Are we rich or are we poor? A readers story

”Are we rich; or are we poor ?”……..

This was the question my daughter framed when she was old enough to seek pocket-money. Instead, we chose to keep money in a safe spot for ALL expenses including household and my job was to keep replenishing it.

It was tricky to deny them a fixed amount with peer-pressure from more affluent classmates. When there was a new doll in stores, a visit to a wholesale market helped them understand the cost of impulse purchases and buying-convenience. My wife till date does not know what was my salary at any stage and we spent money carefully all along.

The mindset developed helped the family is not seeking the best cars, or stay on in my father’s house in the upmarket part of the city.

NOTE : This is a personal money story of Mr. Vijay, a regular reader of this blog.

A little bit about my family

My parents landed in Delhi from Pakistan after 1947 and my father took up a job in a respected school. Funds were just enough to meet basic needs and did well enough in studies to have a choice of engineering colleges. Opted for a local one to save on expenses and on graduation joined a leading Indian engineering company.

As a sales engineer for a product that went to all large industries, got a good exposure to the insight of businesses and economy. Working in a highly diversified company meant interaction with colleagues serving other industries in the age when financial newspapers only reached senior people.

That was a good grounding for the stage when you have to choose between hundreds of listed companies and there was only market grapevine to go by.

Investment in policies and loans I had taken

Apart from the life insurance policies taken very early in career, never looked at this avenue for savings or investment. This was about the time old MNCs were forced to go public and have held on to many of the purchases made in that era. Once the potential looked visible, branched out to the secondary market to plough savings.

More often have gone for non-family companies, but not necessarily international MNCs. Probably the most successful investments have been in Indian companies that grew to be successful in the developing countries.

The only time I took any loans was against LIC policies in the era when you could just withdraw a good percentage of your year’s contribution at low rates, and the cumulative figure just reduced the maturity amount. Such were the amounts which went into equity and there was never even thought of taking a loan to acquire assets.

My first capital purchase of Rs.3500 for a Vespa came out of mortgaging with my father a yearly scholarship for engineering studies.

How my wife build her own portfolio

In the days when people made uncles & aunties open bank accounts to put a maximum number of IPO applications, my wife’s portfolio started building up. Resisting pressure for short-term gains, built further on it by capitalizing gifted funds from the family. When the valuation reached lacs, made her purchase the flat we were living in to have a steady rental income.

She built a portfolio again and then invested in the post office/bank FD’s to get tax-free income. Once we could see surplus funds, I decided to go for forced-savings by opening Recurring Deposit accounts every April. This has been a major advantage as I have future savings earning interest at 9 – 9.5 % and maturing to give me tidy sums for holidays across the world and even gifting it for our grandchildren’s education.

The next phase of my life

When in my fifties, salaried people became better off and I got the opportunity to head a small MNC’s Indian operations. There was more to save or we could have raised our standard of living. We chose to calibrate lifestyles at what we could support after retirement, for which I had an age of 58 in mind. And that was exactly when I left my last 9 to 5 job to work on short projects and supported NGOs from my savings.

In stock-selection, we have taken the route where long term economy is important, not the market. Playing contrary to “100 minus your age in Equity ” has assumed that investments are for the family, not individual. Accordingly, self and wife have Demat accounts with a spouse as 2nd and one daughter each as 3rd holder.

At 72, I should still be able to manage things for another 10 years but this would allow us to pass on the investments to them by a change in the order of names. It can be at a stage when we want to go into the next stage of retirement, or earlier if any of them need over Rs. 4 Crore each in their accounts.

My portfolio churn is limited to under 5% over a year; more often when FDs are maturing and equity may be doing better. I prune a holding which has done well and its weightage in total can be brought down.

Identifying a BUY candidate for a ‘switch ‘ transaction, would track the movement of the two stocks, disregarding index movements, and choose the time to switch. Most such transactions have happened when good companies have disappointed for some transient reason.

If I could go back into time, like the characters of science fiction movies, would I do things any differently?

At the micro-level, I would have picked up an additional 50 M&M shares at Rs.27 in the 1970s. I had asked for 50 but the broker picked 100 by mistake, and I had no funds to spare.

That Rs.1350 would have been worth about Rs.8 Lacs today. At the macro level, I feel that my occupation as a project manager has made me think ahead of major decisions. Once having done that, second thoughts have limited space.

I wanted to share one more thing. When I received nearly Rs 5 Cr from the sale of family property, allocated all of it to my daughters. For one, a purchased a flat while the second got it in cash. Since I have enough to live on , felt that it should be invested by them to suit their needs


And what more I would like to do?

Too many of us are too busy at the height of a career to develop interests that will keep them usefully occupied in the latter half of their retired life. Going to the bank or post office is no longer an option and you cannot travel all the time.

So people in their late fifties need to be helped by their employers in finding the traits that will keep them from coming in the way of their housemaids. I would be happy to be part of such an initiative.

There is the acute failure of financial planning among people in the fifties and would love to be part of groups analyzing the basics of inflation and the effect of longer life-spans on savings.

The height of it is the Bollywood blockbuster of 2003 (Baghban) showing a retired bank manager splitting from his wife as they had no roof over their heads after helping kids with their savings.

Let us know if you have any thoughts coming up after reading this money story?

From “ZERO savings” to “Debt FREE house”

Here is an interesting financial journey of one of our readers who went from “zero savings” to “debt free house owner” .. I would like to handover to him directly so that he can share more about his journey and thought process.

Hello All, Rahul here.

I was born in typical middle-class family where my father has spent around 32 years serving as professor in government college and mother is housemaker. I have completed my Masters in computer science and secured a job in multinational IT company.

All is NOT set

Like everyone who enters in his first job with good company after completion of college, it was looking “All is SET”. But when I started looking around and inside, I was feeling that something is not what I was expecting. My salary was finishing by mid of the month.

Savings were ZERO.

zero savings and investments

Rest of the month was either going on credit-card or killing daily needs. When I looked around in first year of my job, I found that I am not the exception and same is situation with all my colleagues who joined with me. Also, in first three years after talking with my school and college friends I observed that situation is same across almost all my friends either they were doctors, lawyers, IT engineers or self-employed who were earning excellent amount.

What was wrong?


Fortunately, from my college time, I had ample amount of interest in finance specially in wealth management. I realized at that point of time I read multiple bogs and books on personal finance but never applied them. Once I started my job and money started flowing, I thought irrespective of my low expenses – money would be over one day and that was devastating thought.

I have never saved for future in first two year, borrowed by credit card and in next month paid all my expenses which were already done in past.

Before I move ahead, if you think changing habits and continue progress on this is easy please see below video link:


My wealth issues provoked me to jot down each basic principles of personal finance three times and started following them. Those were :

Step #1 : Saving

As per basic rule of personal finance I changed my equation from :

Saving = Earning – Spending to Spending = Earning – Saving

In summary I need to save before I spend. As soon as I would receive my salary 30% of that I would save, 50% would be for necessities and rest 20% for splurging (for different people percentage would defer).

Step #2 : Start Investing

As I was avid reader on personal finance it was known fact to me that only saving is not going to help me. Inflation would eat all my savings. My savings needs to grow. It needs to be invested at some place where even if I am not present my money is growing.

Initially I invested in tax saving instruments like PPF, NSC, ULIP policy. At the end of fifth year of my job I realized that even though I am saving tax that become my main focus instead of investment. I need proper solution which solve my both the goals.

Step #3 : Equity investment

Meanwhile in addition to different blogs like JagoInvestor (, I read three books which completely changed my view on wealth (which was money till then). I read them again and again and implementation of lessons in those completely changed my life.

Book one : The Richest Man in Babylon – I was (few of) in luckiest people who came across this book. When implemented lessons in this which are given in form of stories, I was able to grow my wealth, was more wiser while handling my finances and had tools like life insurance, medical insurance to safeguard it.

Book two : The Intelligent Investor – When I read this book first time I was not that much convinced (as Warren Buffet was) but this book has done wonder in my life.

I tilted towards my favorite investment instruments – Equities/Share market. I re-read that book and took multiple lessons from it specially “Margin of safety” and “Theory of Mr. Market who is manic-depressive with his estimate of the business’s value going from very pessimistic to wildly optimistic.”

I have started making good fortune with this. My investments were growing and wealth was generating more wealth without much of my active presence. Still I was feeling that I am making lots of financial mistakes. I have closed my ULIP policy as that was one of my worst financial mistake.

Still I was loosing fortune. Stocks which I was selling on 20-30 percent profit were becoming 10-12 times of my purchase price while many of my stocks were sitting idle in my portfolio either with zero or negative returns.

Here I came across something which changed my investment approach completely. I got my (imaginary) mentor “Charlie Munger”. I heard speeches of Charlie Munger” and finally read his book :

Book three : Poor Charlie’s Almanack – After listening and reading to Munger I found where exactly I was lacking. Ideas were not complex, but I never realized I am in simple but wildly affecting traps. Those were “Heuristic Biases” .

Those were as simple as If I am trying to search a flat for rent, broker would show me first two flat which I would directly reject (broker already knows that) and in last would show which I would exactly looking for. I would say immediate ‘Yes’ (hindsight bias). If he might have shown me last flat as first I might have asked to show him better flats. Same things were happening in personal finances as well.

My so called financial advisers (originally salesmen) were showing me financial products which they know I would reject and later showing something for which I would say …Yes….and would later realize, in market hundreds of much better options were available.

I started grasping different biases which impact our financial decisions like confirmation bias, red queen effect, social-proof which are close to hundred and still practicing them.

Now I have a solid Value Investor portfolio with which I say “Value Investment plus approach”. In addition to cigar butt approach it has margin of safety of Graham, growth prospects for which I paid more and management quality as top three priorities.

After 12 yrs, How it helped me?

Life after Debt

After 12 years of IT experience and practicing savings, investment and controlling different biases I have benefited on all aspects of my life :

  • On financial front I am feeling completely secured. Bought a two bedroom flat in Bangalore for which completed EMI in in first 7 years.
  • On personal front I have happy married life with my wife and kids as I am assured on their future needs and able to spend more time with them
  • Iam not limited to single occupation. Both active and passive wealth systems are working for me. I am practicing financial instruments, learning cutting edge IT technologies (if thrown out of job, I can go in teaching) and learning how to cook healthy food.
  • I can return to society what I received from them. In addition to social charity for needy people, I am managing finances of my close friends and relatives

8 lessons for Jagoinvestor readers

Manish always kept his first priority as benefit to readers of Jagoinvestor. He requested my learning from above journey which can help his readers. Below are the pinpoints which I nailed down on my desk. Hopefully it would be useful for you as well :

Lesson 1 : Spend less than you are earning irrespective of in which job/occupation you are. Save and invest some money every month before expenses.

Lesson 2 : Create an emergency fund. The fund should be ideally equal to 6 times of your monthly needs.

Lesson 3 : Buy life and medical insurance. Life insurance plan must be pure term insurance plan. Strictly NO ULIP, no Endowment, no Money-Back, no Child Plans.

Lesson 4 : Before starting any investment in direct equity try with selected mutual funds.

Lesson 5 : Equity must be necessary component of your portfolio. None of the fix return instruments like FD, NSC, Bonds are going to make you wealthy. Take calculated risk in equity (share market) with keeping important point in mind “Liquidity should be always available for your daily and emergency need”.

Lesson 6 : Don’t jump in to F&O segment of share market. You can never predict share market direction in short term. Option can hedge but you must have at least ten years of experience in value investing.

Lesson 7 : Keep learning and IMPLEMENT them.

Lesson 8 : Practice controlling biases which are negatively affecting you. As Munger says “Practicing few hundred biases would make not only a successful investor but a successful man (woman).

Happy Investing friends!!!

Do share your thoughts about my journey in comments section.

Investing in Mutual Funds vs Direct Stocks – Which is better option?

Should you invest directly in stocks of companies or rather buy mutual funds? Which option is more “suitable” for you?

A lot of investors feel that they should invest directly in shares, because that’s what mutual fund do at the end of the day, however stock investing is a very different game altogether and the dynamics are very different there. Let’s see them one by one.

which is the best option to invest your hard earned money? Direct stocks or mutual funds?


#1 – Knowledge Required

Most of the people think that investing in stocks is as simple as buying some stocks using hot tips and then waiting for the stock to become multibagger in next few months / years.

Experienced investors know that nothing is far from truth. They know that it requires great amount of knowledge and expertise to study the company’s balance sheets and choose the right stocks for future. There are investors who have spent their life time in studying how to do stock investing and still they make big mistakes.

So coming to the point, stock investing is not a child’s play. It takes years of hard work and a lot of knowledge to pick the correct stocks, where as you do not need much knowledge when it comes to mutual funds investing.

Infact, mutual funds as a product is created for those investors who can’t spend much time themselves to study stock investing. You can just pick a “reasonably good” mutual fund on your own using some basic rules or hire a financial advisor who can do that for you.

#2 – No control on stocks chosen

When you invest in mutual funds, you can not control which stocks go in and go out from time to time. That is the job of the fund manager. You only invest in the mutual fund and give your money to the professional management. So you have ZERO control on the stocks which are chosen by the fund manager.

However when you do direct stock investing, you are the fund manager and you have full control over it. So based on your study, gut feeling, logic, hearsay, hot tips, you can buy and sell the stocks, but that’s not the case with mutual funds.

The person who is taking the decision of buying and selling of stocks is a professional who knows the game.

#3 – Professional Manager

There is a different between a pilot controlling the airplane and the doctor doing the same. There is a great chance that the airplane will crash if it’s handled by a doctor (unless he an additional qualification of flying planes).

The same happens when it comes to equities. A mutual fund is managed by a very high quality and professional fund manager who has years of knowledge of various things like economy, credit cycle, interest rates cycle, economy, fundamental analysis, taxation, businesses and has years of experience of equity markets across various countries. They have completed professional studies related to wealth management.

Structure of Mutual funds


When they manage and take decisions on which stock to buy or sell, they have very deep understanding the sectors and that business. They visit the companies, their factories and meet their top management. They have hidden knowledge sometimes on what is going on within the companies and can predict the future of companies in a better way compared to a normal person.

However, most of the equity investors feel they can successfully invest in direct stocks with great expertise for long term and generate great returns just like a professional manager.

An IT engineer sitting in a cubical at TCS or Infosys can surely buy some stocks based on hot tips, but can’t match the expertise of a professional fund manager who earns crores of salaries in fund houses (and if they can match, it then why not leave your job and shift to Mumbai)

#4 – Volatility & Return

This is very important point, hence read very carefully.

When you buy a mutual fund, you are investing a very large portfolio of different stocks which can range from 30-100 companies.

So your profits and losses are dependent on a large number of stocks, hence the risk is distributed among those stocks and in the same way the returns you get is the average of all. In short there is lower risk and lower return potential compared to a small 4-10 stock portfolio.

When you are a direct stock investor, how many stocks will you buy will decide how volatile is the returns from your portfolio. Most of the direct equity investors bet on very few stocks, they buy 5-10 stocks only (some times only 2-3). So each stock size is quite large in the portfolio and any change (up or down) impacts the overall portfolio return.

Most of the investors are not equipped to handle very high return or very high loss. If there is very huge return, investors sell their stocks and want to lock in the profits and in the same way if there is a steep loss, they want to sell it off and get out of the “risky” game.

In both the cases, investors feel the urge to get out and wait on the sideline, rather than stay in the game – because it’s emotionally very over whelming to handle it.

This is exactly the reason why you will find investors who have a mutual fund for last 10 yrs, but very rarely you will find an investor holding the same stock for 10 yrs.

#5 – Automatic Investments (SIP)

When you invest in mutual funds, there is a standard facility of automatic investing called SIP . This is a great way to automate your investing and create a habit of regular investing. This suits an investor who wants to systematically invest a fixed amount each month on a given date.

However when you buy stocks, you have to manually invest in each stock every month if you want to regularly invest in them. This becomes practically challenging and inefficient because human mind is lazy as per design. No matter how many reminders you set and how “committed” you are, after few months of “success” , it all falls apart for 99% of the investors.

Some portals like HDFC securities have now started the SIP in equities also, so what I am saying does not apply to each and every platform.

#6 – 80C Benefits

Direct stock investing has no 80C tax benefits, however if you invest in ELSS (tax saving mutual funds), you can avail the taxation benefits.

This is one small reason why you can prefer mutual funds over direct stocks

#7 – Active vs. Passive Involvement

Mutual funds are made for those investors who have no knowledge and no time on their side. Once you invest in mutual funds, your involvement is very limited in reviewing the funds over time. The important decisions of which stock to buy, when to buy, how much to buy is taken care by the fund manager and his specialized team of 5-20 research analysts.

How mutual fund works?

However, if you decide to directly invest in shares, all this has to be done by you. Even though it’s not exhausting like day trading, but still you have to study companies, keep a track of what’s happening with each companies in your portfolio, control your emotions (true for mutual funds also) and what not.

In short, you have to be quite active in direct stock investing. It gets tough to focus on stock investing because of so many things in life.

#8 – Fees and Cost

When you buy stocks directly, you only have to incur the demat account charges along with STT and transaction charges if any.

However when you invest in mutual funds, you have to pay something called as Expense Ratio. This is the fees which is charged on daily basis out of the funds, however you never see it yourself and all the NAV’s which are published are post-expense ratio.

These charges are in range of 2-2.5% for equity mutual funds (less charges for debt funds). So this is one point where direct stocks are better than mutual funds, but only if you are able to generate the same returns like mutual funds yourself. There is no harm to pay the fees if the fund manager is able to generate value for you in your wealth creation process.

Investing in stocks directly, just because you will save expense ratio is like not spending money on salt while preparing a dish, because you will save some money. You need to focus on the final taste.

However if you can do successful stock investing on your own, it does not make any sense to invest via mutual funds.

#9 – Emotional Bias

This one is Epic.

Your creation is always special for you and hence when you buy a stock based on whatever research and study you do, it gets very tough later to accept that you were wrong (incase you were) . You will become very biased about your buying decision and will not sell at the right time.

It gets very tough to accept that you were idiot in past for believing in a stock purchase decision and will not sell when the right time comes.

This is exactly why bad equity investors become long term investors. They stay with bad investments for many years and eventually loose. It’s your money and it’s your decision.


However when you invest in mutual funds, all the decisions are taken by a professional who is earning a salary for performance. They take decisions based on logic and keep the emotions out of their system. If their process says “SELL” , they sell it . If it says “BUY” , they buy it ! .


Finally, there are some benefits of going directly with stocks and in the same way with mutual funds. However , direct stock investing is a specialized game to play and it’s not everyone’s cup of tea. For those investors, who want to play little safe with their wealth creation, should choose equity mutual funds rather than trying to burn their fingers in direct equities.

Disclaimer – I would like to disclose that we as a company deal in mutual funds (click here if you want to invest in mutual funds), however we have tried to make sure that we are not biased when we are talking about direct stocks vs mutual funds. In some cases, direct stocks can really outperform mutual funds, but for general masses, mutual funds are better structured products when it comes to long term wealth creation.

Basic Saving Bank Account – No minimum balance required (+ more features)

Do you worry about maintaining the minimum balance in your bank account? If that’s the case, then you will be happy to know that now RBI has mandated all the banks to offer something called Basic Saving Bank Deposits Accounts where there is no minimum Monthly Average Balance (MAB) to be maintained.

Let’s know more about the BSBDA account.

5 benefits of Basics savings bank deposit account

You must have heard in the news that a few days back, Banks have collected approx Rs 11,500 cr from customers for not maintaining minimum balance limit. This situation happens with a lot of people. Through this article, we will see how we can prevent ourselves from getting into this situation.

Basic Saving bank deposit account – Meaning

The basic savings bank deposit account (BSBDA) is the zero balance bank accounts. This means you don’t need to maintain any kind of minimum balance limit in this account.

RBI has made it mandatory for all the banks to offer this service to people who are unable to maintain the minimum balance. Criteria to open this account are similar to the eligibility criteria of normal savings bank account. Banks may have their own criteria based on age or income.

However, as per the guidelines of RBI, banks are advised not to impose any criteria of age or income for opening BSBDA.

Features of Basic Savings Bank Deposit Account :

  1. No minimum balance limit.
  2. No limit for a money deposit.
  3. The interest rate is similar to the regular savings account.
  4. Normally there is no upper credit limit (these criteria may vary from bank to bank).
  5. No minimum amount required for opening the account.
  6. ATM cum Debit and passbook facility is provided totally free of cost.
  7. Checkbook facility and online funds transfer facility is available.
  8. No charges are applicable to any kind of transaction (within limit).
  9. The account holder can open FD and RD.

Limitations of Basic Savings bank account

As I said earlier this is a zero balance account with no extra charges, but it has some limitations also :

  • Only 4 withdrawals per month are allowed, including branch cash withdrawal, ATM withdrawal, NEFT, RTGS, online payment, EMI, etc.
  • It depends on banks to either charge additional fees for extra withdrawal transactions or not.
  • Your BSBDA will be converted into a normal savings account automatically if the transactions limit increases.
  • Central KYC (A centralized KYC process to avoid submitting multiple KYC’s) should be done, otherwise, the account will be considered as a BDBDA-small account (explained below).

What is the Basic Savings Bank Deposit-small account?

This is an account that can be opened by a person who is above 18 years of age but does not have any official KYC document (Like Aadhaar Card, PAN or other ID proof and address proof, etc.). For this, a person needs to submit a self-attested photograph and he/she needs to sign the form and also provide thumbprints in the presence of bank officials.

The basic savings account of a person who doesn’t have a CKYC is treated as a basic savings bank deposit small account. Features of this account are as given below :

  • This account is valid only for 12 months. It can be extended for the next 12 months by providing proof of having applied for officially valid documents.
  • The balance should not exceed Rs.50,000 at any point.
  • An aggregate of all credits in a financial year should not exceed Rs.1 Lac.
  • Mobile banking facility may not be available.

Can I convert my existing savings account into a Basic Saving bank account?

There is no provision till date to convert existing savings account into BSBDA. You have to open a new BSBDA and for that, you need to close your existing savings account within 30 days of opening a BSBDA otherwise the bank will automatically close your earlier account after 30 days. A person can have only one BSBDA in a bank

Banks are restricted to offer any value-added services to the BSBDA account holders by charging any extra cost. If any extra service is given, then automatically the account will be converted to a normal saving bank account.

Documents required for opening Basic Savings Bank Deposit Account

Documents required for opening BSBDA are as follows :

  1. Account opening form.
  2. Colored passport-sized photograph.
  3. KYC documents like – ID proof, address proof, PAN, etc.

Difference between a normal savings account and BSBDA

Normal savings account Basic savings account Small savings account
Minimum balance limit 10000 No limit No limit
Penalty if minimum balance is not maintained Applicable Not applicable Not applicable
Withdrawal limit Not applicable Applicable Applicable
Mobile banking facility Available May not be available Not available
Credit limit No limit No limit 50000

Who should open this “Basic Savings Bank Deposit Account”?

Now you must be thinking “What is the use of this account for me? I have my regular account with unlimited transactions then why should I open a basic savings bank deposit account?

Let me tell you, there are lots of people around us who don’t have a bank account because they can’t maintain the minimum balance limit. Like some students, employees who have just entered into their profession, small-scale workers, maid, driver, and so many other people.

There are also some people who have more than one or two bank accounts other than their regular accounts. For these people, the money seems to be stuck in their bank accounts where they have to maintain the minimum balance limit.

Some senior citizens don’t require more bank transactions as they are either dependent on their children financially or they keep cash to avoid visiting banks or ATM’s every time for withdrawals when they need money. For such people, the basic savings bank deposit account is a good option to avoid the penalty and other extra charges for maintaining their bank account.

I hope this information was useful for you. If you have any query then write in the comment section.

My 24 min talk on Radio 94.3 FM – “Upgrading your family vacation”

Last month, I was invited by 94.3 FM Radio one in Pune to talk on the topic “Upgrading your Family Vacation” as part of an investor education initiative by UTI called “Swatantra”

Below you can listen to the whole episode in a single audio file (24 min).


I had a great time with MJ Tarun, where he asked me a few questions related to Vacations and How to plan for it and I gave my answers to each question.

The whole episode was recorded and in total there were 10-11 questions that were broadcasted for 5 days in a week (2 questions each day).

jagoinvestor with radio one

In case you want to read those questions

For those of you, who want to read the answers given by me and not listen to them, we have re-written them in text format along with each question.

Question #1 – Do you see any similarity in Planning vacations and managing finances?

Yes, there are similarities. But to all the people who are hearing this talk, they will first think that managing finances and planning for vacations how they are the same things? But if you see both of them at a deeper level, you will realize that both of them need strong planning to get the best output.

Just like a person messes up their financial life by not planning for it, in the same way, if you do not plan your vacations, they will either not get the best experience or pay too much for output.

Just like there are good practices for living a good financial life, in the same way, there are some good practices to follow you are planning your vacations.

Question #2 – What are some important things we should do before leaving for a vacation?

I suggest a few things

Suggestion #1 – One of the things, I personally do and will recommend everyone is that whenever you are going for the vacation, it’s a good idea to always call the hotel and confirm the booking incase you have booked it from 3rd party websites like Makemytrip or Yatra. There have been cases where due to some miscommunication, people have been denied check-ins by hotels.

Suggestion #2 – The second thing is you should ideally buy a travel insurance if you are going for a longer trip (especially when you are going out of country).

Suggestion #3 – One more recommendation is to always check if the places you want to see are open on you day you will be in town or not. Many places are closed on some particular day and I have seen many tourists frustrated by the fact that they did not check the details.

Suggestion #4 – Another good idea to to check what all payments are going to happen from your account like your EMI’s, your SIP’s or any of your investments, and make sure that the money is available in your bank account, because a lot of times it happens that you don’t have balance in your account, you are not there, the bank is calling you and you know that is something you should take care of. That’s very important.

Suggestion #5 – You should also make sure you have some extra balance in your bank account like always have 20-30k extra amount because you don’t know when you will need some extra money on your vacation.

Suggestion #6 – And finally just make sure you have the Xerox copies of all you documents like passport, your hotel bookings proof, ID proofs with you and one copy at home also, so that if you lose them you can call someone back at home and use them.

Question #3 – Some financial tips for those, who are planning for a low budget vacation

It’s a very interesting topic. When we plan for a low budget trip we want to minimize our expenses wherever we can. However, my take on this is to not minimize the core attraction of the trip. Let me explain

Generally, we have 4 important expenses

  • Travel
  • Food
  • Stay
  • Experiences

On any trip, there is one thing which is the best thing about that trip. Some places, you get amazing food, while some places offer awesome experiences, some places give you a nice stay experience.

Whatever the best thing about your destination, you should spend on that and mercilessly reduce or cut down on other things, this is a good way to reduce your expenses and at the same time get the best out of your vacation when you are low on the budget.

Let me give you an example,

  • If I am going on a Goa trip with my male friends, then I will not spend much on stay and experiences, because I know I will mostly be hanging out on the beach with my friends, enjoying local food and relaxing. So I will not restrict my expenses on food but cut down on everything else. I will stay on cheap beach shacks but enjoy the food at great places.
  • If I am going with my family mainly to relax and spend quality time, then I will spend a lot on quality stay which has good facilities but would cut down on other things if I am low on budget.

And a few other things which you can do is go in the offseason if it is possible and try to book your tickets in advance, that is one way that you can save on the travel part. And obviously, you can search for some online deals there are many websites which give you very good deals. So these are a few more things that you can do.

Question #4 – Why do we even need to save for trips? We can use a credit card for that and it’s easily available these days.

That’s a Good point!. It’s a very important thing to understand for the younger generation who start their financial journey with credit cards these days.

One should understand that, If you are using a credit card or any type of credit to fund your vacation for once in a while (like once in 10 times) then it is fine. But what we have seen is now a day’s people are just living on credit without planning on how to pay back.

When you use credit, you consume first and pay later in the future.

So you don’t feel the pain of paying and this makes you spend more. This makes the expenses look small or you get a false impression that there is not much impact on your financial life due to that one transaction. People get into the pressure of spending because they see their friends and others enjoying and partying and if they do not have money in a bank account, it feels like they still have to pay capacity because of the credit card in their pocket.

There are various researches that have shown that this is how people get into a debt trap. This is how people start their financial life and then later after 5-10 years they get into a deep mess. people don’t realize this.

If you see most of the people who are deep into debt whose financial life is bad, If you track down their financial histories this is how they have started spending.

So don’t make it a habit. If you are using a credit card or loan, you also tend to overshoot your budget because swiping a card does not feel like paying. You don’t see money going out of your bank account like you feel when you pay by cash.

So yes, I would not recommend credit card in general, but if it is once in a while it is fine. Also, if you use too much of credit card or too much of credit, your CIBIL score also gets impacted and that is the very important thing nowadays for getting loans.

My comment does not apply to those who are super disciplined to make the credit card dues payment every month on time.

Question #5 – If I need my partners to help in saving for a trip, what are your thoughts about it?

We have mostly grown up in families where there was a single breadwinner (Father). But things are slowly changing. Now men and women both are earning equally and they both have their own bank balances and assets.

If one partner feels that the money for the trip should be spent from both accounts (husband and wife), then both the partners should share the expenses.

And if you are not married and you are going with your Girlfriend or Boyfriend, then obviously it depends on your equation with your partner, how comfortable you are and what you think about financial matters. And it depends on how much money do you need for going to that particular place. If it is a lot of money then I think both of you should contribute, it will be great.

Question #6 – What are the mistakes that we can avoid while making our investments?

If you see the goal of vacation it is generally a short-term goal in most of the cases.

It is not like a retirement goal or kids education which will come after many many years. So one of the most important things here is the liquidity of the money, whenever you need the money, money should be available.

So you should save your vacation money mostly in a debt fund or recurring deposit which is simple and gives you some basic return, but do not invest in products which are highly volatile or have a lock-in of few years, otherwise if you break that investment there will be a penalty.

Question #7 – If we think to go for a good, lavish vacation which investments do you think are ideal?

So, if this lavish vacation you are planning to go for is going to happen in the next few months or maybe after a year, you don’t have much time actually.

You need a lot of money for that. Either you have it already, you need to accumulate it every month. There is no conversation of getting good returns on that investment because you have no time.

So let’s say if you want Rs.1 Lac after a year, the best option for you is to save Rs.10K or Rs.8-9K every month and you should do it ideally in a debt mutual fund.

You can go for a debt mutual fund which is a great alternative to FD, tax-efficient and you will get a little bit more return than your FD. Or if you are not comfortable you can go with normal FD also, that is also fine.

I want to make another comment here.

Nowadays, vacations have become a very integral part of life and people are going on vacations every year or alternate years. One should have a dedicated fund only for the goal of “vacations”. I suggest that one can start a SIP only for this particular goal and use the money for vacations.

Question #8 – Can we invest a fixed amount every month and make it a habit for vacation?

Yes, you can invest a fixed amount every month in mutual funds, It’s called “SIP” or Systematic investment plan. Everyone must have seen the advertisement these days on TV.

The best part of SIP is that on a fixed date of a particular amount gets debited from your bank account and the best part is that it happens automatically. You don’t see that money and hence you don’t spend that money.

The biggest problem now a day is that because the money is available in your bank account all the time, you can see it and you can access it and naturally, it will find its way for some expenses in your life. So a good idea is to make sure that it gets deducted automatically and you don’t access it. So this is a very good way of saving for your future.

Question #9 – What are the things that we should keep in mind before investing in Mutual funds?

I will talk about three things mainly. First thing is that you should not come into mutual funds with the mindset of getting rich quick. Most people see mutual funds as a stock market and want to just double their money with least effort.

The mutual fund industry is 20-25 years old, already very matured and you should come in mutual funds with the mindset of wealth creation.

The other thing is whenever you are choosing your product or whenever you are choosing a fund you should choose it as per your goal and as per your risk appetite. You can’t just pick a random mutual fund and invest in that. It’s not like Fixed deposits, where every FD will work great.

If you can’t take a risk then don’t invest in a fund which is very very volatile and risky. And if you want high return then don’t invest in a fund which is going to be a very stable return product. So choose it as per your risk appetite.

Finally, I would say that if you can’t do a lot of analysis, and you feel that all this is not your cup of tea, then hire an advisor, pay the fees and take his help in selecting the fund. Don’t think that you can do it all by yourself.

Not hiring an adviser sometimes can cost you more. Bur at the same time, there are some investors who are smart enough and can do these things themselves, but I would say that hardly 1% of Indians are like that. People get overconfident in financial matters and mess up their own financial life.

Question #10 – Is travel insurance a good investment?

First of all, insurance is not the same as an investment. An insurance policy is only to protect from uncertain situations.

Whenever you are going on a vacation there are a lot of things which can go wrong.

  • You can miss your flight
  • Your luggage may get lost
  • Some accidents can happen
  • You may get sick while traveling

All these have financial implications and if you have good travel insurance, then it will cover all these things and they will pay for all these expenses.

So if you want to transfer this risk to a 3rd party, you can go for travel insurance by paying a small premium for it. Whereas, if you are ready to face all these problems and risks you can choose not to take travel insurance. It’s all about choice I would say.

I personally feel that when you are going on a long vacation, especially out of India, then a good travel insurance policy is a must.

Hope you enjoyed the audio show

Do you have any comments on the talk? Do let us know in the comments section.

What are Shariah compliant mutual funds? – An Ethical investment

Have you ever heard about Shariah-compliant mutual funds?

We get a lot of Muslim leads who want to invest in mutual funds and a lot of them mention that they would like to invest in mutual funds which are shariah compliant.

So lets look at the subject!

Shariah investment

Examples of Shariah-based Mutual Funds

Shariah-based mutual funds are just like other mutual funds which are structured according to the shariah rules. The restrictions or prohibitions mentioned above are considered to screen and select the funds and ensure that they are Shariah-compliant.

There are three funds in India which are shariah compliant –

1. Goldman Sachs CNX Nifty Shariah BeES Fund

2. Taurus Ethical Fund

3. Tata Ethical Fund

Let us look at some of the restrictions as per Shariah law.

1. Prohibition of interest

Payment of interest on your investment is considered as unjust or morally unfair. It prohibits the interest paid on all the loans.

Islamic finances rely on sharing the ownership of assets instead of borrowing or lending and thus along with the ownership of the business (buying shares of that business), it tends to share the profit as well as losses of the company also.

2. Restricted businesses

One of the important segments of this investment is that the companies which are involved in the business activities which are prohibited as per the shariah law cannot be part of shariah investment. It includes the businesses of Alcohol, drugs, gambling, and other immoral trades.

3. High risk

The main motive of Islamic investment is to avoid excessive risk because Islam forbids gambling. And this is the reason why derivatives are ruled out of it.

FAQ’s related to Shariah Mutual Funds

Q1. Who can invest in Shariah Mutual funds or Shariah investment?

Though this fund is based on Shariah Islamic law, it is not restricted for any investor. Which means anyone including individuals, NRI’s, HUF, companies or any other institute can invest in Shariah Mutual fund.

Q2. Is there any tax benefit on this investment in Shariah mutual funds?

Till now there is no tax benefit on the investment of Shariah Mutual funds.

Q3. Can an investor from other religion invest in Shariah ethical Fund?

Yes, any investor can invest in Shariah Mutual Funds irrespective of their religion.

Q4. What is the minimum amount for these funds?

You can start this investment with minimum of Rs.500. If you want to start your investments, we can help you. Just share your details with us and our team will call you

So this is all about Shariah investment, I hope you have got answers to all your queries. Still, if you have any doubts please share your query in the comment section.

How your bank calculates Monthly Average Balance ?

Do you understand what is the meaning of Minimum Monthly Average Balance in your saving account? When you say “Monthly Average Balance of your saving bank account is Rs.10,000”, what does it mean exactly?

A lot of people feel that their balance in saving bank account should not go below Rs.10,000 on any given day, otherwise, there will be penalty charges and they make sure that they have a buffer of Rs.10,000 in their saving bank account all the time.

This means that their account should always have that much surplus. However, the way the monthly average balance is calculated is different and very simple.

how banks calculate my monthly average balance?

Meaning of Monthly Average Balance?

It simply means that the average of the all the closing day balance in a given month. So given a month, add up all the closing day balance and then divide it by the number of days in the month. If you have to put it as a formula it would be

MAB = (Total of all the EOD closing balance)/(number of days in a month)

Let me show you an example. Let us say the month we are talking about is April. The minimum balance limit in your bank lets say is Rs.5000.

Now your balance at the start of the month (Apr 1) is Rs.10,000. You withdraw Rs.8000 on 10th Apr and then Deposit Rs.2000 on 20th April. What will be the Monthly average balance for the April month?

monthly average balance

Learning’s & Tips

  • Keeping Rs.10,000 in a bank account for 15 days is same as keeping 5000 for full 1 month (10k * 15 days = 5k * 30 days)

PSU Banks vs Private Banks

A lot of PSU banks like SBI bank, Bank of India, Allahabad bank generally have a lower monthly average balance to be maintained in saving bank account, it’s average limit is up to Rs.5000 non-Maintenance Charges are very low around Rs.40-50 only.

However Private banks like ICICI Banks, HDFC bank, Axis Bank etc have Monthly balance as high as Rs.10,000 and charges a high penalty for not maintaining it , It some times can be as high as Rs.750.

So by now, you must have known how the minimum average balance is calculated? Will this information impact your banking in any way? Will you keep less money in your bank account because you now know that Monthly average balance is calculated in a different way than you thought?.

Let us know if you have any query in the comment section.

Procedure for EPF Withdrawal on death? (here are 6 documents required)

A lot of EPF accounts are lying unclaimed after the death of an employee. Families have no idea how to claim the EPF money and what is the process?

Today I will share with you how your family will be able to withdraw the EPF account money in case something happens to you.

withdraw EPF after death of employee

How to claim EPF money after the death of an employee?

Once a person is dead, the beneficiaries of the dead employee can proceed with the process of withdrawing the EPF money. The first right is of the nominee who was mentioned in the EPF by the account holder. Mostly it’s a father or mother as most of the people are unmarried when they start their careers and they mention one of the parents as a nominee.

Here are the documents one need to submit


1 EPF Composite Form The first form is called the Composite form for death cases, which is a single form to be filled to claim EPF, Insurance money and any pension amount.
2 Death Certificate You need to provide the death certificate of the EPF account holder who had died.
3 Birth certificate of children claiming pension If there are children of the deceased who are claiming the EPF, they need to provide the birth certificate for each of them
4 Joint photograph of claimants One has to provide a joint photograph of all the claimants together. This is to make sure that there is no fraud in the name of claimants.
5 Copy of cancelled cheque or attested copy of the first page of Bank Pass Book To make sure there is proof of the account where the money is is going, one has to provide a copy of the cancelled cheque or the first page of the bank passbook
6 EPS Scheme certificate (only if applicable) This is a certificate which is a document that has all the details of who will get the pension etc after the death of a member. It’s issued by EPFO and this is applicable only when there is a pension part applicable.


How does the EPF Composite form look like

Here is a snapshot of how the EPF composite form in death cases looks like. This is the main document that one has to fill if they want to claim the EPF amount.

Composite claim form to withdraw money from EPF account after death of employee

You can also download the EPF Composite form for death cases here.

Share this information with your Family

As you can see, that the process of claiming EPF is lengthily and painful, you should make sure that you make it easy for your family members to claim back the EPF money. Hence please do the following things

  1. Keeping all of your important information in one place which is safe and accessible to your family
  2. Please update the nominee of your EPF to someone whom you really want it to go
  3. If you have a WILL, mention the beneficiary who should get the EPF money

I hope you get a clear idea about the EPF claiming process now. If you have any query please reply in the comment section.

What happens to PPF account once you become NRI?

Once you become an NRI, what happens to your PPF account? Can you continue it or do you need to close it?

The one-line answer is – NO, You do not have to close it, and you can continue it till its maturity.

But there are more details to this.

Last year on 2nd Oct 2017, govt-issued a notification that once a person becomes NRI, his PPF account will be closed on the same day he becomes the NRI and all his money will earn only 4% interest thereafter.

New PPF Notification cancels the older notification

So yes, in Oct last year the rule had changed regarding PPF for NRI. You had to close it once you become the NRI, but recently on Feb 23rd, 2018, there was another notification issued that the old notification is on hold now and canceled till further notice.

Do NRI have to close their PPF account once they become NRI - answer is NO

This means that the same old rule will be applicable now onwards for NRI investors. An NRI cannot open a fresh new PPF account but can hold an existing PPF account till maturity.

Let’s see a few frequently asked questions related to the PPF accounts of NRIs.


Q.1 Can NRI open a fresh PPF account?

As per the change in the amendment of the public provident fund, a person cannot open a PPF account once his status changes to NRI.

Q.2 What will happen if I’m an NRI and still open a fresh PPF account?

It is possible to open a PPF account for NRI because of the inefficiencies in the system, but before doing that you must be aware that legal actions can be taken by the authority in such cases. You will not get any interest on your PPF account if they find out.

Q.3 What should I do if I have a PPF account when I was Indian residential and later become NRI?

You do not have to do anything here. You can continue your PPF account till its maturity, but you cant extend it after 15 yrs.

Q.4 Can I contribute to my existing PPF account once I become NRI?

Yes, you can invest in your existing PPF account even after becoming NRI through your NRE or NRO account. You can only contribute till your PPF account matures.

Q.5 How to close my PPF account after it matures?

The steps for this process are as given below:

Step 1: Fill the application form for PPF withdrawal (Form C) and send it to your parents, relatives or friends in India, with an authority letter in which mention it clearly that you are giving that person the authority to withdraw your PPF.

This is how FORM C looks like:

this is form c for withdrawal of ppf

Step 2: That person then will go to the bank where you have your NRE/NRO account and get he documents attached by the the manager and then submits the documents. Bank will accept only the attested documents.

We hope you got a fair idea on the PPF rules related to NRI. In case you have any queries, let us know in the comments section below.

Income Tax guide for Beginners – Exemptions, Deductions & TDS

Most of the investors are not aware of how income tax is calculated and the basic understanding of tax related concepts when they start their career. In this guide, you will learn how to calculate income tax in a very simple and easy to understand way without involving any complicated jargons.

how to calculate income tax

What is Income tax?

Income tax is a tax imposed by the government on the income of an individual in every financial year. To calculate your income, all the income sources like salary, business income, rent, dividends, etc are considered. Every citizen of the nation or even a non-residential individual also has to pay this tax to the government if he is earning any income in India.

The govt of any country has various kinds of expenses like paying pension to govt employees, building roads and infrastructure, start various schemes for the citizens benefit etc etc. For all this, they need money and income tax is one of the ways for the govt to earn the money.

The same money eventually is used to run the nation and its development. So when we pay the income tax, we get back various facilities like roads, public parks, and poor people also get various free services in health and education.

Every individual, who has yearly income more than a limit (current limit of 2018-19 is 2,50,000 per year) has to pay some part of their earning as tax to the Income-tax Department.

How to calculate income tax?

Calculating income tax is a little detailed, but simple procedure and it depends on 2 basic factors.

  1. Taxable income
  2. Age Slab

Let’s see the first factor i.e. taxable income.

What is taxable income?

Tax is paid on “Taxable Income” and not your full income. There is something called “Exemptions” and “Deductions” which are reduced from your income to arrive at “Taxable Income”. Formula to calculate taxable income is given below:

Taxable income formula

#1: What is Gross income?

Gross income is your total earning. It is the entire amount of your income without any deduction or exemptions. Gross income is not only your salaried income. It is the income you earn from all your earning sources.

For example: In one month, If you earn Rs.50,000 as salary, Rs 25,000 from your house rent and Rs.20,000 from your other business.

Then your gross monthly income will be : 50,000 + 25,000 + 20,000 = Rs. 95,000

There are various sources of income which are classified into 5 categories. The categories are called 5 heads of income.

5 heads of Income:

Each and every source of earning from where you are getting money is considered as your income. There are 5 main sources which are also called as 5 heads of income which are considered as the main income sources. These 5 heads are as bellow:

5 heads of income

Let me tell about these sources in detail.

1. Income from salary

The first head is “Income from Salary”, so if you are a salaried employee, then your whole year salary has to be added, less exempt HRA and other perquisites (covered below in this article) which are allowed to be tax-exempt. So, this amount is to be shown under the head of the salary. It does not matter if you are a govt employee or work in the private sector.

2. Income from house property:

If you have a property and you have given it on rent, then all the rent earned in a year will be considered as your “Income from House Property”.

3. Income from profit or gains from business:

If you have your own business, then all the profits you generate from that business will be considered under this head. For example, if you have a shop, and your revenue is 5 lacs a year, but your expenses in shop is 3 lacs, then your profit is Rs 2 lacs. This 2 lacs will be considered as your income under this head.

4. Income from Capital Gains:

Capital assets can be simply defined as the property you own, which includes Stocks, mutual funds, real estate, gold, etc.  So the profit you earn through the sale of these assets is considered as a capital gain and it will be taxable depending upon the class of asset from which capital gain occurred. For example gain on capital assets like equity stocks or equity mutual funds is taxable at 10% above Rs 1 lacs profits in a financial year.

5. Income from other sources:

The sources of income other than the above-mentioned classes are considered under 5th head of income. For example –  the money you receive from any relative or friend as a gift above Rs 50,000 or any award prize or lottery you won, etc will come under this head.

Most of the people who are salaried will not have to deal with the other 4 heads of income for many years.

#2: What are deductions and exemptions?

Now let’s understand the very important concept of “deductions” and “exemptions”. These two things can be reduced from your gross income and your taxable income can come down, which will result in lower taxes

In this article, we have covered exemption available to salaried employees on receipt of allowances and perquisites from employer. Let’s see the examples of Tax Exemptions and deduction:

Tax Exemptions

“Exemptions” are some of the defined benefits or heads which can be deducted from income. A person spends on some of the necessities in life like paying rent, spending money on children’s fees, and basic living expenses. So some of the exemptions allowed are

  • HRA (house rent allowance)
  • Standard Deduction of Rs 50,000 per year
  • Children Education Allowance + Hostel Allowance
  • LTA (Leave travel allowance)

Let’s understand these 3 things.

Exemption #1 – House Rent Allowance (HRA)

If you are receiving HRA as part of your salary and also pay rent for residential accommodation then you can claim the HRA paid to you as exempt from tax subject to certain limits and restrictions. These are as follows:

Minimum of the following HRA is exempt from tax –

(i) Actual HRA received

(ii) 50% of annual salary* if living in metro cities or else 40%

(iii) Actual Rent paid less 10% of Basic + DA

Exemption #2 –  Standard Deduction of Rs 50,000

Once can directly deduct a standard deduction of Rs 50,000 and bring down their income by that margin. Before Financial Year 2018-19, there was a deduction available for Travel Allowance (Rs 19,200) and Medical expenses (Rs 15,000) when you produced the bills, but now there is no requirement of producing any proof of expenses. One can directly take the benefit of Rs 50,000 standard deduction (for FY 2018-19, this was Rs 40,000, but later it was increased to Rs 50,000)

Exemption #3 – Children Education Allowance + Hostel Allowance

If you are receiving children education allowance or hostel allowance from your employer then you are eligible to claim a tax exemption under the Income Tax Act. However, here are the limits for these two exemptions

  • Children’s Education Allowance: INR 100 per month per child up to a maximum of 2 children.
  • Hostel Expenditure Allowance: INR 300 per month per child up to a maximum of 2 children.

Exemption #4 – LTA (Leave Travel Allowance)

A lot of employers give an allowance to employees for traveling on leave dates. An employee may travel for his holidays or vacations (alone or family) and will incur some expenses related to that. So this allowance is given for that on producing the bills and on doing the actual travel by taking leaves.

The actual rules for LTA are quite detailed, hence we are not covering it here in this article. Right now you just need to know that the employer can define the LTA allowance limit like Rs 50,000 (for example), so that employee can do travel expenses upto that limit twice in a block of 4 yrs and claim this exemption.

Tax Deductions

There are various deductions that are available under different sections of the income tax act. This deduction is against amounts that you have invested in some specific products like Insurance, ELSS, or ULIP and it also considers specific types of expenses that you incurred during a financial year like Principal repayment of loan, donations or health insurance premiums, etc.

Here is the table given below in which you can see various sections covered under section 80 (from 80C, 80D up to 80U), their meaning, maximum limit of deductions and who can avail the benefit of these deductions.

[su_table responsive=”yes”]



(IN RS.)

Who can claim?

  80C Deduction on investment made in LIC, PPF, ELSS, ULIP, Payment towards Loan principal, tuition fee, etc. 1.5 Lac (for 80C, 80CCC, 80CCD) HUF & Individual
  80CCC Deductions for premium paid for annuity 1.5 Lac aggregate Individual
  80CCD Contribution to National pension scheme 50,000 above Rs. 1.5 Lac limit Individual
  80CCF Deduction on investments in infrastructure and other tax-saving bonds 20000 Individual & HUF
  80CCG Rajiv Gandhi equity savings scheme (RGESS) 25000 Individual & HUF
  80D Deduction on premium paid for Medical  insurance 25000 (50,000 in case of senior citizen) Individual & HUF
  80DD Deduction on medical expenses of   dependent  handicapped relatives 75,000 in case of general  disability (1.25 Lac in case of severe disability Resident Individual & HUF
  80DDB Deduction on medical expenses of self or  dependent relative 40,000 ( 80,000 in case of  senior citizen) Resident Individual & HUF
  80E Deduction for interest on education loan for  higher studies There is no limit on the maximum amount that is allowed as deduction. Individual
  80EE Deduction on interest paid for   home loan only  for first-time homeowners Up to 3 Lac Individual
  80G Deduction on donations for social causes Limits are based on donations All assesses
  80GG Deduction on House Rent when   HRA is not  paid 2,000 per month Person who is not getting   HRA
  80GGA Deductions for donations made towards scientific research or rural development. Limits are based on donations Taxpayers who have income from salary or property or capital gains and not from business
  80GGB Deduction on the amount paid to   any political parties by companies  Limits are based on donations Indian companies
  80GGC Deduction on the amount paid to   any political parties by an   individual  Limits are based on donations Non-corporate assesses or taxpayers
  80IA Deductions in respect of profits and gains  from industrial undertakings or   enterprises engaged in infrastructure development NA All assesses
  80IAB Deductions in respect of profits and gains by an undertaking or enterprise engaged in the development of Special Economic Zone. NA All assesses
  80IB Deduction in respect of profits and gains from certain industrial undertakings other than infrastructure development undertakings NA All assesses
  80IC Special provisions in respect of certain undertakings or enterprises in certain special category States NA All assesses
  80ID Deduction in respect of profits and gains from business of hotels and convention centers in specified area NA All assesses
  80IE Special provisions in respect of certain undertakings in North-Eastern States NA All assesses
  80JJA Deduction in respect of profit and gains from business of collecting and processing of bio-degradable waste 100% of profit for 5 successive  assessment years All assesses
  80JJAA Deduction in respect of employment of new workmen. 30% salary of full-time employees for 3 years Indian companies
  80LA Deduction in respect of certain incomes of Offshore Banking Units Rs.12000 (plus additional 3000) scheduled banks, IFSC and   banks established outside  India
  80P Deductions in respect of income of co-operative societies NA

Co-operative Societies

  80QQB Deduction in respect of royalty income, etc., of authors of certain books other than text-books. 3,00,000 Resident Indian authors
  80RRB Deduction on the income of Royalty of a Patent 3,00,000 Resident individuals
  80TTA Deduction from gross income for interest on savings accounts 10,000 per year HUF and Individual  taxpayer
  80U Deduction in case of physical disability 75,000 in case of general  disability (1.25 Lac in case of   severe disability Resident individuals
  24 Home Loan Interest Rs.2 lakh (for self-occupied house) No limit (for let-out property) Individuals


Let me show you an example of calculation of taxable income of a person who’s total earning is Rs.12,60,000. See the table given below.

**Examples in this article are mainly for salaried class of individuals having no other source of income like house property or capital gains.

[su_table responsive=”yes”]

Person ‘A’s gross salary Rs. 12,60,000
His deduction under 80(C) act Rs.1,50,000
HRA benefit Rs.60,000
Standard Deduction Rs.50,000
Taxable income formula Gross income – exemption – deduction
12,60,000 (Gross income) – 1,50,000 (Deduction) -[60,000 – 50,000 (Exemption)]
Total taxable income 10,00,000


So from this example we got Rs.10,00,000 as a taxable income of that person.

You must have got an idea of calculating taxable income. So now let’s move toward calculating income tax applied on that taxable income.

The second factor essential for income tax calculation is your age. According to the age groups, there are three tax slabs and each tax slab has different tax rates. See below these three tax slabs and yours.

1) Tax slab below 60 years of age group:

In this group comes the youngsters both men and women having age below 60 years. Individuals in this group have to pay more tax than the other groups. Here the tax rate is highest among all three groups. See the table below to understand the tax rate –

IT slab 1

2) Tax slab between 60 to 80 years of age:

This is the group of individuals most of whom are already retired. In this group tax charges are different i.e. lower than the first group. The percentage of tax is given below.

IT slab 2

3) Tax slab above 80 years of age:

This is the last and most aged tax payer’s slab. The tax rates are lower here than the other two groups. The percentage of tax is given in the following table.

IT slab 3

Income tax calculation

Let’s take the same above example of taxable income of Rs 10 lacs and considering this person in 1st tax slab, his income tax can be calculated as follows.

Income upto Rs.2,50,000 is tax free.

(between Rs. 2,50,001 to 5,00,000) 5% tax = 5% of Rs. 2,50,000 = Rs.12,500

(between Rs 5,00,001 to 10,00,000) 20% tax that means 10,00,000 – 500000 = 5,00,000

Tax at 20% on 5,00,000 will be = Rs. 1,00,000

So the total income tax of this person will be –

Rs. 12,500 + Rs. 1,00,000 = Rs. 1,12,500 (plus Education cess of 4%)

The GIF given below will explain you complete tax calculation:

Income tax calculation

If the person is earning more than 10 lacs, than on the amount above Rs 10,00,000, it will be taxed at 30%.

What is TDS?

When you earn an income beyond a specified limit, the govt has mandated the person paying you the income to deduct one part of it as your advance tax on your behalf is called TDS. If you look at its full form its Tax deducted at SOURCE (whoever is paying it).

If you want to find out all the TDS deducted for you at one place, there is a form called form 26AS which can be downloaded from TRACES website. You can claim the TDS amount against the total tax payable by you. Incase your TDS amount is more than the tax payable, you can apply for the tax refund when you file your ITR.

Various ITR forms

After paying the income tax, one also has to file the IT return which is to declare your income earned from various sources, tax paid in advance, your TDS deducted in the financial year. It is also useful for claiming income tax refund.

There are different ITR forms for each class of individual i.e. salaried, or business/professional individual. Following is a brief classification of ITR forms –

ITR 1 or Sahaj :

This form is for an individual (Resident) earning less than Rs. 50 Lakhs in a financial year under heads of Salary or pension, one house property, Other sources (excluding winning from Lottery and Income from Race Horses) and agricultural income less than Rs. 5000 in F.Y.

ITR 2 :

This form is for HUF and an individual (including non-resident/resident not ordinarily resident)  who is earning more than Rs. 50 lakhs under head of Salary, House property, Other Sources (including Winning from Lottery and Income from Race Horses), agricultural income more than Rs. 5000 in F.Y. and also capital gains.

ITR 3 :

This form is used by HUF and resident individuals who have income under the head of Profit & Gains from business or profession. This return may also include income from house property, salary/pension and income from other sources.

ITR 4 :

This return form is to be used by an individual or HUF, who is resident other than not ordinarily resident, or a Firm (other than LLP) which is resident, whose total income for the assessment year 2019-20 does not exceed Rs.50 lakh and who has income computed on presumptive basis under section 44AD or 44AE or 44ADA.


In this article, we tried to cover various income tax-related concept in nutshell, I hope it was beneficial for those who had no idea about it. We will try to cover this information in detail in various other articles dedicated to individual topics. Please ask your questions in the comments section so that we can answer those.