DTC Tax Calculator

Photo by Mishelle Lane

You must have heard a lot of stories about the impact of DTC on your tax liability. Why not calculate it yourself? To know your tax liability under the new Direct Tax Code (DTC), try this DTC Tax Calculator:

To calculate your tax under DTC, first you need to know your total income. But, what if you don’t have any idea about your total income under DTC? Please note, the purpose of this calculator is not to calculate your exact tax liability under DTC regime but to arrive at an approximate figure. Let me give you a hint: your almost entire salary package is taxable with the exception of transport allowance. Similarly entire capital gains are taxable including long term gains although you’ll get the benefit of indexation.

If you can just make a rough estimate of your total annual earnings (salary + property income + capital gains + business income + other income), this calculator will help you get a fairly good idea about your tax liability under the New Tax Code.

Here’s the tax calculator as per DTC

DTC INCOME TAX CALCULATOR


Notes / Instructions for Using Tax Calculator:
1. The calculator is meant only for tax calculations of resident individuals. In other words, it is not applicable for non-residents.

2. It is presumed that there is no agricultural income.

3. Income from ordinary sources includes following income:

a. Income from employment
b. Income from House Property
c. Income from business
d. Capital Gains (both short term and long term)
e. Other Income

4. Other Deductions includes the following:

a. Deduction for interest on loan taken for higher education [Section 68] (Replaces section 80E of IT Act, 1961)

b. Deduction for medical treatment of certain specified diseases [section 70] (Replaces section 80DDB of IT Act 1961)

c. Deduction for maintenance of a disabled dependent [section 71] (Replaces section 80DD of IT Act 1961)

d. Deductions for donations [section 72, 73] (Replaces section 80G of IT Act 1961)

e. Deduction in case of a person with disability [section 79] (Replaces section 80U of IT Act 1961)

The terms and conditions are also almost similar to various existing deductions under section 80 (such as 80E, 80DD, 80DDB & 80U).

5. In the “Tax Payer Status” column of the calculator, please enter 1 for senior citizens [i.e., if you’re an individual (man / women) above 65 years at any time during the financial year, 2 for Women and 3 for other individuals.

6. Rounding-off of income is ignored.

So, what do you observe: an increase (or decrease) in your tax liability?

In next part, I’ll compare tax liability of a salaried tax payer under current tax regime vis-à-vis New Tax Code.

Also see:
1. DTC: Tax Rates / Slabs
2. Impact of DTC on Life Insurance
3. Tax Calculator FY 2009-10

Answers to Money Teaser # 2: Life Insurance

Photo by § Mary §

Here is the list of answers to life Insurance quiz:

1. Of course, buying life insurance, isn’t it? When life insurance is the first choice of the majority of people for saving tax, obviously it should be the best tax saving option. Don’t we say that majority is always right?

2. To make money for Life Insurance Industry.

3. By dying early. But suicide during first policy year is not allowed.

4. There is hardly any difference. Both are working towards safeguarding the interest of life insurance industry.

5. Sorry, deleted...


To see the questions, please click here.

P.S. Please don’t laugh because I’m dead serious! And, if you think any of the answer is wrong, or if you can think of a better one, please write it in the comment box.


Also see:

1. Sale of Medicines in India: Mind Boggling Price Differences

2. New Tax Code – Impact on Life Insurance

Amazing Facts about Medicines Sold in India

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Managing your money affairs is not just about making smart investment decisions. Becoming smart consumer is equally, if not more, important. So, today let’s learn a thing or two about some malpractices of pharmaceutical companies.

For a moment, just imagine Reliance Fresh start selling potatoes under its own brand, say, ULOOS at a price of, Rs 80 per Kg and Spencer starts selling them at Rs 50 per kg under its brand LOOLOOS while SAFAL price is Rs 20 per kg and sabzi mandi price is just Rs 10 per kg.

Are you going to buy them from Reliance or Spencer? Of course, not! You’re intelligent enough to be wary of such marketing tricks. You know quite well that fancy packaging can’t better the quality of an Aaloo.

Let’s change the picture and replace vegetables by medicines.

Isn’t it amazing that those branded LOOLOOS and ULOOS are the most popular and most sold drugs in India? Did you know that big pharma companies in association with doctors (so-called most venerable profession) and chemist shops make a big fool of consumers?

D0 you know the following facts about medicines sold in India?

1. There are different brands of the same medicine available in the market.

2. The brand name instead of the generic name is more prominently displayed on the medicine.

3. There is wild variation in prices (100%, 200% or even more than 1000% i.e., 10 times) of these different brands without there being any difference in quality.

4. The most selling brand of a medicine is usually the most expensive one.

5. Big pharma companies directly or indirectly bribe doctors to sell their higher priced branded medicines.

6. The pharma companies supply generic versions of the same medicines to the government at very low price (in some cases the retail market price is more than 50 or 100 times the government procurement price).

7. Unlike their western counterparts, doctors in India prescribe branded medicines instead of the generic version.

8. The medicine (brand) prescribed by doctors is usually the costliest brand.

The most shocking observation, in fact, is not just the availability of these exorbitantly priced medicines but people openly buying them without even knowing it. Why is it so?
Actually, medicines are the only product where purchase decision is not under our direct control. The decision is made by the doctor on our behalf. Ethics demand that recommended drug should either be a generic name or lowest price brand if there’s no difference in quality. But the fact is otherwise. Isn’t it a total breach of faith by the community of doctors whom we consider next to god and trust blindly?

To be continued…

Also see:

1. Advertisements: The Biggest Marketing Trick

2. Credit Cards: Know the Hidden Traps

Deceptive Marketing by MFs: Be Wary of Advertised Returns

Photo by Aphrodite

"Good is not good, where better is expected."

—Thomas Fuller

I don’t read MINT, but the day before yesterday my newspaper vendor inadvertently delivered a copy of MINT instead of ET. While flipping the pages of the newspaper, I came across an advertisement by Birla Sun Life Mutual Fund on the last page (page 24 of MINT dated 15 Dec 2009) claiming that two of its mutual fund schemes have delivered exceptionally good returns during the last 10 years (without considering the load).

The following claims were made:

i). At 24% CAGR your money multiplies 8 times in 10 years;

ii). 2 of our schemes have given more than 24% CAGR in last 10 years (as on 16 Nov 09)

a) Birla Sun Life Tax Relief’96 --> Value of Rs 1 lakh invested in scheme on 16 Nov 99 is now Rs 8.91 lakh @ 24.45% CAGR

b) Birla Sun Life Equity Fund --> Value of Rs 1 lakh invested in the scheme is now Rs 8.72 lakh @ 24.19% CAGR.

On the other hand, value of similar investment in benchmark (BSE 200) is Rs 4.21lakh @ 15.46% CAGR.

The first thought which crossed my mind was that how come such a great mutual fund scheme escaped my attention while I was writing the post: Best Tax Savings Schemes for FY 2009-2010.

So, I decided to take a second look and review the performance of Birla Sun Life Tax Relief’96 (BSLTR '96).

Review of Birla Sun Life Tax Relief’96
In the published advertisement, the 10-Yr returns are as on 16 Nov 2009 i.e. assuming the investments were made on 16 Nov, 1999. However, I checked the figures as per the latest data ((14 Dec 2009) available on Value Research, a mutual fund rating agency.

Here are the findings:

1. Current 10-Yr trailing CAGR of Birla Sun Life Tax Relief 96 (growth option) is 21.49% and its comparative position vis-à-vis other ELSS based on 10-Yr returns is as follows:

ELSS-----------------------------------10-Yr CAGR----Rank
HDFC Taxsaver-------------------------29.45%--------1/15
Franklin India Taxshield--------------25.00%--------2/15
Sundaram BNP Paribas Tax Saver---23.31%-------3/15
Birla Sun Life Tax Relief 96-----------21.49%--------4/15

We notice that although the performance of Birla Sun Life Tax Relief 96 is good considering last 10-yr returns, there are many funds which have given far better returns (note the difference of 8% in CAGR of HDFC Tax Saver and Birla Sun Life Tax Relief’96). For example, the amount of Rs 1lakh invested in HDFC Tax Saver and Franklin India Taxshield would have become 13.21 lakh and 9.31 lakh respectively as compared to 7.0 lakh in Birla Sun Life Tax Relief’96.

2. Next, though last 10 years returns are important but the returns earned in immediate past are more relevant than those earned in distant past (although both may or may not be sustained in the future). Do you know that Value Research ratings are also based on combined performance of last 3 years and 5 years? So let’s see Birla Sun Life Tax Relief 96 return performance for last 7-Yrs, 5-Yrs, 3-Yrs and 1-Yr (trailing CAGR returns):

Period-----------CAGR------------------Rank
7-Yr --------------30.99%---------------10/19
5-Yr --------------21.48%-----------------9/20
3-Yr --------------10.15%----------------10/26
1-Yr --------------103.83%----------------2/30

What do we observe? The fund has indeed performed quite well during the last one year. Nevertheless, the return ranking of last 7-Yrs, 5-Yrs and 3-Yrs returns is almost average. Why? Let’s see.

3. To get a better glimpse of its performance, we take a peek at its year-wise return performance of last five years :

Year------------Returns----------Rank----------- + (-) BSE 200
2009------------99.14%----------2/32--------------14.20%
2008----------(62.67%)---------26/29-------------(6.21%)
2007------------76.07%----------4/26--------------15.63%
2006------------43.53%----------2/23---------------3.95%
2005------------32.31%----------19/20------------(1.49%)

Here, we notice that this ELSS fund has beaten its benchmark (BSE 200) in three out of last five years. That’s nothing to be proud of!

That’s ok. What else do we notice? The most striking observation is that it’s one of the riskiest mutual funds in the ELSS category of equity funds. How? Please note the wide variation in returns. So, while Birla Sun Life Tax Relief 96 delivered extraordinary returns in the year 2009, 2007 and 2006, it was among the worst performers during 2008 (Rank 26/29) & 2005 (Rank 19/20).

4. To substantiate our findings that it is indeed a risky ELSS scheme, let’s take a look at various risk parameters. So, while risk grade of Birla Sun Life Tax Relief 96 is ‘above average’, beta (1.14) is highest in the ELSS category, even higher than Tauras Tax shield whose performance I reviewed earlier.

5. One more point worth noting is that Birla Sun Life Tax Relief ‘96 P/E multiple of 29.46 and P/B ratio of 4.12 (as on Nov 30 2009) is second highest in the ELSS category which indicates that the current valuations of the majority of the stocks in which the fund is invested is quite high thereby limiting the future return potential.

6. Finally, what about its rating by Value Research? Yes, this is in fact the most important factor to consider. Know that its current rating by Value research is 3-star. In other words, based on last 3 and 5 years risk-adjusted returns, Birla Sun Life Tax Relief 96 is an average performer not worth investing in when there are so many better alternatives out there.

Lesson
Why did I write a review of a 3-star rated fund? What lesson do we learn from the above review of Birla Sun Life Tax Relief’96?

The message is clear: you should be wary of the returns advertised by the mutual funds. Investment decisions should never be based on such misleading claims made in advertisements. Literally speaking, the facts stated may be quite correct but the reality is that such an ad hides more than it reveals. So understand that before investing in mutual funds, it is necessary to look beyond the appearance in order to see the broader picture.

What’s your opinion?


P.S. Birla Sun Life Tax Relief 96 (BSLTR ‘96)is not worth investing as of now,although it has been adjudged World’s Best Performing Equity Fund for the 13-year period ended September 30 2009 as per Lipper global fund data. The above analysis shows that it has a long way to go before it finds its proper place in the best performing ELSS funds.


Also see:

1. Best ELSS for the FY 2009-10
2. How to Choose Best Equity Funds
3. Amazing SIP Calculators

Amazing Online SIP Calculators

Photo by sea turtle

UPDATE: 24/01/2010

Sorry, I’m deleting this post.

Of late, I was going off-track and trying to be overly critical of other people’s work rather than minding my own business. Many thanks to Arjun, for making me realize my folly.

Anyway, very soon I’ll publish an online SIP calculator based on excel.


UPDATE-09/04/2010: Published today...click here.

Also see:

1. Home Loan Calculator
2. Tax Calculator
3. PPF Calculator

Best Tax Saving (ELSS) Mutual Funds: FY 2009-2010

Photo by Tony Blay

In January 2009, I published a list of seven best ELSS (equity-linked savings scheme) funds for the purpose of tax savings under section 80C. Further, out of those seven tax planning mutual funds in India, we selected top 3 schemes on the basis of their consistent outperformance during past 10 years.

The following were the top 3 ELSS Funds:

1. Canara Robeco Equity Tax Saver
2. Sundaram BNP Paribas Taxsaver
3. Sahara Tax Gain


So, now that almost a year is over, let’s review the performance of tax saving mutual funds and see whether those are still the top rankers or, is there any new addition or deletion? Put another way, which are the current best tax planning equity mutual funds in India for FY 2009-2010 having potential to deliver top returns over next 3-5 years?


Out of the previous seven 5-star and 4-star rated schemes by Value Research, a mutual fund rating agency, Magnum Taxgain and Sundaram BNP Paribas Taxsaver stands downgraded from 5-star to 4-star; Principal Personal Tax Saver rating has been lowered from 4-star to 3-star (hence removed from the list) while Canara Robeco Equity Tax Saver has got its rating improved from 4-star to 5-star. There are two new additions to the league of ELSS toppers: Tauras Tax Shield and Fidelity Tax Advantage. Revised current list (as on Nov 30, 2009) of top tax saving mutual funds in India is as follows:

Best Performing ELSS Funds
a) Fidelity Tax Advantage (5 star)
b) Canara Robeco Equity Tax Saver (5 star)
c) Magnum Taxgain (4 star)
d) Sundaram BNP Paribas Tax Saver (4 star)
e) Franklin India Taxshield (4 star)
f) HDFC Taxsaver (4 star)
g) Sahara Tax Gain (4 star)
h) Tauras Tax Shield (4 star)

Further, talking about the best of the best, out of the top three ELSS funds I recommended, two are still maintaining their top position.

While the Canara Robeco Equity Tax Saver is performing quite well (despite change of fund manager 1-year back) and is in tune with its excellent long term performance, there is some slippage in the performance of Sundaram BNP Paribas Tax Saver but let’s hope it’s a temporary phenomenon and the fund will soon recover (but still it can no more claim to be in the league of top three ELSS). Coming to Sahara tax gain, delivering consistent above average returns there’s no change in its 4-star status.

Our choice has been vindicated by the ET Quarterly MF Tracker (Sept 09 ratings) according to which the only two schemes to get Platinum rating in the equity-linked saving scheme (ELSS) category are Canara Robeco Equity Tax Saver and Sahara Tax gain. So we get additional assurance that our choice of best of the best among the tax saver equity mutual funds (ELSS category) is in fact right.

Next question is: Which new ELSS scheme should take this coveted third position? Whether HDFC Tax Saver or Fidelity Tax Advantage (a new entrant)? My vote goes to HDFC Taxsaver, despite comparatively better 3 year performance by Fidelity Tax Advantage (and its 5 star rating). There are basically two reasons: first is consistent top performance by HDFC Taxsaver over a period of 10 years except in the year 2007 (the only year in its history when it performed miserably and failed to beat its benchmark index), while Fidelity Tax Advantage is a new entrant yet to complete even 5 years. Second reason is that the current performance (trailing 1-Yr returns as on 30 Nov 2009) of HDFC Taxsaver(108.73%; 4/30) is a lot better than Fidelity Tax Advantage (91.92%; 13/30). The only thing I don’t understand is why the HDFC Taxsaver scheme is awarded ‘Silver’ rating (which indicates average risk-adjusted return performance) by the ET MF Tracker Sept 09.

Won’t it be an injustice to Tauras Tax Shield, another promising ELSS with the highest Sharpe Ratio (i.e., delivered best returns per unit of risk taken) and highest alpha (i.e., excess returns on and above the risk-adjusted returns) among all the tax saving mutual funds?

No, because Tauras Tax Shield is a highly risky scheme in the ELSS category: high risk grade (only ELSS among the top 8), mid-cap orientation, beta of more than one and highest turnover ratio. While it was the best performing ELSS in the year 2007 ( 111.69% returns outperforming its benchmark index [BSE 200] by a huge margin of 51.25%), it was the worst performing tax saving fund in the year 2006 (returned negative 10.13% as against around +40% delivered by both BSE 200 and Nifty). OK, that’s 2-years back, what’s about the recent performance? See again that although it’s ranked 6/30 on the basis of 1-yr trailing returns (as on 30 Nov 2009), but last 6 months performance (16.03%, [Rank 32/36] against the category average of 21.72%), is again poor. Put simply, there is too much variation in the performance of Tauras Tax Shield which is not good.

Here’s the latest list of TOP 3 ELSS Funds for FY 2009-2010.

Top 3 ELSS Funds
1. Canara Robeco Equity Tax Saver
2. Sahara Tax gain
3. HDFC Taxsaver

Do you agree?


Also see:

1. Why must you Choose the Best Equity Funds?

2. How to Invest in Best ELSS Mutual Funds?

3. Review of Birla Sun Life Tax Relief '96

Money Teaser # 2

Photo by Striatic

Now that I’ve written extensively on life insurance, let’s test your understanding about it.

Here’s a short Quiz about life insurance:

Think out of the Box!!

Q-1: Which is the best tax-saving option under section 80C?

Q-2: What is the sole purpose of life insurance?

Q-3: How can you maximize returns from your life insurance policies?

Q-4: What’s the difference between IRDA & Life Insurance Council?

Q-5: Sorry, deleted

Please take a pause before answering. Answers to the riddle will be published in another post.

P.S. Subject of personal finance is a bit boring. So, this is an attempt to enliven it.

Also see:
1. New Financial Definitions

2. Welcome to The Money Quest

3. Amazing SIP Calculators