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<div type="image" title="For the unversed, trading in futures and options can be akin to setting their hard-earned money on fire" height="900" width="1200" msid="114064202" hostid="261" caption="&amp;lt;p&amp;gt;For the unversed, trading in futures and options can be akin to setting their hard-earned money on fire&amp;lt;/p&amp;gt;"></div> Once upon a time, there thrived a wild, wild land. Here, it was all about super high monetary stakes, lightning-fast trade deals, and bucketloads of money shifting hands every single second. This wilderness lured millions of individuals with the promise of super duper high returns. But, at what cost? Welcome to the unforgiving, ultra-risky wild west of <keyword id="19991165" type="General" weightage="20" keywordseo="Indian-equity-markets" source="keywords">Indian equity markets</keyword> called the <keyword id="145718" type="General" weightage="100" keywordseo="Futures-and-Options" source="Orion">futures and options</keyword>. Here, everyone seems to just fly right through the bright red-flagged warnings of financial risks to earn even a fraction of these promised returns. Most burn themselves in the process, but carry on nevertheless, as if nothing ever happened. <h2>Chasing the cloudy profits</h2>The data conclusively proves that every 9 out of 10 individuals only lost their hard-earned money in this land. But hey, what do the numbers know? Some hide their losses out of shame, some out of fear. The proponents, meanwhile, proudly boast unusually high returns on their investments, some open social media channels while others encourage their friends and family to take the plunge. Naturally, news of this unstoppable and humongous en-masse migration to the F&amp;O (futures and options) town has reached sheriff <keyword id="19901201" type="General" weightage="20" keywordseo="SEBI" source="keywords" meta.keywordsubtype="org" meta.entityname="SEBI" meta.hostid="261" meta.entityid="SEBI">SEBI</keyword>, galvanising them into action. After all, it was time to put a leash on this madness and save the common man. The inhabitants of this town doubled in the last 2 years, from 51 lakh in FY22 to 96 lakh in FY24—99.8% of whom were small and mid-income traders. But profits? Well, that's a different, rather completely absent story. <h2>Que Sera Sera, much?</h2>A recent report by SEBI (Securities and Exchange Board of India) that studied profits and losses made by traders in the equity derivatives segment between FY22-24 exposed the mad mania of futures and options trading in India, especially since the pandemic. Per the report, 91.1% of individual traders, or about 73 lakh traders had only lost money trading in futures and options in FY24. Between FY 22-24, over 1 crore traders, or about 92.8% of individual traders, had lost Rs 2 lakh each. But once bitten, twice shy? Well, not in this case. More than 75% of individuals, who had only made losses trading in F&amp;O in FY22 and FY23, continued to trade vigorously in FY24 as well, without any changes in the bottom line, which remained deep in red and negative. So, then all these traders must be uber-rich, with tons of cash and not much care to spare? Nope. 76% of traders in the F&amp;O space in FY24 had an annual income of less than Rs 5 lakh. 2 years ago, their share stood at 71%. And their choice of poison? Options! In FY24, 60% of traders made losses trading in futures, but a whopping 91.5% burnt their funds trading in options. Mind you, futures are riskier than options. With futures, which require significant capital investment, the buyer and seller both are contractually bound to adhere to the pre-determined strike price of the futures or options contract, irrespective of whether the prevailing prices are higher or lower (and thus, resulting in losses for either the buyer or seller). With options, since this adherence ain't necessary, individuals end up taking debt to take highly leveraged positions while trading here. <h2>Scale of the explosion</h2>Anyone who trades even infrequently will tell you that a demat account is the mitochondria or powerhouse of the trading cell. As of August 2024, India had over 17.1 crore <keyword id="20957284" type="General" weightage="20" keywordseo="demat-accounts" source="keywords">demat accounts</keyword>, which are a prerequisite for trading in the markets. India is the 9th biggest country in the world, in terms of total demat accounts. Did you know that our demat accounts are at par with the entire population of Bangladesh? Talk about scale! Just 4 years ago, in March 2020, this number was a mere 4 crore. Naturally, the total F&amp;O turnover on both <keyword id="20004725" type="General" weightage="20" keywordseo="NSE" source="keywords" meta.keywordsubtype="org" meta.entityname="NSE" meta.hostid="261" meta.entityid="NSE">NSE</keyword> and BSE has hit the roof, and also broken it. As of October 4, 2024, the total futures and options turnover on NSE stood at a massive Rs 4,78,27,27,750.30 crore. Good luck counting the thousands! <table style="border-width: initial; border-style: none;" class="redcator-table-advance"></colgroup><tbody><tr><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">Year </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">Total Turnover (Both Futures and Options) (In Rs Crore) </td></tr><tr><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">2020-21 </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">64,36,03,951.51 </td></tr><tr><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">2021-22 </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">1,69,52,33,134.47 </td></tr><tr><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">2022-23 </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">3,82,23,26,468.06 </td></tr><tr><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">2023-24 </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">7,99,27,67,152.43 </td></tr></tbody><tbody></tbody><tbody></tbody><tbody></tbody></table>Source : NSE Another metric that underlines the meteoric growth of trading in India is the collection of STT or <keyword id="20930760" type="General" weightage="20" keywordseo="Securities-Transaction-Tax" source="keywords">Securities Transaction Tax</keyword>. As of September 2024, India's STT mop-up had gone past Rs 26,000 crore. Traders have to pay STT whenever they buy or sell any security in the market. So, more trading brings in more STT, and hence, more revenue for the government, so they're not really complaining. After all, this is certainly what they'd call enviable growth. As of August 2023, our STT collection stood at about Rs 21,599 crores. And in FY20-21, India's STT collection had been Rs 16,000 crore. If only our salaries also managed to grow at this rate! <h2>So, what's happening?</h2>Two things. One, it's the big bulls who are raking in all the moolah. And it's the younger lot (those aged under 30) who are propping them up for this. In FY24, 43% of individual traders in the market were less than 30 years of age. In just one year, this number has swelled by 12 percentage points from just 31% of individual traders. But who says ageing is bad? Wrinkles and silver hair seemingly have a propensity of incurring lesser losses in the market. In FY24, only 79% of traders aged above 60 years made losses, as compared to 93% of those aged below 30. Small and mid-income traders, which make up 98% of the total trader base, witnessed average losses per person of Rs 65,000 and Rs 1.5 lakh in FY24 in futures and options, respectively. The winner here? Clearly, the big bulls, who declared an annual income of over Rs 1 crore, ended up with average profits of Rs 96,000 per person this year. <h2>What’s the sheriff up to?</h2>The government has finally swung into action, hiking the STT rate for F&amp;O during this year’s budget. Effective October 1, 2024, the STT on futures stands at 0.02%, up from 0.0125%. For options, it was upped to 0.1% versus 0.0625% previously. Small margins, but huge impact oncoming. Says Puneet Sharma- CEO and Fund Manager at Whitespace Alpha, “SEBI aims to enhance market stability while safeguarding investor interests, reflecting the regulator's intent to balance risk management with market participation”. But this might come with its own share of challenges, too. “Stricter norms around leverage, transparency, and capital adequacy could limit the ability of investors to determine their own risk appetite, thereby stifling innovation in trading strategies. Over-regulation in an environment that thrives on strategic flexibility and creativity could dampen the market’s dynamism, affecting India's competitiveness in the global derivatives landscape”, he observes. SEBI recently came out with a set of guidelines that aim to thwart <keyword id="19972907" type="General" weightage="20" keywordseo="retail-investors" source="keywords">retail investors</keyword>' participation in futures and options and hinder them from taking undue risks. Here's a quick recap of what's to come for the residents of the F&amp;O town Margin Requirements: To battle the high volatility and chaos which is generally seen on expiry days(i.e the last mandated date, post which an option becomes invalid), SEBI will put in place an extreme loss margin (ELM) of 2% for all open short options on the day of expiry. Translation? Traders will need to pony up more cash upfront, leaving them with fewer funds to take on risky bets. It ain't a choice: No more of one expiry every single day! Going ahead, an exchange like BSE or NSE will just be able to offer weekly expiries, that too, only on one benchmark index, as opposed to an entire buffet it currently offers. At present, NSE offers weekly options contracts for its financial index, bank and midcap indices. But say goodbye to this, and hello to derivatives on only 1 index per exchange. Raising the bar: Effective November 30, 2024, the minimum contract value for index derivatives will be upped to Rs 15 lakh, from the present Rs 5-10 lakh. The hope is that by making it ultra-expensive to enter these trades, investors will be dissuaded from taking on risky trades. Pay upfront: Starting February 2025, those trading in options will have to pay the entire options premium upfront, even before their trades are executed. This is because options generally carry very high leverage, and paying a significant sum upfront can force traders to think twice. Invigilation Pro Max: Starting April 1 2025, to make sure that the number of positions for equity index derivatives does not slyly slip over the mandated limit, especially on expiry days when trade volumes are huge, the exchanges will have to take a minimum of 4 position snapshots randomly. The question is, will these injections of sobriety be enough to calm down the steroid-fed bull of the futures and options market in India? Well, only time and market turnover will tell! For more insights into the financial markets and business news, stay tuned to our site and social media handles. And don’t forget to subscribe to Business Insider India’s newsletters for your weekly dose of Simply Put! Disclaimer: The content on this website is for informational purposes only and should not be construed as investment advice. We recommend readers consult certified, qualified and registered advisors for professional and personalised financial advice.

SIMPLY PUT: SEBI is on a mission to take on the wild, wild west of futures and options in India. Here’s why, what, and how

The State Bank of India (<keyword id="19898108" type="General" weightage="20" keywordseo="sbi" source="keywords">SBI</keyword>) in its latest report has asked for <keyword id="20213295" type="General" weightage="20" keywordseo="tax-reforms" source="keywords">tax reforms</keyword> after concerns were flagged over the recent decline in <keyword id="20202062" type="General" weightage="100" keywordseo="bank-deposits" source="keywords">bank deposits</keyword>. The report says tax Reforms for Deposits can accentuate the banking system's stability and resilience to the next level. SBI attributed the fall in deposits to the varied rates of return offered by different <keyword id="20139443" type="General" weightage="20" keywordseo="investment-options" source="keywords">investment options</keyword> for similar time frames and different tax rates on <keyword id="22837794" type="General" weightage="20" keywordseo="returns-on-deposits" source="keywords">returns on deposits</keyword>. The <keyword id="20352499" type="General" weightage="20" keywordseo="SBI-report" source="keywords">SBI report</keyword> said that "<keyword id="20658792" type="General" weightage="20" keywordseo="tax-treatment" source="keywords">Tax treatment</keyword> of bank and non-bank channels are non-uniform, even as bank deposits have a wider and denser pass-through effect across the populace sensitivity of Deposits on Tax is as much as 7 per cent" The report noted that a bank deposit of Rs 10 lac in a Savings Bank (SB) account at an investment return of 3 per cent would generate Rs 30,000 in returns and after accounting for taxes and exemptions, the <keyword id="22837795" type="General" weightage="20" keywordseo="net-return" source="keywords">net return</keyword> would be Rs 16,000. The report adds that the net returns vary significantly if deposits are made in different instruments like <keyword id="21041176" type="General" weightage="20" keywordseo="term-deposits" source="keywords">term deposits</keyword>, short and long-term investments in debt funds, liquid funds or bonds. The tax rates on these deposits also favour saving banks or term deposits. The report illustrates a term deposit of up to one year with the same principal amount of Rs 10 lac at a yield of 6.25 per cent would result in a net return of Rs 50,000 after taxes. But for term deposits exceeding one year the interest rate is higher and with an interest rate of 7.25 per cent, the gross return would be Rs 72,500. After taxes, the net return would be Rs 58,000. The data highlights that similar type of investments for the same period generates significantly different returns because of different tax treatment by the government. Similar variations are observed in other <keyword id="20105084" type="General" weightage="20" keywordseo="investment-plans" source="keywords">investment plans</keyword> as well. For instance, investments in equity and mutual funds with a 2 per cent dividend income of Rs 10,00,000 generate Rs 20,000, which after taxes the net return is Rs 16,000. However, Short-term investments of less than one year in equity and mutual funds, offering an 11 per cent return generate Rs 1,10,000, with a net return of Rs 88,000 after taxes. This investment if made in Long-term investments of more than one year the return increases to 15% on Rs 10,00,000 and generates Rs 1,50,000 annually. With a lower tax bracket of 12.5 per cent tax on long-term investments and applicable exemptions, the net return is Rs 1,43,750. These variations in returns across different deposits and investment options highlight the complexity and thus investors are choosing the higher return options over the bank deposits which in turn poses a threat to the deposit growth in the banking sector.

Decline in bank deposits because of non-uniform tax treatment on various investment options: SBI report

<ul class="summary-list"><li>Interest in moving to Canada has spiked among Americans after the election.</li><li>Beyond the physical move, there are financial considerations that potential movers should know of.</li></ul>The result of the 2024 elections left about half of the US displeased. As Donald Trump prepared to return to the White House, many Americans began considering a move up north, according to <a target="_blank" href="https://trends.google.com/trends/explore?date=today%201-m&amp;geo=US&amp;q=moving%20to%20canada&amp;hl=en-US">Google search traffic</a> at least.Interest in <a target="_blank" class="" href="https://www.businessinsider.com/we-moved-to-canada-not-perfect-but-prefer-over-us-2024-11">moving to Canada</a> tends to spike after big political events such as the <a target="_blank" href="https://trends.google.com/trends/explore?date=2016-11-01%202016-11-30&amp;geo=US&amp;q=moving%20to%20canada&amp;hl=en-US">2016 election</a> and the <a target="_blank" href="https://trends.google.com/trends/explore?date=2022-06-01%202022-06-30&amp;geo=US&amp;q=moving%20to%20canada&amp;hl=en-US">overturning of the Roe v. Wade</a> Supreme Court ruling.This phenomenon doesn't just live on the internet, either — some US residents are seriously considering the move."Even when Trump was elected last time, a lot of people felt that they weren't as comfortable staying in the States, and so we actually did see an influx of people moving to Canada," said Tiffany Woodfield, a senior financial advisor at SWAN Wealth Management of Raymond James.Moving, especially across borders, is a big decision and shouldn't be taken lightly. While the physical act of moving is complicated enough, Woodfield points out that there are a lot of financial considerations to be aware of."I think sometimes it can be a knee-jerk reaction," Woodfield said of <a target="_blank" class="" href="https://www.businessinsider.com/we-moved-to-canada-not-perfect-but-prefer-over-us-2024-11">moving to Canada</a>. "If they don't plan ahead of time, they can fall into traps that end up costing them money."<h2 id="c4feab40-7084-4563-951b-72a890ad2b58">You need to file US and Canadian taxes</h2>US citizens residing in Canada might not realize that even on the other side of the border, they're still not free from their tax obligations to Uncle Sam.If you are a US citizen, you still need to file federal US taxes and report your worldwide income to the IRS no matter where you live. In Canada, taxes are based on your residency status, so if you spend more than 183 days of the year living in Canada, you owe the Canadian government taxes.To prevent ex-pats from getting taxed twice on their income, the US and Canada have a tax treaty that provides a foreign income tax credit for any income tax paid to the other country, Woodfield explained. That means you can offset your US tax liability with taxes already paid to Canada, but you still need to file two separate tax returns — one to Canada and one to the US — to receive a tax credit.Additionally, the promise of free healthcare in Canada might sound enticing, but that does come at the cost of higher taxes, so be aware that your Canadian tax bill will probably be higher than what you paid in the US. You also don't have the option to file joint income tax returns with your spouse in Canada, Woodfield warned.<h2 id="7d31b42f-84db-43c3-b2f8-4f871c9958bf">Some Canadian investments have complicated tax implications</h2>"As a US person living in Canada, you don't want to invest in Canadian mutual funds or Canadian ETFs," Woodfield said. That's because these investments are considered Passive Foreign Income Corporations (PFIC) by the US government.PFICs are subject to unfavorable tax treatment from the IRS. The associated tax forms are lengthy and complicated, and you may end up paying high tax rates. If you're still a US citizen, investing in a Canadian mutual fund or ETF simply isn't worth the hassle.<h2 id="0333acc5-88aa-436b-bf74-7cb1b79b71b0">Bringing your retirement plan over the border can be tricky.</h2>401(k)s are a popular way to save for retirement here in the US, but Canadian employers offer a different type of retirement plan: the Registered Retirement Savings Plan (RRSP).Once you move to Canada, you won't be able to actively manage the holdings in your 401(k), according to Woodfield. One workaround is to roll your 401(k) to an IRA and have it managed in Canada. US citizens should also be aware that, in most cases, they won't be able to contribute to their IRA once they move to Canada.Another option is to transfer your US retirement account into an RRSP. However, if you choose this step, make sure you're committed to moving to Canada permanently, as you cannot move RRSPs to IRAs, Woodfield said.You may not be able to bring your brokerage accounts over the border, either. Some people don't realize this until they update their address with their US brokerage account after moving and receive a letter informing them that they have to close out their account.<h2 id="2d468c1f-efc0-45a8-9a7c-53c03c550ff1">You'll need a new financial advisor…and a lot of time</h2>US financial advisors are prohibited by law from providing Canadian residents with financial advice, as they aren't licensed in Canada. If you want expert advice, you need to work with a dual Canada / US licensed advisor.The earlier you start preparing for your cross-border move, the better — ideally, one to two tax years before moving, Woodfield said. That way, you can plan certain taxable events ahead of time and realize the greatest amount of savings, such as liquidating mutual funds. It's also easier to sell your home while you're still in the US, Woodfield said.If you've already begun the moving process or you're already in Canada, don't panic. Woodfield has worked with plenty of people after they've already moved, but the more time you give yourself, the better.Moving across the border is no simple feat, so make sure you're confident about your choice."I've had clients that have moved, and then after the fact, they think, 'Oh, I shouldn't have done this,'" Woodfield said."It's very hard to go back, so people need to be aware of that."

Americans moving to Canada should be aware of these 4 tax and investment implications

<div type="image" title="Are Indians depositing less money in banks, or more in mutual funds? Turns out, it&amp;#39;s neither of those." msid="113663806" hostid="261" sizebytes="1121785"></div> Over the past few months, there’s been a lot of brouhaha about the lagging pace of <keyword id="20202062" type="General" weightage="20" keywordseo="bank-deposits" source="keywords">bank deposits</keyword> in India. Simply put, the rate at which Indians are depositing their hard-earned money in banks has been falling constantly, and some blame the increasing financialisation of <keyword id="20751315" type="General" weightage="20" keywordseo="household-savings" source="keywords">household savings</keyword> in the country or the rising preference of Indians towards <keyword id="19929240" type="General" weightage="20" keywordseo="mutual-funds" source="keywords">mutual funds</keyword> and shares. So, the hypothesis is that people are choosing to invest more in mutual funds and the Indian <keyword id="19949641" type="General" weightage="20" keywordseo="equity-markets" source="keywords">equity markets</keyword> through direct investments, IPOs, or NFOs, the money flowing into Indian banks in the form of deposits is slowing down. But is that really the case? <h2>A crisis or a phase?</h2><keyword id="19899808" type="General" weightage="20" keywordseo="RBI" source="keywords" meta.keywordsubtype="org" meta.entityname="RBI" meta.hostid="261" meta.entityid="RBI">RBI</keyword> data suggested that for the quarter ended June 2024, bank deposits grew at 11.7%. On the other hand, credit growth has outpaced this at 15%. This means that the outflow from banks as loans is far greater than the inflow into them in the form of deposits in Q1 of FY 2024-25. The situation largely saw cut-copy-paste in the first week of September as well, with loans registering a 13.3% YoY growth during the period, while deposits rose only 11.1%. This gap has only been widening for the last 3 years. Since deposits are how banks gather assets to further lend and earn interest income as a consequence, even a slight dip could set the alarm bells ringing for banks, and rightfully so. And truth be told, mutual funds are indeed taking on bank deposits in a big way. Per a report by Franklin Templeton, in August 2024, the AUM (assets under management) of Indian mutual funds, or the total funds managed by them, stood at 31.3% of total bank deposits in the country, up from 24.20% during the year-ago period. As of August 2024, the AUM of mutual funds stood at Rs 66.17 lakh crore, an all-time high. But all said and done, is this really the reason why the rate of bank deposits is falling behind? SBI has dismissed this to be a “statistical myth”, and experts point out that since equity and fund houses also keep the cash in their respective bank accounts, there’s no cause for concern. So, is financialization really to be blamed for the trailing tempo of deposits? Or is something else happening behind the scenes? We take a closer look: <h2>First, are household deposits really slowing down? And is that a cause of concern?</h2>Data from Motilal Oswal suggests the contrary. Deposits grew by around 10.4% between March 2020 and August 2024. Data from RBI also highlights that as of August 9, 2024, bank deposits witnessed a YoY growth of 10.8%. The loan-to-deposit ratio for the retail segment, which indicates what percentage of its total deposits the banks lend out as loans, has stayed at 77.5%, above the 77% mark for the tenth straight month. <div type="image" title="Yes, household deposits (as % of total deposits) have dipped, but the drop is far from significant" msid="113663882" hostid="261" sizebytes="306706"></div> Also, we can’t forego the fact that the share of Indian households in bank deposits has indeed slowed down. However, data from Axis AMC shows that the dip is marginal—from 63% in 2022 to 62% in 2023 and 61% in 2024. What has slowed down even more considerably is the share of government deposits in the aggregate bank deposits, which has dipped from 14% in 2018 to 9% in 2024. So, it's not just household deposits, you see. Moreover, as of March 2024, the collective CASA ratio (current and <keyword id="114757" type="General" weightage="20" keywordseo="savings-account" source="Orion">savings account</keyword> deposits) of all commercial banks in India stood at 41.00%, down from 43.1% in March 2023 and 45.2% in March 2022, marking a nearly 5% point decline over the past year, while still staying over the 10-year average of 39.2%. This implies that Indian banks are relying more on higher-cost funds (savings accounts), which can limit their profitability. <h2>What is this financialisation of savings we are talking about?</h2>Then again, there is no doubt about the growing affinity of Indians towards mutual funds and stock markets. Recent data from CBDT (Central Board of Direct Taxes) highlights that India’s net direct tax collection surged by around 22%, driven exclusively by the significant uptick in the collection of Securities Transaction Tax (STT), which doubled to Rs 26,154 crore, from Rs 13,352 crore in the year-ago period. Why does this matter? STT is levied when you buy or sell equity shares on stock exchanges, sell <keyword id="6361918" type="General" weightage="20" keywordseo="equity-mutual-funds" source="Orion">equity mutual funds</keyword>, and trade in futures and options in the equity segment. Such taxes, including the multiple other taxes in equity market investments, are considered as leakages as the money moves out of the economy into government coffers. Data from a ValueQuest report explains that over the last 20 years, the markets have handsomely rewarded the investors, generating over $900 billion in incremental value for them. This is the major driver behind the dramatic rise in investment flowing towards the equity markets. There’s further proof of this budding romance, if you check the demat pudding. The number of demat accounts, which are a primary requisite for participating in the stock markets, also burgeoned by 42.3 lakh in August 2024, taking India’s total tally of demat accounts beyond 17 crore. To put this in perspective, this is almost equivalent to the population of just 8 nations in the world, including China, the US, Brazil and more. Vivek Iyer, Partner, Grant Thornton Bharat thinks it's rather important, as well. “Financialisation of household savings in India is an indication of deepening capital markets in the market, especially from a retail investor standpoint. Bank deposits with a modest rate of return are no longer the only option for savings for investors. Investors today have more avenues for wealth creation in the form of public capital markets, which have democratized wealth creation and provided equality of opportunity to retail investors”, he says. Yes, Indians are investing more and more in the markets, and in mutual funds. But is it a sin to look out for inflation-beating returns, which the stock markets offer, and vanilla bank deposits don't? After all, the allure of 12-13% annual returns offered by <keyword id="45369" type="General" weightage="20" keywordseo="equities" source="Orion">equities</keyword> can certainly pale the stability offered by good old deposits, which generally do not go beyond 9% when it comes to annual returns. But all of this is not what is behind the slowdown. India is still a toddler in the school of savings financialization, with less than 10% of the population holding a demat account, and less than 5% of us saving in equities. That's a drop in the ocean of deposits, far inadequate to trigger a tsunami. <h2>Tell me why lagging deposits have nothing to do with Indians investing more in mutual funds!</h2>Says Shweta Rajani, Head - Mutual Funds, Anand Rathi Wealth Limited, “Households' equity holdings composition grew from 11.1% in FY 23 to 14.7% in FY 24. This trend reflects a growing awareness of investment options, empowering individuals to take control of their financial futures. Despite this transition towards equities, banks still hold a significant share of household financial savings—33.5% in FY24 compared to 34.9% in FY23”. Also, household savings and their subsequent financialization do not have much to do with deposit creation, which is entirely made by banks. What actually drives increased deposits is credit growth or increased lending. When interest rates are eased, people tend to borrow more and spend more, which circulates more money in the economy. For the past 4 years, RBI has been tightening the screws on interest rates, which raises the cost of borrowings, and makes it more expensive to take loans, putting a dampener on credit growth, but effectively curbing inflationary pressures. The last time RBI cut the repo rate by 40 basis points was back in May 2020, 4 years ago. The lag in <keyword id="19998084" type="General" weightage="100" keywordseo="deposit-growth" source="keywords">deposit growth</keyword> we’re witnessing is almost 3 years old. Coincidence much, or just good old economics at work? But with the Fed recently setting a rate cut precedent by slashing 50 bps off its interest rate, RBI is expected to follow suit in the next MPC (Monetary Policy Committee) meeting, scheduled for November 2024. A rate cut would ease the aforementioned high cost of borrowing, and increase loan-taking for corporates and institutional investors, thereby stoking consumption in the economy. And then, deposit creation in banks is likely to return to its former glory. If not, then that would be a curious case to unravel! But that worry is for another day. Do you have insights or personal experience to share on your personal finances or money? Contact us at <a target="_blank" class="c-link" href="mailto:businessinsider@timesinternet.in">businessinsider@timesinternet.in</a>.

Simply Put: A Deposit Dilemma — What's the fuss about a crisis in Indian bank deposits? Are mutual fund investments to blame?

<ul class="summary-list"><li>Many older Americans with fixed incomes are struggling with rising housing costs.</li><li>A retiree in Missoula, Montana, has found a way to downsize by building an ADU in her son's backyard.</li></ul>When Sylvia and her husband found out they were welcoming their first grandchild in 2018, the retired couple decided they would move from Arizona to live near their son and daughter-in-law <a target="_blank" class="" href="https://www.businessinsider.com/top-10-states-people-are-moving-to-montana-vermont-idaho-2023-10">in Missoula, Montana</a>.In early 2019, they relocated to a four-bedroom house around the corner from their then-one-year-old grandson.But over the last couple of years, Sylvia, who was a city government administrative assistant in California before she retired, has felt <a target="_blank" class="" href="https://www.businessinsider.com/home-prices-montana-retired-boomer-homeowners-losing-houses-insurance-taxes-2024-7">financially stressed</a>. Her husband got sick a couple of years after the couple moved to Montana, and he died in 2022.While her house is paid off, her home-related costs, including insurance, property taxes, and maintenance, have risen. In 2019, her home insurance cost about $890, but last year, according to her record-keeping, she paid almost $1,500. She's also felt squeezed by general inflation, including rising grocery costs. Plus, the 3,000-square-foot house is just too big for her."Owning my home is going to drive me to the poor house," said Sylvia, who's 71 and requested her last name be omitted to protect her privacy.But last year, her son and daughter-in-law came to her with an idea: she could build and relocate to an accessory dwelling unit — a small detached home — in their backyard. The ADU would likely cost less to build than it would to buy another home in the neighborhood, they reasoned. And it would allow Sylvia to live in a smaller, accessible home very close to family as she grows older.Sylvia talked with her other two kids, and they all agreed it was a good idea. So they found an architect and a contractor, and Sylvia signed a contract to pay $274,000 for the construction, according to documents viewed by BI. The 600-square-foot one-bedroom home will have a vaulted ceiling, a big front porch, and a back deck. It'll be painted to match her son's house."It's going to be real pretty," Sylvia said. "I'm hoping it's the last place I live."She's planning to pay for the ADU in cash, and the contractors are on track to complete it by December.Sylvia plans to sell her current house, which she and her husband bought for $315,000 in 2019. According to documents viewed by BI, since <a target="_blank" class="" href="https://www.businessinsider.com/trump-supporting-republican-montana-governor-yimby-housing-policies-lowering-rent-2024-3">home prices</a> have soared across Montana, the home is now valued at $718,000.ADUs — often called "granny flats" or "casitas" — are a particularly useful form of housing for older people who want to downsize into a smaller, more accessible home and also want to be close to family. Increasingly, cities and states across the country are <a target="_blank" class="" href="https://www.businessinsider.com/yimbys-winning-lower-house-prices-rents-build-more-homes-neighborhoods-2023-9">legalizing</a> and even <a target="_blank" class="" href="https://www.businessinsider.com/new-york-city-funding-adu-tiny-homehousing-shortage-2023-11">incentivizing</a> ADU construction as a way to boost the supply of smaller, more affordable homes."This was the most viable option for me," Sylvia said. "I don't think I would be able to buy a home for $274,000."<div type="image" title="A rendering of an ADU being constructed in Missoula, Montana." height="483" width="668" msid="111780733" hostid="261"></div><h2 id="b5831c72-600f-47b0-a865-ecceda5008bd">ADUs as a solution for cash-strapped older people</h2>Sylvia's ADU might not have been legal in Missoula until about a decade ago — and it still isn't legal in many American residential neighborhoods. Even in states that encourage tiny home construction, local anti-development groups and policymakers often <a target="_blank" class="" href="https://www.businessinsider.com/malibu-suing-homeowners-california-supreme-court-backyard-tiny-home-adu-2024-3">make it all but impossible to build</a> a backyard ADU.The western Montana city first took action to encourage the construction of <a target="_blank" class="" href="https://www.montanarightnow.com/news/missoula-to-adopt-adu-ordinance/article_8720276d-95b8-56cd-82e8-991fd0fcaeed.html">ADUs in 2013</a> and further <a target="_blank" class="" href="https://missoulacurrent.com/regulations-adu-rules/">loosened restrictions</a> in 2020 after just 30 ADUs had reportedly been built in the city. As part of broader zoning code reforms, the <a target="_blank" class="" href="https://missoulian.com/news/local/government-politics/missoula-city-coding-john-engen-zoning-mobile-homes/article_41ddb802-eb04-11ee-a8d9-6f8d560ce1d6.html">city council this year agreed</a> to increase the allowable size of ADUs and liberalize a few other rules.The state government has also pushed for more of these homes as part of its broader housing reform effort aimed at boosting supply. Last year, the Montana state legislature passed a bipartisan law requiring all cities and towns to allow the construction of ADUs on single-family lots. But before the law went into effect in January, <a target="_blank" class="" href="https://www.ktvh.com/news/judge-puts-hold-on-montana-zoning-related-laws">a judge temporarily blocked the measure</a>, along with several other pro-housing laws. The court sided with an organization of Montana homeowners who argued denser housing would alter the character of their neighborhoods. The state appealed the decision to the state supreme court earlier this year.<div type="image" title="The foundation for an accessory dwelling unit in Missoula, Montana." height="713" width="1279" msid="111780735" hostid="261"></div>This comes as older people, including homeowners, are struggling with rising housing costs in communities across the country. Insurance costs have risen dramatically all over — a result of both increasingly severe climate issues, including flooding and fires, and the elevated cost of home construction and repairs. Nationally, home insurance premiums rose by an average of 21% between May 2022 and May 2023, <a target="_blank" rel=" nofollow" href="https://www.policygenius.com/homeowners-insurance/home-insurance-pricing-report-2023/#:~:text=Homeowners%20insurance%20premiums%20in%20the,active%20policies%20quoted%20for%20renewal.">Policygenius</a> found. Home repairs are also more costly these days, with a <a target="_blank" rel="" href="https://www.businessinsider.com/housing-crisis-national-shortage-construction-workers-job-demand-2024-5">shortage of construction workers</a> and the <a target="_blank" rel=" nofollow" href="https://www.constructiondive.com/news/falling-material-prices-expected-reverse-course/651744/">elevated cost of materials</a>.The portion of homeowners 55 and older who are cost-burdened — or spend more than 30% of their income on housing and utilities — rose from 30% in 2001 to 45% in 2022, a new report from the <a target="_blank" rel="" href="https://www.jchs.harvard.edu/sites/default/files/reports/files/Harvard_JCHS_The_State_of_the_Nations_Housing_2024.pdf">Harvard Joint Center for Housing Studies</a> on the state of US housing found.In Montana, a severe housing shortage has caused home prices to soar. But property taxes and insurance costs are also way up, making it hard for many homeowners to afford their payments."Elderly and disabled people are struggling really, really hard," Beverly Dashnaw, a HUD-certified housing counselor in Helena, <a target="_blank" class="" href="https://www.businessinsider.com/home-prices-montana-retired-boomer-homeowners-losing-houses-insurance-taxes-2024-7">recently told BI</a>. "The cost of living, inflation is going up for everything, and their income doesn't go up."Sylvia is lucky she can cash in on the rise in her home's market value without having to buy another home in an impossible market with high interest rates. And Missoula has proven to be a good place to age, she says. If she can't drive, she can take the <a target="_blank" class="" href="https://mountainline.com/sustainability/zero-fare/#:~:text=Mountain%20Line%20operates%20a%20zero,have%20to%20pay%20to%20ride.">city's free buses</a> to the library, where she volunteers each week, and to the pickleball courts, where she plays regularly."This is a small town, I love it," she said. "It's easy to get around, and I know my way around."Are you a homeowner struggling with rising insurance premiums or other costs? Reach out to this reporter at <a target="_blank" href="mailto:erelman@businessinsider.com">erelman@businessinsider.com</a>.

How a Montana retiree will save on spiking home insurance and taxes by living in a type of housing that's illegal in many places

<ul class="summary-list"><li>Uber-rich business owners in high-tax states can save on income taxes without moving.</li><li>Instead of selling their businesses outright, they put their stock in a trust in a tax-haven state.</li></ul>Top earners continue to flock to states with little to no income tax such as <a target="_blank" href="https://www.businessinsider.com/where-rich-people-are-moving-florida-texas-tennessee-north-carolina-2024-1#:~:text=Wealthy%20people%20are%20moving%20to,even%20for%20the%20highest%20earners.">Florida and Texas</a>. It's an especially smart move if you're about to sell a business. As for rich entrepreneurs who aren't ready to make a move, they can still save on taxes with the right lawyer.By creating a special kind of trust, business owners can take advantage of the loose tax laws of other states. Instead of selling a business outright, they transfer their shares to an incomplete non-grantor trust set up in a <a target="_blank" href="https://www.businessinsider.com/us-states-tax-haven-billions-hidden-untaxed-wealth-assets-2022-9">tax-haven state</a> such as Nevada. When the shares are sold, the trust collects the proceeds without paying any state income or capital-gains taxes. The trust assets grow free of those taxes and are shielded from creditors.Dan Griffith of Huntington Bank expects ING trusts will surge in popularity with dealmaking on the rebound coinciding with a "silver tsunami.""You've got baby-boomer business owners who need to transition, and you also have a ton of capital on the sidelines looking for transactions," Griffith, Huntington's director of wealth strategy, said. "With more deals comes more need for tax-saving strategies."Investors can also benefit from putting their portfolios in ING trusts because that allows the dividends to grow free of state taxes. ING trusts are powerful tax-avoidance tools, so much so that New York and California have enacted laws to render them useless for state residents. California closed the loophole in 2023, estimating it would increase tax revenue by $30 million that year and $17 million each following year.Each state also has its own provisions to navigate, which makes setting up INGs cumbersome. However, Bank of America's Timothy Herbst said it could still be worth it in states without sky-high income-tax rates."That trust can grow conceivably without any state income tax," the wealth-strategy executive said. "That's a significant savings even in a state like North Carolina at 4.5%. It's not necessarily a huge income tax, but you look at a very large portfolio growing over decades, that can be real significant savings."<h2 id="a0857d85-806e-4e72-a9da-646cab9ef538">Here is how ING trusts work</h2>ING trusts come in different flavors. Nevada and Delaware are popular states for domiciling ING trusts, where they're referred to as "NINGs" and "DINGs," respectively. However, Wyoming and South Dakota are also options as they do not tax trust income or capital gains and protect trust assets from creditors.The person who creates the trust, otherwise known as the settlor, does not have to reside in that state, but the trust should be administered by a third party who does.Here's an example of how an ING trust can work.ING trusts are still subject to federal capital gains taxes, but the ultrawealthy users of INGs would likely be subject to that burden anyway. For a centimillionaire, it's not hard to reach the top rate of 37%, which applies to incomes above $578,126."These are superrich people," Bob Lord, a senior advisor on tax policy for the <a target="_blank" href="https://www.businessinsider.com/patriotic-millionaires-want-wealth-tax-congress-reconciliation-build-back-better-2022-7">Patriotic Millionaires</a>, said. "They're still taking in enough to get to the 37% bracket."Furthermore, INGs can be used to take advantage of a <a target="_blank" href="https://www.businessinsider.com/qsbs-qualified-small-business-stock-startups-criteria-taxes-2019-12">tax perk</a> for early shareholders that exempts at least $10 million in profits from the federal capital-gains tax. Steve Oshins, a Nevada lawyer, said founders could double their exemption by setting up an ING trust."This trust can serve as a second taxpayer so that the individual can get a second $10 million exemption," he said. "This can apply even if they don't live in a state with a state income tax."For the ING trust to pass muster with state authorities, there should be multiple beneficiaries in addition to the settlor and their spouse. Since beneficiaries do have to pay state income taxes — if applicable — when they receive distributions. For this reason, lawyers advise that clients take as few distributions as possible and let the assets grow in the trust for their children or future generations."It is usually better that the client knows that distributions won't be coming back to him or her or to their spouse," Herbst said. "If they did need those distributions, then it probably is not going to be the right strategy."That said, sometimes taking a distribution makes sense if there is financial need or the client has moved to a low-tax state since setting up the ING trust, Oshins said."You just have to look at each fact pattern on its own and make the right decision," he said.<h2 id="68a845c4-1176-4c9e-871e-cd1aab5eb265">Buyer beware</h2><ol><li>ING trusts can't be used to avoid state taxes on salaries or rental income.</li></ol>ING trusts cannot be used to defer income taxes on salaries or income from tangible assets in the state. That income, referred to as source income, is subject to state taxes.For instance, Griffith said, an Ohio resident cannot avoid state or local taxes on income from rental properties in the state even if they transfer ownership of the properties to an ING trust in South Dakota.For clients in states with aggressive tax authorities, Griffith recommends they step away from their business' day-to-day operations and collect a minimal salary before transferring their interests to the ING trust."What you really need to do is become essentially just a shareholder, be, as a business owner, somebody who says, 'I am just receiving dividends from this company. I own C-corp stock,'" he said. "In many states, that becomes non-source income."<ol start="2"><li>Setting up an ING trust is like threading a needle.</li></ol>These trusts have to be structured carefully to avoid <a target="_blank" href="https://www.businessinsider.com/real-estate-gift-tax-avoidance-trusts-wealth-planning-rich-inheritance-2023-5">triggering estate taxes of as much as 40%</a> while keeping the income-tax advantages. In addition to navigating the laws in the home state and the tax-haven state, the settlor has to retain certain rights and relinquish others. For instance, the settlor can't have the ability to compel distributions but should have the right to name beneficiaries at death."It's inherently complicated," Griffith said. "You've got to have a fairly sizable transaction to make the juice worth the squeeze."<ol start="3"><li>The trust has to be set up well before the business is sold.</li></ol>It is easier for a state tax authority to pursue income from the sale of a business if it is done shortly after the ING trust is established. Griffith recommends at least a year's delay, but it is the biggest challenge for clients, he said."They're like, 'Oh, I don't want to fund the trust until we know we're going to sell.'" he said. "You have to do it in advance. And if you do, those are the ones that I've seen that have been really successful."

This tactic to avoid income taxes without moving to Florida could surge thanks to a 'silver tsunami'

<ul class="summary-list"><li>High-net-worth investors use many loopholes to reduce their taxes.</li><li>Among them are exchange funds, collars, 1031s, and hedging and borrowing against assets.</li></ul>In simple terms, there are only three places your money can go: to you and your family, to charitable organizations, and to the IRS. That's the pep talk Nayan Lapsiwala, a director of wealth management and partner at Aspiriant, gives his ultra-high-net-worth clients.The second part of his pep talk is to avoid letting tax avoidance undermine your financial future. It could be a bad idea to keep a stock solely to skip out on realizing capital gains."What if that stock falls 50% or more?" Lapsiwala said. "You are trying to save money on taxes, but your entire financial future can get wiped out with the market."This is why <a target="_blank" class="" href="https://www.businessinsider.com/tax-strategies-irs-rules-that-can-improve-your-financial-situation-2024-5">tax loopholes</a> and <a target="_blank" class="" href="https://www.businessinsider.com/how-to-defer-real-estate-capital-gains-tax-1031-exchange-2024-3">deferral strategies exist</a>, and why the wealthy seek out top advisors to help them navigate the complicated and intricate tax code. The right advice can buy time, reduce tax burdens, or even avoid them altogether without breaking any laws.<h2 id="e7689c3d-b101-4cb5-aaa5-8e6baca28255">8 loopholes</h2>Most investors know and have access to an <a target="_blank" class="" href="https://www.businessinsider.com/personal-finance/investing/what-is-an-etf#:~:text=An%20exchange%2Dtraded%20fund%20(ETF,liquid%20as%20some%20mutual%20funds.">exchange-traded fund</a> (ETF). But what about an exchange fund?For investors who have reaped high gains from a stock and want to shave some off to reduce concentration risk, Lapsiwala says choosing to pool their assets in an exchange or swap fund with other investors is the way to go. A manager then oversees this fund. Consider it a 'you share your stocks, and I'll share mine'-type scenario. It gives participating investors diversification without triggering a tax event. The catch is that the shares must be held in the fund for seven years to reap the benefits and defer the tax."The manager's responsibility is to reduce capital gain taxes for everyone because now as you have a pool of assets, there might be some stocks that will go down in value, some might go up," Lapsiwala said. "So, a tax-loss-harvesting type of trading will take place and then you are reducing your capital gains taxes."Another way to lock in profits on securities is by creating collars, which means buying a <a target="_blank" class="" href="https://www.businessinsider.com/personal-finance/investing/option-chain#:~:text=An%20option%20is%20a%20contract,its%20own%20type%20of%20security.">put option and selling a call option</a> against the underlying asset. It hedges the share price because the put creates a floor, allowing the buyer to keep the stock but offload it if it falls below the agreed-upon price, which is the strike. But buying that put will cost a premium. Therefore, calls are sold to offset the cost, giving another buyer the right to purchase the stock if it rises. The downside is that it caps any upside potential above the strike."There are executives we work with, for whatever restriction, they cannot sell, or they have huge capital gains and they don't want to take a big tax hit," Lapsiwala said. This strategy helps them plan the timing of when they want to realize the gains."For those who need liquidity, once the stock is hedged, they can borrow up to 50% against its value on margin, Lapsiwala noted. This strategy could have a double tax benefit: One, the investor isn't realizing a capital gain. Two, if the borrowed amount is used for another investment and there is investment income, the cost of borrowing is treated as investment interest. It can be used to reduce the overall taxable income.Some investors will borrow against their stocks without hedging. This is common for short-term liquidity needs, like bridge financing to buy a property while waiting to sell another, Lapsiwala noted. The risk here is if the stock drops in value in the interim, you get a <a target="_blank" class="" href="https://www.businessinsider.com/personal-finance/investing/margin-call#:~:text=A%20margin%20call%20occurs%20when%20the%20value%20of%20the%20equity,off%20some%20of%20the%20investments.">margin call</a> and must come up with the capital to cover it.As for investors who have philanthropic goals, charitable giving is tax deductible. Still, instead of giving cash that's already taxed, some of Lapsiwala's wealthy clients give their appreciated securities to a 501(c) charitable organization. This grants them a tax deduction while skipping out on capital gains tax.Another way of giving to charity is by donating appreciated assets to a donor-advised fund (DAF). In turn, the investor get a tax deduction in the year it was gifted, but they don't have to give the full amount to the charitable organization in that calendar year."This is a strategy when you have high taxable income, and you want to reduce your taxes but aren't sure that you want to give charitable grants of a high amount in a year," Lapsiwala said. "So what we typically do is, let's say clients are giving $100,000 a year, we will say, 'let's fund that by a million dollars' and they can get that million dollar deduction now, but over the next 10 years, give $100,000 annually from that account."Clients who want to give to charity while continuing to benefit from gains on their principal can opt for a charitable remainder trust (CRT). It allows them to transfer cash, property, or assets to an irrevocable trust that pays an income in the form of an annuity or a percent of the trust's assets for a term or until their death, upon which it goes to the selected charities.John Pantekidis, managing partner at TwinFocus, says CRTs are a win-win for the charity and donor. The latter gets a tax deduction up front and an annuity while helping a charity.Pantekidis, whose average client is worth close to $200 million, says this setup is suggested for clients with highly appreciated assets who want an income from it but are also charitably inclined.But perhaps the tax avoidance strategy that has been an absolute home run for high-net-worth clients, according to Pantekidis, is investing in qualified opportunity zones. These are economically distressed areas that require long-term investments in real estate and businesses.If you have a million dollars of capital gains and if you invest it in a qualified opportunity zone, you get to defer that through 2026, Pantekidis noted. Any appreciation on that investment escapes tax permanently; that's an avoidance, he said. Furthermore, an investor can depreciate the property for further tax deductions without depreciation recapture."So not only do you avoid tax on the gain, to the extent you get depreciation you can avoid tax on the initial gain. It's become an absolute home run for ultra-high-net-worth clients who have capital gains. Even some of our hedge fund managers who get compensation through carried interests of capital gains can defer those capital gains and even avoid them."However, the investment must be held for five to seven years to defer a portion of those gains and at least 10 years for the new gains to be fully tax-free.Finally, those with an appreciated property who can identify a similar property to swap it with can use 1031 Exchanges. It allows the client to defer the capital gains. If they die with the property, they can get a step-up in basis which permanently removes any tax originally deferred by the exchange, Pantekidis said.

8 of the savviest loopholes wealthy investors use to reduce or avoid capital gains tax

<ul class="summary-list"><li>Using a 401(k) can boost investment portfolios by 23%, per Charles Schwab study.</li><li>The study compared 401(k) and taxable accounts over 20 years with an 8% annual return.</li></ul>Nothing is less exciting than thinking about <a target="_blank" class="" href="https://www.businessinsider.com/personal-finance/taxes">taxes</a>, especially when the bill is coming due.And once you cross into the first quarter of the year, little can be done to reduce your tax liability, especially if you're a W2 employee.That's why thinking about deferral strategies is a great way to reduce how much you pay in taxes and increase your net worth in the long term. But to maximize your outcome, you have to start with a <a target="_blank" class="" href="https://www.businessinsider.com/personal-finance/investing/what-is-401k">401(k)</a> or a <a target="_blank" class="" href="https://www.businessinsider.com/personal-finance/investing/what-is-ira">Traditional IRA</a>, according to a recent simulated study by Charles Schwab. The study showed how a 401(k) could increase an investment portfolio's value by 23%.The study, which was backtested over 20 years, compared two investors, one who used a taxable brokerage account versus one who used a 401(k). At an 8% annual return, it found that the latter finished with a value of $177,116 compared to the taxable account at $144,547. Based on this scenario, it assumed that someone allocating funds after tax in a 24% bracket would have a principal investment of $38,000 compared to $50,000. It also assumed taxable events on a turnover rate every five years and on 2% qualified income dividends and 6% long-term capital gains.<div type="image" title="Chart showing increased portfolio value with tax-deferred account." height="1064" width="1846" msid="114955475" hostid="261" sizebytes="34694"></div>In a scenario where an investor uses a taxable account but doesn't turnover or realize gains every five years, meaning taxable events are only placed on the 2% dividends, the outcome would lead to an ending value of $152,392.One caveat is that <a target="_blank" class="" href="https://www.businessinsider.com/tax-loopholes-to-reduce-or-avoid-capital-gains-taxes-2024-10">tax-deferred accounts</a> don't take into account every phase of where taxation can occur along the investment process, says Rob Williams, managing director of financial planning at Charles Schwab. The first point is when money is earned and before it's invested. The second is when income and dividend payments are earned along the way. The third point is once gains are realized. The first two taxation points are covered. The last phase isn't. For this process, other accounts, such as Roth IRAs for after-tax contributions allow gains to grow tax-free.Roth IRAs could come in handy in retirement during years when you have a higher withdrawal rate and, in turn, fund yourself in a higher tax bracket.<h2 id="bd273b03-5ffe-4b6d-8acc-d2373d85fc37">Other tax tips</h2>Another option people don't think about as much is a <a target="_blank" class="" href="https://www.businessinsider.com/how-to-use-health-savings-account-retirement-tool-investing-wealth-2024-10">health savings account</a>, which is unique, Williams noted. You have to qualify for those with an employer that provides it through a health insurance policy with a high deductible plan. But they are a nice additional tool that investors can use to contribute from their paycheck, he added.It's contributed pre-tax. And if the money isn't used for healthcare costs, it can be saved and invested in that health savings account and grow tax-free. It's tax deferral and tax avoidance, he noted."For a health savings account, that's powerful," Williams said. "We call that a triple tax exemption. You get no taxes when you put the money in and no taxes on any growth or capital gains in the fund. And then when you take it out, you don't have any taxes as well."Taxable brokerage or investment accounts are still useful because they allow you to withdraw money before retirement. This is especially great in the event you need to make a big purchase. But when using these accounts, investors should consider the assets they're buying. For example, exchange-traded funds have less tax drag than mutual funds that have higher turnover and, in turn, more taxable events, Williams noted."Any investment or mutual fund that generates a fair amount of investment income, whether it's interest or dividends, do not tend to be very tax efficient," Williams said.This also means considering how funds distribute gains, such as whether they are qualified or ordinary dividends. The latter is taxed at an investor's tax rate and depending on what margin that's in, it may not be as advantageous as a qualified dividend.

How tax-deferred investing can increase a portfolio's value by 23% and the account that provides a triple benefit

The deadline to file your <keyword id="19948101" type="General" weightage="20" keywordseo="income-tax-returns" source="keywords">income tax returns</keyword> is approaching fast, and Sana is perplexed. All of 23, she's just started earning and working at an MNC, earning Rs 7,00,000 per annum, and can't figure out which <keyword id="20301439" type="General" weightage="20" keywordseo="tax-regime" source="keywords">tax regime</keyword> would work best for her. If you're having the same concerns and can't seem to wrap your head around the <keyword id="19935168" type="General" weightage="20" keywordseo="new-tax-regime" source="keywords">new tax regime</keyword>, here's a ready reckoner for you: When should I choose new tax regime? Think of choosing a tax regime as having to choose a friend in office. The <keyword id="8706677" type="General" weightage="20" keywordseo="old-tax-regime" source="Orion">old tax regime</keyword> is that aged, wise senior who has answers and hacks for everything. Want to get over with a boring project quickly? They will certainly have a trick up their sleeve! On the other hand, the new regime is far more chilled out, lax and is a no-nonsense person who wants nothing to do with long documents and longer meetings. The new regime was introduced in budget 2020 to simplify taxation, and offer lower rate of taxes as compared to the old regime. However, there's a catch. You cannot claim the 70+ exemptions and deductions that help bring down your taxable income and hence, reduce your tax liability. This option is exclusively available under the old tax regime. The main USP of this tax regime? Lower tax rates, and fuss of deductions! Consider this. If your income is within the range of Rs 5,00,000-Rs 12,00,000, and you have no investments, <keyword id="99916" type="General" weightage="20" keywordseo="house-rent-allowance" source="Orion">house rent allowance</keyword> (<keyword id="19944588" type="General" weightage="20" keywordseo="hra" source="keywords">HRA</keyword>), health/life insurance premiums or other such deductions to claim, the new tax regime would obviously make more sense to you, given the significant difference in tax liabilities (just 5% under new regime, and a whopping 20% in old regime for those in the Rs 5-6 lakh bracket!) <div type="image" title="Tax rates under old and new regime" msid="111685908" hostid="261"></div> So, if you're someone who hates complex tax calculations, wants minimal tax deductions, the new regime might just be for you! But remember, there are two conditions under which this new regime will be automatically chosen for calculating your taxes: <ul><li>If you keep procrastinating and don't file your <keyword id="6374875" type="General" weightage="20" keywordseo="ITR" source="Orion">ITR</keyword> till July 31, 2024</li><li>If you do not specifically opt for the old tax regime on your employer's HR portal</li></ul>Also, if you earn less than Rs 3,00,000 per annum, you are completely exempted from paying any tax at all. In the old regime, this basic limit is slightly lower at Rs 2,50,000. Also read: <a href="https://www.businessinsider.in/personal-finance/income-tax/all-you-need-to-know-about-the-new-tax-regime/articleshow/111578840.cms" data-type="tilCustomLink">All you need to know about the new tax regime</a> So, what do I get under this regime? Thanks to a rebate under Section 87A, if you earn up to Rs 7 lakh per annum, your tax liability (and Sana's as well) will effectively be zero. This is limited to Rs 5 lakh under the old regime. While a <keyword id="20429578" type="General" weightage="20" keywordseo="standard-deduction" source="keywords">standard deduction</keyword> of Rs 50,000 is available under both of them (so you can directly deduct Rs 50,000 from your total income before even beginning to calculate your tax liability), there are a lot more deductions and exemptions that this regime DOES NOT allow you to avail: <ul><li>Leave Travel Allowance (LTA)</li><li>House Rent Allowance (HRA) (Comes in handy if you're paying hefty rents in metros)</li><li>Interest on housing loan (on self-occupied property or vacant property)</li><li>Own contribution to NPS (If there's any)</li><li>Interest earned on savings bank A/Cs </li><li>Investments made in ELSS, PPF</li><li>Premiums paid towards life, health insurance policies</li></ul>As for the deductions that are allowed, that makes for a pretty small list: <ul><li>Transport allowances (only if you are specially abled)</li><li>Gifts of up to Rs 50,000</li><li>Employer’s contribution to your NPS account</li><li>Interest paid on home loan only on let-out property</li></ul>But that's the trade-off. You get to pay taxes at low rates, yes, but you also don't get to claim a whole lot other deductions. Notes CA Nitesh Buddhadev, "Which regime is beneficial for you depends upon the allowances and deduction available to you during a relevant financial year. So, if your total income from salary is Rs 10.5 lakh and if the aggregate of any of the deductions / allowances you can claim is less than Rs. 3.15 lakh, you should opt for the new tax regime. If you have not invested in multiple tax-savings scheme, the new regime will work better. So, don't make this decision in any haste. You can choose your tax regime only once in a financial year. And if your income from business or other professions, be even more careful, because this will then become a once in a lifetime choice for you (quite literally!). So, take a good hard look at your finances, and then decide what works best for you!

Confused about the new tax regime? Here's when you should opt for it

The Congress on Wednesday said the <keyword id="19900449" type="General" weightage="20" keywordseo="government" source="keywords">government</keyword>'s proposal of giving individuals the option to choose between two tax rates for long-term capital gains (<keyword id="6357448" type="General" weightage="20" keywordseo="LTCG" source="Orion">LTCG</keyword>) tax on properties is not enough. It should also allow <keyword id="21006654" type="General" weightage="100" keywordseo="indexation-benefits" source="keywords">indexation benefits</keyword> for other forms of <keyword id="20044873" type="General" weightage="20" keywordseo="savings" source="keywords">savings</keyword> such as <keyword id="19905382" type="General" weightage="20" keywordseo="stocks" source="keywords">stocks</keyword> and <keyword id="19975805" type="General" weightage="20" keywordseo="fixed-deposits" source="keywords">fixed deposits</keyword>. Professionals' Congress Chairman Praveen Chakravarty accused the government of "betraying" the middle and salaried class in the Union Budget through the removal of indexation and higher taxes on their savings and <keyword id="22703183" type="General" weightage="20" keywordseo="investment-gains" source="keywords">investment gains</keyword>. "On 23rd July, Finance Minister <keyword id="19916618" type="General" weightage="20" keywordseo="nirmala-sitharaman" source="keywords">Nirmala Sitharaman</keyword> presented the government's budget in Parliament. We welcomed certain aspects but we strongly opposed many parts of the budget. We welcomed the fact that the FM took some ideas from the Congress party's manifesto such as the employment linked incentive (ELI) scheme, the Apprenticeship Act and removing Angel tax," Chakravarty said at a press conference at the AICC headquarters here. Among other things, we strongly opposed what the finance did to the middle class and salaried professionals, he said. Leader of the Opposition Rahul Gandhi in his response to the Budget in Parliament categorically said that this was a "betrayal of the middle class" through removal of indexation and higher taxes on their savings and investment gains, Chakravarty pointed out. "He (Gandhi) had promised to fight for the middle class on this issue. This issue affected nearly 7 crore Indians who filed income taxes, owned or aspire to own a home and invest their savings. In this budget, effectively, through removal of indexation and increase in capital gains taxes, the taxes of salaried professionals through investment gains went up dramatically," he said. Already, the middle class and the salaried professionals are bearing the brunt of taxation under the Modi government because for the first time in India, total income taxes paid by middle class individuals are higher than taxes paid by rich corporates, Chakravarty said. There were huge protests on social media and in business events in cities like Mumbai where professionals came out spontaneously to protest, he said. Chakravarty said the <keyword id="22703184" type="General" weightage="20" keywordseo="All-India-Professionals-Congress" source="keywords" meta.keywordsubtype="org" meta.entityname="All India Professionals' Congress" meta.hostid="261" meta.entityid="All India Professionals' Congress">All India Professionals' Congress</keyword> and the Congress Party launched a campaign to 'Bring Back Indexation' with a petition asking people to sign it. "We had nearly 12,000 people who signed the petition in just one day since its launch. Yesterday, the government of India announced a rollback of indexation of property gains by giving individuals the option to continue with indexation benefits. We welcome this. This is a victory to the 7 crore people that file income tax," he said. "But this is not enough. We urge the government to allow indexation benefits for other forms of savings too such as stocks, debt, fixed deposits and so on," Chakravarty asserted. More importantly, this is a testament to middle class power and the power of democracy, he said. "When professionals come together and raise their voice, it will be heard. This is also proof of what a strong Opposition and a concerted and united effort can achieve for the people of India. The AIPC will continue to raise issues that impact the middle class working professionals," Chakravarty said. His remarks come a day after the government proposed significant relief for individuals who bought houses before July 23, 2024, by giving them the option to choose between two tax rates for long-term capital gains (LTCG) tax. The Budget 2024-25 had proposed to lower the LTCG from 20% to 12.5% but removed the indexation benefits. The new rates have come into effect from July 23, 2024. The indexation benefit allowed the taxpayers to compute gains arising out of the sale of capital assets after adjusting for inflation. The tax experts had said that the proposed changes in the Budget would raise the LTCG tax burden. As per the amendments to Finance Bill, 2024, circulated to the Lok Sabha members on Tuesday, individuals or HuF who bought houses before July 23, 2024, can compute his/her taxes under the new scheme (@12.5% without indexation) and old scheme (@20% with indexation) and pay such tax which is lower of the two. After the Budget presentation, the Income Tax department said that 'substantial tax savings' are expected for a vast majority of taxpayers due to a reduction in the long-term capital gains tax (LTCG) rate in the real estate sector. As per the changes brought in the 2024-25 Budget, the government has retained the indexation benefit for the taxpayers on properties bought or inherited before 2001.

Allow indexation benefits for savings such as stocks, fixed deposits: Cong to govt

<ul class="summary-list"><li>Chelsey Nelson, 33, moved from Seattle to Australia in 2021.</li><li>She pays up to 45% taxes but was able to buy a $1 million house.</li></ul>This as-told-to essay is based on a conversation with <a target="_blank" href="https://www.linkedin.com/in/chelseypnelson/?originalSubdomain=au">Chelsey Nelson</a>. It has been edited for length and clarity.In 2019, I met the man who would become my husband at a hospital in <a target="_blank" class="" href="https://www.businessinsider.com/carnival-rio-de-janeiro-brazil-first-time-afro-brazilian-2023-3">Rio de Janeiro during Carnival</a>. It made for a great story but a logistical challenge. Aiden was Australian, and I lived in Seattle. We traveled to be together for the next few years when we could. After COVID shut down the world, we were apart for 10 months, each stuck in our home country.We looked at our options. For Aiden to <a target="_blank" class="" href="https://www.businessinsider.com/mistakes-moving-to-america-from-uk-2023-11">move to the US</a>, we would need to get engaged, which we weren't quite ready for. Plus, there would be a period of time when he wouldn't be able to work.On the other hand, I could <a target="_blank" class="" href="https://www.businessinsider.com/living-half-year-in-uk-half-in-australia-what-its-like">move to Australia</a> on a partner visa without being engaged or married. I'd be able to work immediately. So, in 2021, I packed my bags and moved to Brisbane, Australia, a city I'd never been to before.<h2 id="9d583d47-cbec-4f78-8c95-4bd9e83a4953">I pay much higher taxes here</h2>One of the biggest differences financially is the tax rate. We pay 37% taxes on our income up to $190,000 (Australian dollars) and 45% on anything over that. Back home in Washington state, <a target="_blank" class="" href="https://www.businessinsider.com/states-where-middle-class-income-earners-pay-most-taxes-income-2024-4">there's no state income tax</a>, and we'd only be taxed at 24%.Hearing I'd be paying up to 45% was shocking, but I feel like I can see where my tax dollars are going here in Australia. I have Medicare, so I don't have to worry about <a target="_blank" class="" href="https://www.businessinsider.com/4-surprising-medical-costs-how-to-avoid-2023-4">unexpected medical costs</a>. It's not entirely free, though — I pay $1,300 annually for additional coverage because I'm over the age of 30.There are smaller benefits, too. Recently, my city reduced all public transit rides to 50 cents. I know my tax dollars are at work whenever I take the train, bus, or ferry.<h2 id="135a71e5-1b54-4315-b4fb-10f248144922">Saving for retirement is easier for me</h2>Back in the US, I had to ask companies I worked for whether they offered a 401(k) retirement plan, let alone a company match. In Australia, all companies are required to contribute 11.5% of an employee's salary to a superannuation retirement account. So, if you're offered a $100,000 salary, you earn $111,500 when you invest in retirement savings. Even if you work part-time or don't save any additional money, your employer must set aside that money.That really sets Australians up to have something when they retire. In the US, it feels like the employee should ask for retirement savings or put aside money on their own. I already have about $35,000 in my retirement account here.<h2 id="419fd843-3d18-4840-b67f-085e3ea91fe2">Housing prices are very high, but we don't pay property tax</h2>I paid over one million for a three-bedroom, two-bathroom house that's about 15 minutes outside the city. It's nothing special — just a postwar cottage in the style that this state is known for. The price felt comparable to Seattle but higher than much of the US.One benefit is that we don't pay property taxes. We paid a one-time Stamp Tax when we bought the house, which cost $36,000. I figure if we stay here for five years, we'll break even on the amount we would have paid in property tax in the US. Plus, it's predictable — we own the home without worrying about rising property tax rates. That's something I see my mom stress about back in Washington.<h2 id="7f92c2ce-7b9c-4fd1-9e2c-bc3138a79f47">I'm still not sure about having kids</h2>I'm on the fence about having kids for financial reasons and their impact on my career. I worry that if we have a child, it will be a setback in my career. Here in Australia, Medicaid would cover the birth and medical costs. Even though Aiden and I both make six figures each, we would receive a small government stipend for childcare. Still, I feel like we couldn't afford two children with all the costs of school and sports.<h2 id="e62263c6-a24b-4d76-8f7d-f279e9b05c08">I have way more time off</h2>One of the best parts of working in Australia is the amount of time I have off. I get four weeks of vacation time and two weeks of sick time (which can also be taken to care for someone else). I get 10 paid public holidays, so I have about an additional two weeks off, and my company gives me my birthday off, too.There's also unlimited unpaid leave. I took four and a half weeks off earlier this year for my wedding, and my boss is encouraging me to take another three at Christmas.

You Searched For "tax saving options" and got 11 results

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How a Montana retiree will save on spiking home insurance and taxes by living in a type of housing that's illegal in many places

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Allow indexation benefits for savings such as stocks, fixed deposits: Cong to govt

PTI

I moved from the US to Australia. My employer contributes over 11% to my retirement, and I don't pay property taxes.

Kelly Burch

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