Monday, 13 April 2015

EEE EET ETE explained

There are 3 ways Govt. taxes the monies invested by public at various stages of investment.
When the money is invested it goes through three stages, which are -

  • Contribution to an investment scheme.
  • Accumulation of interest.
  • Withdrawal stage, when the lump sum amount (sum of money invested and accrued interest) is withdrawn.

How does EEE relate to these stages?

EEE stands for Exempt, Exempt, Exempt which means -

  • First exempt means that the amount invested will be eligible for deduction under some section (As exp 80C) subject to the total exemption limit. The invested amount will be deducted from the total taxable income of the individual.
  • Second Exempt means the accrued interest will not be added to the total income and will not be taxed. Thus in case of second exempt interest earned is not taxed.
  • Third exempt means the income from the investment, at the time it is withdrawn, would be tax free.
As of now EPF, PPF, SSY, Life Insurance Policies, ELSS comes under EEE.

How does ETE relate to these stages?

ETE stands for Exempt, Taxed, Exempt which means -

  • First exempt means that the amount invested will be eligible for deduction under some section (As exp 80C) subject to the total exemption limit. The invested amount will be deducted from the total taxable income of the individual.
  • Taxed means the accrued interest will be taxed.
  • Third exempt means the income from the investment, at the time it is withdrawn, would be tax free.
Some of the investments which can be categorized under ETE would be Tax Saver FDs, NSC.

How does EET relate to these stages?

EET stands for Exempt, Exempt, Taxed which means -

  • First exempt means that the amount invested will be eligible for deduction under some section (As exp 80C) subject to the total exemption limit. The invested amount will be deducted from the total taxable income of the individual.
  • Second Exempt means the accrued interest will not be added to the total income and will not be taxed. Thus in case of second exempt interest earned is not taxed.
  • Taxed means the income from the investment (Principal + Accrued Interest), at the time it is withdrawn, would be taxed.
Some of the investments which can be categorized under EET would be National Pension Scheme(NPS), Pension Plans.

There are other similar terms too like TTE (Fixed deposits), TEE (Stocks and Equity Funds if kept for more than 3 years).

That's all for this topic EEE EET ETE explained. If you have any doubt or any suggestions to make please drop a comment. Thanks!


Related Topics

  1. What are the tax exemption benefits of PPF?
  2. EPF Vs NPS: Which is better

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Thursday, 9 April 2015

Shah Rukh Khan's net worth

According to a report in Wealth-X Shahrukh's estimated net worth is $600 million (More than 3600 Crore). He is named as the second richest Actor in the world beaten only by Jerry Seinfeld with the estimated net worth of $820 million.

Shahrukh Khan was the only Bollywood star to feature in the top ten of the international celebrity rich list for 2013 - compiled by Wealth-X.

Some of the ways Sharukh khan makes money -

There are movies of course and his own production house but there are many other ways by which SRK makes money.

  • Endorsements - SRK can be seen endorsing a whole gamut of products cold drinks, cars, pan masala, paint to fairness creams. According to a study Shahrukh's brand value is Rs. 1011 Crore which is the highest among the celebrities.
  • Performing in weddings - According to a report in TOI (http://timesofindia.indiatimes.com/entertainment/hindi/bollywood/news/Shah-Rukh-Khan-charges-a-hefty-amount-for-weddings/articleshow/19999554.cms) SRK charges around Rs. 8 crore for wedding performance. So, just by shaking a leg in 10-15 odd weedings he can make close to 100 Crores in a year. Just as FYI Shah Rukh received around 250 invites for wedding appearances/performances in 2012 but took up only 10 of them.

  • Investments - Apart from owning a very famous address in Mumbai by the name "Mannat", SRK also owns several other properties (including houses) in several cities and countries across the globe, like London and Dubai to name a few. He also heads a production house 'Red Chillies Entertainment' - Film production and VFX being the two most important businesses of this house, which together constitute almost 70% of it's revenues.
    IPL team Kolkata Knight Riders (KKR) one of the profit making IPL franchise is also owned by SRK.

  • TV Show hosting - SRK after starting his career in TV once again made his presence felt in the television world as the host of reality shows. He has hosted reality shows like; Kaun Banega Crorepati Season 3, Kya Aap Paanchvi Pass Se Tez Hain? and Zor Ka Jhatka: Total Wipeout. A TOI report says that in 2011, he charged Rs 2.5 crores for Zor Ka Jhatka..., an Indian adaptation of the American reality show Wipeout.
  • Performance at Award Shows - Shah Rukh Khan who is one of the most active participants in almost all award ceremonies, makes a lot of money through performance in such shows. And the number of awards (shows) that we have these days (which is really MANY!) is certainly helping him!
    According to reports SRK charges around Rs 2-3 crore for over an hour's performance, which may also include hosting.

Monday, 6 April 2015

How many Indians pay income tax

India being a developing country is supposed to have a low population, paying Income Tax but it would still be surprising to read that only about 3% of Indian population pay Income tax, which comes to 35 million tax payers (3.5 crore). In that too majority of the tax payers fall under 2.5 - 5 Lakhs slab. Just as comparison in USA around 45 percent of the population pays taxes.

As per the last census average household size in India is 4.8 person per house hold. If we take it as 5 and assume there is only one earning member per household then these 3.5 crore tax payer people take care of 17.5 crore population. Moreover according to Rangarajan committe below poverty line population in India is estimated at 363 million (36.3 crore) in 2011-12 This means 29.5% of the India population lives below the poverty line.
If we add these numbers (Population which is coming from the household where one of the member is paying taxes and the population which is below poverty line thus unable to even take care of their daily bread forget taxes)

17,50,00,000 + 36,30,00,000 = 53,80,00,000 (53.8 crore)

Now if we take the population of India as 125 crore (1,25,00,00,000 or 1.25 billion), number of people left -

1,25,00,00,000 - 53,80,00,000 = 71,20,00,000 (71.2 crore)

If we go by 5 people per houshold that will mean 14.24 crore households which are not paying any income tax.

If we take another 30% population whose income is less than the taxable income that will leave out another 21.36 crore people. Still there are 49.84 crore people left coming to around 10 crore household. Which means roughly there are around 10 crore households who should pay taxes but not doing so.

It's anybody's guess that most of these people who are not paying any taxes are -

  1. Rich farmers - Agriculture income is exempted from tax in India. Though many of the small farmers may be having a hand to mouth existence but there are rich farmers too who should be taxed.
  2. Refer Crorepati farmers: tax them please! to know how people are evading tax by showing more agricultural income.

  3. Business owners - According to RBI data, cash still accounts for 90 per cent of all monetary transactions in India. So it is easy for the business owners to manipulate their taxable income by dealing in cash and under invoicing or not giving invoice at all.
  4. Self Employed Professionals - This can be explained through an example -
    Let's take an example of two chartered accountants A & B residing in the same apartment. A works in a financial institution and B has his own practice in the same commercial complex. Both of them drive to office. They both spend around Rs 12,000 on petrol bills. While A gets tax benefit of only Rs 1600 (Conveyance limit has been increased from Rs. 800 to Rs. 1600) B can claim the entire amount as a deduction from his income. Same for food bills self employed can claim the whole amount as business expenses. So self employed person can claim a lot of expenses as business expenses and pay almost nil tax.

Devaition in the number of Income Tax payers

Data about the number of income tax payers also show the inequality in the earnings and how the wealth is concentrated among very few, it also shows how people are not disclosing their true income. We have to go through some data to see that -

Details of number of income tax payers in the tax slabs

Details of number of income tax payers in the tax slabs of Rs. 0-5 lakh, Rs. 5-10 lakh, Rs. 10-20 lakh and beyond Rs. 20 lakh, as furnished by the Ministry in their written submission are given as under :

Slab Number (in lakhs) Percentage of taxpayers
0-5 lakhs 288.44 89.0%
5-10 lakhs 17.88 5.5%
10-20 lakh 13.78 4.3%
>20 lakh 4.06 1.3%

This data shows how much inequality there is among the tax payers. Only 1.3 percent of the tax payers have taxable income above Rs. 20 Lakhs, whereas, 89 percent of the tax payers have taxable income not more than Rs. 5 Lakhs.

Amount of tax collected as per tax slabs

Details regarding amount of tax collected under the existing rates and percentage of tax collected in each of the said slabs as furnished by the Ministry are given as under :

Slab Tax Collected (Rs. in crores) Percentage of tax collected
0-5 lakhs 15,010 10.1%
5-10 lakhs 21,976 14.8%
10-20 lakh 17,858 12.1%
>20 lakh 93,229 63.0%

Again notice the deviation 89 percent of tax payers are paying 10.1 percent of the taxes where as 1.3 percent of tax payers pay 63 percent of the taxes.

Going by the data it can be seen that GOI need to increase the tax base rather than increasing the income tax or service tax (Which is increased to 14% in this year's budget (2015)). Any increase in service tax hits the salaried class more as they end up paying more in double taxation.

Readers are welcome to present their thoughts

** Source for this post is Standing commitee on finance(2011-12) report (49).

That's all for this topic How many Indians pay income tax. If you have any doubt or any suggestions to make please drop a comment. Thanks!


Related Topics

  1. Crorepati farmers: tax them please!
  2. Income tax slabs for FY 2015-16
  3. EEE EET ETE explained
  4. What are the tax exemption benefits of PPF?

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Thursday, 2 April 2015

Public Provident Fund (PPF) account opening eligibility

A Public Provident Fund (PPF) Account can be opened by any resident Indian Individuals (Salaried, Business men, Self employed professional or any other category).

If a salaried class person has a General provident Fund account, or an Employees Provident Fund account, he can still have a PPF account there is no restriction.

PPF account by Grand Father/Mother

The grand father/mother cannot open a PPF account on behalf of their minor grand son/daughter except in the case grand father/mother are acting as the guardian of the minor.

NRIs opening PPF account

Non-resident Indians (NRIs) are not eligible to open PPF account. However an NRI can maintain an existing PPF account which was opened when she was a resident Indian.

HUF opening PPF account

Opening of PPF accounts in the name of Hindu Undivided Family is also not permitted. Since May 13, 2005, HUF also can not open a account under the PPF scheme. If the PPF accounts was opened, in the name of HUF, prior to May 13, 2005 subscription may continue to that account till maturity. That account can not be extended any further i.e. it has to be closed after 15 years.

Number of PPF accounts

A person can have only one PPF account in his name, if a person opens 2 PPF accounts anyhow and at some point it is detected that a person has 2 accounts (can easily be done by PAN) one of them would be closed and only the principal amount would be returned not the interest. Thus it would serve no purpose to have 2 PPF accounts.

PPF account for a minor

One exception to the stated one account per person rule is having an account for the minor where a person who is already having a PPF account can open another account on behalf of a minor but in that case combined limit for both the account would be 1.5 lakhs (Current limit for the PPF) anything deposited over and above that amount won't get any interest.

In case of family of four- couple and their 2 kids, Kid-1 and Kid-2 there are following scenarios for the number of PPF accounts an individual can have.

  • Father can open PPF account for self, kid-1 and kid-2.
  • Mother can open PPF account for self, kid-1 and kid-2.
  • Father can open PPF account for self and one kid (kid-1 or kid-2).
  • Mother can open PPF account for self and one kid (kid-1 or kid-2).
Please note that the combined investment in any of the above scenarios should not exceed Rs. 1,50,000.

Points to note -

  • Joint PPF accounts are not permitted.
  • An individual can't have more than one account on his/her name.
  • No age is prescribed for opening a PPF account.
  • Parents and Guardians can open PPF account for minors.
  • opening of PPF accounts in the name of Hindu Undivided Family is not permitted.

That's all for this topic Public Provident Fund (PPF) account opening eligibility. If you have any doubt or any suggestions to make please drop a comment. Thanks!


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  1. Where can I open a PPF account?
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  3. PPF partial withdrawal rules

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Public Provident Fund (PPF) tax exemption benefits

What makes PPF the choice of investment for everybody is that -

  • The amount invested in PPF, with in the financial year, can be claimed as deduction under 80C.
  • The interest earned is tax free.
  • Backed by GOI making it one of the safest saving instrument available.

So let's see what are the tax exemption benefits of PPF making it such an attractive investment.

Tax exemption benefits of PPF

Annual contributions made to the PPF account are exempted from tax under Section 80C of income tax. Currently Rs. 1,50,000 (FY 2015-16) is the amount that can be claimed under 80C, but that doesn't mean all of that Rs. 1,50,000 has to be invested in PPF compulsorily. Rs. 1,50,000 is the total amount that can be claimed for deduction under 80C.

As Exp. - Let's assume a person is contributing Rs. 40,000 to his EPF(Employee Provident Fund) account and also has an insurance policy for which annual premium is Rs. 20,000. Since EPF contribution and insurance premium can also be claimed as deduction under 80C, that leaves another Rs. 90,000 to be invested in case he wants to claim full exemption. That amount (Rs. 90,000) can be invested in PPF. On the other hand if a person has more money to invest then he can put Rs. 1,50,000 in PPF but based on the above scenario the exemption can be claimed only on Rs. 90,000.

Tax benefits for minor's PPF account

In case a person has two accounts one for himself and one for his minor kid then the amount that is invested in both of the accounts with in the financial year can be claimed for exemption but the upper limit of exemption remains Rs. 1,50,000. Same thing is applicable if person has 3 accounts one for himself and two for minor kids.

PPF provides EEE (Exempt-Exempt-Exempt) benefits

Before going into why PPF is termed as EEE, first lets have a little introduction on what exactly is EEE.

There are 3 ways Govt. taxes the monies invested by public at various stages of investment.
When the money is invested it goes through three stages, which are -

  • Contribution to an investment scheme.
  • Accumulation of interest.
  • Withdrawal stage, when the lump sum amount (sum of money invested and accrued interest) is withdrawn.

How does EEE relate to these stages?

EEE stands for Exempt, Exempt, Exempt which means -

  • First exempt means that the amount invested will be eligible for deduction under some section (As exp 80C) subject to the total exemption limit. The invested amount will be deducted from the total taxable income of the individual.
  • Second Exempt means the accrued interest will not be added to the total income and will not be taxed. Thus in case of second exempt interest earned is not taxed.
  • Third exempt means the income from the investment, at the time it is withdrawn, would be tax free.

With this information about EEE we can easily see why PPF is termed as EEE?

PPF is termed as EEE (i.e. Exempt, Exempt, Exempt) because

  1. Contribution to the PPF account is exempted under 80C.
  2. Interest earned is tax exempted, there is no TDS as in the case of FD(at the rate of 10%) if interest earned in the fiscal year is more than Rs. 10,000.
  3. Withdrawal from the PPF account is also tax exempted.

Effective rate of return on PPF may be higher

Though the rate of interest we get on PPF is 8.7% but as we already know PPF comes under Exempt, Exempt and Exempt investment category so the effective rate of return on PPF can be much higher depending on the tax slab a person comes under.
Current tax slabs are 10%, 20% and 30%. Along with the education cess, which is 3% of the total of Income Tax and Surcharge, the tax rates come to 10.3%, 20.6% and 30.9%. Noting the point that the person doesn't need to pay any tax on the interest earned on PPF the effective rate of return can go as high as 12.59% if the person happens to fall under 30.9% tax slab.

To show it with the help of an example let us assume that person A comes under 30.9% tax slab as his taxable income is more than Rs. 10,00,000. If he has invested Rs. 1,00,000 in PPF then he earns Rs.8700 at the rate of 8.7%. Now if that return is not exempted but taxed then he has to pay 30.9% tax on this interest income of 8700. In that scenario, when he has to pay tax at 30.9% on interest income, he will have to earn an interest income of 12590 to have a post-tax return of Rs.8700.

12590 * 30.9/100 = 3890.31

12590 - 3890.31 = 8699.69

So with this logic the effective rate of return, for a person who comes under the 30.9% slab, comes to 12.59%.

Effective rate of return, for a person who comes under the 20.6% slab, comes to 10.96%.

Effective rate of return, for a person who comes under the 10.2% slab, comes to 9.69%.

Same thing can also be understood in a different way, if one hadn't shown the investment of Rs. 1 Lakh then one would have paid taxes at 30.9% (assuming the person falls in 30.9% tax bracket) on that Rs. 1 Lakh. So in a way one is investing only Rs. 69,100 to get an interest of Rs. 8,700.

Let's do the math again -

Amount of tax payable if that 1 Lakh was not invested

1,00,000 * 30.9/100 = 30,900

Thus actual investment is

1,00,000 - 30900 = 69,100

To get return of Rs. 8,700 on the invested amount of Rs. 69,100 the rate of return should be 12.59%.

69,100 x 12.59/100 = 8699.69

By this calculation again the effective rate of return for a person who comes under the 20.6 % slab is 10.96% and for a person who comes under the 10.2% slab it is 9.69%.

Thus PPF, apart from being a safe investment avenue and having almost zero volatility can provide up-to 12.59% effective rate of return for tax payers. PPF being EEE category investment brings a huge benefit of not to pay any taxes on the invested amount at any of the three stages.

Points to note -

  • Annual contributions to the PPF account are exempted from tax upto the maximum limit of Rs. 1,50,000.
  • Minimum amount that has to be deposited in the PPF account in the financial year is Rs.500.
  • Maximum limit is Rs. 1,50,000 which is the current exemption limit, so if there is any increase in exemption limit then the maximum investment limit in the PPF account may increase too.
  • PPF is EEE investment which means PPF is exempted from tax across all three stages.
  • Effective rate of return on PPF may be much higher because of it being EEE investment.
  • Investment schemes may be categorized under EEE, ETE and EET.

That's all for this topic Public Provident Fund (PPF) tax exemption benefits. If you have any doubt or any suggestions to make please drop a comment. Thanks!


Related Topics

  1. Eligibility for opening a PPF account
  2. Rate of interest on PPF
  3. Duration and maturity options of PPF account
  4. EEE EET ETE explained

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Public Provident Fund (PPF) Interest rate/Interest rate calculation

The interest earned on PPF is not fixed but benchmarked to Government securities. The government declares the interest rate payable on PPF every financial year. Generally government declares the PPF interest rate, for the next financial year, in the last week of March.

PPF offers 25 basis points higher than the yield of 10-year government bonds. Thus the rate of interest earned on PPF may come down if Govt. bond yield comes down and may go up in case the yield goes up.

For fiscal year 2015-16 government has announced interest rate of 8.70 per cent. which is same as the last fiscal year.

Update: As per recent announcement rate of interest has been reduced to 8.1% for FY2016-17. Also the rates are to be reviewed every three months so the rate of 8.1% is for the period April 1, 2016 - Jun 30, 2016. It will be reviewed on quarterly basis and may change every quarter.

One of the biggest point going in the favour of PPF is that the interest earned on the scheme is completely tax free.

PPF interest rate calculation

It is very important to know how the interest on the PPF is calculated so that the rate of return on that investment can be maximized by investing amount at the proper time.

The interest on balance in your PPF account is compounded annually and is credited at the end of the year. But the point to remember is that the interest calculation is done every month which means the interest is calculated on lowest balances in account between 5th and last day of the month. So if you don't deposit on or before the 5th of a month, you don't earn interest for that month.

To make it a little technical; in case of monthly interest calculation, interest bearing balance method is used. Formula for the same is

Interest = Total Amount x 1/12 x Rate/100

Where total amount is the amount in the PPF account at any given month end.

As Example -

If total amount in the PPF account at the end of any given month is Rs. 1,00,000 then interest for that month would be (Considering the interest as 8.7%).

Interest = 100000 x (1/12 x 8.7/100)
         = 100000 x 0.00725
         = 725

Going by that method if we take three scenarios -

  • Rs. 60,000 deposited between Apr 1st and Apr 05.
  • Rs. 5,000 deposited every month between the 1st and 5th of that particular month.
  • Rs. 5,000 deposited every month after the 5th of that particular month.

Considering the interest as 8.7% the interest earned at the year end for these 3 scenarios would be.

  • Rs. 5,220 when Rs. 60,000 deposited between Apr 1st and Apr 05.
  • Around Rs. 2850 when Rs. 5,000 deposited every month between the 1st and 5th of that particular month.
  • Around Rs. 2400 when Rs. 5,000 deposited every month after the 5th of that particular month.

It's easy to see that lump sum investment at the start of the year (between Apr 1st and Apr 5th) will fetch the highest return.

Points to note -

  • Current rate of interest is 8.7%.
  • Minimum deposit of Rs. 500 has to be done in a fiscal year otherwise PPF account will be deactivated.
  • Ideal scenario would be to deposit 1,50,000 between Apr 1st and Apr 5th in order to fetch maximum interest. A nice article for the best time to investment can be seen here - http://www.ppfaccount.in/ppf-investment-period.html
  • Make sure to deposit between 1st and 5th of the month in order to get interest for that particular month.
  • PPF is EEE investment which means PPF is exempted from tax across all three stages of investment.

That's all for this topic Public Provident Fund (PPF) Interest rate/Interest rate calculation. If you have any doubt or any suggestions to make please drop a comment. Thanks!


Related Topics

  1. Tax exemption benefits of PPF
  2. PPF partial withdrawal rules
  3. EEE EET ETE explained

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Public Provident Fund (PPF) duration and maturity options

Public Provident fund (PPF) is one of the most favoured fixed income investment option. PPF is a long term investment option which comes with a lock-in period of 15 years and it can't be closed pre-maturely. however, during the tenure of the account, one can take loans or withdraw amounts subject to certain conditions. Read about it here -

As already mentioned original duration of the PPF account is 15 years. But note that the contribution has to be made for 16 years in all. The 15 year period is calculated from the financial year following the date on which the account is opened.

As Exp -

If PPF account is opened on Apr 1st, 2014, the actual counting to maturity begins from the end of the year, i.e. 31st March 2015. So the account will mature on 31st March, 2030. To take it other way effectively the PPF account matures on the first financial day of the 17th year.

PPF maturity options

After the original duration of 15 years it is not mandatory that one has to close the account. Infact subscriber has an option to extend his PPF account for a block of 5 yrs. That extension can be done "N" no. of times, which means subscriber can keep extending his PPF account for a block of 5 years as many times he wants. So with that option of extending the PPF account, actually there are three options for subscriber once the PPF account matures.

Explaining the PPF maturity options

  1. Complete withdrawal - Subscriber can opt to withdraw the whole amount after the completion of 15 years.
  2. Extend the PPF account with no contribution - If subscriber wants to keep earning interest on the accumulated amount over the 15 years period but doesn't want to invest any money in his PPF account, subscriber can opt for this option. Further points to note with in this option are -
    1. This is the default option meaning if subscriber doesn't take any action with in one year of his PPF account maturity this option activates automatically.
    2. Once PPF account is activated with this option of "Extension with no contribution" then the subscriber cannot put any money in the account which means no switch over to with-contributions extension is possible after that.
    3. Any amount can be withdrawn from the PPF account if the option of extension with no contribution is chosen. Only restriction is only one withdrawal is permitted in a financial year. Rest of the amount keeps earning interest.

  3. Extend the PPF account with contribution - With this option subscriber can put money in his PPF account after extension. Further points to note with in this option are -
    1. If subscriber wants to choose this option then he needs to submit Form H in the bank where he is having a PPF account within one year from the date of maturity (before the completion of 16 yrs in PPF).
    2. With this option subscriber can only withdraw maximum 60% of his PPF amount (amount which was there in the PPF account at the beginning of the extended period) within the entire 5 yrs block. Every year only a single withdrawal is permitted.

Points to note -

  • Original duration of the PPF account is 15 years.
  • PPF account can be extended in a block of five years once it matures.
  • Complete withdrawal of Public Provident Fund amount or pre-mature closure of a PPF Account is not permissible except in case of death.
  • Even a discontinued account can't be closed before maturity.
  • In the unforunate event of subscriber's death, nominee/legal heir of PPF Account holder can not continue the account but account has to be closed.

That's all for this topic Public Provident Fund (PPF) duration and maturity options. If you have any doubt or any suggestions to make please drop a comment. Thanks!


Related Topics

  1. Tax exemption benefits of PPF
  2. Deposit rules for PPF
  3. Procedure to take loan against PPF account
  4. PPF partial withdrawal rules

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>>>Go to Fixed Income Options page