Learn Importance of Struggle: Gujarati billionaire Savji Dholakia to his son

We want best for our children. As a parent, How do we instil the importance of struggle and hard work to our children? Owner of Hare Krishna Diamond Exports, Savji Dholakia, sent his 21-year-old son, Dravya, to Kochi with only Rs. 7,000 to fend for himself and work odd jobs to know the importance of struggle.

Learn Importance of Struggle : Savji Dholakia to his son Dravya

Dravya Dholakia (21), son of Savji Dholakia, proprietor of Hare Krishna Diamond exports, the Surat-based Rs 6,000 crore company with presence in 71 countries learnt the importance of struggle in Kochi for a month from June 21.  Dravya is pursuing his MBA in the United States and is on holiday in India. His father asked him to try this challenge for a month, and Dravya readily accepted.

There were to be three conditions:

1. Dravya was not supposed to use his father’s name or influence to get things done.
2. He wouldn’t work at a place for more than a week.
3. He would only have Rs. 7,000 for emergency purposes, which he shouldn’t use for his daily expenses.

Dravya chose Kochi because he didn’t know to speak Malayalam, and Hindi isn’t commonly spoken there. It was difficult for him, but he came through. FOR FIVE DAYS I HAD NO JOB OR PROPER PLACE TO STAY. I WAS FRUSTRATED AS I WAS REJECTED AT 60 PLACES, AS NO ONE KNEW ME HERE. I UNDERSTOOD WHAT IS REJECTION AND THE VALUE OF A JOB IN THESE FEW DAYS.”

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Quick eFile ITR1 or Quick e-File ITR4S Online

If you have to efile Income Tax returns for ITR-1 or ITR 4S, you can complete the process on the income Tax website itself, by using the Quick efile ITR. This article explains the process of Quick Efile with pictures which can be used to file ITR1 or ITR4S.

What is Quick e-File ITR?

Quick E-file means e filing Income Tax Return online.

E-filing is filing your Income Tax return electronically. It is mandatory for the following individuals to file their return:

  • Those with an income of Rs. 5 lakh and above
    People having assets abroad
    People whose income needs to undergo an audit

Quick E-File is simple,user friendly and hassle free and its features are:

  • It is online service. No need to download Excel Utility or Java utility or generate XML. Its like filing any other form on the net
  • It is only available for ITR1 and  ITR4S as these are simple forms with less number of tabs or schedules to fill.
  • It has data like Personal Information and Tax paid already filled it i.e it is prepopulated.
  • You don’t have to fill the form in one sitting. You can save the information entered. When you login again you can start from where you left. However the saved draft can be accessed within 30 days only.

Our article  Comparison of Income Tax Filing Websites:IncomeTaxEfiling,ClearTax,etc compares various Income Tax Efiling websites in detail.

Overview of Process to Quick eFile ITR

Overview of the process to Quick eFile ITR is as follows. 

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ITR4S, the difference between ITR4S and ITR4

You can file ITR4S or ITR4 if you have income from Business or Profession or freelancing. What is ITR4S? Difference between ITR4S and ITR4.How to choose which ITR to file between ITR4S and ITR4? What does ITR4S covers? Structure of the ITR-4S Form,How to file the ITR-4S Form ? Videos on how to fill ITR4S

ITR4S or ITR4

As per the Income Tax Act, an income from any profession that involves work, which requires you to use a skill, which is an intellectual skill or is a manual skill, then such income will be taxable under the head Profits and Gains of Business and Profession. As ITRs are based on type of income (among others) so One has option to file ITR4 or ITR4S.

ITR-4S is a four page document,  while ITR-4 is a detailed form, possibly one of the two longest of all tax return forms. Called Sugam, the ITR 4S is for businesses what the Saral ITR 1 is for individuals -short, easy to understand and file. Section 44AD has been from assessment year 2011-2012 (AY 2011-12) into Income Tax Act. Before AY 2011-12  section 44AD was only applicable to the business of civil construction. However, it is now applicable to all types of businesses

ITR-4S is a special case ITR, applicable for businesses where income is calculated on ‘presumptive method’.  As per Dictionary, Presumed means to accept legally or officially that something is true until it is proved not true. As per Dictionary, Presumptive means presumed in the absence of further information.  So  Your tax liability is calculated on the basis of a `presumed business income’, irrespective of what your actual income may be.

It  is covered by Section 44AD and Section 44 AE

  • Under Section 44AD Your Net Income is estimated to be 8% of the gross receipts of your business. Gross receipts or Turnover mean the total collections of the business. The receipts shall be inclusive of VAT & Excise Duty. The receipts shall also include delivery charges as well as receipts from sale of scrap. Discounts given, advances received and money received on sale of assets should be excluded. Section 44AD specifically mentions the word business, therefore section cannot be applied in case of professionals.
  • Under section Section 44 AE you can report your income as Rs 7,500 per month for each vehicle if you are in the business of plying, leasing or hiring trucks.
  • From FY 2016-17 or AY 2017-18 Section 44ADA is introduced for Professionals.  Professionals whose Total Gross Receipts do not exceed more than Rs. 50 Lakhs in a financial year can claim benefit of this Section from Financial Year 2016-17 onwards.
  • You don’t have to maintain books of accounts, profit & loss statements or audits. of this business.
  • You don’t have to pay Advance Tax for such a business.
  • You are not allowed to deduct any business expenses against the income.
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Insurance: Types of Term Plan

A term plan is the best and cheapest way to buy a life insurance policy for every individual who desires to secure his family in his absence. In a term plan the nominee gets a sum assured on death of policyholder during the policy term and nothing if policyholder survives the term.  Realising the need for something extra from the term plan, many companies such as Max Life Insurance has come out with variations of vanilla term plans, where they offer lump sum and monthly income to nominee. However, there are various types of term plan that you should understand so that you can choose according to your needs.

Vanilla Term Plan

What is a Term Plan?

A term plan is a comprehensive insurance plan. The nominee of the policy gets lump sum assured amount after the death of the term plan holder. This plan offers only death benefit but no maturity benefit. Death benefit is the amount that a nominee can receive if the policy holder unfortunately dies within the policy tenure. Maturity benefit is the amount that the policy holder receives after the policy tenure expires. The premium on term plans depends on three factors: age, term of the policy and the sum assured you choose. Even as term plans are the cheapest insurance product you get a further discount by buying them online. Comparison of the best term policy was easy as the one with maximum cover and minimum premium would top the list.

How does Typical Term Plan work?

Suppose Mr. Mehta, aged 30 years has opted for this traditional for basic term plan for sum assured of Rs. 1 Crore for 30 years for an annual premium of Rs.7400. After paying 9 premiums i.e at age 39 Mr. Mehta passes away. As per death benefit, his nominee will be eligible for Rs. 1 crore. If Mr. Mehta expires at age 61, his nominee will not be entitled for any amount.

How a term plan works

How a term plan works

Plain Vanilla Term Plans are Suitable for:

  • Nominees who are confident enough to investment the lump sum amount received in the appropriate investment avenue.
  • For the category of people who do not fear any future undetected expenses and feel that they will have sufficient funds to manage the same if need arises.

Generally the eligibility criteria for all term plans with any company are similar and can be as follows.

New Type of Term plans

The new kind of term life insurance break the sum assured into lump sum payment and monthly instalment payments for a fixed number of years. Some offer to increase the monthly income by a certain percentage to inflation index your cash flows. This helps if the nominees is not equipped to optimally utilise the lump sum. A term plan promises to pay the beneficiary the sum assured in lump sum if the policyholder dies during the policy term. Income benefit plans, on the other hand, break this sum assured down into monthly payments for a fixed number of years in order to provide regular cash flows to the nominee.

Please note the amount received as sum assured and additional income according to the plan is tax-free. But income earned from the proceeds of investing the term amount is not tax-free

Who is the New Type of Term Plans are Suitable for?

  • When the nominee is not very familiar with investment avenues where they can utilize sum assured to receive returns.
  • People with low savings who will find a difficulty meeting expenses.
  • If the term policy holder is the sole earning member regular and smooth flow of cash flow will financially secure the nominee in individual’s absence.

Sum Assured and Monthly Income Term Plan

This kind of term plan offers death benefit. The nominee is entitled to assured lump sum amount + 0.4% of the policy sum assured as an additional compensation every month for 10 years.

How does this actually work?

Let us take the same example of Mr. Mehta who is 30 years old and has bought Sum Assured+ Monthly Income Term Plan of Rs. 1 crore with an annual premium of Rs. 10400 in 2016. After payment of 9 premiums Mr. Mehta dies in 2024. As per Max Life Sum Assured plus Level Monthly Income Death Benefit Option his nominee will be eligible for Rs. 1 Crore + Rs. 40000 every month till 2034-2035.

(Rs. 1,00,00,000 * 0.4% = Rs. 40000/month)

Total benefit from the Term Plan to the nominee: Rs. 1,48,00,000

(Rs. 1 Crore + Rs. 40000*12*10 = Rs. 48,00,000)

Sum Assured monthly income term plan

Sum Assured monthly income term plan

Sum Assured Increasing Monthly Income Term Plan

It offers some assured + Increasing Monthly Income Term plan. With 100% sum assured and 0.4% of sum assured as additional monthly income the additional point here is this additional income increases every year at 10% simple interest.

How does this plan actually work?

Mr. Mehta who has opted for Max Life Sum assured+ increasing monthly income term plan with assured cover of Rs. 1 Crore in 2016 at an annual premium of Rs. 11100, deceased in 2024. Therefore his nominee will be qualified to get Rs. 1 Crore ( Sum assured) + Rs. 40000 (0.4% additional monthly income) from 2025. In 2026, his monthly income would increase by Rs. 4000(10% of Rs. 40000= Rs. 4000) and it will increase by 10% every subsequent year for a period of 10 years. In year 2034-35 the nominee will be entitled for a hefty monthly income of Rs. 76000/month.

Sum Assured monthly increasing income term plan

Sum Assured monthly increasing income term plan

Comparison of Different Type of Term Plans 

Using Max Online Term Plans as example

Compare Max Life Term Plans

Compare Max Life Term Plans

Comparing the Income Benefits Term Plans

But how do you compare these plans? In a plain vanilla plan that offers a lump sum benefit, the basic level of comparison can be on basis of premiums, but plans that offer staggered benefits, premium comparison is more difficult.

Say, you buy plan 1 for Rs.1000 that promises to pay your beneficiary Rs.1000 every year for 10 years, and plan 2 at the same cost promises to pay your beneficiary Rs.750 for 15 years. The total payout in the first plan is Rs.10,000 and Rs.11,250 in the second plan. So you may be inclined to buy the second plan. But you need to consider Inflation and Net Present Value.

Inflation eats into the value of money, which means what you can buy for Rs.1000 today, will cost you more than Rs.1000 in the future. Even as plan 2 offers a slightly higher payout in the future, it may not really be a better deal if you factor in inflation and time value of money.

For a suitable comparison, you need to look at net present value (NPV) of both the plans. Assuming inflation of 6%, NPV of all future cash flows from plan 1 comes to Rs.736 andRs.728 from plan 2. This means, plan 1 offers better value.

Net Present Value

Present Value works on the principle that Money now is more valuable than money later on. Why? Because you can use money to make more money! Let us say you can get 10% interest on your money. So 1,000 now could earn 1,000 x 10% = 100 in a year. Your 1,000 now would become 1,100 by next year. So 1,100 next year is the same as 1,000 now.

Formula for Present Value:

PV = FV / (1+r)n

  • PV is Present Value
  • FV is Future Value
  • r is the interest rate (as a decimal, so 0.10, not 10%)
  • n is the number of years

To get a Net Present Value you also need to subtract money that went out (the money you invested or spent): Add the Present Values you receive – Subtract the Present Values you pay

Example: A friend needs 500 now, and will pay you back 570 in a year. Is that a good investment when you can get 10% elsewhere?

  • Money Out: 500 now
  • You invested 500 now, so PV = -500.00
  • Money In: 570 next year
  • PV = 570 / (1+0.10)1 = 570 / 1.10 = 518.18
  • Net Present Value = 518.18 – 500.00 = 18.18

So, at 10% interest, that investment is worth 18.18. A Net Present Value (NPV) that is positive is good (and negative is bad).

Invest 2,000 now, receive 3 yearly payments of 100 each, plus 2,500 in the 3rd year. Use 10% Interest Rate.

Let us work year by year :

  • Now: PV = -2,000
  • Year 1: PV = 100 / 1.10 = 90.91
  • Year 2: PV = 100 / 1.102 = 82.64
  • Year 3: PV = 100 / 1.103 = 75.13
  • Year 3 (final payment): PV = 2,500 / 1.103 = 1,878.29

Adding those up gets: NPV = -2,000 + 90.91 + 82.64 + 75.13 + 1,878.29 = 126.97

Example: (continued) at a 6% Interest Rate.

  • Now: PV = -2,000
  • Year 1: PV = 100 / 1.06 = 94.34
  • Year 2: PV = 100 / 1.062 = 89.00
  • Year 3: PV = 100 / 1.063 = 83.96
  • Year 3 (final payment): PV = 2,500 / 1.063 = 2,099.05
  • Adding those up gets: NPV = -2,000 + 94.34 + 89.00 + 83.96 + 2,099.05 = 366.35

Looks even better at 6%

The following is the formula for calculating NPV: where

  • Ct = net cash inflow during the period t
  • Co = total initial investment costs
  • r = discount rate, and
  • t = number of time periods

NPV calculator 

With diversification in term plans, individuals can choose the most favourable plan for themselves that will be suited best for their family.

Note to Term Holder:

  • Before opting for the right term plan always compare the NPV of money considering the inflation rate.
  • You can choose the criteria given on Max Life How to choose a term plan #MaxLifeTermPlan shown in image below

    How to choose a Term Plan

    How to choose a Term Plan

Term plans are an excellent way to insure yourself and staggered payments add to customisation. Take advice from a planner to assess your insurance needs and look at NPV of income benefit plans to properly compare the premiums.

Note:This post is sponsored by Max Life Insurance.

Related Articles:

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Income From House Property for more than 1 house

If you own a property, you have income from House Property. What will be Income from House Property for more than 1 house? How to Evaluate which house to choose when one has two houses and both houses are self occupied? How to Choose which one to show as Self Occupied in ITR? How to calculate Income from House Property when one is Self Occupied, One given on rent. When you have multiple Houses then how do you account for these multiple houses in ITR?

Overview of Income from House Property

If you own a property, you have income from House Property. A house property could be your home, an office, a shop, a building or some land attached to the building say a parking lot. The Income Tax Act does not differentiate between a commercial and a residential property. All types of properties are taxed under the head  Income from house property in the income tax return.

But if you occupy your house property to carry on a business or profession or your freelancing work– any income or expenses with respect to this property shall be covered under the head ‘Profits & Gains of Business & Profession’. You will be allowed to deduct expenses that you may incur towards maintenance and repairs from your business income. Any rent receipts will be added to your income.

Income From House Property and ITR

In Income Tax Returns (ITRs) section called Schedule-HP (HP for House Property) needs to be filled for details about percentage of co-owned property, loan, Annual Value,deductions etc. Information about the House needs to be filled in as shown in picture below. Income from house property can be divided between the co-owners which can reduce overall tax liability. Our article Income from House Property and Income Tax Return explains Income from House Property in Detail

Income From House Property in ITR for more than 1 house

Income From House Property in ITR

Calculation of Income from House Property is as follows

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Disclaimer : This is an information based website, meant for providing assistance to it's readers. We do not hold any responsibility for mis-information or mis-communication.