I. Don’t miss these tax breaks while filing returns (Source: The Economic Times)

Many tax payers are not aware of these deductions.

Income Tax return (ITR)filing is a process that is often completed mechanically. However, investing a little time and thought into it can allow you to claim deductions you might have failed to while submitting your investment declarations. Read on to find out how you can maximise your tax breaks.

1. Savings account interest

The balance in your savings account earns interest every quarter, which is considered part of your total income. However, the income tax (I-T) department, under Section 80TTA, allows exemption of up to Rs 10,000 on this interest. Interest earned on post office savings will also fetch a similar benefit.

2. Rent exemption without HRA

Many taxpayers shell out house rent but cannot claim deductions due to the absence of the house rent allowance (HRA) component in their salary. Under Section 80GG, you can avail of the benefit for the rent even if your salary package does not include HRA, provided you are not eligible for any housing benefit. You will not qualify for this break if you, your spouse or child owns the house you live in. The exemption is limited to the least of: rent paid less 10% of total income; or Rs 5,000 a month; or 25% of total income.

3. Breaks for specified illnesses

Keeping in mind the fact that treatment of ailments like cancer, kidney failure or AIDS entails huge expenses, the income tax rules allow relief under Section 80DDB to tax-payers suffering from such diseases.

(a) Specified diseases under Sec 80DDB

Taxpayers can claim up to Rs 40,000 in deductions if he suffers from any of the following ailments Ataxia, Full-blown AIDS, Malignant cancers, Dementia, Thalassaemia, Chronic kidney failure, Parkinson’s disease, Haemophilia, Motor neuron disease, Dystonia, Aphasia

However, if the person is a senior citizen, then the deduction can go up to Rs 60,000. If the afflicted taxpayer happens to be a super senior citizen, the relief is enhanced to Rs 80,000. However, if the expenses incurred have been reimbursed by employers or through insurance policies, the taxpayers will not qualify for the deduction. If the reimbursement is partial, they will be eligible for the tax break on the balance amount.

4. Ancillary home loan charges

Home loan borrowers know that one of the chief benefits of this loan is the tax benefits it offers on the principal repayment (Section 80C) and interest paid (Section 24). However, few know that even the processing fee paid can be claimed as deduction under Section 24. The processing fees and other ancillary charges are considered as interest and qualify as exemptions.

5. Loans for down payments

Home loan-seekers often borrow from friends and relatives to arrange for the down payment. They either do not pay any interest on such loans or if they do, fail to claim deductions under Section 24, despite being eligible. Section 24 also covers interest paid on any loan taken for the purchase, renovation or reconstruction of a house. However, you should draw up a loan agreement with the lender. The interest earned by the lender will be taxed as his income.

6. Deduction for disabilities

If a taxpayer suffers from 40% disability (as certified by a medical authority), he/she can claim a deduction of up to Rs 75,000 under Section 80U. Expenses incurred in respect of a disabled dependent will fetch a deduction of Rs 75,000 under Section 80DD. In both cases, if the disability is severe (more than 80%). the deduction is Rs 1.25 lakh. This is a flat deduction. The disabled should be dependent on the taxpayer for maintenance.

7. Income of disabled child

If you have made investments in the name of your spouse or minor child, the income earned will be clubbed with your income under Section 64 and taxed as per the slab applicable to you. However, in case the child is disabled, income from investments made in his/her name will not be clubbed with the income of parents. The latter can use this provision to invest in taxable instruments like FDs and debt funds.

8. Setting off losses

If you lost money in investments during the previous financial year, you can adjust some losses against capital gains from the sale of stocks, property, gold or debt funds. Short-term capital losses can be set off against both short-term capital gains as well as taxable long-term capital gains. Long term capital losses can only be set off against taxable long-term capital gains.

9. Benefits for donations made

Typically, deductions under Section 80G on donations made do not reflect in Form 16. So, this exemption can be claimed while filing returns. Depending on where you have contributed, you can claim a deduction of 50-100% of the donation made. However, it cannot exceed 10% of your total income.If the donation was made in cash, no deduction is allowable, if the amount exceeds Rs 2,000.

II. The Forecast is Stormy for Indian Investors (Source: Outlook Money)

Despite strong GDP projections and higher corporate sales, domestic inflation and political risks will rule rest of 2018.

A quick rally of more than 450 points in Nifty in contrast to the rate hike by Reserve Bank of India (RBI) after four years sets a perfect stormy background this monsoon for bulls and bears to fight for their glory. With political temperature about to soar, rest of 2018 will be challenging for investors. While multiple factors are behind this recent rally, the chief architect was IT sector with improved business landscape and a depreciating rupee. Consumption stories, pharma and banking heavyweights, primarily private banks, played their support cast in an emphatic way.

Domestic flows continued unabated with net buying by mutual funds at Rs. 13,691 crores in May 2018, a jump of over21 percent compared to April 2018. After a strong set of GDP numbers, the central bank maintained the GDP growth rate at 7.4 percent for FY19. We also witnessed consistent corporate sales growth over the last couple of quarters when we look at a mixed stock universe of more than 2,600 companies.

With such tailwinds now, the market is climbing the wall of worries which are emanating from global macros. On 13 June, US Fed hiked rate for the seventh consecutive time has pushed up the dollar further, as the US economy appears in great shape. Commodity prices are up significantly owing to increase in demand. Dollar’s positive correlation with crude price poses double whammy for India. Our current account deficit (CAD) has climbed to $ 13.5 billion in Q3 FY18, up from $8 billion the previous year and 7.2 percent in the previous quarter. When we look at bond equity earnings yield ratio depicting spread between earnings yield and bond yield, we find that it has been widening since 2016. This raises question on equity valuation.

Domestic inflation is at four- month high with the Consumer Price Index touching 4.9 percent. If we look at core inflation at 6.17 percent in May, it is a 45 month high which excludes fuel and food prices.

This can be extremely volatile in times to come. With elections nearing and fuel prices at record levels, general price indices may remain stubborn for rest of 2018. The anticipated state largesse to the public in the run upto the election can also result in higher physical deficit. RBI, with the recent rate hike appears to be playing a fed and stay ahead in the curve, thus all the above possibilities open a window of further rate hike in 2018. This will have a negative impact on economic recovery, as even now small and mid-cap universes are reeling since demonetization. Small cap companies have seen their top lines and margins decline in the last few quarters.

The market canvas, thus, clearly highlights sectors such as IT, metals and pharma as the players. Better economic growth in key export markets with strong dollar sets the backdrop for IT outperformance.

Domestic steel continues to be strong both in supply and demand and FMCG is witnessing good traction on account of revival in rural demand, GST benefits and stabilizing of distribution channels. Monsoon will be critical for many such stories.

With record US oil exports to major Asian economies threatening traditional suppliers, we may finally see oil cooling off for the time being.

This may give our market required ammunition to conquer the previous high of 11161 Nifty level.

I believe a new high is more likely to be a reality in the first half of FY2019 rather than towards the end of this financial year, when political risks along with yield curve may keep the market hostage for a considerable time.

III. Biases That Stop You from Getting Rich (Source: Outlook Money)

It is not how well you can read the spreadsheets, but how you behave towards investment that matters.

Let us start with a story of two investors, neither of whom knew each other, but whose paths crossed in an interesting way. Mrs. Sharma was a primary school teacher where she worked for 35 years till she retired at the age of 60. She lived a comfortable, yet humble life till she died at the age of 80. On her death, her extended family was shocked to learn that she had left Rs.3 crore to charity. How did a woman with such a meagre salary manage to accumulate such a vast sum of money?

On the other hand, there is Mr. Kumar, former vice president at a leading investment bank. A success by all counts, he had a flagrant and debt-riddled life style. On his death, he was bankrupt and left outstanding claims for his family. How did a man who had accumulated such a vast sum of money in his lifetime die in penury?

The answer would be intuitive to most of us. While Mrs. Sharma followed a judicious approach to investing and let the power of compounding spin its magic, Mr. Kumar did just the opposite, relying on heavy borrowing and illiquid investments. But how is that a woman with basic education and little exposure could invest better than a better educated, more experienced man?

Bias is inherent

The answer lies in their behaviour and approach to investing.

1. Traditional economic theory will have you believe that investing is all about the study of finance, numbers and spreadsheets. However, investing is not necessarily about how much you know. It is also about how you behave and react to the information and knowledge that you have.

2. There are some biases that are unique or specific to Indian investor.

• Tax aversion bias: the need to avoid tax at all costs


• Status quo bias this bias manifests itself in an aversion or resistance to change. This could be a resistance to change the investment product, an aversion to adopt newer channels of investing or to losses.


• Present gratification bias: Increasingly, people are demanding present gratification and immediate consumption. This leads to a philosophy of ‘buy now and save later’.

3. Anchoring Bias

Overconfidence also leads to anchoring bias where investors stay anchored to their initial forecasts and avoid changing them in response to new, especially contrary evidence.

Impact on investing

The impact of these biases can be myriad. However, the bottom line is that it can completely derail an investor’s financial journey.

Many biases happen because of information overload, Biases lead to the inefficient choice of products that curtail the wealth building potential of an investor’s portfolio and encourages them to make sub optimal choices. People also often completely underestimate their future requirements and then are left grappling with insufficient funds post retirement.

Biases usually happen because of variations or volatility in investments. Active management of investment is usually not required.

Investors should make investment decisions based on their goals and subsequent portfolio allocation. It is best to avoid chasing returns and to be weary of frothy markets. You don’t need large wealth to create wealth, you simply need focus and discipline with the money you earn and manage.

How to reduce biases

Once investors are cognizant of the biases, they must make an effort to minimize the impact on their investment decision making.

Invest in products like systematic investment plan (SIPs) that automatically time the market by investing at all market levels, Since the amount invested periodically is fixed, you tend to buy more when markets are down and less when the markets are trading at elevate levels.

Diversification is another tool that can help investors deal with behavioural biases. Since volatility in investments is one of the main factors that contributes to an investor’s biases, diversification can help spread the volatility across different assets, thereby minimizing its impact on investment decision making.

Investors should also rebalance their portfolios to the desired asset allocation on a periodic basis. Rebalancing ensures that investments that have performed well are sold so that they can be brought back to their original asset allocation, and investments that have lost values are bought for the same reason. This reduces the impact of behavioural biases by minimizing risk, encouraging profit booking and ensuring that an investor buys lower priced assets.

From a wealth management perspective, the key is to understand that human behavior cannot necessarily be changed. It is imperative that wealth managers clearly understand their client’s goals and objectives and walk them through various asset allocation scenarios highlighting historical returns and drawdown. This can go a long way in helping investors understand how they would have reacted in extreme situations and accordingly structure their portfolios.

In investment decision- making, there are a host of factors that influence and impact our ability to choose the right investments. Some we can control and the others we cannot. Behavioural biases can and should be evaluated to minimize their impact on our investment portfolio.

Hope you enjoyed reading this edition.

Disclaimer:

The views of the authors/publishers should not be construed as advice. Investors must make their own investment decisions based on their specific investment objectives and financial positions and using qualified advisors as may be necessary. Opinions expressed in various articles are not necessarily those of Wealthmax Enterprises Management Private Limited(WEMPL) or any of its directors, officers, employees and personnel. Consequently, WEMPL or any of its directors, officers, employees and personnel do not accept any responsibility for the editorial content or its accuracy, completeness or reliability and hereby disclaim any liability with regard to the same. Stock picks and mutual fund snapshots are not exhaustive and should not be construed as recommendations.