Sunday, August 29, 2021

Crowd at Chennai Local Railway Stations

Yesterday Morning I went to Chromepet station in Chennai at 9 AM. There was a lot of crowd nearby the counter. The crowd is significantly more than the crowd in the local trains. The reason was, the tickets for male passengers would be given only from 9:30 AM and the law-abiding passengers were waiting at the station to get the tickets when they start issuing at 9:30 AM.

If the tickets were given to all of them instead of blocking till 9:30 AM, there would not have been any crowd at a small place and the crowd would have spread in 12 compartments every 5 mins.

Government thinks it does not need to solve the problem. But, it needs to convince the people that it is solving the problem.

Friday, August 27, 2021

If you are investing without having in-depth knowledge

If you are planning to invest anywhere and you don't have deep knowledge on the investment, then at least make sure of one of the following.

1. Either it should have a guaranteed future return. [Like Fixed Deposits in Banks or Post Office etc.]

2. If it does not have guaranteed future returns, it should have public data on the returns it gave in the past. [Open Ended Mutual Funds cannot guarantee future returns. But, one can check how much returns it gave in the last past one year, 3 years, 5 years etc. from the respective website of the AMC or in any third party sites like or etc.]

If an investment does not have guaranteed future returns or no public data on the past returns, one must avoid that, unless one has full knowledge on the investment.

ULIP, NFO, Closed Ended Mutual Funds etc., cannot guarantee future returns at the same time they do not have public data on the past returns. 

For ULIPs, the insurance agent may say, it gave so and so returns in the last few years. But, you won't find public data on their company website. They may even take a policy of a random person, and show how much they invested and the present value now. 

For example, if anyone had taken a ULIP policy in March 2020, and checked the value in March 2021, the value might have increased by 20%. The agent may say, even if we take the worst case of 15%, in 15 years you would get so and so amount. 

In March 2020, if anyone had invested in any decent mutual fund, the investment value would have increased by 50% in one year. It was because of the crash happened in the stock market in March 2020. But, if you look at over 5 years, one can find that it varied from a negative percentage to 20%. 

If one looks at a single case, any investment can be projected as excellent by taking the investment that is made at the best time. One needs to check the investment over a period and decide whether it is a good investment or not. The agents of ULIP may provide specific cases which show excellent returns. 

If the investment does not have guaranteed future returns, one must insist on the public data of the past returns before investing.

Saturday, August 21, 2021

Income Tax Saga

I filed Income Tax Returns.

In the last financial year, other than salary income and FD, there were only two things that I did voluntarily from a financial perspective. 

At the end of every month, I used to put the savings in the Liquid Mutual Funds and set up STP to the Equity Mutual Funds. 

Redeemed the Mutual Funds that were not performing well.

Others were kind of forced. 

Still, the process of filing returns was very tedious.

I used to invest in stocks. Whenever Arun Jaitley and Nirmala Seetharaman were changing the policies, I used to change my strategy of investments. Last year, I got fed up with the changes that they were bringing every year, and I stopped investing in the stocks altogether.

But, the investments that I made have an effect on my returns every year. 

Tax on Dividends:

Previously, dividends were tax free in the hands of the investor. The company used to pay Dividend Distribution Tax (DDT) and give dividends. Now, the company does not pay DDT, but the investor has to pay the tax on the dividend at the applicable rate based on his/her tax bracket.

Now, I have to declare all the dividends that I have received in the last financial year and pay the tax. 

I cannot just ignore the dividend and submit returns, because many companies that pay the dividend submit all the details to the Income Tax Department.

If the dividend that I declare is less than the amount they expected, then the return would be rejected. 

In my case, there were multiple companies which submitted my details to the Income Tax Department with the amount of the dividend they paid, even when the dividend is less than Rs.10 for the entire financial year. 

Sold Stocks to Escape Tax on Dividend

I stopped buying and selling stocks, but I had to act in two cases.

I had shares of Majesco and it announced a dividend of Rs.974/share. Since the dividends are taxable in the hands of the investor, and if I receive the dividend, I would be bound to pay tax of around Rs.292/share. 

If I sell the shares, then I will have to pay tax on long term capital gains (since, I bought those more than 1 year before the sale date), if the capital gain is more than Rs.1 Lakh. My total capital gain was less than Rs.1 Lakh and no tax on that sale.

I chose the best option. I sold all the shares of Majesco at around Rs.980.

If any stock or mutual fund is bought on before Jan 31st 2018, then that needs to be reported separately with all the details. 

[On Feb 1st 2018, Arun Jaitley introduced taxes on Long Term Capital Gains in Equity. To save the people who already invested in Stocks and Mutual Funds, he exempted the profits upto Jan 31st, 2018.]

I got shares of Majesco when it went public and after that every year, I was getting a couple of shares.

For all the Shares/Mutual Fund Units that were bought after Jan 31st 2018, one has to report the cost of acquisition (of all the Stocks/Mutual Fund Units), Expenditure in Transfer (Like Brokerage etc), Sold Amount. 

But for all the shares that were bought on or before Jan 31st 2018, one has to report the following details for each share/Mutual Fund separately.

ISIN Code of the Stock/Mutual Fund

Name of the Share/Mutual Fund

No. of Shares/Units

Sale Price/Unit

Total Cost of acquisition

Fair Market Value/Unit on Jan 31st 2018

Expenditure for the transfer of the Share/Mutual Fund (Like Brokerage)

Since I bought a few shares of Majesco before Jan 31st 2018 and a few shares after Jan 31st 2018, I had to split them into two, get all the details separately and fill them.

Selling Stocks in Buy Back

I sold shares of TCS as well, because they offered buy back. Typically, when buy back is offered and if the price of the buy back is more than the market price, one would be at advantage by offering in the buy back. Of course, this is not always the case. TCS was one example, where those who did not offer in a buy back were better off. 

For TCS, I bought shares over the last couple of years, but all are after Jan 31st, 2018.  

If the shares are sold within one year after buying, then one has to pay Short Term Capital Gains (15%). If they are sold after one year, then one has to pay Long Term Capital Gains (10% above Rs.1 Lakh). 

I had bought a few shares of TCS within one year. 

To file the returns, I had to split into two parts, one set with shares that were bought more than a year back, and one set that were bought within that year. 

For both the sets, I had to calculate the following.

Total Cost of Acquisition 

Sold Amount.

Expenditure in Transfer [I just put 0 for this in all the sections, as it was a small amount]

Rights Issue

Whenever a company gives rights issue, we can either exercise the issue or sell it to someone else. The exercise or sale has to happen within a limited time after receiving the issue (around 2 weeks). If we don't exercise/sell within that time frame, it would lapse. So, those who are not interested in exercising the issue, can sell it for the market price. 

When you sell that issue, the money that you get is going to be Short Term Capital Gain. And, you have to pay tax on that. 

I got a few rights issues worth less than Rs.400 (in the entire Financial Year). Since I sold them, it was a Short Term Capital Gain and I had to report and pay tax. 

Mutual Fund Units that I sold 

Few Mutual Funds were not performing that good and I sold units in those. I sold a few others of Dividend type. Since, Dividend option is prone to more tax, I redeemed as soon as they were unlocked (Tax Saving Mutual Funds are locked for three years). 

All of them were bought through SIP and spanned before and after Jan 31st 2018. Just like stocks, for Mutual Funds also, for any Mutual Fund that was bought before Jan 31st 2018, needs to be reported separately with all the details. For the units that were bought after Jan 31st 2018, we can combine with all other mutual funds/stocks and report as a single number. 

Even if we are going to report it as a single number for the stocks/mutual funds, to get the final number, we have to calculate at each stock/mutual fund and then sum up to get the final number.

Profit in Liquid Mutual Funds 

Some time back, I switched investing from SIP to STP. 

In SIP, on the specified day, money is deducted from your bank account and invested in the Mutual Fund you choose. 

In STP, on the specified day, a few units would be redeemed from the Mutual Fund you choose, and invested in another Mutual Fund.

When I was investing through SIP, I was unable to manage my bank account, as I was not sure how much money I had to keep in the bank account for all my SIPs and how much money I can use for my expenses. 

Now, I put all the surplus money in Liquid Mutual Fund (Which is a safer form of Mutual Fund and gives returns little better than the Bank account). For example, if I put Rs.12,000 in a Liquid Fund, then I can put an STP of Rs.1000/month over 12 months to another Equity Mutual Fund.

In this process, the Liquid Mutual Fund generates some profit, and I have to pay tax on that. 

Short Term Profits in Liquid Mutual Funds are taxed at the highest tax bracket, unlike Equity Mutual Funds/Stocks which are taxed at 15%.

For Liquid Mutual Funds also, I had to calculate the total cost of acquisition, sale price.

Profit at different intervals

Calculating the total profit for each of the types of investments is not enough. One has to calculate the profit that they got in different periods.

All the profits need to be split into these periods. 

April 1st to June 15th

June 16th to Sep 15th,

Sep 16th to Dec 15th,

Dec 16th to Mar 15th,

Mar 16th to Mar 31st.

Any profit or dividend that you get needs to be separated in the above five periods and needs to be reported separately.

Dividend amount that you got in each of the above periods

Long Term Capital Gains in each of the above periods

Short Term Capital Gains in Equity

Short Term Capital Gains in Non-Equity

Long Term Capital Gains is going to be a little tricky, if we have Stocks/Mutual Fund units that were bought before Jan 31st 2018. We need to calculate taxable profit and split that taxable profit in those five periods. [Calculation of taxable profit of the Stocks/MF that were bought on or before Jan 31st 2018 is different from the Stocks/MF that were bought after Jan 31st 2018.]

Need Simplification of the returns

At the end of the day, after doing all those things, neither me nor the Income Tax Department is going to achieve anything significant. 

For Fixed Deposits, one can download their Interest Certificate from their bank, take that number and directly put it in the appropriate section in returns and they are done with it. 

Unfortunately for Stocks and Mutual Funds, the Income Tax Department is not accepting that. Most of the Mutual Fund AMCs offer capital gain statements, where they give the total profit in each of the funds they invested. But, that is not enough. They need the total amount invested, Sold Amount, and the profit they got in each of the five periods. For Stocks/Mutual Funds that were bought before Jan 31st 2018, it was even more work. 

If I can put four numbers in the four columns (Dividend, Long Term Capital Gains, Short Term Capital Gains in Equity and Short Term Capital Gains in Non Equity) and pay appropriate tax, then the process would be lot simpler. Government is not going to lose anything. If they want, they can directly ask the Stock Broker, Mutual Fund AMC and get the full statements and do whatever analysis they want. 

Few people may say, I am crazy. But, I like Chidambaram far better than many other Finance Ministers that we had (Except Manmohan Singh). 

Saturday, August 14, 2021

Filed Income Tax Returns

I have filed Income Tax Returns. 

I was unable to start the process of Income Tax Returns because of one issue. I raised a complaint with the Income Tax site and they did not reply even after 3 weeks.

It turned out to be a Usability issue. 

Till last year, whenever you were going to file returns, you would select Financial Year and then ITR type like ITR-1 or 2 etc. In the new website, after selecting the Financial Year, the dropdown for ITR type is disabled. I raised the complaint and waited for 3 weeks and got no reply from the Income Tax. 

I was told by my colleague, Mohanakrishnan Gopalakrishnan, that we can continue even without selecting the ITR type. The ITR type is asked in the next screen. I could continue and filed returns.

Tuesday, August 10, 2021

Male Passengers are not allowed in Chennai Local Trains during peak time


Men spread Corona.

Women do not spread Corona.

That's why Southern Railways banned male passengers during peak hours in Local Trains in Chennai.

Cannot the government find some sensible rule rather than coming up with sexist/stupid policies?

If they think that there is too much crowd, they can restrict the no.of tickets sold. If they put some limit on the no.of tickets per train, after selling that many tickets, they can stop selling more tickets till a train departs.

Even with this rule, I can see many men during peak time in local trains. Of course, the Government may say, they all have permission letters to travel during peak time. But, it is possible that some of them would have found some woman to take the ticket for them. There is even more chance that many men might be travelling without a ticket, as there are no TTEs.

Before introducing this rule, I don't know whether the authorities saw the crowd in fast local trains or not. The fast local trains are fully crowded and closely resemble pre-covid days.

Saturday, August 07, 2021

Advices of Economists in Manmohan and Modi's Governments

Technically trained economists and statisticians are like tools in a policymaker's kit. To use or discard advice is a policymaker's call.

Singh's government frequently ignored advice.

Modi's government got rid of the advisers. 

Courtesy: The Lost Decade by Puja Mehra