Are you ready to file your Tax Returns?

Income Tax Filing for Financial Year 2014-15

We are in the last fortnight for filing the Income Tax returns for the previous financial year, 2014-15.  The Income Tax department has become more diligent in collecting details about our incomes from various sources and they look forward to your annual Income Tax returns to corroborate what they have with them.  Filing of Income Tax returns are mandatory for anybody who is earning more than the basic exemption limit, that is, Rs2.50 lakhs per annum (subject to certain well defined exceptions).  Form 26AS is a wonderful tool to understand a broad snapshot of your various incomes you have received and the tax deducted against them.

Kindly start preparing the necessary documents to ensure that you are filing it properly. To give a brief summary of the requirements you need to keep handy are as follows:

1. Form 16 from the employer, if you are employed

2. Interest Certificate on housing loan, if applicable

3. Interest from Bank fixed deposits, if any

4. Interest from Savings Bank account, if any

5. Details of Capital Gains or business income, from purchase and sale of shares/mutual funds, if applicable

6. Investments which are eligible for deductions u/s 80C (if not considered as part of Form 16)

7. Rental Income of house properties, if applicable

8. Details of donations made, if any

9. Details of Health Insurance premiums paid (if not considered as part of Form16)

How to file the returns?

1. Electronically filing of income tax return is mandatory for the taxpayer except for super senior citizen (Age above 80 years) if the total income is more than Rs. 5 lakh or if there is a claim of refund

2. Details regarding how to file the income tax return is available at -> Help tab -> ‘How to e-file’ and for any other queries on e-filing -> Please go to -> Help tab -> FAQ.

3. New functionality of electronic verification code (EVC) of the Income Tax return has been introduced vide Notification No. 2/2015, dated 13/07/2015. You can use this facility as an alternative for submission of ITR-V to CPC- Bangalore.

To know further details on EVC, please visit -> Help tab -> EVC user manual.

How to ensure speedy processing of your returns?

1. Please ensure all the information like PAN/ Name/ Date of birth etc. are filled correctly in the Income Tax Return.

2.  Use the appropriate form type relevant to your different sources of income while filing the income tax return.

3. Properly update the Address/ Email Address/ Mobile number by logging into the e-filing website ( with your user id and password under profile tab. This is essential as CPC uses these details for sending all the communications.

4.  Make sure that you are taking due credits for the tax remitted on your behalf by your employer.  Kindly check the Form 26AS which gives you complete details of all incomes received by you as well as Tax deducted on them.  To check the details of tax credits visit -> Form 26AS.

4. Refund:  If you are looking to get refunds, please make sure that you are giving the correct bank account details along with the correct IFSC code .  Refunds are processed through ECS.

5. Outstanding demand: Timely action should be taken for all outstanding demand as reflected in the e-filing website. To know the outstanding demand and to furnish your response to each demand, login -> e-file tab -> Response to outstanding tax demand.

6. Correctness and Completeness of Income Tax Return: Non filling of the relevant schedules or incomplete data in the return is the most common reason for difference in the Income/ Tax computation by the department. To know further details, login -> Help tab -> e-filing check points.

7. Removal of defects: Any defects flagged in course of the preparation of the e-return (by using the e-return utility available from department) or while uploading the XML at e-filing website should be corrected so that your return will be processed accurately.

Source: Income Tax mailer to Tax Payers


Cost of Delay in Investments

Almost all of us want to invest towards our long term goals like retirement, house purchase etc., But only few of us manage to start the investments and getting with it. Many postpone the investment waiting for a more convenient or appropriate time, based on their own cash flows or market valuations.

The downside of that is the huge difference it creates at the end of the investment term. Take for example, Guy1 starts investing Rs10,000 per month from the age of 25 and continues till the date of his retirement, that is, 60 years. Guy 2 starts at the age of 30, and continues till the age of his retirement, 60 years.

Total amount invested by Person 1 = 12*35years*Rs10,000 = Rs42,00,000

Total amount invested by Person 2 = 12*30years*Rs10,000 = Rs36,00,000

The difference in amount invested is Rs6,00,000, which is not very big you would assume. But look at the corpus each one of them ends with at the age of 60.

Power of Compounding
Starting at
25 years
Starting at
30 years
Monthly Savings
Monthly Savings
Rate of Return
Rate of Return
Value at Maturity (60 years)
Rs5.45 crores
Value at Maturity (60 years)
Rs3.05 crores

Person 1 = Rs5.45 crores
Person 2 = Rs3.05 crores

The difference is almost Rs2.4 crores or 40% of Guy 1 corpus.

Person 1 does better due to the “Power of Compounding”. Guy 1 gets extra 5 years for his investments to grow and it results in a 40% additional corpus at the time of retirement. You know what is the cost of delaying the investments.

Therefore, it is very important to start the investments as soon as possible. For young people, in their first job, you start within the first 6 months of joining the workforce. You can start with a small amount as low as Rs1000 and keep increasing as your salary increases.

For people who are employed for a longer time, don’t wait for an appropriate time. Just go ahead and start it today.

Why we need to invest in Equity?

Every now and then there is a question which I get asked.  Why should somebody invest in Indian Equity at all?  Can’t they happy investing in Fixed Deposits, Real Estate, Gold and others.  There are number of people who haven’t considered Equity as an asset class and this article is precisely for them.  I want to impress upon people the need to be invested in Equity through my blogpost.
The fundamental premise for investing in equity is to take advantage of the  famed India growth story.  As a country, we continue to grow and develop.  We are moving from an under-developed to a developing nation and finally towards a developed economy when we are able to provide basic amenities and a certain standard of living to our teeming millions.  In this process, various Indian companies which participate in this process will ultimately stand to benefit due to rising demand for goods and services.  If we can be part owners of these growing businesses through participation in their equity, we also stand to gain as investors.   No country in the world today offers a better investment rationale than India.
How to participate in this wealth creation journey through equities?
For sophisticated investors buying the stocks of the companies is the first choice.  Direct equity participation calls for more active investment management in the form of identifying companies which are fit for investment, ability to visualize how the industry in which a company operates would progress over long periods of time, closely following up on their performance on a quarter on quarter basis, understanding when to exit to maximize returns etc., Sounds too cumbersome and demands a professional fund manager who can do it for you, right?
That’s exactly, Equity investing through mutual funds is all about.  It offers a wonderful opportunity to participate in this wealth creation opportunity.  Mutual Fund offers professional investment management with proven delivery of results over the last 20 odd years.  It is a very passive activity and requires minimum or no major effort from you, the investor.
Historical Returns of various asset classes: 
We have recorded history of last 35 years of Indian stock markets.  The BSE Sensex was created in 1979 with a base of 100.  Today, after 35 years, we are at 28,000.  That is, the money has multiplied 280 times in the last 35 years.  The annualised return on the sensex is 17%.
Compare that other asset categories over the last 35 years:
Fixed Deposit – 8.41% – the money has multiplied 16 times
Gold – 9% – the money has multiplied 20 times
Sensex – 17% – the money has multiplied 280 times
You should also note few important points on the above returns.
1.  The returns on FD and Gold are pre-tax and after taxes it would be even lower.
2.  The equity investments attract no tax in India and therefore the equity returns remain at the same level.
3.  Equity returns from Sensex is 17% and the returns on actively managed mutual funds have managed to return anywhere between 20% to 22% over the last 20 years period (since private mutual funds are introduced in India).
4.  The inflation during the period 1979-2014 is 7.57.  Post inflation returns are very low for FD and Real Estate over long periods of time
Price Volatility:
The unique thing about equity investments is that the price is very transparent and it is made available on a daily basis.  Naturally, when a particular commodity is traded day-in and day-out, there are bound to be price volatility due to various reasons like macro economic factors, political developments, global economic developments etc., The price volatility is part and parcel of equity investing and you should not be worried by it.
Remember, the returns of 17% or 280 times multiplication of Sensex happened over the last 35 years in spite of various economic and political developments both in India and abroad.  To name a few, the key negative developments which we witnessed during the last 35 years include:
  • Harshad Mehta Scam in 1992
  • NBFC Fiasco in 1995
  • Asian Financial Crisis in 1997
  • Dotcom bust in 2000
  • 9/11 terrorist attacks in 2001
  • Failure of BJP Government to get re-elected in 2004
  • Sub-prime mortgage crisis 2007
  • Lehman failure 2008
  • Quantitative easing 2009
Couple of them are directly related to the Indian stock markets.  The volatility is bound to be around in the future as well but the ability of equity to produce inflation beating returns of equities can’t be ignored over long periods of time. In the short term, there are possibilities of making negative returns but if you hold for longer periods (10 years and above), there is a very low possibility of making any negative returns.
The real wealth creation happens when your investments produce inflation beating returns over long periods of time.  One of the asset classes which can help you build wealth is equities.  From the point of view of diversification also, it is important that you invest in all asset classes like FDs, Real Estate and also equities.
For a long term goal like your retirement corpus creation, equity would be an excellent investment avenue for you.
It is safe (in the long run), transparent, highly liquid, provides tax breaks on your income (like ELSS) and finally tax free! What more do you require to choose an investment!!

What should you do with the current market correction?

We have been witnessing a continuous downward spiral in the Indian stock markets over the last 1 month or so.  The reasons attributed to the fall are due to the huge Income Tax dues raised against FIIs under the Minimum Alternate Tax (MAT) provisions, lower than expected corporate earnings, unseasonal rain and the worry of poor monsoon, the uncertain geo political situation in Middle East and the rising crude prices, inability of the NDA government to push through reforms in the absence of majority in Rajya Sabha.
Whatever may be reason, its true that the fall is causing jitters in the minds of the investors and creates self-doubts about the wisdom of long term investing, which we passionately advocate.  I understand the anxiety of the investors and in this regard, I would like to point out that all stock markets in general, and bull markets in particular, will see these kind of steep corrections.
The current correction or the fall is a good 10% drop from the peak of 9000 levels which we saw just after the Budget in March 2015.  The FIIs and other market players were looking for a reason to book profits and take money out and the above mentioned reasons provided them a good opportunity to do so.
If you step back a little and see what has happened in the last 1 year of this NDA government, we notice key developments in the following areas:
a. coal auctions and spectrum auctions were successful, providing the much needed transparency and funds to the government
b.  increased focus on improving the ease of doing business
c.  big push towards manufacturing through Make in India campaign
d.  fast-track project approvals for infrastructure projects
e.  increased focus on road development works by awarding
All these projects are expected to trigger sustained economic activity in the months to come.  The lower earnings reported by corporates is expected change over the next 3-4 quarters, though it has taken longer than expected.   Exactly the reason, why the stock markets are probably correcting with FIIs exiting.
Few other triggers like the changes in labour laws, land acquisition bill and the most important GST coming through in the next few quarters, I see a strong trigger for earnings growth of Indian companies.  If the global economic conditions also help, it will help the Export oriented companies.  The recent depreciation of Indian Rupee will also make the Indian exports more competitive.
It is also important to understand that all previous bull runs had it share of big market corrections, similar to the one we are seeing now.  I have given below the chart and the corrections the markets have seen between 2003-2008, so that it gives you a perspective of this correction.
Displaying IMG-20150508-WA0010.jpg
From 2800 levels, the markets finally reached 21,000 in spite of multiple corrections as depicted above.
I believe the current market correction would be a good entry point for people who were sitting in the sidelines and for existing investors its an opportunity to increase their Indian Equities exposure.
I would like to finish with the famous Warren Buffet quote ” Be greedy when others are fearful; be fearful when others are greedy”.
Right now, the mood is fearful and it may be a good entry point for your long term investments!

Key changes to Personal Taxation from Budget 2015

The much awaited Budget 2015 has come and gone. Here are the key points:

What remains the same?

Base income-tax slabs/brackets and tax rates for the financial year 2015-16 on personal income remains unchanged. There was a huge expectation that tax slabs would be increased but no luck this time.  😦

What has changed?

  • Surcharge on Income Tax has been increased from 10% to 12% for income exceeding Rs.1 crore, thereby increasing the effective maximum rate of tax to 34.61% from 33.99%, an incremental impact of 0.62%.  😦
  • Wealth Tax has been abolished! The additional 2% surcharge is in lieu of the Wealth Tax which has been abolished. 🙂
  • Transport allowance exemption is being increased from Rs.800 per month to Rs.1,600 per month. So your annual exempted Transport allowance would increase from Rs9,600 to Rs19,200.  I expect all employers to fine-tune their salary structure to enable higher deduction to employees. 🙂
  • Health Insurance Premium:
      • Limit of deduction of health insurance premium increased from Rs.15,000 to Rs.25,000, for senior citizens limit increased from Rs.20,000 to Rs.30,000. Don’t wait any further to cover your parents in an appropriate medical insurance plan 🙂
      • Senior citizens above the age of 80 years, who are not covered by health insurance, to be allowed deduction of Rs.30,000 towards medical expenditures. 🙂
  • Limit on deduction on account of contribution to a pension fund and the new pension scheme increased from Rs.1 lakh to Rs.1.5 lakh.  Additional deduction of Rs.50,000 for contribution to the new pension scheme u/s 80CCD. The Government wants to make sure that you have sufficient money at your retirement:)
  • Investment made towards the newly introduced Sukanya Samriddhi Scheme, relating to education of girl child shall be eligible for 100% deduction under Section 80C.  Also, the interest earned and withdrawal amounts are also tax free.  This is a deposit scheme similar to PPF but available for only girl child below the age of 10 years. 🙂
  • People who hold foreign assets like 401K plans etc., needs to disclose it in their annual IT returns. Concealment or non-disclosure of foreign accounts/investments can lead to taxation at 300% of amount concealed

Personal taxation related expectations from the Budget

Every year we look forward to the budget if not for anything but for the changes in the budget on the personal taxation front.  This year, there is an increased expectation and following areas may be considered by the Finance Minister:
1.  Increase in the basic exemption limit – the limit is expected to be raised to Rs3 lakhs.  So, anybody earning less than Rs3 lakhs would not be liable to pay any income tax.
2.  Increase in the medical reimbursement limit – the tax free medical reimbursement currently stands at Rs15,000 per annum and it is expected to be raised to Rs50,000.
3.  Increase in the tax saving investment limit under section 80 C – the 80C limit of Rs150,000 was recently raised in the last budget.  But there has been increased demand from the various financial products manufacturers like Mutual Funds and Insurance companies to create a separate sub-limit focussed towards retirement.  Therefore, the Finance Minister my increase the limit by another Rs50,000 with a specific deduction available if invested in Retirement oriented products.  For example, the Unit Linked Pension Plans, contribution to NPS or retirement linked mutual fund schemes.
4.  Increase in the deduction for health insurance under section 80D – the limit of Rs15,000 per annum for an individual remains constant for many years now.  With rising health insurance premium levels, there is a need to raise the deduction allowed by another Rs5,000 per annum.
5.  Increase in cess or re-introduction of surcharge – to fund the Swaach Bharat Abhiyan program, there is a possibility of increase in the amount of cess from 3% to 6% or reintroduction of surcharge at a lower rate of 5% on Income Tax payable.  It can’t be one-way traffic from Government and they need funds for the development programs.
6.  Widening of tax base – may again be a focus area for the Government.  Out of a country of 1200 million, less than 10% of the population pays any kind of income tax.  Its grossly inadequate to fund the development and there is a crying need to expand the tax base by bringing in new tax payers.  So, I am expecting a mechanism by which more tax payers would be brought within the tax fold.
Let’s wait and watch what out of the above gets looked in to by the Finance Minister.

Equity Valuation and Outlook for 2015

Equity valuations are always based on economic growth, earnings growth of companies and Price Earnings Multiples.
The above 3 principles were reinforced by Prashant Jain, the Chief Investment Officer in a recent note issued by HDFC Mutual Fund detailing their Equity Market outlook for 2015.
We should understand that stock markets are closely aligned to the growth in the economy.  The economic growth is synonymous with Gross Domestic Product (GDP) growth.    Prashant Jain jocularly mentions that stock markets and GDP growth are two bulls connected to the cart.
At times, stock markets race ahead of the GDP growth.  This happens when the fundamentals looks rosy and there is overall optimism.  In other times, stock markets remain stagnant and the GDP continues to grow.
The second case is what has happened in the last 6 years in India.  The GDP has continued to grow but the sensex has more or less remained stagnant.
“This is because markets have trailed nominal GDP growth over last five years. Sensex is up only 57% compared to the nominal GDP growth of over 100% over 2009 to 2014.”
The second aspect for equity valuation depends on the earnings growth of the companies.  At present the profit margins of companies are much below the long term averages.  With the pick up in the economy and the expected fall in interest rates, the bottom line of companies to improve significantly.   The margins are expected to expand leading to earnings growth.
“The outlook for corporate profitability is good as corporate margins are significantly below the long term averages and are expected to improve as capacity utilization and as business conditions improve. “
The third and probably the most important is the Price to Earnings multiples assigned to stocks.  The current PE multiples are below long term averages is a positive.
“Given the improving growth outlook, likely improvement in margins and the likely fall in interest rates, there is room for PE multiples to expand. 

Despite the run-up in equity markets, P/E multiples are reasonable and are still below long term averages. “

In the beginning of 2014, we had concerns relating to US FED QE tapering, high and sticky inflation and domestic political uncertainty.  It would have been nothing but natural to have hesitated investing in equity stocks.  At the end of year, we were in a completely different position in each of the above mentioned factors.
The bottom-line for the investor is that continue to invest towards long term wealth creation without trying to time the markets.