy such stock.
That was all about the reasons for you to buy a penny stock and considerations while deciding which one to buy? But the story does not end here due to associated risks. The best strategy to minimize the risk is to plan your exit having decided your expected profits. Do not just pump and dump the stock for reason that it costs you less than other stocks and will reach very high levels one day.
Wednesday, December 15, 2010
What does the term term “Margin Trading” mean ?
Many times you would have come across a term Margin trading. What is trading on margin and how is it different from normal trading is what is explicated here.
‘Margin” means borrowing money from your broker to buy a stock. Now the question is why would you borrow? Investors generally go for trading on margin so to increase their purchasing power so that they can own more stock without fully paying for it. That means you will pay a part of the buy price and the broker will lend you the difference.
For the loan you have taken -
You will pay interest in addition to the usual fees.
Broker will hold the stocks as collateral and has the right to sell that as well in case buyer doesn’t meet certain obligations as per margin rules and agreements.
Let us understand this with an example:
Suppose you wish to buy a stock with market price of Rs 50. Under margin trading, you would be paying Rs 25 in cash while remaining 25 Rs will be lent to you by the broker (Assuming the initial margin requirement with your broker is 50%). How does this help? Let’s see. Suppose the price of the stock rises to Rs 75.
In case of Margin trading – Your return on the investment is 100% because you paid Rs 25.
In case of normal trading – Your return on investment is 50% because you paid Rs 50.
However there is also an equal probability of higher loss for trading on margin. Suppose the stock price falls to Rs 25. If you fully paid for the stock, you lost 50 percent of your money. But if you have traded on margin, you lost 100 percent. And on the top of that you are supposed to pay interest for the loan you have taken from the broker along with the broker’s commission. Moreover if the investor doesn’t maintain minimum margin in his account the broker will have the right to sell all your stocks without notifying you. By this you would even loose the chance to make up your losses when the price goes up later. Below are certain terms that would make the concept more clear.
Initial margin: The proportion of total purchase price an investor is supposed to deposit for opening a margin account is referred as its initial margin and is generally 50% of the total value.
Maintenance margin: In order to keep the margin account open for doing margin trading, it is necessary to maintain minimum cash or marginable securities which is called the maintenance margin. This is just to prevent an investor from incurring a level of debt that he would not be able to repay.
Margin call: If your account falls below the maintenance margin, your broker will make a margin call to ask you to deposit more cash or securities into your account. If case you fail to meet the margin call, your broker will sell your securities so to make up for the stipulated maintenance requirement.
Lastly, for novice traders it is very important to have a realization that trading on margin can help you magnify your profit and at the same time multiplies the associated risks.
‘Margin” means borrowing money from your broker to buy a stock. Now the question is why would you borrow? Investors generally go for trading on margin so to increase their purchasing power so that they can own more stock without fully paying for it. That means you will pay a part of the buy price and the broker will lend you the difference.
For the loan you have taken -
You will pay interest in addition to the usual fees.
Broker will hold the stocks as collateral and has the right to sell that as well in case buyer doesn’t meet certain obligations as per margin rules and agreements.
Let us understand this with an example:
Suppose you wish to buy a stock with market price of Rs 50. Under margin trading, you would be paying Rs 25 in cash while remaining 25 Rs will be lent to you by the broker (Assuming the initial margin requirement with your broker is 50%). How does this help? Let’s see. Suppose the price of the stock rises to Rs 75.
In case of Margin trading – Your return on the investment is 100% because you paid Rs 25.
In case of normal trading – Your return on investment is 50% because you paid Rs 50.
However there is also an equal probability of higher loss for trading on margin. Suppose the stock price falls to Rs 25. If you fully paid for the stock, you lost 50 percent of your money. But if you have traded on margin, you lost 100 percent. And on the top of that you are supposed to pay interest for the loan you have taken from the broker along with the broker’s commission. Moreover if the investor doesn’t maintain minimum margin in his account the broker will have the right to sell all your stocks without notifying you. By this you would even loose the chance to make up your losses when the price goes up later. Below are certain terms that would make the concept more clear.
Initial margin: The proportion of total purchase price an investor is supposed to deposit for opening a margin account is referred as its initial margin and is generally 50% of the total value.
Maintenance margin: In order to keep the margin account open for doing margin trading, it is necessary to maintain minimum cash or marginable securities which is called the maintenance margin. This is just to prevent an investor from incurring a level of debt that he would not be able to repay.
Margin call: If your account falls below the maintenance margin, your broker will make a margin call to ask you to deposit more cash or securities into your account. If case you fail to meet the margin call, your broker will sell your securities so to make up for the stipulated maintenance requirement.
Lastly, for novice traders it is very important to have a realization that trading on margin can help you magnify your profit and at the same time multiplies the associated risks.
Trading basics for the beginners
Trading basics for the beginners
The Share market immediately conjures up stories of fortunes made and lost. A share makes the holder a partial owner of the company and different types of shares have different rights associated with them. If you are able to sell off your share at a price higher than your buying price, you make a profit but you also run the risk of incurring a loss if the share price falls. The business you invested in makes profit and they provide you part of it as dividend.
In the share market you are an anonymous player and many have made a reasonable profit. There is no unique formula to ensure consistent gain but before you venture into this market you should know the basics of stock trading.
What does trading stocks mean?
Buying and selling of stocks is referred to as trading in the financial market.
You have to approach a broker in order to trade. You can trade either electronically or on the exchange floor. Exchange floor scene must be familiar to you; the NYSE has been on television as part of news coverage innumerable times. It is here that your broker arranges for your shares to be ordered. . The floor clerk locates the floor trader from whom the shares can be bought. Once the price is agreed upon, the deal is finalized.
Electronic transaction is very common today. It is an efficient and fast method of stock trading. Here too you require a broker but you receive confirmations almost immediately .In online investing your broker will connect to the exchange network and search for a buyer or seller according to your order.
How are the stock prices determined?
The stock prices cannot be predicted, they depend on various factors like political unrest, if there is a huge demand for a particular share at a given time, prices can fluctuate, any event that could adversely affect the company will also cause the share prices to drop.
Before you decide on which stock to buy you must answer the following questions.
Do you know the company well enough?
What is the company’s reputation in the market?
Have you gone through their annual report?
Do you have the confidence to invest in this company?
Is some negative news about the company circulating?
How are analysts predicting the future?
How is the management of the company?
What are their growth prospects?
Am I aware of the insider activity?
Is it an internationally renowned company?
How is their marketing strategy?
Have there been any changes in the management recently?
How consistent has been their performance?
Has there been a sudden shift in their production?
Whenever you invest you should be aware of your limits and remember not to exceed them. Share market involves a lot of risk , risk taking could either lead to fortunate gains or to bankruptcy.
• You should avoid investing money more than you can actually afford.
• Know about your investment well and do not blindly depend upon your broker.
• Follow regular stock market quotes to keep yourself abreast of the market swings.
The share provides you with an earning power, gives you partial ownership of a company and the freedom to buy or sell at any moment. But if you are a novice in stock trading you need to play safe and equip yourself with a lot of information. Unless you are a seasoned player you should invest only after surveying all the alternatives and never go beyond your risk tolerance. Know where to draw the line and begin trading in stocks!
Trading basics for the beginners
By Ezilon.com Articles
Mar 29, 2006, 23:52
The Share market immediately conjures up stories of fortunes made and lost. A share makes the holder a partial owner of the company and different types of shares have different rights associated with them. If you are able to sell off your share at a price higher than your buying price, you make a profit but you also run the risk of incurring a loss if the share price falls. The business you invested in makes profit and they provide you part of it as dividend.
In the share market you are an anonymous player and many have made a reasonable profit. There is no unique formula to ensure consistent gain but before you venture into this market you should know the basics of stock trading.
What does trading stocks mean?
Buying and selling of stocks is referred to as trading in the financial market.
You have to approach a broker in order to trade. You can trade either electronically or on the exchange floor. Exchange floor scene must be familiar to you; the NYSE has been on television as part of news coverage innumerable times. It is here that your broker arranges for your shares to be ordered. . The floor clerk locates the floor trader from whom the shares can be bought. Once the price is agreed upon, the deal is finalized.
Electronic transaction is very common today. It is an efficient and fast method of stock trading. Here too you require a broker but you receive confirmations almost immediately .In online investing your broker will connect to the exchange network and search for a buyer or seller according to your order.
How are the stock prices determined?
The stock prices cannot be predicted, they depend on various factors like political unrest, if there is a huge demand for a particular share at a given time, prices can fluctuate, any event that could adversely affect the company will also cause the share prices to drop.
Before you decide on which stock to buy you must answer the following questions.
Do you know the company well enough?
What is the company’s reputation in the market?
Have you gone through their annual report?
Do you have the confidence to invest in this company?
Is some negative news about the company circulating?
How are analysts predicting the future?
How is the management of the company?
What are their growth prospects?
Am I aware of the insider activity?
Is it an internationally renowned company?
How is their marketing strategy?
Have there been any changes in the management recently?
How consistent has been their performance?
Has there been a sudden shift in their production?
Whenever you invest you should be aware of your limits and remember not to exceed them. Share market involves a lot of risk , risk taking could either lead to fortunate gains or to bankruptcy.
• You should avoid investing money more than you can actually afford.
• Know about your investment well and do not blindly depend upon your broker.
• Follow regular stock market quotes to keep yourself abreast of the market swings.
The share provides you with an earning power, gives you partial ownership of a company and the freedom to buy or sell at any moment. But if you are a novice in stock trading you need to play safe and equip yourself with a lot of information. Unless you are a seasoned player you should invest only after surveying all the alternatives and never go beyond your risk tolerance. Know where to draw the line and begin trading in stocks!
Trading basics for the beginners
By Ezilon.com Articles
Mar 29, 2006, 23:52
Financial planning is essential
Planning is a very crucial starting point for whatever goal we want to achieve in our lives - be it an exam, a marriage, a family, a career. We determine the objective (why do this), weigh various alternatives to achieve the objective (how to do it), allocate resources (what I need and how much) and finally schedule timelines (when to do it). As management books say, "Through planning we attempt to bridge the gap between where we are and where we want to be". It is also said that "One who fails to plan, plans to fail".
When planning is done for almost everything important things in life, why money be any different? One may argue that money is not an end in itself, so why bother about it. But definitely is an important tool to achieve our goals. For instance, an entrepreneur will be very relieved to realize that his savings and investment in appropriate assets and in right quantum have made up for his retirement and he is not required to work once he decides to do so.
One who fails to plan, plans to fail
Financial Planning is one of the most important activities to be done by someone, but is actually done by very few. And if at all people make the effort of doing financial planning themselves, they are not well-equipped to do so. Either they lack understanding of various aspects of planning or are not able to take right investment decisions.
Instead they fall prey of scrupulous brokers, agents and advisors which work for selling the products and do not really bother how well it suits the requirement of the investor.
Financial planning is not a onetime activity
Another important aspect of financial planning is that it is not a onetime activity. One has to make changes to his/her portfolio (total investment in various securities) in response to changes in his liabilities, goals, age, etc. For example, a fresher may not need a very conservative portfolio consisting of less riskier investments or having less exposure towards riskier investments. Why? At this stage he has no major liabilities.
Also he has long term goals like retirement, house and some medium term requirements like marriage. However, he has a regular and possible increasing salary getting added to his account. Even in the eventuality that he incurs some losses due to market, he has an investment horizon within which the losses should turn good and with profits in the long run
Make changes to portfolio
But this can't be said for a 55 year old salaried individual. It can be assumed that he has his Provident Fund and Pension Plan full with lots of savings, but what he should look at is that his capital is preserved.
Putting all the money in savings and fixed deposits which provide returns not even matching inflation, means that the investor in actually losing money in real terms. But at the same time he can't put money to huge risk-bearing investments.Investor must take a survey of the market
Overall investor should be in touch with markets, investment products and so.
It is advisable to check their investment status every one quarter or at least once in the six month.
If it not possible for the investor then he/she can approach any good financial advisor.
You will find all investment related products on our site like stocks for investment, mutual funds updates, ULIPS details and all is free of cost
When planning is done for almost everything important things in life, why money be any different? One may argue that money is not an end in itself, so why bother about it. But definitely is an important tool to achieve our goals. For instance, an entrepreneur will be very relieved to realize that his savings and investment in appropriate assets and in right quantum have made up for his retirement and he is not required to work once he decides to do so.
One who fails to plan, plans to fail
Financial Planning is one of the most important activities to be done by someone, but is actually done by very few. And if at all people make the effort of doing financial planning themselves, they are not well-equipped to do so. Either they lack understanding of various aspects of planning or are not able to take right investment decisions.
Instead they fall prey of scrupulous brokers, agents and advisors which work for selling the products and do not really bother how well it suits the requirement of the investor.
Financial planning is not a onetime activity
Another important aspect of financial planning is that it is not a onetime activity. One has to make changes to his/her portfolio (total investment in various securities) in response to changes in his liabilities, goals, age, etc. For example, a fresher may not need a very conservative portfolio consisting of less riskier investments or having less exposure towards riskier investments. Why? At this stage he has no major liabilities.
Also he has long term goals like retirement, house and some medium term requirements like marriage. However, he has a regular and possible increasing salary getting added to his account. Even in the eventuality that he incurs some losses due to market, he has an investment horizon within which the losses should turn good and with profits in the long run
Make changes to portfolio
But this can't be said for a 55 year old salaried individual. It can be assumed that he has his Provident Fund and Pension Plan full with lots of savings, but what he should look at is that his capital is preserved.
Putting all the money in savings and fixed deposits which provide returns not even matching inflation, means that the investor in actually losing money in real terms. But at the same time he can't put money to huge risk-bearing investments.Investor must take a survey of the market
Overall investor should be in touch with markets, investment products and so.
It is advisable to check their investment status every one quarter or at least once in the six month.
If it not possible for the investor then he/she can approach any good financial advisor.
You will find all investment related products on our site like stocks for investment, mutual funds updates, ULIPS details and all is free of cost
Tuesday, December 14, 2010
All About Gratuity
When will you get gratuity payment?
Gratuity payment is a lump sum that your company will pay you as an acknowledgement of your loyalty to the company. Naturally, gratuity becomes payable only after you have spent a certain number of years with the company. You will receive this benefit either at the time of retirement or when you resign from employment.
Let us take a look at how gratuity benefit is paid.
Conditions for receiving gratuity benefit
There are two conditions that must be satisfied in order to be eligible to get the gratuity benefit:
(i) Your organisation has a minimum of 10 people on payroll, i.e., at least 10 employees receiving salaries from the organisation. Note that people on contract are not considered.
(ii) You have completed at least 5 years with the organisation. If an employee dies during the tenure of his employment, the 5-year rule is relaxed. So, even if such employee's period of service is as little as 1 year, he/she will be eligible to receiving gratuity if the first condition is met.
Calculation of the amount of gratuity payable
Your last paycheck before you retire or resign is the amount you should consider in your gratuity computation. Also, only your 'Basic' and 'Dearness Allowance (DA)' should be taken into consideration.
For example, assuming Anil retires this year after completing 30 years with his company and his last pay check looks like the following, let us calculate the amount of gratuity that Anil's company should pay him:
Basic: Rs 60,000
DA: Rs10,000
HRA: Rs 26,000
Education Allowance: Rs 5,000
Travel Allowance: Rs 15,000
Gratuity payable: (Last month's salary / 26) * 15 * Completed years of employment
Last month's salary to compute gratuity = Basic + DA = Rs 70,000.
Gratuity payable = (70,000 / 26) * 15 * 30 = Rs 12,11,538
Since there is a limit of Rs 10L, Anil is entitled to receive Rs 10L towards gratuity. If his company has a policy to pay gratuity up to an amount of Rs 15L, then Anil's gratuity benefit will be Rs 12.11L.
Tax treatment for gratuity
The amount of gratuity received by a person is taxed as salary income under the head 'income from salaries' on the income tax return. If you are a government employee, the gratuity amount paid is completely tax free. For non-government employees too there are tax exemptions equal to the lower of:
• Amount of gratuity paid or
• For every completed year of employment - Rs 3.50L (This is the current limit. It may be increased to Rs 10L in the near future)
Note that this limit is a maximum exemption for all your years of service. It applies to all the amounts of gratuity you will receive in your entire career from all your employers.
So, if you receive gratuity three times in your life and you exhaust the above limit within the first two times you receive gratuity, then the third time you are paid gratuity, it will be completely taxed according to your current tax slab rates.
How increase in gratuity limit will impact you
The government notified the Payment of Gratuity (Amendment) Act, 2010 on May 18, 2010, which increases the limit of gratuity payment to employees in the specified sectors/establishments covered under the Payment of Gratuity Act, 1972 (“Gratuity Act”).
After the amendment, these employees are eligible to receive gratuity up to Rs 10,00,000, which was earlier restricted to Rs 3,50,000. Thus, crores of workers will be benefited in establishments covered by the Gratuity Act.Meaning of Gratuity
Gratuity refers to the emoluments received by an employee from his employer in gratitude for the services rendered. Such sum can be paid on retirement, resignation, superannuation, death or disablement.
Under the Gratuity Act, the sum can be paid only after an employee has rendered continuous service of not less than five years. Exceptions being termination of employment on account of death/disablement.
Taxability of Gratuity
From a tax perspective, gratuity received by an employee is taxable as salaries. The Income tax Act segregates the employees receiving gratuity on the following basis:
• Government employees;
• Non - Government employee covered under the Gratuity Act.
• Non - Government employee and not covered under the Gratuity Act.
Based, on the above segregation, necessary exemptions from tax can be claimed on the gratuity received.
Exemption available for employees covered under the Gratuity Act
In case of employees covered under the Gratuity Act, exemption is limited to the extent of minimum of the following:
i) Gratuity actually received
ii) 15 days salary for every completed year of service or part thereof (i.e. services in excess of 6 months will be treated as full year service)
iii) Rs 3,50,000 (the maximum limit as provided in the Gratuity Act)
The increase in limit to Rs 10,00,000 in the Gratuity Act (from the erstwhile Rs 3,50,000) in a way indicates that the tax exemption may also increase.
Tax impact of the amendment
The tax impact can be explained by way of an example. Suppose, Mr A retires from a software company after servicing for 35 years and at the time of retirement his basic salary was Rs 50,000 per month.
Upon retirement, Mr A is eligible for a gratuity payout of Rs 10,00,000 and is covered under the Gratuity Act. The taxable amount of gratuity would be as under in different scenarios:
Taxable amount of gratuity in different scenarios.When will you get gratuity payment?
Gratuity payment is a lump sum that your company will pay you as an acknowledgement of your loyalty to the company.
Naturally, gratuity becomes payable only after you have spent a certain number of years with the company. You will receive this benefit either at the time of retirement or when you resign from employment.
Conclusion
The above amendment in the Gratuity Act is a welcome step by the government and will bring lots of cheer to employees across the private sector.
Gratuity payment is a lump sum that your company will pay you as an acknowledgement of your loyalty to the company. Naturally, gratuity becomes payable only after you have spent a certain number of years with the company. You will receive this benefit either at the time of retirement or when you resign from employment.
Let us take a look at how gratuity benefit is paid.
Conditions for receiving gratuity benefit
There are two conditions that must be satisfied in order to be eligible to get the gratuity benefit:
(i) Your organisation has a minimum of 10 people on payroll, i.e., at least 10 employees receiving salaries from the organisation. Note that people on contract are not considered.
(ii) You have completed at least 5 years with the organisation. If an employee dies during the tenure of his employment, the 5-year rule is relaxed. So, even if such employee's period of service is as little as 1 year, he/she will be eligible to receiving gratuity if the first condition is met.
Calculation of the amount of gratuity payable
Your last paycheck before you retire or resign is the amount you should consider in your gratuity computation. Also, only your 'Basic' and 'Dearness Allowance (DA)' should be taken into consideration.
For example, assuming Anil retires this year after completing 30 years with his company and his last pay check looks like the following, let us calculate the amount of gratuity that Anil's company should pay him:
Basic: Rs 60,000
DA: Rs10,000
HRA: Rs 26,000
Education Allowance: Rs 5,000
Travel Allowance: Rs 15,000
Gratuity payable: (Last month's salary / 26) * 15 * Completed years of employment
Last month's salary to compute gratuity = Basic + DA = Rs 70,000.
Gratuity payable = (70,000 / 26) * 15 * 30 = Rs 12,11,538
Since there is a limit of Rs 10L, Anil is entitled to receive Rs 10L towards gratuity. If his company has a policy to pay gratuity up to an amount of Rs 15L, then Anil's gratuity benefit will be Rs 12.11L.
Tax treatment for gratuity
The amount of gratuity received by a person is taxed as salary income under the head 'income from salaries' on the income tax return. If you are a government employee, the gratuity amount paid is completely tax free. For non-government employees too there are tax exemptions equal to the lower of:
• Amount of gratuity paid or
• For every completed year of employment - Rs 3.50L (This is the current limit. It may be increased to Rs 10L in the near future)
Note that this limit is a maximum exemption for all your years of service. It applies to all the amounts of gratuity you will receive in your entire career from all your employers.
So, if you receive gratuity three times in your life and you exhaust the above limit within the first two times you receive gratuity, then the third time you are paid gratuity, it will be completely taxed according to your current tax slab rates.
How increase in gratuity limit will impact you
The government notified the Payment of Gratuity (Amendment) Act, 2010 on May 18, 2010, which increases the limit of gratuity payment to employees in the specified sectors/establishments covered under the Payment of Gratuity Act, 1972 (“Gratuity Act”).
After the amendment, these employees are eligible to receive gratuity up to Rs 10,00,000, which was earlier restricted to Rs 3,50,000. Thus, crores of workers will be benefited in establishments covered by the Gratuity Act.Meaning of Gratuity
Gratuity refers to the emoluments received by an employee from his employer in gratitude for the services rendered. Such sum can be paid on retirement, resignation, superannuation, death or disablement.
Under the Gratuity Act, the sum can be paid only after an employee has rendered continuous service of not less than five years. Exceptions being termination of employment on account of death/disablement.
Taxability of Gratuity
From a tax perspective, gratuity received by an employee is taxable as salaries. The Income tax Act segregates the employees receiving gratuity on the following basis:
• Government employees;
• Non - Government employee covered under the Gratuity Act.
• Non - Government employee and not covered under the Gratuity Act.
Based, on the above segregation, necessary exemptions from tax can be claimed on the gratuity received.
Exemption available for employees covered under the Gratuity Act
In case of employees covered under the Gratuity Act, exemption is limited to the extent of minimum of the following:
i) Gratuity actually received
ii) 15 days salary for every completed year of service or part thereof (i.e. services in excess of 6 months will be treated as full year service)
iii) Rs 3,50,000 (the maximum limit as provided in the Gratuity Act)
The increase in limit to Rs 10,00,000 in the Gratuity Act (from the erstwhile Rs 3,50,000) in a way indicates that the tax exemption may also increase.
Tax impact of the amendment
The tax impact can be explained by way of an example. Suppose, Mr A retires from a software company after servicing for 35 years and at the time of retirement his basic salary was Rs 50,000 per month.
Upon retirement, Mr A is eligible for a gratuity payout of Rs 10,00,000 and is covered under the Gratuity Act. The taxable amount of gratuity would be as under in different scenarios:
Taxable amount of gratuity in different scenarios.When will you get gratuity payment?
Gratuity payment is a lump sum that your company will pay you as an acknowledgement of your loyalty to the company.
Naturally, gratuity becomes payable only after you have spent a certain number of years with the company. You will receive this benefit either at the time of retirement or when you resign from employment.
Conclusion
The above amendment in the Gratuity Act is a welcome step by the government and will bring lots of cheer to employees across the private sector.
Time for Tax Planning
It is now the time of the year when one should start the tax planning process. With four months in hand, you have sufficient time to properly plan out your needs. Of particular relevance to tax payers are the different options provided under Section 80C of the Income Tax Act. The section contains various instruments which can be invested in by the taxpayer in order to save on tax.
However, it is to be noted that there are certain conditions and limits subject to which the investments can be made.
Further, the income form these instruments my further be or not be taxable. Accordingly, the choice would be different for different tax payers. Evaluate the various governing factors before taking a decision.
DO not choose the instruments blindly
While doing the tax planning exercise, it is important to note that one does not choose the instruments blindly. One should also keep in mind factors like rate of return, lock in period, taxability of the income earned on the instruments, flexibility of withdrawal in case of need, tenure, inflation rate and so on.
In some cases, one may save on tax in present terms, but in the long term, may erode capital in terms of inflation. In order to encourage savings, the government gives tax breaks on certain financial products under Section 80C of the Income Tax Act.
Investments made under such schemes come under section 80C. Under this section, one can invest a maximum of Rs l lakh. In case one is in the highest tax bracket of 30%, you save a tax of Rs 30,000. Click NEXT to know the various investment options under this section.Welcome to Indian Share MarketYour Desire to EarnResearched Stocks Free Technical Charts Readers Our Target Demat A/C Opening Contact us (Posted date - 08 Dec 2010)Home page Get Free Advice Useful Sites Free Subscription Public
Provident Fund, Provident Fund and Voluntary Provident Fund
An account with a nationalized bank or post office offers a tax-free interest of 8% and the maturity period is 15 years. The minimum contribution is Rs 500 and the maximum is Rs 70,000. The interest is tax free.
Provident Fund is deducted directly from your salary by your employer. The deducted amount goes into a retirement account along with your employer's contribution. While employer's contribution is exempt from tax, your contribution (i.e., employee's contribution) is counted towards section 80C investments.
You can also contribute additional amounts through voluntary contributions (VPF). The current rate of interest is 8.5% per annum and interest earned is tax-free.
Life insurance premium
Any amount that you pay towards life insurance premium for yourself, your spouse or your children can be included in section 80C deduction. If you are paying premium for more than one insurance policy, all the premiums can be included.
Besides this, investments in unit-linked insurance plans (ULIPs) that offer life insurance with benefits of equity investments are also eligible for deduction.
Five-year bank fixed deposit, National Savings Certificate
Tax-saving fixed deposits (FDs) of scheduled banks with a tenure of five years are also entitled for section 80C deduction.
These are six-year small savings instrument, where the rate of interest is 8%, compounded half-yearly. The interest accrued every year is also deemed to be reinvested and thus eligible for section 80C deduction.
Equity-linked savings scheme, Home loan principal repayment
Mutual funds offer you specially-created tax saving funds called ELSS. These schemes invest your money in equities and hence, return is not guaranteed. Money invested is locked for a period of three years.
The principal portion of the EMI qualifies for deduction under Section 80C. Stamp duty and registration charges The amount you pay as stamp duty when you buy a house and the amount you pay for registration of the house can be claimed as deduction under section 80C. However, this can be done only in the year of purchase of the house. Children’s education expenses
These can be claimed as deductions under Section 80C. One would need to keep the receipts to claim the same.
Infrastructure bonds
In addition to the Rs 1 lakh limit, one can also claim an additional deduction of Rs 20,000 by investing in infrastructure bonds issued by specified financial institutions.
The interest earned on these bonds is subject to tax.
However, it is to be noted that there are certain conditions and limits subject to which the investments can be made.
Further, the income form these instruments my further be or not be taxable. Accordingly, the choice would be different for different tax payers. Evaluate the various governing factors before taking a decision.
DO not choose the instruments blindly
While doing the tax planning exercise, it is important to note that one does not choose the instruments blindly. One should also keep in mind factors like rate of return, lock in period, taxability of the income earned on the instruments, flexibility of withdrawal in case of need, tenure, inflation rate and so on.
In some cases, one may save on tax in present terms, but in the long term, may erode capital in terms of inflation. In order to encourage savings, the government gives tax breaks on certain financial products under Section 80C of the Income Tax Act.
Investments made under such schemes come under section 80C. Under this section, one can invest a maximum of Rs l lakh. In case one is in the highest tax bracket of 30%, you save a tax of Rs 30,000. Click NEXT to know the various investment options under this section.Welcome to Indian Share MarketYour Desire to EarnResearched Stocks Free Technical Charts Readers Our Target Demat A/C Opening Contact us (Posted date - 08 Dec 2010)Home page Get Free Advice Useful Sites Free Subscription Public
Provident Fund, Provident Fund and Voluntary Provident Fund
An account with a nationalized bank or post office offers a tax-free interest of 8% and the maturity period is 15 years. The minimum contribution is Rs 500 and the maximum is Rs 70,000. The interest is tax free.
Provident Fund is deducted directly from your salary by your employer. The deducted amount goes into a retirement account along with your employer's contribution. While employer's contribution is exempt from tax, your contribution (i.e., employee's contribution) is counted towards section 80C investments.
You can also contribute additional amounts through voluntary contributions (VPF). The current rate of interest is 8.5% per annum and interest earned is tax-free.
Life insurance premium
Any amount that you pay towards life insurance premium for yourself, your spouse or your children can be included in section 80C deduction. If you are paying premium for more than one insurance policy, all the premiums can be included.
Besides this, investments in unit-linked insurance plans (ULIPs) that offer life insurance with benefits of equity investments are also eligible for deduction.
Five-year bank fixed deposit, National Savings Certificate
Tax-saving fixed deposits (FDs) of scheduled banks with a tenure of five years are also entitled for section 80C deduction.
These are six-year small savings instrument, where the rate of interest is 8%, compounded half-yearly. The interest accrued every year is also deemed to be reinvested and thus eligible for section 80C deduction.
Equity-linked savings scheme, Home loan principal repayment
Mutual funds offer you specially-created tax saving funds called ELSS. These schemes invest your money in equities and hence, return is not guaranteed. Money invested is locked for a period of three years.
The principal portion of the EMI qualifies for deduction under Section 80C. Stamp duty and registration charges The amount you pay as stamp duty when you buy a house and the amount you pay for registration of the house can be claimed as deduction under section 80C. However, this can be done only in the year of purchase of the house. Children’s education expenses
These can be claimed as deductions under Section 80C. One would need to keep the receipts to claim the same.
Infrastructure bonds
In addition to the Rs 1 lakh limit, one can also claim an additional deduction of Rs 20,000 by investing in infrastructure bonds issued by specified financial institutions.
The interest earned on these bonds is subject to tax.
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