Calculation for Long Term Capital Gain for purchase as well as improvement of the property in subsequent years.

July 2, 2009

Dear Mr. Ashal!

Please clarify the following.

Cost of Purchase 2.42 lakhs (1988)

Cost of improvements 1.00 lakh (approx) 1991.

Cost of improvements 0.16 lakhs (1996).

Sold in 2009 2010 for Rs. 82 lakhs.

Invested in REC/NHAI Bonds 50 lakhs.

Bought another residential property Rs. 32 lakhs.

Taxable long term gains is NIL. Am I right?


Dear subasu, b4 I comment here I assume the following –
Purchase year is FY 1988-89.
1st improvement year is FY 1991-92.
2nd improvement year is FY 1996-97.
Year of sell is AY 2009-2010 or FY 2008-2009.
Here goes the LTCG calculation.
A. Purchase price = 2.42L Rs.
B. Cost Inflation index (CII) of FY 1988-89 = 161
C. CII for FY 2008-2009 = 582
D. Indexed purchase price = A*C/B = 2.42*582/161 = 8.75L Rs.
E. 1st improvement price = 1.0L Rs.
F. 1st improvement FY CII = 199
G. Indexed 1st improvement price = E*C/F = 2.92L Rs.
H. 2nd improvement price = .16L Rs.
I. 2nd improvement CII = 305
J. Indexed 2nd improvement price = H*C/I = 0.30L Rs.
K. Total Indexed purchase & improvement price = D + G + J = 11.97L Rs.
L. Sell price = 82L Rs.
As more than 3 years r completed for purchase as well as each of improvement also, hence all r eligible for consideration of LTCG.
M. Hence LTCG = L – K = 70.03L Rs.
N. amount invested in LTCG Tax saving bonds = 50L
O. amount invested in Res. property = 32L Rs.
P. Total invested amount = N + O = 82L Rs.
As the amount in P above is more than M above, so no LTCG Tax liability is there.
Yes u r right.

Tax calculation for STCG on STP from Liquid fund to Equity fund

May 4, 2009

Q. – Dear Friend,

i have been reading ur post quite long time. please advise on this.

I would like to know the Tax treatment on STP transaction. My transaction are ::

Invested Rs. 49,999 in DSPBR MoneyManager fund on 10th of Dec 2008. Registered STP in DSPBR top 100 equity fund.

started STP from 7th of Jan 2009 for Rs. 4000 every month. so till date total 4 instalments totalin 16000 has been transfered to top 100 equity fund. i understand tax treatment for equity fund. but not for liquid fund. The profit i made each month is

7th jan = Rs. 43
7th Feb = Rs. 57
7th Mar = Rs. 60
7th April = Rs. 65

I would like to know the tax treatment on liquid fund. if there is any tax how it will be taxed(like i need to add in my salary income or some % i have to pay).

If i dont show these incomes to IT Department(i think very few Retail investor use to show these incomes) what will happen.

Waiting for ur reply.


Dear amit, ur STP transactions from Liquid fund to Eq. fund r ok.

The tax treatment is as below.

For Transactions b4 31st of march 2009, the same `ll be treated at STCG & `ll be added to ur income from all other sources & `ll be taxed as per ur tax slab rate in the prev. FU i.e. 2008-2009.

So for total STCG = 43+57+60 = 160 Rs.

As per ur Tax slab the Tax `ll be =

@ 10.3% slab = 17Rs.
@ 20.6% slab = 33 Rs.
@ 30.9% slab = 50 Rs.
@ 33.99% slab = 56 Rs.

Ur April onwards STP `ll be taxable in the same manner for ur income in the current FY i.e 2009-2010.

I hope the message is clear to u now.



How to go for Pension Plans or retirement Planning

December 31, 2008

How to plan for retirement. I am investing in PPF regularly but very actively looking for retirement from ICICI, HDFC or Metlife. Still not clear on what`s best, looking at following parameters to start with:
a. Minimal Premium Accumulation Charge ( Even if it`s there, then only for regular premium for first few years ).
b. No or very little premium on Top-ups
c. Clear guidelines on Annuity plan ( ICICI explains most clearly but doesn`t give all answers ).
d. Death Benefits ( I don`t want life insurance cover )
e. Any other charges if any should be clearly started in terms on figures on monthly/annual basis, also whether expenses are on NAV or premium paid.

Answer –¬†Dear Friend, Plz. do a simple exercise. Call at least 5-6 Ins. agents from different Ins. cos. & give following details to agents.¬†

1. Age of Person, 60 years (the age u `ll start receiving ur pension)
2. Amount to be invested 1Crore
3. Plan selected – Immediate Annuity Plan.
4. Ask to give benefit Illustration of mly. pension till life of policy holder after that same pension to spouse till life & after that return of purchase price to the legal heirs of policy holder.

Plz. do this exercise with at least 5-6 Ins. cos. inform me for ur findings after completing ur exercise.

Why I`m asking to do so, bcoz when u `ll go thru this exercise, u `ll come to know what the meaning of large corpus creation is? Plz. do note as per my prev. reply of retirement corpus, calculate ur own requirement as per inflation no.


Ashal …

Charges in ULIPs & Mutual Funds

December 30, 2008

My insurance agent told me that There are many internal charges in MF which are charged by MF companies but these charges are not visible to Normal investor.

He suggested : In case of ULIP, there are 2 things :

– charges are completely transparent then MFs
– And in long Term (10-15 yrs), ULIPs are cheaper than MFs in terms of charges.

Please suggest and draw some clear picture about charges.


Dear vivek, there is totally opposite picture what ur Insurance agent had advised u. Let me explain.
In case of MFs there r only 3 types of charges applicable –
1. Entry Load – It can be avoided if u invest directly to ur MF bypassing ur MF agent.
2. Exit Load – It can also be avoided by remaining invested for certain time period in that particular plan.
3. Fund Management Charge – It`s charged as a %age of total assets under the plan. Normally it varies from 0.25% to 2.5% depending upon type of funds (Debt to Eq.) as well as expertise of fund co. for a same set of MF plans, lower FMC Plan is always advisable for investment.

In case of ULIP following 4 types of charges r applicable.
1. Prem. allocation Charge – It may vary from as low as 1% to as high as 65-70% of ur first year prem. & reduced year after year or may remain same at a constant level say 4% or 5%.
2. Mortality Charges = It`s the basic cost of insurance & again it varies among Ins. cos.
3. Policy admin charges – Some ULIPs charge as low as 20 Rs. per month where as some charge as high as 200-300 Rs. per month. Again not constant among Ins. cos.
4. Fund Management charges – From 0.5% to 2.5% depending upon the type of Fund (debt to Equity).

From the above list u can judge urself that in case of MFs there is only 1 charge FMC, which u `ll have to pay but in case of ULIPs there r several charges & no common benchmark is there to see the impact of these charges. I do hope the message is clear to u.



Tax on withdrawals from ULIP for NRI

September 7, 2008

Dear Ashal,Thanks for the reply.Some hope.Details are as follows.Would like to know best path forward.Policy: ICICI LIFETIME. Started on 24th Aug-2004,premium 20000 per month. Sum assured to begin with was 1 lakh. 100% in maximiser fund.Within a year, of the policy the insuranse coverage was increased to 11 Lakh. In Nov 2007, I shifted the whole amount to PROTECTOR fund, (Approx. 13.20 Lakhs). However monthly premiums were continued to go into maximiser fund.As on date,Maximiser fund: Units= 3431.26 @ NAV of 51.11 & Protector fund: Units= 83015.91@ NAV of 16.46.I’m NRI, premiums paid thr NRE A/C. Request tax and insurance experts to suggest best path forward. I want to withdraw the amount and have written to stop further premiums.Best regards,Prahlad.

Dear Pralhad, For ur monthly prem. of 20K (annual prem. of 2.4L) the minimum sum assured should be 12L Rs. as i mentioned earlier. Now as u have stopped ur future prem. it `ll be nice on ur part if u increase ur cover from 11L to 12L. If it is not possible, don`t worry. Here is ur calculation,
A. Sum assured = 11L (as u increased it in the 1st year itself)
B. annual prem. @ 20% of A = 2.2L
C. Excess prem. paid = 20K
D. Total annual prem. paid = 2.4L
E. %age excess prem. of annual prem. = 20/240*100 = 8.33%F. Total fund value as on date (arrived from the data posted by u) = 15.42L appx.
G. Taxable surrender value = 8.33% of F = 128450 appx.
H. Hence Tax free surrender value = F-G = 1413550 appx.In the current year, if ur resident indian income from all other sources is almost nil, u may even sat off ur taxable surrender value against basic exemption limit of 1.5L for under 65 age male tax payee. I hope above info `ll be useful to u. Feel free to ask if u need more help.



Home Loan Principal Repayment & Section 80C

September 7, 2008

Does the Principal prepayment of home loan can considered for deduction in Income Tax 80C section along with normal Principal payments paid as part of the EMI?

Dear, any partprepayment of principal ‘ll also be eligible for 80C benefit within the over all limit of 1L Rs.



STCG & Income Tax liability

September 7, 2008

I am a salaried employee with annual salary of 6 lac/annum. I was involved in the following trading in the NSE stock market. I want to know the STCG and the income tax liability. Please help in determining the exact STCG and tax on it.

Trade-1 – Bought 10 shares of Reliance Industries on 20-05-2008:
Rate per share: 2100
Brokerage: 157.50
Service Tax: 19.50
STT: 26.25

Trade-2 – Sold 10 shares of Reliance Industries on 25-06-2008:
Rate per share: 2200
Brokerage: 165
Service Tax: 20.40
STT: 27.50

Dear, Here is the calculation u asked for. (Plz. note STT \\`ll not be considered for purchase or sell price)
A. Purchase price = 2100*10 = 21000
B. Brok. + service tax = 177
C. Net purchase cost = A+B = 21177
D. Sell price = 2200*10 = 22000
E. Brok. + service Tax = 185.40
F. Net sell cost = D-/e = 21814.60
G. net STCG = F – C = 637.6 Rs.
H. Tax on STCG @ 15.45% (as shares were sold thru recognized stock exchange & STT was paid at the time of sell)= 98.51 = 99 Rs. only