A dispassionate look on demonetisation

Now that the dust and din have settled on the actual amount of cash returned to the banks on the demonetisation initiative, there are clearly two different camps that have emerged. The government and supporting voices are insistent that the drive has been a success and will have great long term benefits for the economy and country. The dissenters question the move and say that the data now proves beyond any shade of doubt that the move was completely ill advised.

Let us look at this from a fundamental perspective to understand what has really happened, why it has happened and what is the likely fallout. To begin with the objective of demonetisation was to unearth the huge amounts of cash that was being used in an unaccounted manner in our economy. It is important to understand that the proportion of cash in the black or parallel economy is a small percentage, nearly 6 %. The bulk of it is in real estate and other assets. However, this cash keeps working as the lubricant for deals in real estate, film industry and other areas where regulations are weak at best and non existent at worst. Thus, the amount of cash is ever increasing and more importantly untraceable. When the government went for demonetisation, the hope clearly was that some of this unaccounted money will not find it’s way back into the banking system as people will be worried to account for it.

What has happened in reality and why? Well, now we know for certain that the amount of money not returned into the banking system is only 16000 crores. Even though the government had not officially named a figure, it was widely expected to be much higher around 3 lac crores. I think some of the reasons are as follows:-

• A lot of people managed to use the bank accounts of known people to deposit money. For example, I personally know a few who have done this in the accounts of people who worked for them.
• While it was a great initiative to open the Jan Dhan accounts, I wish there was some deposit limits set to them based on the economic condition of the account holder. Many of these accounts were unfortunately used for parking black money with a promise of paying a percentage to the account holder.
• The great Indian ingenuity to circumvent rules was in full display during November and December of 2016. An entire industry sprang up to take your old notes and give back 70-80 % of equivalent new notes. Unfortunately, instead of declaring their money and paying taxes on it, many Indians chose to go by these shady routes.
• In the initial days there was panic and there were even stories of sackful of 1000 Re notes being abandoned etc. However, it soon dawned on people that even if they could not use others accounts or middlemen, it would simply make sense to claim it as current earning and deposit it in their own accounts.
• The above was possible as the follow up from IT authorities were not thought to be very efficient in their follow up. Many CA’s also advised people to deposit their money and figure out how to handle tax notices etc at a later date.
• I know of a Doctor who had 15 lacs of black money and he simply generated current year invoices to show it as current year income. As most people went about this way, the amount of money collected from the amnesty scheme was well below expectation again.

Let us now look at the impact of demonetisation on the economy as a whole. It needs to be understood that the unorganised sector got very badly hit by this move. Cash was the only mode of transaction there and sudden unavailability of it almost shut down entire industries in several parts of the country. Several workers in these industries were suddenly left without jobs and these were the section of people who could not afford to be out of work even for a short while. Yes, over the next two months most of the jobs were back but the short term misery inflicted on these people, cannot and should not be forgotten. The organised sector was more fortunate but here too there was a distinct slow down in business and demand.

Why was this not reflected in the GDP numbers of Jan 2017? Well, for one the timing of the demonetisation was chosen very well. A lot of demand and business got executed in the October period as it was festive season in India. Normally there is a lull in commercial activities post Diwali anyway. The data from the unorganised sector anyway takes a long time to find it’s way into the statistics. So the impression of the 7.9 % growth despite demonetisation was clearly a false one, as latter events were to prove. However, this should really not be seen as a problem as most well informed people did understand that the GDP will suffer by 1-2 % in the short run. I am surprised at the 5.7 % number but had been quite prepared to see something to the tune of 6.5 % for the last quarter.

The other area which has been actively promoted by the Government with the Prime minister himself being the champion is digital transactions. It is true to say that in the initial days there was a spurt in these, mainly due to the fact that cash was simply not available. The aggressive marketing of the payment companies and the Indian inclination for good deals saw a surge in these payments. However, with the cash flows having resumed, the transaction growth in these areas is becoming muted. Also, this was at best a byproduct, for the government to say that this was one of the main aims of the exercise really smacks of opportunism, if not hypocrisy.

With all this said, are there any long lasting gains from this drive then? Yes, there definitely is and only the open minded will be able to see the obvious. We now have all cash in the banking system and in a manner that can now be traced. For example, a Real estate transaction can still have some cash component BUT now the IT authorities know the money trail. This is of significant advantage and will now help IT people to follow up on any suspicious transactions. Yes, this will take time, given the paucity of resources but it is sure process though slow at times. The regulation on cash spending is a good follow up measure and this again helps in tracing the money trail. Also, the fact that cash has come back does not mean it has been accepted as accounted income. If you have a sum of 10 lacs in your bank account deposited last year, you will still need to account for it.

So while the overall impact in the short run may be poor, the long term benefits of a cleaner economy that is far more tax compliant will definitely be there. Other measures such as clamping down on benami properties and getting GST to be effective will also help in this regard. The problem is with the government trying to get mileage out of it politically and hence shifting the stands every now and then.

Demonetisation was a bitter pill to swallow for many of the citizens and for people affected adversely the taste lingers. It will however, usher in a completely new country as long as things are followed to their logical conclusion, without fear or favour.

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MF portfolio realignment – my plan

If you are a regular reader of my blog you will know my 3 portfolio strategy for investment by now. I have portfolios in Debt, Stocks and MF. In the initial part of my working life I invested in mostly debt, the mid part was largely used to build up the stock portfolio and 2008 onward till now it has been largely MF. Of course, once I decided about giving up my regular corporate career in 2012, I boosted my debt portfolio significantly.

Over the years I have bought several MF schemes, initially with one time investments, thereafter with SIP and now back to investing at the right times. I have therefore collected a large number of MF schemes and in several of these the amounts invested are not very significant. The ones where I have done SIP obviously have some decent amounts, but even here there are several funds as my portfolio had changed over my 7 years of SIP.

In the past whenever the markets have gone up significantly, I have thought about cleaning up my MF portfolio. Somehow or the other it has never happened and I am stuck with a multitude of MF schemes, most of which I do not really want to keep. This weekend, I took a look at my MF portfolio after a long time and these were my observations.

• I am currently investing in 4 MF schemes which are as follows. My plan is to continue investing in these for the future, at least till I have active income to do so:-
  • ICICI Focused Blue chip fund
  • ICICI Value Discovery Fund
  • HDFC Mid cap opportunities Fund
  • DSP BR Mid and small cap Fund
• There are some other funds where I have significant investments but have dropped now. I will be keeping these for now but may want to sell them off during any annual review that I undertake. Future investments in these are unlikely:-
  • HDFC Top 200 Fund
  • IDFC Premier Equity Fund
  • Birla SunLife Frontline Equity Fund
  • DSP BR Equity Fund
  • Sundaram Select Mid cap Fund
  • Franklin India Blue Chip Fund
  • UTI Dividend yield Fund
• There are some Close ended funds such as the ICICI Value Series Funds. I had invested in these as they give regular dividends which is useful to me. I will either continue with them or shift to other similar funds. To give readers an idea, ICICI Value Series 2 has given an XIRR of 30 % plus in the 3 year investment period.
• Everything else, I want to get red of ASAP.

How do I plan to go about it? I have a feeling that next few weeks may be the best chance if Nifty once again goes to 10000 etc. Once the quarterly results  are through and the global geopolitical situation worsens, our markets are very likely to down to 9500 or even below that on the Nifty. Once I sell all my disposable MF, I will just be in cash and wait for the right opportunity.

What will I be buying with the cash I get? Well, one option is to invest in some of the stocks I had outlined in the earlier post. I am sure that if I buy these at Nifty levels of 9500 I will definitely see significant returns over the next 3 years etc. Another option will be to space out the stocks and invest in my 4 MF’s .

Unless the NIfty shows a rising trend due to a strong quarterly results, I am finally ready to pull the trigger on this. Even if it keeps rising, I will still sell when it reaches 10200, as I do not believe that is a value at which the Nifty can sustain itself.

A Goan sojourn

Travel is really what keeps me going and my family likes it too. Of late, with college going children, it is somewhat difficult to plan family vacations but we do what we can. On the other hand, it does give Lipi and me enough flexibility to plan our travels. We have been going to Goa every year since 2014 and have just come back over the weekend from another trip which was both relaxing and rejuvenating.

Why do we go to Goa so often? Well, for starters, it is a great place for visits and we have a Timeshare with Karma Royal who have most of their resorts in Goa. Since 2014 an incremental motivation is our son Ronju being there for his college in BITS Pilani, Goa campus. It has made sense for us to take our week in Goa so that we get to meet him briefly as an added bonus. Karma has 4 resorts in Goa, so we can rotate these as desired.

This year, we went to Goa between 5th and 12th August. As is my wont, I planned the trip way back in February and this resulted in us getting a good unit in Royal Palms as well as getting air tickets at very decent rates. In fact our total air fare came to less than 9000 Rs. The unit was practically free, though we have to pay a great deal of maintenance on it for having this ownership. As Ronju would stay with us for a couple of days, we took a one bedroom unit this time. It was spacious with a separate sitting area, kitchen, bedroom and washroom, apart from the two balconies. The resort is near Benaulim beach and is landscaped quite well, with a nice swimming pool, restaurant and bar.

Coming back to the actual trip then – we started on 5th and spent some time in the Plaza Premium Lounge before boarding our flight. Our credit cards allow us to do this and it helps us to avoid having overpriced and often, not so good, meals at airports. In this instance we had a pretty decent late breakfast which was still being served there. The flight only took an hour and we were soon in Goa airport. We booked a pre-paid taxi, picked up Ronju who had come there and were soon on our way. It was a good ride and I always find the localities in Goa quite interesting, especially that most of them have a lot of greenery. The check in was smooth, us being members and all, and we settled into our unit which was to be our home for the next 7 days.

The first evening we went to the Benaulim beach which is our favourite haunt. The beach has two good restaurant, namely Johncy’s and Pedro’s. We normally prefer Johncy’s as it is closer to the beach and offers both great food and views. After an early dinner, we went to the local superstore to stock up provisions for breakfast etc. The final stop for me was a liquor shop, every locality of Goa is dotted with these. The rates are great there, was able to buy 500 Ml Kingfisher cans for 50 Rs and a bottle of Blenders Pride for 475 Rs.

Ronju was to go off on Sunday evening so we made a trip to Kolva beach on that day. Unlike Benaulim, where the crowd is less, Kolva is a pretty happening beach with multiple shops and water sports options. We were unable to catch the sunset courtesy the dark clouds but it was a good way to spend the evening. Later on we went for a longish walk towards Margao and had dinner at a local Goan Cafe. A great thing in Goa is that the food is almost universally good, whether you eat at a high end restaurants or in a beach shack. Also, almost any restaurant worth it’s ilk is automatically a bar too.

Once Lipi and I were on our own, life settled into a rhythm for the next 5 days. I would wake up early and go for a morning walk along the beach while Lipi luxuriated in the knowledge that there was no real need to get up if one did not want to !! I always find walking along the beach, listening to the sound of the relentless waves rather relaxing and there are few better ways to spend time. We would normally have breakfast in our unit though one day we broke the routine and went to Pedro’s for brunch. The Spanish omelette there with Ham, potatoes and onion is simply divine though their Hot Chocolate could do with a lot of improvement, greater quantities of chocolate being one of them.

After breakfast we normally went out for some sightseeing or just relaxed in the resort. One day we hired a car and went off to Agonda and Palolem beaches which are about 40 Kms from the resort. These are probably the best beaches in Goa, especially Palolem which extends over a large area. The restaurant called Silver Sands is placed quite strategically and we had great views of the sea while sampling Golden Fried prawns and Goan fish curry for lunch. Apart from the beaches, the journey itself was a memorable one, long winding roads through Goan villages, forests and some hilly terrain too. This was a case of both the journey and the destination being equally worthwhile.

Another day we went to the Bigfoot museum which is a must see for anyone visiting Goa. This is an open air museum having a model of a typical Goa village with life size statues. You get to see the various facets of their daily lives and the commentary is both crisp and lucid. We probably learnt more about life in Goa from the museum than we ever would by reading books etc. Most importantly, it is really something one can enjoy and completely challenges the drab way in which most of our museums are presented. The Old Portuguese Mansion, next to this museum is also worth seeing. You will get to know a great deal about how Portuguese noblemen lived in Goa. The distinction with how the Britishers  lived is quite evident. Interestingly, many such houses dotted all over Goa are still lying empty as their owners neither stay in them nor have they disposed off these. We rounded off our museum visit with lunch at Nostalgia, a speciality Goan restaurant.

Among other activities at the resort, I introduced Lipi to playing Pool one day. She acquitted herself rather well and will get better with practice !! The wi-fi in the resort was good so we could post all our pictures rather easily on Facebook and I also got to do some work. Lipi too was able to order some stocks when the market fell precipitously over the week we were there. At other times I may have got worked up about my portfolio declining badly, but when you are in Goa you tend to take a relatively laid back look at such things. I did manage to catch some cricket and the hyper debates on TV too.

All too soon, the week came to an end and we were to travel back to Hyderabad on Saturday. As our flight was only in the afternoon, we combined a trip to the Bogmalo beach and Naval Aviation museum with the airport drop. Bogmalo beach is relatively less known but quite nice, we saw it for the first time in this trip. We had Kingfisher strong, Watermelon juice accompanied by vegetable pakodas as we watched the sea for the last time in this trip. It could have been rather poignant but we will be back soon.

The Naval Aviation museum is one of it’s kind in Asia and outlines our Naval history in a great manner. The aircraft  shown are real ones and have a glorious history, especially with relevance to the 1971 war, where the Navy played a decisive role. If you are in Goa do not miss this and be sure to look at the photographs and the models too.

Our return was good and uneventful and we were back on a Saturday afternoon to Hyderabad. This was a really good trip with all the ingredients in a great cocktail of experience – family time, good food, great beaches, culture, history etc. We will now wait for the next travel.

Vizag & Araku valley – a journey less traversed

The beauty of travelling in India is you find hidden gems every once in a while and this is an absolute bliss for any seasoned traveller like me. I first came across Araku valley in the year 2004, courtesy an article I read about offbeat train journeys in India. At the time I could not take the Vizag – Kirandul passenger as it was booked fully and travelling with 2 young children without reservation was not practical. We did visit Jagdalpur, Araku Valley and Tyda by road but missing on the train journey was a regret.

Life, however, does give you a second chance often and when both children, now college going and young adults, were home for a couple of weeks at the same time, a rare occurrence by itself nowadays, I thought it would be a good idea to plan a short trip. Given the time constraints, we could only go for 4 days or so and I was thinking of where to go. A news item stating that an air-conditioned chair car coach in European style has been added to the Vizag-Kirandul passenger helped to make up my mind.

The plan itself was simple, given that there is nothing I love doing better than making travel plans. It gives me a great high to anticipate the travel in the future. In this case, as we had only 4 days due to my Consultancy work and Ronju’s internship, I decided to fly to Vizag. We got really good rates for the air tickets, around 12000 for the 4 of us. As we had to take 2 rooms for 3 nights, one in Vizag and 2 in Araku, that turned out to be quite expensive. Here too, I was happy to book the AP tourism property in Rushikonda beach, as last time we were not able to see the beach properly due to the Tsunami, which happened on the very day we were in Vizag.

On the starting day of the trip we reached Vizag early in the morning, both the flight and the journey to our resort with Uber being good ones. Vizag is one of the cleanest cities in India and is also blessed with a great location, the roads to our resort skirted the Bay of Bengal for quite a while. The AP tourism facility at Rushikonda beach has a great location too. The Deluxe rooms we had booked were at a higher level and the full length windows provided us with amazing views of the sea. If you have a plan to visit Vizag this is the place to be – you could literally sit on the sofa and look at the sea all day. Getting down to the actual beach proved to be a good exercise for all of us, Ronju showed that he is both the youngest and also the fittest in our family currently. The beach is nice with some activities for water sports available. We took a speed boat ride which was quite an exhilarating one and we did not really mind the fact that we got drenched a bit.

After a pretty good lunch at the restaurant and the customary rest that Lipi must have in the afternoon, we took an auto and went over to Kailashgiri hills. You can go up this place by a cable car and there are a lot of gardens, eating joints and most notably huge statues of Shiva and Parvathi there. While most people come from a devotional standpoint, the views of the Bay of Bengal from these hills are simply stunning. You will probably not get better views of the Bay than this and the myriad hues of the sea are all depicted in a brilliantly resplendent manner from the viewpoints here. Evenings are the best times to be here, we had some rather good snacks before getting back to the hotel. An early dinner was important as we were to travel to Araku the next morning.

The transport to the Vizag station next morning was an Auto and we got to see the city a bit more, along with some nice morning views of the sea reflecting the morning sun. At the station, our coach fulfilled all my expectations. It had great seating, large windows throughout for best viewing, good air conditioning and also nice catering to boot. The journey which followed is definitely unique in several ways, even for someone as well travelled as I am. The train chugged it’s way along the Eastern Ghats and at times through it, by way of the numerous tunnels that have been dug. The tunnels came in all sizes and were always having the element of surprise. In between we were treated to the exquisite natural beauty of the Eastern ghats, both the hills and the valleys being covered with a lot of greenery. On the way we crossed a few stations at great height, in fact one of them ,Shimhachalam, is the highest in India. The train has to go at moderate speeds due to the terrain and this gave people a lot of opportunities in clicking some nice photos.

The resort in Araku had very nice views of the surrounding hills too and our two rooms were side by side with fairly large terraces. One word of caution here – Araku is a small town and you will not have many food options. The resort only had a vegetarian thali option for lunch, though dinner was slightly better with Chicken dishes being available. In the late afternoon we went to see the Tribal museum that has several items dealing with how the different tribes in AP live. The models of the houses and other facets of their culture have been depicted really well. This place is a must see if you are in Araku. We also saw the Coffee Museum which captures the journey of Coffee from the planting to the brew that we consume in a nice manner. Of course, the restaurant there was an oasis in the otherwise limited options of food around !!

Next morning we visited the Chaparai water flow , a short ride away from our resort. This place has the water rushing through different levels which are not high enough to be called a waterfall. The flow of the water is strong and the sylvan settings make it a nice place for spending some time. Thereafter we went to the Padmanabha gardens which is also a must see location if you are in Araku. The sheer numbers of trees and flowers there are amazing and the maintenance is quite commendable. Lunch this day was humdrum again, though we managed to get some chicken fry in a local joint. For dinner, a hotel guy had arranged some Bamboo chicken for us. This is an unique preparation and speciality of this region. The chicken is marinated with spices and put into hollow of Bamboo stems, which is then put into an oven. The overall result is quite nice and we were glad that we tried it out.

The final day was hectic and long. We started from the resort after breakfast, visited Ananthagiri hills and the waterfalls there, travelled further to Borra caves and then made our way to Vizag and the airport. Borra caves with the stalactite and stalagmite formations are again a must see. You will need to have good fitness levels to reach all parts of the cave and I was happy to be able to do so.

Our wait at the airport was long but interesting as India put it across South Africa in the Champion’s trophy match. We reached Hyderabad past midnight, weary but very happy about how the trip had gone.

It was everything a great trip should be – travelling with the whole family which is a rarity nowadays, travel novelty such as going in the new coach commissioned to Araku, great natural beauty, a relatively offbeat location, new food samplings such as Bamboo chicken and significantly cooler climes.

Travel is an elixir for the weary soul with regular activities and even a short trip, if planned well, can rejuvenate the body and mind. The current one has been particularly good in that regard.

Filing your returns this week? Show taxable income properly

First the good news – due to certain problems with the IT E-filing site, the deadline for filing IT returns have now been extended till August 5th. So, if you were one among the many who were late, you can still go ahead and file your returns now. While the penalty for filing delayed returns is only from next year, there are important reasons why you must do it on time. It is the right thing to do, you have a chance to rectify it if required, your refunds get processed quicker.

It is important to understand that you need to account for ALL income when you are trying to arrive at your taxable income in a Financial year. In fact, some of these incomes may well be exempt from taxes but it still needs to be declared in the form. In the terminology of Income tax, there are 5 heads in which you need to categorise your income. These are as follows:-

• Salaries
• House property
• Profits or gains from Business or Profession
• Capital gains
• Other sources

Let us look into these income sources one by one. For most people filing tax returns, salaries are the bulk of their income. This will be your source, if you are employed by a company or business or another individual and get paid for your time. It does not matter whether you work full time or part time, as long as there is an Employee – Employer relationship, the income can be classified as salaries. When you need to give data for your tax filing purpose, note the following :-

• Your Employer has to give you Form 16 which will record the total salary paid including the monetary value of perks, exemptions allowed for different allowances like HRA and Transportation, Exemptions under 80 C, 80 D etc.
• The Form 16 also shows the total tax deducted as TDS and the tax liability. This is why some people think that is enough for tax return filing. However, this is not true as you will be having other sources of income in most cases.

Income from House property is relevant if you own one or more house property. You need to remember the following while filling up this schedule:-

• Even if you are staying at the house, it still needs to be documented in the ITR returns. For self occupied houses the income will be nil.
• If the property is rented you have to show the actual income from it. Many people think that for a single house there is no need to declare income – this is completely incorrect and you must never get into this.
• Standard deduction on income is at 30 % and you can also charge for any taxes or other regulatory expenses incurred in the house.
• Interest can be charged up to a maximum of 2 lacs per house.
• After all these deductions from rent received during the year the total income from House property will be calculated.
• If you have a single house and it is not occupied by you and not rented out, then you can take the income as nil.
• If you have 2 or more properties there will be a deemed income from all other properties except the first one, even if none of them are rented out.

Most salaried people earlier did not have any income from business or profession but it is becoming more commonplace now. There are of course, many others who do not have a salary but have income from business or profession. While looking at income from this head, you need to keep the following in mind:-

• If your Business turnover is more than 2 crores or your professional income is more than 50 lacs, you will need to maintain a set of Accounting books and these will have to be audited as per laid out procedure.
• For others the business income can be taken to be 8 % of gross receipts in business and return filed accordingly.
• For professionals with less than 50 lacs gross receipts, you can charge 50 % expenses and take the rest as income.
• In case you are showing income on presumptive basis, as in the above 2 cases, you will not be able to charge any other expenses to the business.
• If the above does not work well for you, there is always the option of maintaining books, getting them audited and filling up the returns in a more complex manner.
• For example, if your business turnover is 1 crore but your profits have only been 2 lacs, you will have to maintain books and proceed accordingly.
• For a professional earning 40 lacs but having 30 lacs as business expenses, it will again make sense to maintain books and show only 10 lacs as income.

Capital gains can arise out of the sale of any asset such as Real estate, gold, Equity, Debt etc. The important things to be kept in mind are as follows:-

• Short term capital gains are added directly to your income, Long term capital gains will get indexation benefits.
• For equity LTCG requires holding period of 1 year and is tax exempt. So if you sell your shares after holding them for a year, you do not need to pay taxes on your capital gains. However, you do need to report it.
• For debt LTCG is applicable after 3 years of holding and indexation benefits are there. The tax on the Capital gain post indexation is 20 %.
• In order to save on Capital gains you can put the gains in Capital Gain bonds.
• For real estate, as long as you invest the capital gains to buy something new it will not be taxed.

Other income is literally everything else from dividends, interests, lottery earnings, winnings from horse races etc. Some common mistakes people do are as follows:-

• Where TDS is not deducted at all, such as in Post Office MIS, you must declare the interest as taxable income.
• Where 10 % TDS is deducted as in Bank FD, you must again declare the total interest earned. 
• Even if no TDS is deducted as you have given form 15 G / H to the bank, the interest earned by you must be declared.
• Interest exempted from taxes such as interest from Tax free Bonds etc need to be shown too at the appropriate locations.
• Dividends are again tax free in your hands but need to be shown.

I hope with this you will be able to get all your income recognised correctly. After this you will need to look at taxes paid and if any other liability is there still. We will take this up in the next post as this is already too long.

My experiences with e-filing of ITR 3

I have been using the Income tax e-filing site for a long time now and have been a tax payer since I started working in 1988. Of course, in those days all tax filing was manual and I used my offices to calculate taxes, pay them and also file the returns. Till 1998 or so this worked quite well as I had only my salary to work with as my source of income.

As the sources of income increased, the complexities also did and I got introduced to TDS from Fixed deposits etc and the need to pay extra taxes as Advanced tax. Even though the tax filing was still being done by my office people, I was able to calculate my tax liability with the help of Form 16 and Form 26 AS. With passing years, my sources of incomes were more – a house property, capital gains from equity/debt funds, consulting income, dividends, interests and so on. This was also the time when I engaged a CA to file my tax returns as the ITR 4 was quite involved. As a consultant, I had to show business income and the expenses needed to be maintained along with depreciation claims etc.

In the last budget the Finance minister did a great service to all professionals like us by saying that you can claim 50 % of all your gross receipts as expenses. So this time I decided to try filing the ITR 3 on my own. When I got the Excel utility first, my heart sank by seeing all the schedules, but on closer examination I realized that not too many of them had to be filled up by me. Before that though, I had to get all my information in order. This involved the following:-

1. Looking at Form 26 AS to record both TDS by my Clients as well as the Advance tax paid by me in September 2016.
2. As there was no TDS in Post Office MIS interest, I made a note of it separately.
3. All my Debt investments were in ICICI Direct and I got the Capital gains statement from there.
4. I went through all cash receipts in my 2 main bank accounts, ICICI and HDFC and divided those into the following categories for filling in ITR 3 later :-
   • Receipts from rental of my Chennai apartment.
   • Interest from the savings bank accounts.
   • Dividend from Equity MF and stocks.
   • Receipts from my Consulting income.
   • Receipts from redemption of my FMP investments.
   • Receipts from interest in Tax free bonds.

Once the above data was gathered it was just a case of putting these in the right places in the form. Not all schedules needed to be filled and even in the ones which did, not all fields were needed. For example, the P & L schedule that is surely the most complicated, I just had to fill up 3 lines as my income from profession was less than 50 lacs last year.

The good thing about the ITR forms is that you can fill up each sheet and validate them individually, before you proceed to the next one. After you calculate the tax, you can get the overall ITR 3 validated too. Once this is done the XML can be generated. This is where I had an issue. There is a schedule in ITR 3 where you are supposed to declare your assets if your income in the year is more than 50 lacs. I did not fill this up as my income in the FY was not greater than 50 lacs. However, as I had put some income from house property, the software was checking if the asset was declared in the schedule. It was good I could read XML and was therefore able to correct it.

After that it was easy going, the XML had to be uploaded and the acknowledgement had to be e-verified. As my Aadhaar number was already linked to my PAN it was pretty straightforward. The total time taken was about 5 hours – 4 to get all the data in place and only an hour to actually fill up ITR 3.

The most crucial part in filling up these forms is to understand how you can arrive at your taxable income. Note that even income that may not be taxable such as dividends or interest from tax free bonds needs to be recorded in the form.

I will do another post to clarify as to how you can take care of both these issues correctly.

Need regular income? There are better options to FD

In the last post I had said that we will need to look at a category separately, those who are retired or otherwise and seek regular income for their expenses. Most of these people keep their money in Bank FD’s. Some look at slightly riskier options of corporate FD or NCD in order to earn a little more interest. In this post I will examine options such people have in looking at other instruments.

Now, to give some structure to the discussions let us assume the investor will need 6 lacs per year for his expenses, given that he has a home to stay in and his children being settled financially. If he has 1 crore out of his retirement proceeds or other assets, one option will be to put it in FD. As a senior citizen he will probably get a rate of 7.5 % per year today. So he gets 7.5 lacs in a year which will be good enough for his expenses. As a senior citizen his taxes on this will be 60000 Rs, can also get reduced if he invests in 80 C instruments, medical insurance etc.

So, if this seems to work, why should they just not do it? Firstly, there is no guarantee that the interest rates will not go down further. Secondly, inflation is always going to be a factor and even with a 6 % inflation the costs will double in 12 years time. Thirdly, as no one can predict the life span it will always be better to have some growth factored into your portfolio. In the FD scenario there is absolutely no growth. Fourthly, with increasing expenses you will soon be eating into the capital and may reach a situation that you run out of money long before your passing away.

Let me outline some alternatives with the pros and cons that the investor can look at. I will not go into too much theory here, those are all available in my blog or in the public domain. 

• Keep the money in the dividend option of MIP funds. These funds mostly give a monthly dividend which will be tax free in your hands. However, there is a Dividend Distribution Tax the fund house has to pay.
• You can also use the Growth option of MIP and redeem to the extent you need money every month. It will be better to do this after your investment has crossed 3 years as you can get the benefit of LTCG indexation.
• If you have planned earlier then set up 3 year FMP. As they mature you can use the capital gains for your regular expenses and reinvest the Principal amount in other FMP. With the rates coming down you may want to invest in dual advantage FMP to get incrementally better returns, though with some element of risk.
• You can put your money in ICICI Balanced Advantage or similar funds which allow selection of dividend in a defined manner. At a rate of 9 % your returns will be adequate for your expenses and dividends are tax free in your hands. However, as the equity exposure is significant here, the element of risk is also high.
• The above strategy can be also used with Equity Savings Funds, Dynamic Funds or even pure Equity funds as long as you are able to afford the risk.
• Finally, you can of course try a combination of the above.

How do I invest myself ? Well, for several years now I have no Fixed income product except for Post Office MIS and that was done with a specific purpose in mind. My alternatives have been in FMP, Balanced funds, Gilt funds, MIP, Equity Savings Funds and so on.  For the debt space, I feel I have got a good balance between decent returns and good tax efficiency.

I will write in some details on these later on and also share a couple of real life case studies.