by Vinaya HS on February 11, 2010
in Finance
There was a recent circular issued by the Central Board for Direct Taxes (CBDT) that reads:
The Finance Act, 2005 introduced a levy namely Fringe Benefit Tax (FBT) on the value of certain fringe benefits as contained in Chapter XII-H (sections 115W to 115WL) of Income-tax Act, 1961. By the Finance (No. 2) Act, 2009 a new section 115WM was inserted to abolish the FBT with effect from assessment year 2010-11. Consequently, benefits given to employees are taxed as perquisites in the hands of employees in terms of amendments to clause 2 of section 17 of Income-tax Act, 1961.
Note the highlighted words — benefits given to employees will now be taxed as perquisites in the hands of employees [in the current financial year]. This means you will now have to pay income tax on benefits such as vehicle fuel and maintenance, communication expenses, etc. — expense items for which you were so far not required to pay income tax since your employer was bearing the tax burden in the form of FBT.
Given that,
- this change is applicable for the Financial Year 2009 - 10, and
- there are hardly two months left in the Financial Year,
many of us might find ourselves in a situation where most of our salary would go towards paying this income tax deficit in the months of February, 2010 and March, 2010. That means you might potentially have negligible to no salary for the next couple of months.
This is where an emergency fund proves its worth. With an adequate emergency fund in place, you wouldn’t have to worry about such unforeseen situations. I am affected by this ruling — thankfully, I do have an emergency fund.
How about you? Are you affected by this ruling? If yes, how are you handling it?
by Vinaya HS on January 13, 2009
in Finance
I have often heard the argument that the credit limit on a credit card serves the purpose of an emergency fund. This strategy by itself is both myopic and dangerous. However, what can make this strategy both farsighted and safe is if you have a real emergency fund with real cash in a savings account backing up your credit card. The credit card gives you the immediacy of funds in an emergency but immediately pushes you into credit card debt which you can now quickly get rid of by using the real cash balance in the savings account. The best of all worlds in my opinion.
What do you think?
Tip Tuesdays is my initiative to share practical personal finance tips — every Tuesday. I’d be delighted if you could share a tip or two from your own experiences. Drop a comment to submit your tip. And, as always, do spread the word if you find this useful.
by Vinaya HS on September 23, 2008
in Finance
The past one-and-half months have been traumatic as my mother’s health has steadily deteriorated into a critical condition. We’ve given her the best medical care possible — probably that’s what has kept her going this far. I couldn’t have afforded this medical care if it were not for three things:
- Clearing my debts and keeping out of debt,
- Building a substantial emergency fund, and
- Having independent health insurance.
Just a couple of years ago, I had a lot of debt to be repaid, no emergency fund, and no independent health insurance for my mother. I’m not sure what I’d have done — without going deeper into debt — if the present emergency had happened back then. In fact, I don’t even want to think about it. All the personal finance reading and research that I have done and the financial plans that I have executed over the past couple of years have proved their worth — many times over — today. Just imagine if one has to bear both psychological and financial traumas in such a situation.
If you haven’t yet got your financial house in order, there’s no better time to start than today. Believe me. It’s never too late to be prepared. I’d be glad to share my experiences and help.
by Vinaya HS on June 17, 2008
in Finance
That you need a solid emergency fund is a given. There’s really no guarantee for anything today (be it your job, your health, prices, etc.) and therefore it makes sense to build a solid emergency fund for those tough times. I thought a fair bit on how I would like to structure my emergency fund. This is what I’d like to do.
My Emergency Fund Structure:
Job-loss emergency fund: This component of the emergency fund will help tide over any job-loss situation (voluntary or involuntary). Ideally, I’d like to have a sum equal to “12-months of average monthly living expenses” in this fund. It might seem excessive, but this will give me an extra cushion if I ever want to do something of my own or try something different for a while.
General emergency fund: This component of the emergency fund will help cover any unforeseen day-to-day emergency. Examples include: vehicle breakdowns, medical emergencies, electrical goods failing at home, and such. I’ve had good experience last year, when my car was involved in two accidents, just a month apart. I had to pay upfront with the insurance checks being cleared several weeks later. A few months back, the inverter at home decided to leave Earth. Being able to cover such unforeseen expenses without having to scrimp around is the objective.
That said, where would I like to keep my emergency fund?
Obviously, this is money that you should not gamble with. Hence, I’d like to stick with high-to-medium liquidity debt instruments. A combination of Cash, short-term (between three and six months) Fixed Deposits, and debt-oriented Mutual Funds seems to be a good option. I’d ideally assemble the cash together and then move the funds into respective debt investments.
What do you think? Do you have an emergency fund in place? How have you structured your emergency fund?
