Every year, the income that you earn is subject to income tax. Calculation of your tax liability depends on the income tax slabs, which are determined under the Income Tax Act, 1961. These tax slabs specify the rates of tax payable on different levels of income. The higher the income you earn, the higher would be the income tax rate. However, before we understand the income tax slabs and calculation of your tax liability, let's look at the five sources of income that you need to declare when filing your income tax returns.
Sources of income
- Income from salary
- Income from business or profession
- Income from capital gains
- Income from house property
- Income from other sources
Any income that you earn in a financial year should be recorded under the correct head of income. After that, the total income is added together to find your gross taxable income. You can claim eligible deductions and exemptions from your gross taxable income to arrive at the net taxable income, which would then be subject to tax.
Income tax slabs
Now that you know how you are required to calculate your taxable income, here are the income tax slab rates which are applicable to calculate your tax liability –
Income tax slab for individuals and HUF’s
Points to note
Here are some points which you should note concerning the above-mentioned income tax slabs
- In all the above-mentioned income tax slabs, there would be an additional health and education cess of 4% on the tax liability calculated.
- If your net taxable income is up to INR 5 lakhs, you can claim a rebate on the tax payable under Section 87A of the Income Tax Act, 1961. The rebate allowed would be your actual tax liability or INR 12,500, whichever is lower. This rebate reduces your tax liability to zero if your income is limited to INR 5 lakhs
Let’s understand how to use the income tax slab for calculating your tax liability with the help of an example.
Mr. Verma is 40 years of age, and he has an income of INR 10 lakhs from salary and INR 2 lakhs from other sources. He invests INR 1.5 lakhs in ELSS schemes and INR 20,000 towards a health insurance policy. His income tax liability would be calculated as follows –
Calculation of Mr. Verma’s Taxable Income
New Income Tax Slab
In the Union Budget 2020, Mrs. Nirmala Sitharaman, India’s Finance Minister, introduced a new income tax slab. In this tax slab, the income tax rates are lower for higher levels of income. The new income tax slab is as follows –
Income tax slab 2020-21
Points to note
- This slab would be applicable from the financial year 2020-21
- Health and education cess of 4% would be applicable on the tax liability calculated using the above-mentioned income tax slab
- If you choose the new income tax slab rates, you would not be able to avail deductions and exemptions available under different sections of the Income Tax Act, 1961
- Two deductions can be claimed under the new tax regime from your taxable income. The first deduction will be for your employer's contribution to the National Pension Scheme (NPS) if you are a salaried employee under Section 80 CCD (2). Contribution of up to 10% of your salary would be allowed as a deduction. The second deduction is under Section 80JJAA where expenses incurred on new employment would be allowed as an exemption.
- The income tax slab 2020-21 is optional. You can either choose the new tax slab or the old one for calculating your tax liability.
- The rebate under Section 87A would be allowed even under the new tax regime if taxable income is up to INR 5 lakhs
In the above example, if the new tax regime is considered and the employer’s contribution to NPS scheme is INR 50,000, the taxable income and tax liability would be calculated as follows –
Calculation of Mr. Verma’s Taxable Income (New Tax Slabs)
As you can see, even in the absence of deductions, the new tax regime allows a lower tax liability due to lower tax rates.
When you calculate your tax liability, use both income tax slabs, the old and the new, and find out your tax liability. Then choose the tax slab, which offers the lowest tax outgo and file your income tax returns. You can choose tax-deductible investments offered by IndiaNivesh and lower your tax liability using the old tax slabs. So, work out both the alternatives, if you need tax saving options, find them on IndiaNivesh and then file your returns.
Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.
Technical analysis of stocks is gaining popularity amongst investors and traders as advancements in charting patterns, and trading platforms are making it easy for investors to use this method for security analysis. However, for an amateur investor, understanding technical analysis of stocks can be intimidating and challenging. Stock market technical analysis is a method used to examine the price movements of stock by studying the historical charts and specific indicators and determine the future price of the stock. Quite simply, it is analyzing the pictorial representation of the past and present price movements and using it establish patterns and identify the trend for the future price of the stock. As opposed to fundamental analysis, which analyses a stock based on its intrinsic value and impact of external factors on the price of the security, technical analysis of stocks is purely based on identifying patterns on a chart to determine the future price movement. Key assumptions for technical analysis of stocks Technical analysis is based on studying the market action and the function of demand and supply of the stock. Few key underlying assumptions are: Believes in the theory of the efficient market and reflects all information The first assumption of technical analysis of stocks is that the current market price of the security reflects all the information and it is the fair price of the stock and should be the basis of analysis. The price movement of stock follows a trend The price of the stock moves in a trend until reversed. So, analysts need to identify the trend by reading the price pattern. Patterns repeat itself The beauty of technical analysis of stocks is that close monitoring of the charts reflects the same patterns being repeated hence making it easier to predict future price movements. Chart Analysis To perform technical analysis, you need to use charts to identify trends and also any reversal in trend. These technical analysis charts are a visual representation of the price of the security over a period. The vertical axis is the price scale, and the horizontal axis is the time scale. The three important technical analysis charts are- Line charts- It is formed by connecting the closing price of the stock over a specific period and does not include any other information like open, high, or low of the stock. Bar charts- Bar charts provide a better visual of the price of the stock as it shows the opening, high, low, and closing (OHLC) of the stock. Candlestick charts- The candlestick chart provides the same information as bar charts, but the representation makes candlesticks charts easier and quicker to understand. Technical Analysis Indicators Indicators are the basis of technical analysis of stocks and play an important role in helping analysts in identifying trading opportunities by giving entry and exit signals in the stock markets. These technical analysis indicators broadly fall in two categories- Leading Indicators –These lead the price movement and indicate the probability of trend reversal in advance. Some of the common leading indicators are the Relative Strength Index(RSI), Stochastic Indicator, etc. Lagging Indicators- These follows the price movement and are trend-following indicators. Some of the common lagging indicators are moving averages (MA), moving average convergence/divergence (MACD), etc. Trend line indicator This is one of the simplest indicators used in technical analysis and is important to identify the market trend. The price movement of a stock is represented in peaks and troughs series, and these series represent the trend in which the price moves. The three market technical analysis of stock trends are- Uptrend- Uptrend is defined as a series of higher highs and higher lows Downtrend- Downtrend is defined as a series of lower highs and lower lows Sideways- The market is said to be flat when the prices move in a horizontal range. Using trend lines is one of the many techniques for analysis, and once the then trend line is broken, it should be used as a warning for a reversal in trend. Once there is a breakout in the trend line additional tools should be used to identify the change in trend. Supportand Resistance Indicators Support and resistance levels are two critical levels that define the meeting point of the forces of demand and supply and help analysts determine the market psychology. Support – It is the level where the demand is strong to keep the security from sliding any further. Resistance- It is the level where the supply is strong to keep the stock from moving any higher. When either of the levels is broken, then the supply and demand have moved on, and new support levels will be established. Momentum Indicators Momentum indicators are usually leading indicators and tell you how strong the current trend is and if the trend is likely to change. Some of the common momentum indicators include The moving average convergence/divergence (MACD) indicator- It shows the relationship between two moving averages. Relative strength index indicator- It measures the speed and strength of the price movement in the market by comparing the current price to the past performance. Oscillating Indicators Oscillating indicators are used for the analysis of securities that are not trending but are trading in a range. Oscillating indicators are beneficial when the security is moving in a horizontal pattern and discover potential entry and exit points as they help determine oversold and overbought conditions. A Stochastic oscillator is the most frequently used indicator. The above indicators are significant for analysts and traders for technical analysis of stock trends and for future price movement prediction. CONCLUSION For anyone who is trading or investing in the equity markets, it is important to understand the basics of technical analysis to understand the market movements. However, as stock market technical analysis is a little complex, correct guidance is essential. Our experts at IndiaNivesh can help you guide through the crucial tools and techniques for technical analysis. Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.
Planning for retirement is an essential aspect of financial planning, and a growing number of investors today are realising the significance of making early investments to boost their retirement corpus. The National Pension Scheme is steadily gaining popularity among investors to meet their retirement needs. However, many investors still do not fully understand what an NPS is and what are the NPS benefits in retirement planning and are unsure if they should subscribe to an NPS. If you, too, are contemplating subscribing to NPS, then this simple guide will help you get an understanding of the NPS. What is NPS? National Pension System (NPS) is a defined contribution pension-cum-investment scheme sponsored by the government. NPS was launched in the year 2004 in January exclusively for government employees except for those in the armed forces, but later on, in 2009 became opened to all to encourage systematic investment savings among citizens so that they can have a regular income at old age. National Pension System is a voluntary investment option that is regulated by the Pension Fund Regulatory and Development Authority (PFRDA). It is one of the cheapest market-linked retirement plans with a minimum contribution of Rs 6000 per annum. The investment can either be made as a lump sum or through minimum instalments of Rs 500 each month. Features of the National Pension System NPS is portable across locations. So, it can be opened and operated from anywhere in India It is open to all Indian citizens, and the minimum entry age is 18 years, and the maximum age is 65 years. NPS account can be opened offline at any Point of Presence (POP) center with your KYC documents or online at enps.nsdl.com by linking your PAN card and Aadhaar number to your account In NPS, the savings of the investors are pooled together and invested in PFRDA-regulated funds managed by professional fund managers in various diversified portfolios. Investors can choose an asset mix of government bonds, equity instruments, corporate bonds, and alternative investments depending on their risk appetite. There are two phases in NPS-1. NPS Accumulation Phase: This phase, you invest periodically during your working years to build the retirement corpus in a mix of asset classes depending on your risk appetite.2. Retirement or NPS Annuity (Pension) Phase: This phase part of your corpus is used to provide you with a pension after your retirement in the form of annuity Investments in NPS can be managed in two ways-1. Active choice- If you want to manage your funds actively 2. Auto choice- If you feel you lack the knowledge and expertise and allow a life-cycle based approach for fund management. NPS offers tax benefits to investors at the time of making contributions and even at maturity. How does National Pension System work? Once you open your NPS account, you are provided with a unique Permanent Retirement Account Number (PRAN), which remains valid throughout your lifetime. There are 2 tiers in the structuring of NPS. Tier-I account- It is a permanent account. Thus, the accumulations made in this account are deposited and then invested according to the desired asset allocation as per the portfolio chosen by you. Withdrawals from NPS are not permitted. A total deduction of up to Rs. 2 lakhs can be claimed by investing in NPS under section 80C and 80CCD. Tier-II account- It is a voluntary account, but you need to have an active Tier I account. You can make withdrawals from this account as and when you need it to meet any expenses. NPS benefits: 1. NPS is a low-cost planNPS has an initial registration cost of Rs 200 and another Rs 40 to be paid for opening the account. Apart from this, you pay an annual account maintenance cost, which ranges from Rs 60 to Rs 95, and the value of each transaction is Rs 3.75. There is a nominal Pension Fund Manager (PFM) charge of 0.01% of the total AUM and custodian charges of 0.0032%. 2. NPS investments are managed by professional fund managersOne of the most significant NPS benefits is that it is managed by professional fund managers who have adequate knowledge and market expertise about markets and money management. 3. NPS is a highly regulated NPS is regulated by the PFRDA (Pension Fund Regulatory and Development Authority) and all the investments are regularly monitored and reviewed by NPS trust. 4. Keeps the retirement corpus intact as it is difficult to exitEven though NPS is a voluntary investment, the structure of NPS does not allow you to withdraw your corpus till you attain the age of 60. As the lock-in period is very rigid for the scheme, your retirement corpus is intact to meet your post-retirement requirements. 5. NPS tax savings for taxpayers is very useful in lowering their tax liability and enhancing returns NPS tax savings make it very lucrative for the accumulation of retirement corpus. NPS entitles you to tax benefits at the time of investing, on the gains made during the tenure of your investment, and also at the time of withdrawal. In short, NPS offers EEE tax benefits. You can claim up to Rs 1.5 lakh in a financial year under Section 80C. Moreover, an additional deduction of Rs 50,000 can be claimed under Section 80CCD(1B). CONCLUSION The National Pension System is an ideal investment choice for your retirement planning as it will help you to make systematic investments and provide you with the desired income post-retirement. Get in touch with our experts at IndiaNivesh for more guidance and assistance for your NPS investments. Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.
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