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How Multiple Home Loans Can Reduce the Tax Load?

Incometax

June 23, 2012

In 2016, Anandbabu took taken home loan and purchased his dream home in Ahmedabad. The home loan amount was Rs 7 lakh for 15 years & EMI was Rs 7,200. However, two years later he was transferred to Surat.

Instead of renting a home in Surat, Anandbabu has bought another house, He could have sold the old house to purchase a new house but Anandbabu has decided to go for another home loan of Rs 15 lakh for 20 years, for which EMI is about Rs.16,550.

Now Anandbabu has to pay a total EMI of 23,750 Rs/-every month, increasing floating interest rates are making it difficult to pay this hefty EMI amount for both home loans. Anandbabu is in the highest tax bracket and has to pay 30% tax. Which makes it further difficult to save enough to pay both EMIs. Anandbabu was not fully aware of section 24 of income tax. Especially about the fact that his tax load can be reduced by availing deduction facility on a home loan in case of a second home. Let’s understand section 24 income tax benefits of home loans.

Multiple home loan tax benefits

How Multiple Home Loans Can Reduce the Tax Load?

Multiple home loans refer to the scenario where an individual holds more than one housing loan simultaneously. These loans could be for purchasing different properties, constructing homes, or renovating existing ones. The primary motive behind availing multiple home loans often revolves around investment diversification and wealth creation.

Home loan repayment has two components principle and interest and both of these components are treated differently for tax calculation purposes.

Principle Component – 80C (1.5 Lakh Limit)

In India, taxpayers can claim tax deductions on the principal amount of their home loan repayments as per Section 80C of the Income Tax Act. According to this provision, people can deduct up to INR 1.5 lakh per year for the principal repayment of their home loans.

Interest Component – Section 24 (2 Lakh Limit)

Additionally, the interest paid on home loans is eligible for tax benefits under Section 24(b) of the Income Tax Act. Homeowners can claim deductions of up to INR 2 lakh per annum on the interest component of their home loan repayments, provided the property is self-occupied. For properties that are let out, there is no upper limit on the interest deduction.

Tax Implications of Multiple Home Loans

Deductions under Section 80C

Individuals can avail deductions under Section 80C for the principal repayment of each loan when they have multiple home loans. This enables borrowers to make the most of their tax advantages by diversifying their investments among a number of properties.

Tax Deductions under Section 24(b)

Likewise, the interest incurred on every mortgage can be deducted for taxes according to Section 24(b). By utilizing this benefit on various properties, people can greatly lower their taxable income and total tax responsibility.

Impact on Capital Gains Tax

Apart from the advantages mentioned earlier, having multiple properties can also assist in reducing capital gains tax responsibilities. Individuals are eligible for exemptions on capital gains from selling a property by reinvesting the money in several residential properties, according to Section 54 of the Income Tax Act.

By strategically taking advantage of tax deductions available for multiple home loans, people can effectively reduce the amount of taxes they owe. Optimizing the distribution of principal and interest repayments among different properties can maximize tax advantages.

Although several home loans come with substantial tax benefits, borrowers should be cautious of the risks involved. These consist of possible limitations on cash flow, changing interest rates, and regulatory adjustments that could affect the real estate industry.

What is required to be Successful in Business?

Personal Finance

Shitanshu Kapadia

June 17, 2012

Many people dream of starting their own business but they never do so because they’re afraid of failing. It is known face that 9 out of 10 businesses fail in the first 5 years of starting the business.

So, the question that pops up in everyone’s mind is:-

Success in business is a multifaceted endeavor that demands a combination of skills, strategies, and characteristics. From vision and goal setting to effective communication, building a strong team, and embracing innovation, there are several key elements that contribute to achieving success in the business world.

This may be due to a lack of experience, lack of cash, knowledge, or skills required to run the business.

So, let’s discuss in detail what is required to be successful in business.

successful in Business

What is required to be Successful in Business?

#1 The Mission

The most important thing for the business is its mission; many people start a business only to make money. Just to make money is not a strong mission. Money alone does not provide enough fire, drive, or desire to run the business.

One should have a strong and clear mission for the business, as the mission guides the actions of the organization, spells out its overall goal, provides a path, and helps in making decisions. It should provide “the framework or context within which the company’s strategies are formulated.

When a business gets big and it forgets its mission or the mission it was created for is no longer needed, the business begins to die.

#2 Leadership

You must have leadership qualities to run a business. A leader’s roles are a combination of visionary, cheerleader, and boss.

As a visionary, the leader must keep his or her focus on the corporate mission. As a cheerleader, he or she must inspire the team as it works together towards that mission as well as herald the successes along the way. As the boss, he or she must be able to take the tough calls regarding issues that distract the team from achieving the mission. The unique ability to take decisive action while maintaining focus on the ultimate mission is what defines a true leader.

With the right mission, team, and leader you are well on your way to building a strong business.

#3 Team

To succeed, a business must have the proper expertise in key areas. An individual may not have expertise in every area so he or she needs a group of people to formulate a successful business.

Extraordinary team members with a good level of expertise will bring success to business. Choose the best team member to bring electrifying success.

#4 Cash Flow management

Cash flow management is a fundamental and essential skill if a person truly wants to be successful in the business. Cash flow is to a business what blood is to the human body. Nothing can impact a business more dramatically than not being able to make payroll at the end of the month.

A good cash flow manager reviews his or her cash position daily, looking at cash sources and needs for the next week, month, and quarter. This allows him or her to plan for any large cash need before it becomes a cash crisis.

Effective cash flow management is critical for the success of any business, ensuring steady operations and growth. Leveraging expert accounting for SaaS companies can provide tailored insights into subscription revenue, churn, and recurring billing. This specialized expertise helps optimize cash flow, improve financial planning, and drive long-term profitability.

Business success often relies on smart financial management, and obtaining a free business credit report is key. It helps you monitor your company’s credit health, identify potential issues, and build credibility with lenders and partners.

Financial management is a continuous process many people lose sight of finance management when a business grows or becomes successful. This is a major cause of business failure. Proper finance management (and therefore expense management) is crucial to the ongoing success of any business.

#5 Communication management

One of the most important points for a successful business is communication management. The better you are at communication more and more people you will communicate to, thus increasing your chances of building more customer base.

Most communication is directed towards external communication, but a business’s internal communication is also vitally important. Some examples of each are:

External Communication

Sales
Marketing
Customer service
To investors
Public relations

Internal Communication

Sharing wins and successes with your entire team
Regular meetings with employees
Regular communication with advisors
Human Resource Policies

Be a good communicator to be a good business man.

#6 People Management

Managing people effectively to release their full potential and enable them to succeed is the most important, and most difficult, job for a businessman. You must lead, motivate, inspire, and encourage them. Sometimes you will have to hire, fire, discipline, or evaluate employees.

Remember For any business, a major capital investment is an investment in people – ‘human capital’.

#7 System management

Every business, whether large or small, needs to have systems in place to enable it to conduct its day-to-day activities. Even a sole proprietor has to wear different hats to conduct his or her business. In essence, the sole proprietor is all systems in one.

For any business to grow, individuals must be accountable for each of the systems and a general owner / director must be in charge of making sure all the systems operate to their highest capacity.

The system required by every business:-

Daily office operation
Product development
Inventory
Order processing
Billing
Accounts
Marketing
Human Resources

#8 Legal management

In order to be successful in business one must know the legal aspects of the business. It is required to protect your business from legal matters which may happen.

Legal issues may surface in almost every facet of a business so you must know law or you must have experts to help you.

Some of the legal areas where you should focus on are:-

Consumer Law
Labor Law
Tax Law
Regulatory Compliance
Protecting Intellectual property

#9 Product Management

The company’s product, which the customer ultimately buys from the business, is also an important aspect of a successful business. It could be a tangible item such as clothes or an intangible item such as consulting services.

Product management is to keep a close eye on the market (customer) and keep on modifying products as per customer needs. So product management is required by companies who need profit & success.

#10 Market

The success of your business depends on the market where you actually sell your product or services. If you are selling products where there is not enough demand (buyer) then you are trying to swim without water. So, market knowledge is equally important for the success of the business.

Conclusion

Success in business requires a holistic approach that encompasses vision, strategy, execution, and continuous improvement. By focusing on key elements such as vision and goal setting, effective communication, building a strong team, and fostering innovation, businesses can achieve sustainable growth and make a positive impact on society.

3 Types of Income – Which One is Best?

Personal Finance

June 6, 2012

Types of Income – Income is money earned through employment, business, or investments. This income can be good income or bad income. For many of us, good income means a good salary or higher income and bad income means less salary or less income. So we divide income based on quantity and decide whether it is good or bad. What you may not know is the types of income and its division into good and bad income. So, let’s explore it.

Types of Income

3 Types of Income – Which One is Best?

There are three different types of income:

1) Earned income: Earned income is you working for money. It is the income that comes in the form of a paycheck (salary). It is also the type of income you ask for more of when you ask for a raise, bonus, overtime, commissions etc.

2) Portfolio income: Portfolio income is generally income from paper assets such as stocks, bonds, and mutual funds.

3) Passive income: Passive income is generally income from businesses or real estate. It can also be royalty income from patents (copyrights) or for use of your intellectual property such as songs, books, or other objects of intellectual value.

Out of these three types, passive incomes and portfolio incomes are good incomes while Earned income is average income.

Why Earned income is average income?

Earned income is worst due to the following reasons:-

1. It is the highest taxed income and it is the income with the fewest controls over how much you pay in taxes and when you pay your taxes.

2. You have to work for it and it takes up your valuable time.

3. There is very little leverage in earned income. The primary way most people increase their earned income is by working harder.

4. There is often no residual value for your work. In other words, you work, get paid, and then have to work again to be paid again.

5. You will always remain a slave.

Most people today dream about high-paying jobs with lots of earned income. Teaching people to spend their lives working for earned income is like teaching someone to be a high-paid slave for a lifetime. Earned income is the income that you work the hardest for and you are allowed to keep the least of.

The trouble with working for earned income is that you have to keep working hard for it. Eventually, a person working for portfolio and passive income will pass the earning potential of earned income because you can work less, earn more, and pay less and less in taxes when you work for portfolio and passive income.

Why Passive income is good income?

For Passive income, one has to work the least.
Passive income is tax least.
You can have better leverage over your income.
You can serve more and more number of people and earn more and more (Sky is limit)
You will be a master & can enjoy financial freedom.

A business owner has more control over taxes, the highest leverage potential, and the most legal tax advantages.

If you want to be rich you have to work for the right kind of income passive income (good income) but most of us join the rat race and work for Earned income (bad income).

70 % Money

This is what we call Earned income which you receive from a paycheck, “70 percent money.” The reason we called it 70 percent money is because no matter how much money you earned, the government always took at least 30 percent of it or more in one way or another by imposing income tax, professional tax, service tax, etc. As most people know, you are taxed when you earn, spend, save, and invest.

So, we wonder why people spend their lives in search of a higher-paying job or a pay raise. We can say, “When you get a raise, so does the government.” Spending your life working hard for 70 percent money was not the financially intelligent thing to do.

15 % Money

Many people today are working for 15 percent money, which is money from capital gains or appreciation of stocks and sometimes real estate.

Tax law for employees:-

If you work for job security, you will earn less and less the more and more you work. That is too high a price to pay for a little bit of security. Today, the best way to earn more and work less is via owning your own business. It continues to be the best loophole in the world. One reason to start your own business is the difference in when you pay your taxes.

Employees and business owners both earn money but the income of the employee is taxed first (TDS) and then he spends what is left, while the business owner, gets a chance to spend earned money first before paying tax.

The tax laws are really bad for the employee.

Working for Good money can make you rich:-

You can work for good money by simply starting a small home-based business, buying a franchise, or joining a network marketing company, you are moving into more tax-advantaged income. You can be rich if you build, buy, or create assets that create positive cash flow.

Try exploring the potential of your free time and you can be rich.

Many of the very rich became rich in their spare time. So, if you have a job because you have financial responsibilities, keep your job but make better use of your spare time. When your friends go to play golf go fishing or watch sports on TV, you can start your part-time business.

Comparison of the Three Income Types

When determining which type of income is best for you, consider the following factors:

Risk Tolerance: How comfortable are you with the level of risk associated with each type of income?

Time Commitment: How much time are you willing to invest in generating and managing your income?

Financial Goals: What are your short-term and long-term financial goals, and which income type aligns best with them?

Skills and Expertise: What skills and expertise do you possess that can be leveraged to maximize your income potential?

Diversification: How important is diversification to your overall financial strategy?

Which income is the Best Income?

There’s no one-size-fits-all answer to this question. The best type of income for you depends on your individual circumstances, goals, and preferences. Some people may prefer the stability of earned income, while others may seek the potential for passive income or portfolio growth.

LIC Jeevan Vaibhav Review – Think Twice

Life Insurance

Shitanshu Kapadia

May 27, 2012

Country’s largest insurer Life Insurance Corporation of India (LIC) has launched a non unit-linked single premium product Jeevan Vaibhav with minimum premium of about 95,000 Rs/-.

LIC’s Jeevan Vaibhav is a close-ended single premium endowment assurance plan which offers guaranteed benefits on death and maturity along with Loyalty Addition, if any, payable on maturity or on death in the last policy year. The plan would be available for a limited period only up to a maximum of 120 days.

Benefits of Jeevan Vaibhav Plan:-

a) Death Benefit:

On death during the policy term, excluding last policy year: Sum Assured shall be payable.

On death during last policy year: Sum Assured along with loyalty addition, if any shall be payable.

b) Maturity Benefit:

On maturity, Sum Assured along with Loyalty Addition, if any, shall be payable.

c) Loyalty Addition:

This policy will be eligible for Loyalty Addition on date of maturity, rates and other terms will be declared by the Corporation.

d) High Sum assurance rebate:

Sum Assured	Rebate (Rs.)	Amount (Rs.)
Up to 3, 90,000	Nil	Nil
4, 00,000 to 5, 90,000	2.00 %o S.A.	8000 Rs/- to 11800 Rs/-
6, 00,000 and above	3.00 %o S.A.	18000 Rs/-

e) Loan facility:

Loan facility will be available under this plan, after completion of one policy year.

Eligibility:-

The minimum age at entry for the plan is 8 years while the maximum is 65 years. The minimum premium under the policy is Rs 95,210 with no upper limit. Policy term will be 10 years and Maturity amount will be approximately double than premium paying amount.

Review Returns:-

Annualized return and premium amount including service tax is as under

So, overall this policy also gives same type of return 6-7.5 % like most of endowment plan. If you think from return prospective it is not advisable to purchase this policy, Mutual funds or even FD for 10 year can give even more return compare to Jeevan Vaibhav plan.

Risk cover:-

Risk cover by Jeevan Vaibhav policy is just two times of premium paid which may not be sufficient considering your income. It is not advisable to purchase this policy for risk cover Term plan is more suitable option for risk cover.

Tax prospective:-

If you look at this policy from tax prospective, it lacks the current Budget modifications. As per current provision to avail deduction under section 80C your premium should 10% of SA. This policy does not fit in this if you opt for Rs.1000000 SA then your premium should be within Rs.100000 which is not possible from this policy.

So if you are planning to purchase this policy from tax saving don’t purchase this plan.

Catch points:-

(1) This plan is giving you returns between the range 6-7.5 % No Tax benefit under sec 80C.

(2) Currently when Bank tax saving FDs are giving 9.5-9.75% tax free returns and 80C rebate is also available, I don’t feel LIC Jeevan Vaibhav is a good plan.

(3) The term for this plan is also fixed for 10 years. If you buy this policy for risk cover you have to again buy another insurance plan after 10 years to cover yourself, at that time it will cost you a fortune.

(4) With current inflation index this product may not beat inflation.

(5) As you will be investing all money at single go for 10 years you may lose opportunity to invest in some better financial product may come during this time period.

Over all this policy don’t provide you enough risk cover, return and tax benefit. Think twice before purchasing this policy.

I hope I have empowered you with enough calculations, reasons to invest or reject LIC Jeevan Vaibhav. Now better take informed decision and that too for the betterment of your finances.

If you have any questions related to LIC Jeevan Vaibhav or any other life insurance policy – feel free to add it in comment section.

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