TYBMS SEM :5 Finance : Wealth Management (Q.P. November 2018 with Solution)

Paper/Subject Code: 46009/Finance: Wealth Management 

TYBMS SEM :5 

Finance :

Wealth Management

(Q.P. November 2018 with Solution)

Note:

1) All questions are compulsory subject to internal choice.

2) Figures to the right indicate full marks.

3) Use of simple calculator is allowed

Q1(A) Choose the correct alternative and rewrite the sentence. (Any 8)            (8)

1. ________ is Defined as a relationship between an advisor and individual or a household.

A) Wealth Management

B) Investment Management

C) Financial Advisory

D) None of the above

2. Wealth management include _______.

A) Wealth accumulation and Development

B) Wealth Protection

C) Tax minimization Strategies

D) All of the above

3. ________ of the financial plans often requires discipline and perseverance.

A) Execution

B) Monitoring

C) Demonstrating

D) None of the above

4. Yield curve refers to _______.

A) Demand curve

B) Upward Sloping curve

C) Downward sloping curve

D) Lined at plots invest area. 

5. ________ applies to debt investment such as bonds.

A) Credit risk

B) Debit risk

C) Planned risk

D) None of the above

6. Health Insurance premium provide tax exemption Under section _________.

A) 80D Income Tax

B) 80C Income Tax

C) 80G Income Tax

D) 80A Income Tax

7. SIP stands for ________

A) Systematic Interest plan

B) Systematic innovation plan

C) Systematic Investment Plan

D) None of the above.

8. ________ is the difference between assets and liabilities of an individual or a company. 

A) financial ratios

B) Fixed assets

C) Net worth 

D) Goodwill

9. TDS stands for ________.

A) Tax deducted at source

B) Tax deducted at statute

C) Tax deducted at system

D) Tax deducted at strategy

10. A is one used to invest and disburse money in tax favour retirement plan.

A) Pure lifetime annuity

B) Non-qualified annuity.

C) Qualified annuity

D) Lifetime annuity

QI(B) State whether the following statements are True or False. (Any 7)               (7)

1. Wealth manager usually in fiduciary position when managing monies of their clients especially in portfolio management service.

Ans: True

2. An interest rate is often expressed as an annual percentage of the principle.

Ans: True

3. Money back policy offers the payment of partial survival benefits.

Ans: True

4. Life insurers are also known as health insurers.

Ans: False

5. Bonds are sometimes called fixed saving investments.

Ans: False

6. Assets allocation overtime is called as rebalancing.

Ans: True

7. CAGR return is same as Holding period return.

Ans: False

8. TDS is based on the principle "pay as you earn".

Ans: True

9. Total income is arrived after making various deduction from gross total income.

Ans: True

10. Any pension system comprises a two-pillar system.

Ans: False

Q2. Mr. Soham submits the following details of his income for the Assessment Year 2018-19.

Particulars	Amount
Income from salary	3,00,000
Loss from Let Out House Property	(40,000)
Income from Sugar Business	50,000
Loss from Iron ore business b/f from 2013-14	(1,20,000)
Short term Capital loss	(70,000)
Long term Capital Gain	40,000
Dividend from foreign company.	5,000
Income received from lottery winning(gross)	50,000
Winnings in Card Games	6,000
Agricultural income	20,000
Bank interest	5,000

Calculate Gross total income and losses to be carried forward.            (15)

OR

Q2(A) Explain the steps in building a financial plan.

Building a financial plan is a systematic process that helps you manage your money effectively to achieve your life goals. While the specific steps can vary slightly, here's a comprehensive breakdown of the typical stages involved:

1. Assess Your Current Financial Situation

Before you can plan for the future, you need a clear picture of where you stand today. This involves:

• Calculating your Net Worth: List all your assets (what you own, like bank accounts, investments, real estate, valuable possessions) and all your liabilities (what you owe, like mortgages, loans, credit card debt). Your assets minus your liabilities equal your net worth. This provides a baseline.
• Analyzing your Cash Flow: Track your income (salary, freelance earnings, etc.) and your expenses (fixed expenses like rent/mortgage, loan payments, and variable expenses like groceries, entertainment, utilities). This helps you understand where your money is going and identify areas for potential savings. Reviewing bank statements, credit card statements, and receipts can be very helpful here.
• Reviewing Existing Financial Documents: Gather all relevant documents, including bank statements, investment account statements, insurance policies, tax returns, wills, and any other legal papers related to your finances.

2. Set Personal Financial Goals

This is arguably the most crucial step, as your goals will drive your entire plan. Be specific, measurable, achievable, relevant, and time-bound (SMART). Categorize your goals into:

• Short-term goals (1-2 years): Examples include building an emergency fund (3-6 months of living expenses), paying off high-interest debt, or saving for a vacation.
• Medium-term goals (3-10 years): This might include saving for a down payment on a house, buying a new car, or funding a child's education.
• Long-term goals (10+ years): Retirement planning, significant wealth accumulation, or leaving a legacy are common long-term goals.

For each goal, specify a dollar amount and a target date. Also, differentiate between "needs" and "wants" to prioritize effectively.

3. Create a Detailed Budget

A budget is your roadmap for managing your income and expenses to achieve your goals. It's not about restriction, but about intentional spending and saving.

• Allocate Income: Based on your cash flow analysis, decide how you will allocate your income. A popular rule of thumb is the 50/30/20 rule: 50% for needs, 30% for wants, and 20% for savings and debt repayment.
• Identify Areas for Adjustment: Your budget will highlight where you can cut back on discretionary spending to free up more money for savings and investments.
• Choose a Budgeting Method: Whether it's a spreadsheet, a budgeting app, or a simple notebook, find a method that works for you and stick to it.

4. Develop a Savings and Investment Strategy

With your goals and budget in place, you can formulate strategies to reach your financial targets.

• Emergency Fund: Prioritize establishing and fully funding an emergency fund first. This acts as a financial buffer against unexpected events.
• Debt Management: Create a plan to pay down high-interest debt strategically. This could involve debt consolidation, the snowball method, or the avalanche method.
• Investment Planning: Based on your goals, time horizon, and risk tolerance, determine suitable investment vehicles. This might include:
  • Retirement accounts: 401(k), IRA, NPS, PPF, etc.
  • General investment accounts: Stocks, bonds, mutual funds, ETFs, real estate.
  • Education savings plans: For children's future education.
• Insurance Coverage: Assess your need for various types of insurance (life, health, disability, property, etc.) to protect yourself and your assets from unforeseen risks.
• Tax Planning: Understand the tax implications of your income, expenses, and investments. Look for legal ways to minimize your tax liability through deductions, credits, and tax-advantaged accounts.

5. Implement Your Financial Plan

This is where you put your plan into action.

• Automate Savings: Set up automatic transfers from your checking account to your savings and investment accounts on payday. This ensures consistent progress.
• Open Necessary Accounts: Set up investment accounts, retirement accounts, or other financial products as determined by your plan.
• Adjust Spending Habits: Consciously follow your budget and make changes to your spending as needed to align with your financial goals.
• Execute Debt Repayment Strategies: Consistently make payments and accelerate debt payoff where possible.

6. Monitor and Review Your Financial Plan Regularly

A financial plan is a living document, not a one-time event. Your life circumstances, financial goals, and market conditions will change over time.

• Annual Reviews: At least once a year, revisit your entire financial plan.
• Track Progress: Compare your actual income and expenses against your budget. Monitor the performance of your investments and your progress toward your goals.
• Make Adjustments:
  • If your income changes (raise, job loss).
  • If your expenses change (new home, new family member).
  • If your goals evolve (new goals, achieved old goals).
  • If market conditions shift significantly.
  • If your risk tolerance changes.
• Seek Professional Help (Optional but Recommended): A certified financial planner (CFP) can provide expert guidance, help you create a comprehensive plan, and assist with implementation and ongoing reviews, especially for more complex financial situations.

Q2(B) Briefly describe the challenges of Wealth Management.

Wealth management, while aiming to grow and preserve significant assets, faces several complex challenges:

• Market Volatility and Economic Uncertainty: Fluctuations in global markets, inflation, interest rate changes, and geopolitical events can significantly impact investment portfolios, making it difficult to maintain consistent returns and necessitating constant adjustments to strategies.
• Evolving Client Expectations: Modern clients, especially younger generations, are more informed and demand highly personalized, transparent, and digitally accessible services. They often seek advice beyond just investments, including areas like philanthropy, business succession, and impact investing.
• Regulatory Compliance: The financial industry is heavily regulated, with constantly changing laws and reporting requirements across various jurisdictions. Wealth managers must navigate this complex landscape to ensure compliance, which can be resource-intensive and costly.
• Data Management and Cybersecurity: As wealth management becomes more digital, protecting vast amounts of sensitive client data from cyber threats is a critical concern. Firms need robust systems and protocols to prevent breaches and ensure privacy.
• Technological Adaptation: Rapid advancements in technology (AI, blockchain, big data analytics) present both opportunities and challenges. Firms must invest in and integrate new technologies to remain competitive, often while dealing with outdated legacy systems.
• Complexity of Financial Products: The sheer number and complexity of available financial products and account types can be overwhelming for both clients and advisors, making it difficult to simplify choices and provide clear guidance.
• Intergenerational Wealth Transfer: The upcoming "Great Wealth Transfer" to younger generations brings new dynamics, as these heirs often have different values, investment preferences (e.g., ESG investing), and expectations for how wealth is managed.
• Talent Acquisition and Retention: The demand for skilled wealth management professionals is high, making it challenging for firms to attract and retain top talent who can address the multifaceted needs of wealthy clients.
• Fee Compression and Competition: Increased competition from robo-advisors and other fintech platforms, coupled with client demand for lower fees and greater transparency, puts pressure on traditional wealth management firms' profit margins.
• Holistic Client Needs: Beyond investments, wealth management increasingly involves a holistic approach, encompassing tax planning, estate planning, risk management (insurance), and even family governance. Coordinating all these aspects adds significant complexity.

Q3. (A) Dr. Dinesh sold on 20.06.2017 his residential house in Jaipur for Rs.75,00,000, It was purchased on 10.08.2003 for Rs.6,00,000. Expenses on transfer amounted to Rs. 1,00,000. Dr. Dinesh incurred expenses. improvement of old house in financial year 2005-06 of Rs 2,00,000. He invested Rs.25,00,000 for purchase of new residential house on 31.10.2017. You are required to compute Net Capital Gain for the assessment year 2018-19. Relevant cost inflation indices are as under.    (7)

FINANCIAL YEAR	COST INFLATION INDICES
2001-02	100
2003-04	109
2005-06	117
2017-18	272

Q3(b) Following is the summarized Balance Sheet of Star Products Ltd as on 31-03-2014.

Liabilities	Rs.	Assets	Rs.
Equity Share Capital	5,00,000	Fixed Assets	13,00,000
9% Preference Share Capital	3,00,000	Investments	4,00,000
Securities Premium	25,000	Stock	8,50,000
10% Debentures	7,50,000	Sundry Debtors	5,00,000
Profit & Loss A/c	7,40,000	Prepaid Expenses	40,000
Sundry Creditors	2,30,000	Advance Income Tax	78,000
Bank Overdraft	3,95,000	Cash & Bank Balances	62,000
Provision for Taxation	1,80,000	Shares Issue Expenses	10,000
Proposed Equity Dividend	1,50,000	Preliminary Expenses	30,000
	32,70,000		32,70,000

You are required to compute the following ratios -

(i) Current Ratio

(ii) Liquid Ratio.

(iii) Debt Equity Ratio

(iv) Capital Gearing Ratio

OR

Q3 (P) What are the rights of an Insurer?                    (8)

In India, insurers, as one party to an insurance contract, have several important rights that are crucial for their operations, risk management, and the overall fairness of the insurance system. These rights are generally derived from insurance laws and regulations (like the Insurance Act, 1938, and IRDAI regulations) and the principles of insurance contracts.

Rights of an insurer:

• Right to Assess Risk: Before issuing a policy, the insurer has the right to thoroughly evaluate the risk involved. This includes requesting detailed information about the personal, financial, and health conditions of the prospective insured to make an informed decision about whether to approve the policy and determine the appropriate premium.

• Right to Premium Payments: A fundamental right of the insurer is to receive timely premium payments from the insured. Failure to pay premiums when due can lead to the lapse of coverage, and the insurer has the right to deny benefits if an incident occurs during a lapsed period. They may also have the right to charge interest or penalties for late payments.

• Right to Investigate Claims: When a claim is filed, the insurer has the right to investigate it thoroughly to determine if it falls within the scope of coverage and if all conditions of the policy have been met. This investigation may involve legal counsel, surveyors, or other experts. If fraudulent activity is suspected, the insurer has the right to cancel the claim or even file a suit.

• Right to Cancellation of Policy: Insurers can cancel a policy under certain conditions. For instance, if the insured provides false or misleading information, fails to disclose critical facts during the application process, or violates the terms and conditions of the policy, the insurer may have the right to cancel the policy.

• Right to Subrogation: This is a crucial right that allows the insurer, after paying a claim to the insured, to step into the shoes of the insured and pursue recovery from a third party who was responsible for the loss. For example, if an insurer pays for vehicle damage caused by another driver's negligence, the insurer can then sue that negligent driver to recover the amount paid. This principle ensures that the insured does not profit from the loss and that the ultimate responsibility lies with the at-fault party.

• Right to Contribution: If an insured has multiple policies covering the same risk with different insurers, the insurer has the right to seek contribution from the other insurers for their proportionate share of the loss. This prevents the insured from recovering more than the actual loss by claiming from multiple policies.

• Right to Avoid Policy for Misrepresentation or Non-Disclosure: Insurance contracts are based on the principle of "utmost good faith" (uberrima fides). This means the insured has a duty to disclose all material facts accurately and completely. If the insured conceals or misrepresents material information, the insurer has the right to void the policy or reject a claim, especially if the concealment was intentional or had a significant impact on the risk assessment.

• Right to Set Terms and Conditions: Insurers have the right to define the terms, conditions, exclusions, and limitations of the insurance policy, provided they comply with regulatory guidelines. These are clearly outlined in the policy document and form the basis of the contract.

• Right to Decline a Proposal: An insurer is not obligated to accept every insurance proposal. They have the right to reject a proposal if the risk is deemed too high, the information provided is insufficient, or for other valid underwriting reasons.

Q3 (Q) What are the factors affecting risk profile of a client?                    (7)

When assessing a client's risk profile, particularly in financial planning and insurance, it's crucial to consider a holistic view that encompasses both their willingness to take risks (risk tolerance) and their ability to take risks (risk capacity). These are influenced by a variety of personal, financial, and even psychological factors.

The factors affecting a client's risk profile:

I. Financial Factors (Risk Capacity)

These factors determine how much financial loss a client can afford to bear without jeopardizing their essential financial goals or well-being.

• Income and Job Stability:
  • High, stable income: Generally indicates a higher risk capacity as there's a consistent cash flow to absorb potential losses and recover from setbacks.
  • Irregular or lower income: Suggests lower risk capacity, as any significant loss could severely impact their ability to meet financial obligations.
• Existing Assets and Liabilities (Net Worth):
  • High assets, low liabilities: A strong asset base (e.g., substantial savings, investments, real estate, emergency fund) and manageable debt imply a higher risk capacity. They have a cushion to fall back on.
  • Low assets, high liabilities: A weaker financial position with significant debt (e.g., high loans, credit card debt) means less capacity to take on risk.
• Emergency Fund: A robust emergency fund provides a safety net, increasing risk capacity as the client is less likely to need to liquidate investments at a loss during a downturn.
• Time Horizon:
  • Longer time horizon: (e.g., investing for retirement 20+ years away) allows for greater risk-taking, as there's more time to recover from market fluctuations.
  • Shorter time horizon: (e.g., saving for a down payment in 2-3 years) requires a more conservative approach, as there's less time to recover from potential losses.
• Financial Goals and Needs:
  • Aggressive growth goals: May necessitate taking on higher risk to achieve the desired returns.
  • Capital preservation goals: Prioritizing the safety of the principal amount indicates a lower risk capacity.
  • Liquidity needs: If a client needs quick access to funds, their risk capacity for illiquid or volatile assets will be lower.
• Dependents and Financial Obligations: Individuals with many dependents or significant financial obligations (e.g., children's education, elderly parent care) tend to have lower risk capacity, as their financial stability is crucial for others.
• Existing Insurance Coverage: Adequate insurance (life, health, property, etc.) can enhance risk capacity by protecting against unforeseen events that could otherwise deplete savings.

II. Personal/Psychological Factors (Risk Tolerance)

These factors reflect a client's emotional comfort level and willingness to take on risk, even if they have the financial capacity to do so.

• Age:
  • Younger clients: Often have higher risk tolerance due to a longer earning period and time to recover from losses.
  • Older clients (nearing or in retirement): Typically have lower risk tolerance as capital preservation becomes paramount and the time to recover is shorter.
• Investment Knowledge and Experience:
  • Higher financial literacy and experience: Clients who understand market dynamics, different investment products, and historical performance are generally more comfortable with higher-risk investments.
  • Limited knowledge/experience: May lead to lower risk tolerance and a preference for simpler, less volatile options.
• Past Investment Experience:
  • Positive past experiences: Can increase confidence and willingness to take on risk.
  • Negative past experiences (e.g., significant losses): Can make a client more risk-averse, even if their financial capacity is high. This can also be influenced by family events or personal history.
• Personality Traits: Some individuals are naturally more adventurous or optimistic, while others are more cautious or prone to anxiety. Personality traits like openness, conscientiousness, extraversion, agreeableness, and neuroticism can influence financial decisions and risk perception.
• Emotional Resilience/Behavioral Biases:
  • Ability to handle volatility: Clients who can remain calm during market downturns exhibit higher risk tolerance.
  • Behavioral biases: Overconfidence, herd mentality, or loss aversion can impact risk tolerance. For instance, someone with high loss aversion will feel the pain of a loss more acutely than the pleasure of an equivalent gain, leading to lower tolerance.
• Lifestyle: An unmarried individual early in their career might be more willing to take risks than a middle-aged person with dependents and established financial commitments.

III. External/Economic Factors

While primarily influencing investment returns, these can indirectly affect a client's perceived risk profile and willingness to take risks.

• Economic Conditions:
  • Booming economy: Can encourage risk-taking as people feel more financially secure and optimistic about future returns.
  • Economic downturn/recession: Tends to make individuals more risk-averse, prioritizing capital preservation and immediate needs.
• Inflation: High inflation erodes purchasing power, which might prompt some to take on more risk to achieve returns that outpace inflation, while others might become more conservative to protect their existing capital.
• Interest Rates: Changing interest rates can affect the attractiveness of different asset classes and influence risk appetite.
• Regulatory Environment: Changes in government policies or regulations can create new risks or opportunities, influencing investment behavior.

Q4 (A) Discuss the requirement of a valid will?                            (8)

In India, the validity of a Will is primarily governed by the Indian Succession Act, 1925, particularly for Hindus, Buddhists, Sikhs, and Jains. Muslims are generally governed by their personal laws. A Will is a legal declaration of a person's intention with respect to their property, which they desire to be carried into effect after their death.

For a Will to be considered legally valid and enforceable in India, it must fulfill several key requirements:

1. Testamentary Capacity:

   • Sound Mind: The person making the Will (known as the testator) must be of a sound mind at the time of executing the Will. This means they must understand the nature and effect of their actions, know what property they own, and be aware of the persons who are their natural beneficiaries (e.g., family members).
     • Even a person who is ordinarily insane can make a valid Will during an interval when they are of sound mind.
     • A person who is deaf or dumb or blind can make a Will if they are able to understand what they are doing.
     • However, a person under the influence of intoxication, illness (like advanced dementia), or any other cause that prevents them from understanding what they are doing cannot make a valid Will.
   • Age of Majority: The testator must have attained the age of majority, which is 18 years in India. A minor cannot make a valid Will.

2. Voluntary and Free Consent:

   • The Will must be made voluntarily and without any coercion, fraud, or undue influence. If it can be proven that the testator was forced or manipulated into making the Will or any part of it, the Will or that part can be declared void. The burden of proof to establish fraud, coercion, or undue influence generally lies on the person challenging the Will.

3. Clear Intention:

   • The Will must clearly express the testator's intention regarding the distribution of their property after death. The language used should be precise and unambiguous to avoid any disputes or misinterpretations. It should unequivocally state that the document is intended to be their last Will and Testament.

4. In Writing:

   • While the Indian Succession Act, 1925, doesn't explicitly state that a Will must be in writing, Section 63 implicitly requires it through its provisions for signature and attestation. Oral Wills are generally not recognized for unprivileged Wills (i.e., those made by ordinary civilians), except in very specific "privileged" circumstances (e.g., by soldiers in actual warfare or mariners at sea).
   • A Will can be handwritten or typed. A handwritten Will (holograph Will) is often considered more authentic as it's harder to forge.

5. Signature of the Testator:

   • The testator must sign or affix their mark (e.g., thumb impression) to the Will.
   • Alternatively, someone else can sign the Will on behalf of the testator, but this must be done in the testator's presence and by their direction.
   • The signature or mark must be placed in such a way that it clearly indicates the testator's intention to give effect to the writing as their Will (e.g., at the end of the document).
   • It is good practice for the testator to initial each page of the Will, though not strictly a legal requirement, to prevent tampering.

6. Attestation by Witnesses:

• The Will must be attested by two or more witnesses.
• Each witness must have seen the testator sign or affix their mark to the Will, or have seen someone else sign the Will in the testator's presence and by their direction, or have received from the testator a personal acknowledgment of their signature or mark.
• Each witness must sign the Will in the presence of the testator. However, it is not necessary for both witnesses to be present at the same time, nor is it required that they sign in the presence of each other. The key is that each witness signs in the presence of the testator.

• Important Note on Witnesses:
  • Witnesses should be adults (18 years or older) and of sound mind.
  • Crucially, a beneficiary named in the Will, or their spouse, should not be a witness. If they do witness the Will, the Will itself remains valid, but the bequest (gift) to that witness (or their spouse) will become void. This rule is to prevent conflicts of interest and ensure the impartiality of witnesses.
  • It is advisable to choose witnesses who are likely to outlive the testator and can be located if their testimony is required in the future.

1. Proper Disposal of Property:

   • The Will should clearly list the assets owned by the testator and specify how these assets are to be distributed among the beneficiaries.
   • It can also include provisions for the care and guardianship of minor children, appointment of an executor, and instructions for managing the estate.

What is NOT Required for a Valid Will in India:

• Stamp Paper: A Will does not need to be executed on stamp paper. It can be on plain paper.

• Registration: While registering a Will with the Sub-Registrar is advisable (as it adds authenticity and reduces the chances of disputes), it is not mandatory for its validity. An unregistered Will, if it meets all the other requirements, is perfectly valid.

• Specific Language or Format: There is no prescribed format or specific language that must be used. A Will can be simple and straightforward, as long as it clearly conveys the testator's intentions and meets the legal requirements. However, using clear and unambiguous language is highly recommended to avoid future disputes.

• Probate (in all cases): Probate (judicial certification of a Will) is mandatory only in certain metropolitan cities (Mumbai, Kolkata, Chennai) for Wills made by Hindus, Buddhists, Sikhs, and Jains concerning immovable property within those cities, or for immovable property outside those cities if the Will was executed within them. For most other cases, probate is not mandatory, but it can be obtained voluntarily for clarity and easier asset transfer.

(B) What is TDS and When is it payable?                     (7)

Tax Deducted at Source (TDS) is a system implemented by the Indian government to collect income tax at the very source of income. Instead of the recipient of the income paying the tax directly, the payer of certain specified types of income is legally obligated to deduct a certain percentage of tax at the time of payment or credit, whichever is earlier. This deducted amount is then remitted to the government on behalf of the recipient.

The primary objective of TDS is to ensure a steady and timely flow of revenue to the government, broaden the tax base, and simplify tax collection.

Who is involved in TDS?

• Deductor: The person or entity who makes the payment and is responsible for deducting the tax at source. They have a Tax Deduction and Collection Account Number (TAN) issued by the Income Tax Department.
• Deductee: The person or entity who receives the payment after the tax has been deducted.
• Government: The ultimate recipient of the tax.

Types of Payments Subject to TDS (Common Examples):

TDS is applicable to various types of payments, provided they exceed certain threshold limits specified under the Income Tax Act, 1961. Some common examples include:

• Salaries: Employers deduct TDS from employee salaries.
• Interest Income: Banks deduct TDS on interest earned from fixed deposits, recurring deposits, etc., if it exceeds a certain limit.
• Rent: TDS is deducted on rent payments, especially for commercial properties or residential properties above a certain monthly threshold.
• Professional Fees & Technical Services: Payments to professionals (doctors, lawyers, consultants) and for technical services.
• Commission & Brokerage: Payments made as commission or brokerage.
• Contract Payments: Payments made to contractors for carrying out work.
• Purchase of Immovable Property: TDS is deducted on the sale of immovable property (other than agricultural land) if the consideration exceeds ₹50 lakhs.
• Certain Cash Withdrawals: Banks deduct TDS on cash withdrawals exceeding a certain limit.

When is TDS Payable (Due Dates for Deposit)?

The deductor is responsible for depositing the TDS amount to the government. The due dates for depositing TDS vary based on the type of deductor and the month of deduction.

• For Non-Government Deductors:

  • For TDS deducted from April to February: The due date is the 7th of the succeeding month. (e.g., TDS deducted in April must be deposited by May 7th).
  • For TDS deducted in March: The due date is April 30th.

• For Government Deductors:

  • If payment is made through a Challan: The due date is the 7th of the succeeding month.
  • If payment is made through Book Entry: The due date is the same day on which the TDS was deducted. However, for March, the due date is April 7th.

Important Note for TDS on Immovable Property (Section 194-IA) and Rent (Section 194-IB):

• For TDS deducted on the purchase of immovable property (Section 194-IA) or rent (Section 194-IB), the deductor must furnish a challan-cum-statement (Form 26QB and 26QC respectively) within 30 days from the end of the month in which the tax was deducted.

TDS Return Filing Due Dates:

In addition to depositing the TDS, deductors also need to file quarterly TDS returns. The due dates for filing TDS returns are:

• Quarter 1 (April - June): July 31st
• Quarter 2 (July - September): October 31st
• Quarter 3 (October - December): January 31st
• Quarter 4 (January - March): May 31st

Consequences of Non-Compliance (Penalties and Interest):

• Late Deduction: Interest @ 1% per month or part thereof from the date the tax was deductible until the actual date of deduction.
• Late Payment (Deducted but not deposited): Interest @ 1.5% per month or part thereof from the date of deduction until the actual date of deposit.
• Late Filing of TDS Returns (Section 234E): A late fee of ₹200 per day is charged for the delay, up to the total amount of TDS.
• Penalty for Non-Filing or Incorrect Filing (Section 271H): A penalty ranging from ₹10,000 to ₹1,00,000 may be imposed, in addition to late filing fees.
• Disallowance of Expense: If TDS is not deducted or deposited, a portion (30% for domestic payments, 100% for non-resident payments) of the expense on which TDS was applicable may be disallowed when computing taxable income.
• Prosecution (Section 276B): Failure to deposit TDS to the government's credit can lead to rigorous imprisonment.

OR

Q4(P) Assuming the Total Tax Liability of Mr. Mohanji is Rs.50,000 And TDS is Rs.2,000. Calculate the Advance Tax payable on Respective Due Dates.                (8)

Advance Tax is required to be paid by individuals if their estimated tax liability for the financial year, after accounting for TDS, exceeds ₹10,000.

1. Calculate Net Tax Liability for Advance Tax:

• Total Tax Liability = ₹50,000
• Less: TDS (Tax Deducted at Source) = ₹2,000
• Net Tax Payable (Advance Tax Liability) = ₹50,000 - ₹2,000 = ₹48,000

Since Mr. Mohanji's net tax payable (₹48,000) is more than ₹10,000, he is liable to pay advance tax.

2. Advance Tax Due Dates and Installment Percentages for Individuals (Other than those opting for Presumptive Taxation):

Advance tax is paid in four installments throughout the financial year:

• 1st Installment: On or before June 15th
• Minimum payment: 15% of the total advance tax liability.

• 2nd Installment: On or before September 15th
• Minimum payment: 45% of the total advance tax liability (less tax already paid).

• 3rd Installment: On or before December 15th
• Minimum payment: 75% of the total advance tax liability (less tax already paid).

• 4th Installment: On or before March 15th
• Minimum payment: 100% of the total advance tax liability (less tax already paid).

3. Calculation of Advance Tax Payable by Mr. Mohanji on Respective Due Dates:

Due Date	Percentage of Net Tax Payable	Calculation	Advance Tax Payable for Installment	Cumulative Advance Tax Paid
June 15	15%	15% of 48000	7200	7200
September 15	45%	(45% of  48000) - 7200	21600 -7200 = 14400	21,600
December 15	75%	(75% of 48000) - 21600	36000 – 21600 = 14400	36000
March 15	100%	(100% of 48000) – 36000	48000 – 36000 = 12000	48000

Q4(Q) Mr. Nitin aged 41 years furnishes the following information:

1) Income from Capital gain Rs 5,00,000,

2) Income from textile business Rs 8,00,000,

3) LIC premium of self-Rs.70,000 P.A (sum assured Rs.3,00,000)

4) Mediclaim premium on self policy Rs.20,000 and for dependent parent Rs. 16,000.

5) Contribution to recognized provident fund Rs. 45,000.

Compute the Net taxable income of Mr. Nitin for the assessment year 2018-19.

Ans:

Assessment Year 2018-19 corresponds to the Financial Year 2017-18.

Mr. Nitin is 41 years old, so he falls under the category of "Individual below 60 years of age" for tax slab purposes.

I. Computation of Gross Total Income:

1. Income from Capital Gain: Rs. 5,00,000 

2. Income from Textile Business: Rs. 8,00,000

Gross Total Income = Rs. 5,00,000 (Capital Gain) + Rs. 8,00,000 (Business Income) = Rs. 13,00,000

II. Deductions under Chapter VI-A:

A. Deduction under Section 80C: The maximum deduction allowed under Section 80C (including 80CCC and 80CCD(1)) for AY 2018-19 is Rs. 1,50,000.

• LIC Premium: Rs. 70,000
  • For policies issued on or after April 1, 2012, the premium allowed as a deduction is restricted to 10% of the sum assured.
  • 10% of Sum Assured (Rs. 3,00,000) = Rs. 30,000
  • Since the premium paid (Rs. 70,000) is more than 10% of the sum assured (Rs. 30,000), the deduction for LIC premium will be restricted to Rs. 30,000.
• Contribution to Recognized Provident Fund: Rs. 45,000

Total eligible deduction under 80C before limit = Rs. 30,000 (LIC) + Rs. 45,000 (RPF) = Rs. 75,000

Since Rs. 75,000 is less than the maximum limit of Rs. 1,50,000, the full amount of Rs. 75,000 will be allowed under Section 80C.

B. Deduction under Section 80D (Mediclaim Premium):

• For self: Mr. Nitin is 41 years old (below 60).
• Mediclaim premium for self: Rs. 20,000
• Maximum deduction for self, spouse, and dependent children is Rs. 25,000.
• Allowed deduction for self = Rs. 20,000

• For dependent parent:
  • Mediclaim premium for dependent parent: Rs. 16,000
  • The problem does not specify the age of the dependent parent. For AY 2018-19, if the parent was below 60 years, the limit was Rs. 25,000. If the parent was a senior citizen (60 years or above), the limit was Rs. 50,000. Assuming the parent is not a senior citizen as their age is not specified as such, the general limit applies.
  • Assuming dependent parent is below 60 years, the maximum deduction for parents is Rs. 25,000.
  • Allowed deduction for dependent parent = Rs. 16,000

Total Deduction under Section 80D = Rs. 20,000 (self) + Rs. 16,000 (dependent parent) = Rs. 36,000

III. Computation of Net Taxable Income:

Gross Total Income - Total Deductions under Chapter VI-A 

Net Taxable Income = Rs. 13,00,000 - (Rs. 75,000 + Rs. 36,000) 

Net Taxable Income = Rs. 13,00,000 - Rs. 1,11,000 

Net Taxable Income = Rs. 11,89,000

Therefore, the Net Taxable Income of Mr. Nitin for the Assessment Year 2018-19 is Rs. 11,89,000.

Q5. (A) What is New pension scheme (NPS)? Explain the features of NPS.

The New Pension Scheme (NPS), also known as the National Pension System, is a government-sponsored retirement savings scheme in India. It was launched by the Pension Fund Regulatory and Development Authority (PFRDA) in 2004 for government employees, and later opened to all Indian citizens in 2009, including those in the private sector and self-employed.

Its primary goal is to encourage long-term retirement planning and savings by providing individuals with a structured, market-linked pension plan.

Features of NPS

1. Eligibility

• Any Indian citizen (resident or non-resident) between the ages of 18 and 70 years can join.

• Must comply with Know Your Customer (KYC) norms.

2. Types of Accounts

a. Tier I Account (Mandatory)

• Primary retirement account with restricted withdrawals.

• Contributions are eligible for tax benefits.

b. Tier II Account (Voluntary)

• Optional savings account with no withdrawal restrictions.

• No tax benefits (except for government employees under 80C).

3. Contribution Requirements

• Tier I:

  • Minimum contribution at the time of account opening: ₹500

  • Minimum annual contribution: ₹1,000

• Tier II:

  • Minimum contribution: ₹250 (no minimum annual limit)

4. Investment Options

Subscribers can choose from:

• Equity (E)

• Corporate Debt (C)

• Government Securities (G)

• Alternative Investment Funds (A)

There are two options:

• Auto Choice: Asset allocation changes with age.

• Active Choice: Subscriber decides asset allocation (Equity capped at 75%).

5. Tax Benefits

• Tier I contributions:

  • Deduction up to ₹1.5 lakh under Section 80CCD(1) (within 80C limit).

  • Additional ₹50,000 under Section 80CCD(1B) (over and above 80C).

• Employer contribution up to 10% of salary (Basic + DA) is also deductible under Section 80CCD(2) (no limit under 80C).

6. Withdrawal Rules

At Retirement (Age 60+):

• At least 40% of the corpus must be used to purchase an annuity.

• Remaining 60% can be withdrawn as lump sum, which is tax-free.

Premature Exit:

• Allowed after 10 years, but 80% of the corpus must go to annuity; only 20% can be withdrawn.

Partial Withdrawals:

• Allowed for specific purposes (e.g., marriage, education, medical emergency) after 3 years, up to 25% of self-contributions.

7. Portability

• NPS is fully portable across jobs and locations in India.

• PRAN (Permanent Retirement Account Number) remains the same.

8. Low Cost Structure

• NPS is one of the lowest-cost pension schemes in the world with minimal management fees.

(B) Explain Pre and Post Retirement Strategies.

Pre-Retirement Strategies

These strategies focus on accumulating wealth and preparing for a smooth transition into retirement. The key objectives are to save, invest, and plan effectively.

1. Financial Planning

• Set Retirement Goals: Estimate how much money you'll need based on desired lifestyle, expected lifespan, inflation, and healthcare costs.

• Budgeting: Track expenses and income to increase savings.

• Emergency Fund: Maintain 6–12 months of expenses in liquid assets.

2. Investment Strategy

• Start Early: Leverage compounding interest by beginning early.

• Asset Allocation: Diversify investments among stocks, bonds, and other assets based on risk tolerance and age.

• Tax-Advantaged Accounts: Maximize contributions to retirement accounts (e.g., 401(k), IRA, or equivalents in other countries).

• Minimize Debt: Pay off high-interest debts before retirement.

3. Insurance and Risk Management

• Health Insurance: Secure adequate coverage; consider long-term care insurance.

• Life Insurance: Especially important for individuals with dependents.

• Disability Insurance: Protect income during working years.

4. Estate and Legal Planning

• Will and Testament: Create or update regularly.

• Power of Attorney & Health Directives: Assign decision-makers for financial and medical decisions.

Post-Retirement Strategies

These strategies ensure that your accumulated wealth is sustained and utilized wisely to maintain quality of life throughout retirement.

1. Income Management

• Drawdown Strategy: Plan how much to withdraw annually (e.g., the 4% rule).

• Diversify Income Sources: Include pensions, annuities, social security, rental income, etc.

• Avoid Sequence Risk: Withdraw less in bear markets to avoid depleting savings early.

2. Investment Adjustments

• Shift to Conservative Assets: Reduce exposure to volatile investments; increase bonds or stable income-generating assets.

• Regular Reviews: Rebalance portfolio annually based on market conditions and changing needs.

3. Tax Efficiency

• Strategic Withdrawals: Minimize taxes by drawing from taxable, tax-deferred, and tax-free accounts in an optimal order.

• Required Minimum Distributions (RMDs): Understand and plan for mandatory withdrawals from retirement accounts.

4. Healthcare Planning

• Medicare or Equivalent: Understand eligibility, options, and supplement plans.

• Long-Term Care: Budget or insure against possible future care needs.

5. Legacy and Giving

• Estate Planning: Update wills and trusts.

• Charitable Contributions: Consider tax-effective giving strategies.

• Gifting to Heirs: Plan transfers in a way that minimizes tax impact.

OR

Q5. Write short Notes (Any 3)                    (15)

a) Scope of Wealth Management

Wealth management is a comprehensive service that combines financial planning, investment management, tax planning, and other financial services to meet the specific needs of affluent individuals or families. Its primary goal is to grow, protect, and transfer wealth effectively.

Key areas within the scope of wealth management include:

1. Investment Management:
   Designing and managing a diversified investment portfolio aligned with the client’s financial goals and risk tolerance.

2. Financial Planning:
   Creating a personalized roadmap covering retirement planning, education funding, insurance needs, and estate planning.

3. Tax Planning:
   Structuring investments and income to minimize tax liability within legal frameworks.

4. Estate & Succession Planning:
   Ensuring smooth transfer of wealth to heirs while preserving family legacy and minimizing legal complications.

5. Risk Management:
   Assessing and mitigating financial risks through appropriate insurance and asset protection strategies.

6. Philanthropic Planning:
   Helping clients fulfill charitable goals through structured giving strategies and trusts.

b) Health Insurance Mediclaim

Health Insurance, often referred to as Mediclaim, is a type of insurance policy that provides financial coverage for medical expenses incurred due to illness, injury, or hospitalization. It helps individuals and families manage the high costs of healthcare.

Features of Health Insurance / Mediclaim:

1. Coverage of Medical Expenses:
   Includes hospitalization costs, surgery, doctor’s consultation fees, diagnostic tests, and sometimes even pre- and post-hospitalization expenses.

2. Cashless Facility:
   Many health insurance providers have tie-ups with hospitals (network hospitals) where treatment can be availed without upfront payment, subject to policy terms.

3. Tax Benefits:
   Premiums paid for health insurance qualify for tax deduction under Section 80D of the Income Tax Act.

4. Types of Policies:

   • Individual Mediclaim – Covers a single person.

   • Family Floater Plan – Covers the entire family under one sum insured.

   • Critical Illness Cover – Provides a lump sum on diagnosis of specified serious illnesses.

   • Group Mediclaim – Offered by employers to their employees.

5. Add-on Benefits:
   Policies may offer add-ons like maternity benefits, ambulance charges, health check-ups, and more.

Importance:
With rising healthcare costs, having a Mediclaim policy provides financial security, reduces out-of-pocket expenses, and ensures timely medical treatment without financial stress.

c) Active Investment Management

Active Investment Management is an investment strategy where a portfolio manager or investor actively makes decisions about buying and selling securities with the goal of outperforming a specific benchmark index, such as the Nifty 50 or S&P 500.

Characteristics:

1. Hands-On Approach:
   Fund managers or analysts continuously monitor market conditions, economic trends, and company performance to make informed decisions.

2. Goal of Outperformance:
   The main objective is to generate higher returns than the market average or a specific benchmark index.

3. Frequent Trading:
   Active managers may frequently buy and sell stocks or other assets based on short- or long-term opportunities.

4. Research-Driven:
   Investment decisions are based on in-depth research, forecasts, and professional judgment rather than simply tracking the market.

5. Higher Costs:
   Due to frequent transactions and professional management, active funds often have higher management fees and operating costs compared to passive investments.

Advantages:

• Potential for higher returns.

• Flexibility to react to market changes.

• Opportunity to take advantage of mispriced securities.

Disadvantages:

• Higher costs and fees.

• Risk of underperformance.

• Dependent on manager skill.

d) Long term Capital gain Tax

Long-Term Capital Gains (LTCG) Tax is the tax levied on profits earned from the sale of capital assets held for a specified period, generally more than 12 months (for listed equity shares and equity mutual funds) or 36 months (for other assets like real estate, debt mutual funds, etc.).

Features:

1. Applicability:
   LTCG tax applies to assets such as:

   • Equity shares

   • Mutual funds

   • Real estate

   • Gold

   • Bonds and debentures

2. Tax Rate (India – as per current norms):

   • Equity-related gains: 10% on gains exceeding ₹1 lakh in a financial year (without indexation).

   • Other assets: 20% with indexation benefits (to adjust for inflation).

3. Indexation Benefit:
   For non-equity assets, the cost of acquisition is adjusted using the Cost Inflation Index (CII), reducing taxable gains and, thus, the tax liability.

4. Exemptions:
   Certain exemptions are available under Sections 54, 54EC, and 54F of the Income Tax Act if the capital gains are reinvested in specified assets (like residential property or certain bonds).

e) Sukanya Samriddhi Scheme

he Sukanya Samriddhi Yojana (SSY) is a government-backed savings scheme launched under the "Beti Bachao, Beti Padhao" initiative, aimed at encouraging savings for the education and future of the girl child in India.

Features:

1. Eligibility:

   • Can be opened by parents or legal guardians of a girl child.

   • The girl must be below 10 years of age at the time of account opening.

2. Account Details:

   • Only one account per girl child is allowed.

   • A maximum of two accounts per family (for two girls) can be opened.

3. Investment Limits:

   • Minimum deposit: ₹250 per year.

   • Maximum deposit: ₹1.5 lakh per year.

4. Tenure:

   • Deposits can be made up to 15 years from the date of account opening.

   • The account matures after 21 years from the date of opening.

5. Interest Rate:

   • The interest rate is set by the government quarterly and is higher than most other small savings schemes.

6. Tax Benefits:

   • Offers EEE (Exempt-Exempt-Exempt) status:

     • Contributions qualify for deduction under Section 80C.

     • Interest earned and maturity amount are tax-free.

7. Withdrawal:

• Up to 50% of the balance can be withdrawn after the girl turns 18 years, for education or marriage.