Three Cheers for Piyush Goyal

The lesson is there for all to see now: if taxes are paid honestly by those at the top (willingly or unwillingly), then the poor and the middle class can reap the rewards of progress. The huge increase in the Section 87A tax rebate has pushed a chunk--around 3 crore people--below the tax threshold. Effectively, with some tax-planning, I doubt whether anyone with a salary of less than Rs 60-65,000 a month will pay any income tax at all.

Amusingly, stand-in Finance Minister Piyush Goyal gave some tax-planning tips right there in the budget speech. This sounded a bit strange but then, being a CA by training, and an All-India rank-holder at that, I guess he couldn't resist the temptation to start giving advice on how to pay less tax! Certainly a pleasant change from the stern lawyer finance ministers we have been used to.

As Mr Goyal himself pointed out, add your PF deduction, insurance and other section 80C investments and the tax free threshold is up to Rs 6.5 lakh. If you can squeeze out a few more savings, you could be at Rs 7 lakh. Then, on top of that (this part the FM didn't spell out, obviously), most private sector employers would step in to restructure salaries which are slightly above the exempt limit. All in all, the big chunk of lower and the middle-middle class is well and truly exempted from paying any tax at all.

From my perspective of a savings cheerleader, I see another bonanza here. For taxpayers who are in the Rs 5 lakh to Rs 7 lakh range before deductions, there is now a much stronger incentive to make tax saving investments. In the low-inflation environment--which Mr Goyal pointed to with great pride--it's relatively less difficult to start saving. In any case, tax incentives play a strong role in getting middle-class Indians to save, and starting early is the best possible thing.

From a personal finance perspective, another interesting measure is the extension of the Section 54 capital gains exemption that one gets from repurchasing one house to two. Nowadays, at a certain stage in their lives, many people need to essentially exchange one older (or larger) house for two smaller or newer ones. Up till now, capital gains exemption would be available on only the proportion of the proceeds that goes in to one of those. It's encouraging to see these kind of nuts-and-bolts fine-tuning in the tax laws that results in substantially more money in the pockets of savers. The fact that this saving is available only once in a lifetime is just the kind of justified limitation that ensures that it can't be abused by those in the real estate business. The same goes for the exemption on the tax exemption on a second self-occupied house. As the FM pointed out, these are now real middle class situations, and not just a problem of the rich.

In fact, looking back at the various things that the budget could have had, one can see the fine line it treads politically. There's no doubt that this is an election budget and it's giveaways--both in terms of fresh expenditures as well as revenue foregone--are done with an eye on votes. That's something you expect in a democracy.

However, there are two things here that have the Modi stamp. One, the bang-to-buck ratio is huge. For example, for the Section 87A hike, 3 crore people get the benefit--but the benefit stays limited to those in the first tax bracket. And two, there is great care taken to not do anything that can be seen as pro-rich. I've been writing these last few weeks for the rollback of last years' capital gains tax on equity investments. However, in the context of the budget that was presented today, it's entirely understandable that such a thing was not possible. At this point of time, you can't be seen to roll back a tax that is paid mostly by the rich. That's the reality. All things considered, there's nothing to complain about, and everything to cheer about.

                                                                                                                                                    -etwealth

Public Provident Fund + SIP Plan: How to retire at 40 in India with Rs 41,000/month Pension or Rs 70 lakh cash

Public Provident Fund + SIP Plan: Financial needs differ from persons to persons as priorities differ for different income groups. But the wish to get rid of mentally taxing jobs could be common among many. While it may be easy for those in the high-income group, as they can obviously save and invest more, those in the middle-income groups can also dream of retiring at 40.

Public Provident Fund + SIP Plan: Nine to Five job is boring. Leaves no 'me time.' This is what a large section of millennials feel today. They want to grow rich and retire early, do what they wish. While literally, it is impossible for a person to retire at any stage of life, it is certainly possible as far as getting freedom from the stranglehold of a routine job is considered. Hence, it is no surprise that "How to retire at 40" is still a trending subject for millennial netizens. A quick Google search of the phrase "How to retire at 40" throws as many as 14,10,00,000 results!

The internet is flooded with strategies for retiring at 40. There are scores of people who have set examples by actually retiring from routine jobs at 40 and moved on to pursue their passions. The crux of all the "How to retire at 40" stories can be summed in two pointers: 

- Be clear about what you mean by retirement. Retirement can not actually mean doing nothing at all.  You need to have a plan, maybe a dream, to do something you will do after retiring from your taxing present-day job. 

- Be clear about your financials. Set goals. Invest. Grow money. Earn More. Save More. Retire with a lump sum that will keep you afloat. 

For financial health, you need to start saving and investing at the earliest possible opportunity. 

Financial needs differ from persons to persons as priorities differ for different income groups. But the wish to get rid of mentally taxing jobs could be common among many. While it may be easy for those in the high-income group, as they can obviously save and invest more, those in the middle-income groups can also dream of retiring at 40. Here's a simple illustration to show how this dream may be realised: 

Suppose you get employed at the age of 25 with an annual income of Rs 6 lakh. By saving and investing Rs 2 lakh of the Rs 6 lakh, one can meet some of the most pressing financial needs. 

For assured returns, it is advisable to split the Rs 2 lakh into two forms of investments - First, in guaranteed returns schemes like Public Provident Fund; Second, in SIPs that generally give good returns in the long run. 

Expecting a minimum return of 12% on a monthly SIP of Rs 8300 (approx Rs 1 lakh/year), one can expect a return of around Rs 41 lakh in 15 years. This money can be used for meeting basic financial needs after the early retirement. By putting this money in schemes like LIC Jeevan Shanti, one can start getting an immediate annuity of around Rs 3 lakh. 

The second Rs 1 lakh can be invested in the PPF which comes with a lock-in period of 15 years. One can extend this account beyond 15 years in an instalment of five years. At the current rate of 8% interest, the PPF account can turn an investment of Rs 1 lakh/year to Rs 29 lakh in 15 years. If this is extended for another 20 years, Rs 29 lakh can grow up to Rs 1.3 crores. 

In case you withdraw Rs 29 lakh of the PPF account at the age of 40, then coupling it with the earning from SIP, you will have a lump sum of Rs 41,000,000+29,000,000 = Rs 70 lakh. By investing this in Jeevan Shanti, you may start getting an immediate annual pension of Rs 5 lakh per annum (Approx Rs 40,000 per month). 

There are many ways in which you can plan your financials for retirement at 40. For best results, take the advice of an expert financial planner. 

                                                                                                                            -zeebusiness

Three Cheers for Piyush Goyal

The lesson is there for all to see now: if taxes are paid honestly by those at the top (willingly or unwillingly), then the poor and the middle class can reap the rewards of progress. The huge increase in the Section 87A tax rebate has pushed a chunk--around 3 crore people--below the tax threshold. Effectively, with some tax-planning, I doubt whether anyone with a salary of less than Rs 60-65,000 a month will pay any income tax at all.

Amusingly, stand-in Finance Minister Piyush Goyal gave some tax-planning tips right there in the budget speech. This sounded a bit strange but then, being a CA by training, and an All-India rank-holder at that, I guess he couldn't resist the temptation to start giving advice on how to pay less tax! Certainly a pleasant change from the stern lawyer finance ministers we have been used to.

As Mr Goyal himself pointed out, add your PF deduction, insurance and other section 80C investments and the tax free threshold is up to Rs 6.5 lakh. If you can squeeze out a few more savings, you could be at Rs 7 lakh. Then, on top of that (this part the FM didn't spell out, obviously), most private sector employers would step in to restructure salaries which are slightly above the exempt limit. All in all, the big chunk of lower and the middle-middle class is well and truly exempted from paying any tax at all.

From my perspective of a savings cheerleader, I see another bonanza here. For taxpayers who are in the Rs 5 lakh to Rs 7 lakh range before deductions, there is now a much stronger incentive to make tax saving investments. In the low-inflation environment--which Mr Goyal pointed to with great pride--it's relatively less difficult to start saving. In any case, tax incentives play a strong role in getting middle-class Indians to save, and starting early is the best possible thing.

From a personal finance perspective, another interesting measure is the extension of the Section 54 capital gains exemption that one gets from repurchasing one house to two. Nowadays, at a certain stage in their lives, many people need to essentially exchange one older (or larger) house for two smaller or newer ones. Up till now, capital gains exemption would be available on only the proportion of the proceeds that goes in to one of those. It's encouraging to see these kind of nuts-and-bolts fine-tuning in the tax laws that results in substantially more money in the pockets of savers. The fact that this saving is available only once in a lifetime is just the kind of justified limitation that ensures that it can't be abused by those in the real estate business. The same goes for the exemption on the tax exemption on a second self-occupied house. As the FM pointed out, these are now real middle class situations, and not just a problem of the rich.

In fact, looking back at the various things that the budget could have had, one can see the fine line it treads politically. There's no doubt that this is an election budget and it's giveaways--both in terms of fresh expenditures as well as revenue foregone--are done with an eye on votes. That's something you expect in a democracy.

However, there are two things here that have the Modi stamp. One, the bang-to-buck ratio is huge. For example, for the Section 87A hike, 3 crore people get the benefit--but the benefit stays limited to those in the first tax bracket. And two, there is great care taken to not do anything that can be seen as pro-rich. I've been writing these last few weeks for the rollback of last years' capital gains tax on equity investments. However, in the context of the budget that was presented today, it's entirely understandable that such a thing was not possible. At this point of time, you can't be seen to roll back a tax that is paid mostly by the rich. That's the reality. All things considered, there's nothing to complain about, and everything to cheer about.

                                                                                                                                                -etwealth