Zebu blog

Tag: Tax Benefits

  • Are Tax-Free Bonds Right For You?

    In the past few years, investors with a lot of money have been more interested in tax-free bonds. Large infrastructure players can raise money at the end of the fiscal year by selling tax-free bonds. By offering these tax-free bonds, the government can help pay for infrastructure. There are two main types of bonds that don’t have to pay taxes. Let’s try to understand them better.

    First, there are Section 54EC bonds. If you buy them with the money you made from a sale, you can get a tax break. Because of the benefit in Section 54EC, you won’t have to pay tax on your capital gains. The interest that investors get from Section 54EC bonds will be fully taxed in their hands. Second, there are bonds that the investor doesn’t have to pay any taxes on. This means that interest is paid on them regularly. If you are in the 30% tax bracket, a 6% tax-free bond will give you an effective yield before taxes of 8.57 %.

    Does it make sense to buy Section 54EC bonds?

    HNIs seem to want these bonds a lot because they see it as a good way to lower their capital gains tax. But there are a few important things you should remember about buying these bonds. To make up for the tax benefit, the returns on these bonds are much lower than on regular bonds and bank FDs. So, it only makes sense if you really have capital gains that you need to pay less tax on. Second, to get a tax credit under Section 54EC, you must invest the whole amount, not just the capital gains. There is a cost to that in the form of missed chances to invest in other things. So, unless capital gains make up a big part of your total sales profits, these bonds aren’t very helpful.

    Taking into account the indexing benefits of long-term holding might be a better way to figure out how much capital gains tax you have to pay. If, after accounting for indexing, your total tax bill is less than 10% of your income, it makes sense to pay down the tax and put the rest of the money into investments that will make you more money. You can also use Section 54 to your advantage if you use the money to buy another property. Taking into account the lock-in period and the opportunity cost of investing the whole return, the tax savings bond may not be worth much to investors.

    Are bonds that don’t get taxed a good choice for investors?

    As was already said, these tax-free bonds involve investing in a business that focuses on infrastructure and will allow you to get interest without having to pay taxes on it. When taxation is taken into account, the effective returns are at first higher than those of taxable bonds. During the lock-in period, however, your bonds are pretty much just sitting in your demat account. This can be quite discouraging. Since this asset doesn’t really make money over time, the key question is whether or not the lock-in period is worth it. The bond’s value hasn’t changed much, so it would be better to stick with traditional bonds and fixed deposits (FDs), which don’t have lock-in periods and can be quickly and easily turned into cash.

    Why not think about debt funds as a better option?

    Through debt, you should be able to meet your basic needs for security and guaranteed profits. Choose debt funds if you want to make the best choice. First, you won’t have to pay taxes on the dividends you decide to get. Second, debt funds are easy to cash out because they are liquid and can be sold in less than two days. Third, investors worry about interest rates and the chance of a default. The risk of interest rates will be looked at separately, but the risk of default can be cut down by focusing on risk-free G-Sec funds. Now, let’s talk about the risks that come with interest rates. In the current economic situation, rates have stayed low, which means that they should help with debt funds. When market rates go down, the NAV of debt funds goes up, so investors can make money from both interest and capital gains. Even bonds that don’t have to pay taxes don’t help in this way.

    In the end, it’s easy to get sucked in by how appealing tax-saving bonds seem, but you need to do the math right. Before you decide whether or not to buy these tax-free bonds, look at what else you can do.

  • Why This Diwali Is The Best Time For You To Invest

    Options for investing this Diwali: There are many ways to invest, from corporate bonds and gold to stocks and index funds, which may help you build wealth and be financially stable in the long run.

    During Diwali, lights are used to celebrate, and Goddess Lakshmi stands for wealth. During the Samvat year, it is smart to make plans for money and lay the groundwork for financial stability (the Hindu New Year). People can build wealth and plan for their financial future in many ways, from buying gold to buying stocks.

    The primary market

    Initial Public Offerings (IPOs)

    They are great ways to invest for the long term. After a short period of calm, the market for initial public offerings (IPOs) has recently exploded. As the economy and business growth continue to rise, many businesses will use the primary markets to raise money and list their subsidiaries or verticals.

    Equity

    Long-term returns from stocks have always been better than short-term changes in the economy and market. They may also do better than other asset groups in the long run. Value investing is a good place to start. Value investors are like stock scouts because they look for cheap companies or stocks that other market participants haven’t found yet. Instead of buying stocks, they put their money into businesses. Rakesh Jhunjhunwala and Warren Buffet are two examples of value investors.

    Investing in stocks with high dividends could also be a good idea, especially when the market is very volatile. Some Indian businesses are known for giving out attractive dividends. Since they are still stocks, high-dividend stocks still have the chance to go up in value.

    Index funds

    Now is a good time to start investing with them Around Diwali, and index funds have been known to give better long-term returns.

    Since the market can go up and down and there is a real risk of losing money, and if you don’t know much about the market, you may not want to invest in stocks. Here are index funds. An index fund is a type of mutual fund that looks like the portfolio of an index. For example, a Nifty index fund would track the NSE Nifty index and hold a mix of the 50 stocks that make up the Nifty. The results of an index fund would be similar to those of the index it tracks. So, asset allocation with index funds gives you diversification, lowers risks, and increases long-term returns.

    Corporate bonds

    Corporate bonds are a good choice for investors who don’t want to take too much risk and want a stable way to make money and good returns in a time when fixed deposit rates are going down. These bonds are made by both private and public businesses. Investors should only choose companies with a good reputation, a long history of paying their bills, and a high credit score.

    Gold

    Gold has been one of the best investments this year. It has gained more than 30%. Gold is seen as a safe investment option because it tends to do well when things are uncertain. Gold is likely to keep its shine for a long time, since the Covid19 pandemic shows no signs of stopping and geopolitical problems in India’s region and around the world are getting worse. Gold is also a good way to protect against inflation. During the Dhanteras celebration, it is said to be lucky to buy gold.

    If you would like to open a Zebu trading account and start investing in any of these instruments, please get in touch with us today.

  • Should You Invest In The National Pension Scheme?

    If you’re looking for assets that can lower your tax bill, the National Pension Scheme (NPS) should be at the top of your list. In addition to the tax benefit, NPS is a great way to invest if you want to increase your wealth and build up a strong retirement fund. This article will talk about the tax benefits of the National Pension Scheme and why it should be on your list of investments that save you money on taxes.

    The main goal of the NPS is to make sure that account holders continue to get a steady income after they retire, even if their investments have made a lot of money.

    What is the NPS program and how does it work?

    Before we look at the tax benefits of the NPS scheme, let’s take a closer look at how it works. People who have an NPS account can make regular payments to their account while they are working.

    If you are a Tier I subscriber, you must give at least Rs. 6,000 per year. If you are a Tier II customer, there is no minimum amount you must give. If you do decide to give, you may contribute Rs 250. A person with an NPS account can take out about 60% of the money in their account after they retire. With the remaining 40% of the total amount invested, an annuity should be bought so that there is a steady source of income after retirement.

    What are the basic parts of NPS tax savings?

    Not sure if investing in the NPS plan will be worth it? NPS has many benefits, such as being a cheap way to save for retirement and invest. It is important and helps you plan for retirement, and it also gives you stable long-term returns and a good income after you retire.

    Here are some more reasons why NPS is good:

    It’s up to the investor to decide where to put their money.
    Investments in the NPS are handled by people who are qualified to do so.
    The person who uses the account can decide how much to give each month.
    Accounts in the NPS can be managed from anywhere in India.
    NPS gives you a tax break.

    Let’s look at the NPS Income Tax Benefit in more depth. Under Section 80CCD, NPS gives tax breaks of up to Rs. 1.5 lakhs (1). Also, Section 80CCD(2) of the Income-Tax Act says that the employer’s contribution to the NPS can only be deducted from taxes up to 10% of the employee’s salary (base plus DA).

    Salary people who have already claimed the tax exemption of Rs. 1.5 lakh under Section 80C can save more money on taxes through NPS. Section 80CCD lets people who have NPS accounts and invest up to Rs 50,000 get a tax break. This is true for both salaried and self-employed people (1B). Section 80CCD allows this extra deduction, but only for owners of Tier I NPS accounts (1B). Unlike Tier I NPS accounts, Tier II NPS accounts are not affected by Section 80C of the Income Tax Act.

    Another thing to remember about the NPS tax benefit is that the deduction under Section 80CCD is available to both salaried and non-salaried people (1). But under Section 80CCD (1), the most a paid professional can deduct is 10% of their income for the year. Those who don’t get a salary, on the other hand, pay 20% of their gross annual income.

    An important point

    The government has also agreed to raise the costs of the NPS fund manager from 0.01% to 0.09%. This is a small raise to make sure that the pension fund’s management can pay for it. IPOs and more than 200 stocks are now available to NPS fund managers.

  • A Post Retirement Income Plan

    Until a few years ago, almost no one was interested in annuities as a source of post-retirement income. In the last three or four years, members of the NPS have been interested in the concept of annuities and how they may be used to create income. Unfortunately, annuities, at least those offered in India, are prohibitively expensive, inefficient, and incapable of mitigating inflation, which is, after all, the greatest long-term threat to anyone’s retirement income. As a result, retirees should consider alternative sources of income (whether fixed income or equity-based). Indeed, even the Pension Fund Regulatory and Development Authority (PFRDA), which now requires that 40% of a retiree’s money accumulated in the National Pension System (NPS) be used to purchase an annuity, is considering adding a non-annuity withdrawal plan in its place. PFRDA recognises that annuity should not be the only option and may not even be the most appropriate one. Before you get started on your post-retirement plan, you need the best stock trading platform with the lowest brokerages to realise maximum profits from your investments. As one of the fastest growing and best brokerage firms in the country, we have created a suite of products to help you analyse stocks and make an informed decision. Developing a post-retirement income plan begins with an evaluation of your monthly income requirement and available money to determine if there is a meeting ground. Clearly, in the early years, there is little that can be done to alter this equation. As a general guideline, an initial withdrawal rate of no more than 6% is optimal. Anything more tends to increase the risk of capital depletion. Indeed, the lesser the withdrawal, the better. Keeping a close eye on spending, in the beginning, will pay dividends afterwards. If you can make do with less, that would be ideal. Increasing the withdrawal ratio exposes you to significant risk down the road because when you are attempting to develop a long-term withdrawal strategy from your investment, you must be prudent enough not to deplete your cash. Of course, there are times when a retiree may experience market misfortune. Interest rates may also tend to drop over extended periods of time in fixed income. You must choose an asset allocation strategy based on all of these considerations. Almost certainly, you will realise that an all-fixed-income strategy is insufficient. To sustain a rising inflation-beating income, a fixed income plan must accept a withdrawal rate that cannot exceed 4% and should preferably be lower. To put the concept into perspective, a withdrawal plan permits you to withdraw a significant portion of your income while leaving a tiny portion of your growth. Assume you have Rs 1000 and it increases by 8%. By deducting 6%, you retain a small portion of the appreciation to support a bigger income the next year. However, if you consume it all, your capital will remain constant, which is undesirable given that you will almost certainly require a higher income during the next 25 years. Given the reality of inflation and increased medical costs in old life, there is very little chance you will require less money in ten years. As a result, you must leave a portion of your growth and not consume it entirely. Not only that, the less money you borrow today, the more secure you will be later. As a result, you’ll need to consider a conservative allocation, perhaps 15% to 35% in equity, depending on the size of your investment. If your capital is restricted, you might have to undertake more risk in equity. If you have more than sufficient capital, you can afford to have a lower equity allocation. The optimal strategy is to take away at most (ideally less than) 80% of the appreciation in the current year and then leave 20% there. This way, you’ll have some room for capital growth, which is how you’ll need to adjust it. This way, your income will rise faster in good times, but you will not deplete your capital in poor times, and it will remain fair. This level of discipline will provide a financially secure retirement. Whether you are starting your investment journey at retirement or are looking for a reliable trading and investment platform to grow your capital, then Zebu is the answer for you. As one of the best brokerage firms in the country, we have created Zebull, our best stock trading platform. We charge the lowest brokerage for derivative trading and will help you realise your financial goals. To know more about our products and services, please get in touch with us now.