Friday, July 30, 2021

Tax-saving Tips for Freelancers




More than 16 million freelancers live in urban India, changing the way we work, and don’t be surprised if the number quadruples every five years, according to some experts. 

Freelancers, like all salaried employees, must pay taxes on their earnings. However, since freelancers may have many sources of income, it is a little more complicated.

Knowing what to do and doing it correctly is one of the best ways to save money on taxes. As a freelancer, you may be able to save money on taxes in a variety of ways.

If you’re working as a freelancer in India, these are the most crucial and usual things to keep in mind.

Report business income

Freelancing income can be considered business income, which has its own set of advantages. Often, freelancers earn money and consider it their income, even though they must have spent money to provide the services they are providing. If you have a business as a source of income, you can deduct your expenses.

Depreciation on assets, office overheads, office rent, client meeting fees, contracting charges, and so on are some of the most frequent expenses. It’s important to understand that personal costs cannot be deducted when calculating freelancing revenue.

Use presumptive taxation scheme

A presumptive taxation plan has been made available to professionals specified under Section 44ADA. This scheme will presume your income to be 50% of your gross revenues. Hence you would not have to declare any more business costs while using this scheme. This scheme is open for professionals with gross receipts up to Rs 50 lakh. Apart from assuming your revenue, this strategy eliminates the need for any accounting records.

Investments can go a long way

One of the most important steps towards saving tax is investing right, this will help you save tax, but you will also have some portion of your money saved as investments. Various deductions, the most popular being under Sections 80C, 80D, 80CCD, 80GG, etc.

Check if GST registration is needed

A freelancer must decide whether or not they need to register their business for GST in addition to saving money on income taxes. To avoid late fees and interest, this should be done ahead of time.

Filing taxes correctly and on time is one of the most important ways to save money. You’ll save money on interest and penalties if you do it this way. Consider all sources of income and calculate accurately, use TDS credits appropriately, claim proper deductions, and determine if a tax audit is applicable by using the correct ITR form.

 (Source : https://news.cleartax.in/)

Saturday, July 24, 2021

Last Date to Issue Form 16 by Employers for FY 2020-21 Extended

 

According to a recent CBDT announcement, the last date to file ITR for the financial year 2020-21 has been extended to 30 September 2021 from the usual deadline of 31 July. 

Further, employers provide Form 16 to salaried employees, which acts as a crucial document in filing ITR. Usually, Form 16 had to be issued to employees by 15 June every year after the financial year. For FY 2020-21, CBDT has extended the deadline to 31 July 2021.

The general practice is that the employer deducts the tax at the source and then deposits the monthly salary to the employee’s bank account. The employer will summarize the taxes deducted at source and the salary paid over the financial year in Form 16. This form includes details of the income chargeable under the head of ‘Salaries’ and any other income reported by the employee, the deductions under Chapter VI-A.

If the employer fails to provide Form 16, the employee can use the pay-slips to understand taxes deducted and the monthly income received during the financial year to file ITR. Another alternative to filing ITR without Form 16 is finding the details on Form 26AS. 

Citizens with a total annual income falling within the basic exemption limit, i.e. Rs.2.5 lakh, need not file ITR. However, it is a good practice to file ITR even if your annual income falls within this bracket for documentation purposes. 

Friday, July 16, 2021

The Rule of 72 and Investments

 


“The most powerful force in universe is compound interest” – Albert Einstein

The concept of compounding is well known across the investment community and the two most important determinants of wealth over the long term are ‘Time’ and ‘Return’. While it is a known fact that wealth is usually created by holding onto your investments over the long term, many investors, because of their emotions like greed, chase the latter. History and experience tell us that the time or investment horizon is as important as returns for creating wealth over the long term or achieving a goal.

Like each individual goes through a different path in their life, they tend to have different objectives or goals as investors. Some individuals may have a goal to buy a house after 5 years, some may want to save for their children’s education, while some may want to plan for their retirement. Different asset classes are influenced by different factors. Investors too, set different expectations from various asset classes. Equities for example, are known to have potential for wealth creation over the long term, while debt could be used to provide stability to the portfolio or could be used to create corpus for emergencies. On the other hand, gold protects you against inflation and also acts as a hedge during uncertainties.

Given the nature of investors’ goals and different risk return profiles of different asset classes, how does one connect the dots in terms of time and returns?

One of the methods or ways investors can link return and time is through Rule of 72. The Rule of 72 is a mental math shortcut or a thumb rule that tells you approximately how many years it will take for your money to double at a given rate or return. Here’s the formula:

Years to double = 72 /Interest Rate or Return on an asset

Rule of 72 and Investments
For example, if an asset is compounding 6% annually, it will take approximately 12 years (72/6%) for that asset to double in value. Likewise, if an investor wants to double his/her money in 10 years, the return expectation should be approximately 7.2% (72/10 years). Below table shows number of years it takes for an investment to double at various return points.

Rate of ReturnNumber of years to DoubleRate of ReturnNumber of years to Double
1%728%9
2%369%8
3%2410%7.2
4%1811%6.55
5%14.412%6
6%1213%5.54
7%10.2914%5.14


Rule of 72 and Expenses 
If the rate of return is 4%, it will take 18 years for the investment to double. Similarly, if the rate of return is say 11% it will take 6.55 years for the investment to double. Thus, based on return expectation and Rule of 72, investor can choose the right asset class. 

As investors are concerned with the real returns, one can also use the rule of 72 for inflation or expenses like healthcare cost. If medical expenses increase at 8% per year (which is faster than retail inflation), medical costs will double in 72/8 or about 9 years.

Rule of 72 and Goals
Investors can use this rule while planning for their finances or for setting up a goal. Consider an individual who wants to buy a car worth Rs 8 lacs after 6 years and the returns expectation from an asset class is 12%. What should be the investment amount today? Based on this rule, investor should invest Rs 4 lacs in an asset with return expectation of 12%, so that his goal of buying a car can be achieved after 6 years.

The Rule of 72 is a practical eye opener that forces you to ask shrewd questions before making important investment or personal finance decisions. It gives investors a perspective on which asset class to choose depending upon their goals and time horizon. Historically, equities have delivered higher returns and hence, have helped in doubling investments faster than other asset classes. Therefore, a key lesson is not to avoid equities. This Rule, once again reiterates the fact that the early one starts investing in life, the better it would be for them. Patience and Discipline are, therefore the key for growing wealth over the long term.


Friday, July 9, 2021

पोर्टफोलिओ बांधताना : तुम्ही गुंतवणूक करताना ही काळजी घेता ना? : स्वाती शेवडे


 

आतापर्यंत आपण ‘पोर्टफोलिओ बांधताना’ या सदरातून आपला पोर्टफोलिओ कसा बनवावा? तो बनवण्याच्या पायऱ्या काय आहेत? बचत आणि गुंतवणूक यात काय फरक आहे? गुंतवणूक कुठे करावी? कर कार्यक्षम गुंतवणूक म्हणजे काय? सोन्यात गुंतवणूक करावी का? शेअर बाजारात गुंतवणूक करणे फायदेशीर आहे का? मग ती कशात/ कशी  करावी? गुंतवणूक सल्लागाराची मदत घेणे का गरजेचे आहे? निवृत्तीपश्चात उत्पन्नाची तरतूद कशी करावी? अशा अनेक बाबी समजून घेतल्या. त्यासाठी अर्थात तुम्हा सर्वाचे साहाय्य लाभले.

तर मग आता आपल्याला गुंतवणूक कुठे, कधी, किती आणि कशात करायची हे समजले आहे. म्हणूनच आजच्या भागात आपण पाहणार आहोत की गुंतवणूक करताना काय काळजी घ्यावी आणि कोणत्या चुका टाळल्या पाहिजेत :

१. योजना न करता गुंतवणूक करणे :

लक्षात ठेवा गुंतवणूक करणे म्हणजे एजंटला गाठणे, फॉर्म भरणे आणि धनादेश सुपूर्द करणे इतकेच नाही. जर आपल्याला संपत्ती निर्माण करायची असेल तर आपले उद्देश ठरविणे; अल्पकालीन, मध्यमकालीन आणि दीर्घकालीन उद्दिष्टे स्पष्ट असावीत आणि तशी योजना बनवून गुंतवणूक करणे गरजेचे आहे. योजना न बनवता, कोणताही उद्देश न ठरवता गुंतवणूक करणे हे तुमच्या संपत्ती निर्माणाच्या दृष्टीने अहितकारकच ठरेल.

२. गुंतवणूक विभागून (डायव्हर्सिफाय) न करणे :

असे म्हटले जाते की ‘Don’t put all eggs in one Basket’ (एकाच गुंतवणूक पर्यायात सगळा पैसा गुंतवूनका.) कारण असे केल्याने आपण फार मोठा धोका पत्करत असतो. जर तो गुंतवणूक पर्याय चांगला परतावा देत नसेल तर आपली पंचाईत होऊ  शकते. म्हणून विविध गुंतवणूक पर्यायांमध्ये गुंतवणूक करणे गरजेच आहे.

३. गुंतवणूक पर्यायाच्या धोक्याकडे दुर्लक्ष करणे :

स्वत:ची धोका पत्करण्याची क्षमता आणि इच्छा लक्षात न घेता केवळ नातेवाईक, मित्र-मैत्रिणींनी केली म्हणून किंवा कुठे तरी वाचले, ऐकले म्हणून गुंतवणूक करू नये. प्रथम तो पर्याय मला योग्य आहे का? त्यामध्ये कोणता धोका आहे आणि मी तो घेऊ  शकतो का? याचा विचार करून मगच गुंतवणूक करायची की नाही हे ठरवले पाहिजे.

४. गुंतवणुकीचे पुनरावलोकन न करणे :

ही नेहमी होणारी चूक आहे. एकदा गुंतवणूक केली की संपले, अशी आपली मानसिकता असते, पण आपण केलेल्या गुंतवणुकीत अडकून न पडता त्यामध्ये वेळोवेळी बदल करणे, ती तपासून पाहणे त्याचा आढावा घेणे गरजेचे आहे. हा बदल काळागणिक, गुंतवणूक करण्याचा अनुभव वाढल्याने, उत्पन्न वाढल्यामुळे, जोखीम घेण्याची क्षमता बदलल्याने किंवा ठरवलेला उद्देश पूर्ण झाल्याने किंवा बदलल्याने करणे गरजेचे आहे.

५. गुंतवणूक सल्लागाराचा सल्ला न घेणे:

जसे आपण शारीरिक स्वास्थ्यासाठी स्वत:चे स्वत: औषध न घेता डॉक्टरांकडे जातो, तसेच आपल्या आर्थिक स्वास्थ्यासाठी गुंतवणूक सल्लागाराची मदत घेणे गरजेचे आहे. तो आपल्याला कशात, कधी, किती गुंतवणूक करावी हे सांगेल, आपल्या गुंतवणुकीवर लक्ष ठेवेल आणि जेव्हा गरज वाटेल तेव्हा नफा काढून घेण्याचा आणि परत कशात गुंतवणूक करावी याचा सल्लादेखील देईल. म्हणजेच आपला पोर्टफोलिओ समतोल राखण्याचे काम करेल.

हे लक्षात ठेवा:

* गुंतवणूक करण्याची घाई करू नका; सांगोपांग विचार करून, ठरवून गुंतवणूक करा

* गुंतवणूक करणे सोपे नाही; कधी कधी ती कंटाळवाणी, क्लिष्ट प्रक्रिया असू शकते

* गुंतवणूक करण्याचा उद्देश लक्षात घ्या; यातूनच आपल्याला काय हवे व त्यासाठी कोणत्या पर्यायात गुंतवणूक करावी हे ठरवणे सोपे जाईल, आपली धोका घेण्याची क्षमता आणि इच्छा समजून घ्या व त्यानुसार गुंतवणूक करा.

* वेगवेगळ्या गुंतवणूक पर्यायांत गुंतवणूक करा; त्याचे पुनरावलोकन करून, जरूर भासली तर त्यात बदल गरजेचा.

* आपत्कालीन फंड कधीही खर्च करू नका; तो अडीअडचणीसाठी वापरल्यास लगेच पुन्हा जमा करण्यास विसरू नका.

* गुंतवणूक करताना महागाई निर्देशांक लक्षात घेऊनच गुंतवणूक करा; जर महागाई दरापेक्षा जास्त परतावा नसेल तर तुमची गुंतवणूक अयोग्य समजावी.

* कर्ज काढून कधीही गुंतवणूक करू नका; स्थावर मालमत्ता गुंतवणुकीचा मात्र याला अपवाद.

*  योग्य गुंतवणूक सल्लागाराची मदत घेऊनच गुंतवणूक करा; ज्याच्यावर तुमचा विश्वास असेल असाच सल्लागार निवडा.

*     गुंतवणुकीचे पुनरावलोकन करायला विसरू नका; वेळोवेळी तपासून बघा व त्यात पाहिजे असल्यास बदल करा.

- स्वाती शेवडे 

cashevade.swati @gmail.com

(लेखिका सनदी लेखपाल असून त्या पोर्टफोलिओ मॅनेजर म्हणूनही कार्यरत होत्या.)

साभार,लोकसत्ता अर्थवृत्तांत , December 26, 2016

Friday, July 2, 2021

Financial Pyramid For Wealth Creation - Team SWS

 


“Many many happy returns of the Taxation day !!” Surprised ? Why ? As many will start thinking “Who will happy on the Tax-Day?” Definitely it can be you, provided you mindfully plan your savings and investments in advance, considering your tax payouts. Let me explain using the Financial Pyramid shown above.

Let me elaborate the Financial Pyramid now.

1)    Health is the foundation of your financial pyramid. If this base is strong, the wealth creation begins on the healthy foundation! As soon as you enter into earning phase of your life or start your financial planning, getting the proper health and accident insurance must be though at first because any health issues or happenings of accidents can erode your entire portfolio!  And hence proper coverage against these “wealth leakage factors” is the first step. This also comes with added tax-benefits. Section 80D of Income Tax Act allows you to avail tax deductions, based on the premiums paid for medical insurance or health check-ups for your family, including your spouse, children, and dependent parents. This allows for tax deductible up to Rs 25,000 and for senior citizen (60 years or above), this figure is upto Rs. 50,000 (max). You can avail these benefits for a medical insurance provided by your employer as well as on a standalone policy taken by you. Tax deductions apply to both health insurance and family floater policies. A medical insurance policy allows you to avail tax deduction under Section 80D of Income Tax Act for any expenses incurred for preventive health check-ups. You can avail Rs. 5,000 for the cost incurred for preventive health check-ups for self, spouse, children or parents.

2)    Once you ensure your health aspect, then comes covering the life! having a Life insurance plan is a highly preferred investment option of the taxpayers since many years.  Under 8OC section, taxpayers may claim a deduction for the premium paid by them on the life insurance plan. Under this section, the deduction limit is up to an amount of INR 1.5 lakh.

3)    Then come the top two layers of savings and investments. Savings should be done for your short goals like monthly expenses, paying for school-fees, liquidity requirements in an emergency etc. while the investments should be done for your long-term goals like educations, marriage, purchasing house etc. Saving instruments like Public Provident Fund (PPF) and immediately come to mind when tax saving is the concern. Section 80C, one can save tax on only up to Rs 1.5 lakh. However you won't gain much by investing in PPF if you have already crossed the Rs 1.5 lakh threshold. Equlity Linked Saving Schemes(ELSS) funds is an efficient way to save taxes as compared to all the other investment options available under Section 80C of the Income Tax Act. With ELSS  one can invest up to INR 1.5 lakh in a financial year. You are free to invest more than this designated amount, but the excess over INR 1.5 lakh will not qualify you to avail the tax benefits under Section 80C. You should not let go of ELSS as they play a significant role in your portfolio. These pure equity-based instruments carry the potential for higher returns and are an ideal choice of investment for the long term. Also unlike a Public Provident Fund, National Savings Certificate and Employee’s Provident Fund, all of which require a minimum of 5 years lock-in period, ELSS is a better bet with just 3 years of commitment.

The first two levels of the Financial Pyramid (Health, Accident Insurance and Life Insurance)  play a crucial of minimization of any “Financial Risk” to your portfolio and the top two layers (savings and investments) are meant for maximization of your “Financial Gain”.


Now let’s turn to the other Pyramid..the Budget Pyramid.

 

At the beginning of this financial year, as you start thinking on budgeting angle make sure to keep a minimum of 20 to 30 % of your total gross income aside to build your budget pyramid. Out of this amount, 25% share takes care of your Financial Risk and 75% share looks after to your Financial Gain ! If you stick to the “Thorough Implementation” of the Financial Pyramid for minimum 5 years, then the extra returns generated from your 75% budget will automatically take care to generate the 25% budget for you! And this is thrust/beauty of the Financial Pyramid when its starts generating! It certainly takes care of all aspects of life-stage planning and its disciplined implementation results in Wealth Creation !! And when you plan this pyramid with taxation angle, you will certainly wish yourself “Happy Tax-Returns of the Day” !! All the very best to you to begin with your Wealth Creation  Journey!!

 - Team SWS