Sambit Patel (Director) (180 Points)
31 March 2012Everytime, our current accounts have balance like 20-25 lacs in there and Im confused, how to plan, so I can get all of them out, by just keeping 3-4 lacs in there in each month.
How do we need to plan ?
Isnt the money staying in current account a problem ?
What I did was, I withdrew like 10 lacs , 2-3 times from my current account and placed the funds in the locker.
Is it the right way or I need to do something else ?
Please help.
Paresh Dholu
(Chartered Accountants)
(393 Points)
Replied 31 March 2012
If u hv no need of fund you can FD it in same branch.
so you can earn interest on unused fund.
Mihir
(Wealth Manager)
(5293 Points)
Replied 31 March 2012
Use sweepstake account.
Open an FD link to your current account. FD balance will earn a nominal interest. As and when there is a requirement of funds more than the available balance in current account, the funds will be automatically taken off the FD of the balance amount. The rest of the balance in the FD will still earn interest.
Arpit Gupta
(Chartered Accountant )
(95 Points)
Replied 31 March 2012
Dear Sambit
apart from using sweepstake account, you can utilise your execess fund in short term market securities or pure liquid securities like liquid mutual fund or money market mutual fund.
you can earn a good return on your excess fund using abovementioed means but definetly there willl be some sort of risk. So depending upon exposure you would like to have, you can invest or retain it in aweepstake account.
Sambit Patel
(Director)
(180 Points)
Replied 31 March 2012
Is there a way , I can withdraw them and invest on property, etc ?
Like, every month, we receive around 10 lacs as credit to our bank accounts.
Is there a way, I can withdraw all and just keep 2-3 lacs for the office internal transactions and salary credits, etc ?
Rahul Sharma
(Practicing Chartered Accountant)
(131 Points)
Replied 31 March 2012
You can book a duplex or flat, depending upon your interest and ask about EMI facility from the builder. Builders & developers, now-a-days offer EMI facility in the projects where the flat or duplex is not ready to provide possession. In this way, you'll be able to get a house in installment with paying any sort of interest on it. The installments will be based on the completion of eork by the builder...
yuvak
(Practising CA)
(144 Points)
Replied 31 March 2012
Dear Sambit,
What essentially you need is a proper Financial Planning and Forecasting for your company (or if its you who are heading this company, may be a combine one for you vis-a-vis the company).
Firstly, you will need to identify the expected level of assurance for such 'excess cash' being generated each month and length over which it will arise. Second, the likely requirement of 'Capital Exps' to be incurred (big level of investment in the company) and your comfort of raising it partly thru debt like Bank Term loan.
Then get your Banker to help you with interim Fund planning with tax impact in mind.
Cheers
Yuvak
Mihir
(Wealth Manager)
(5293 Points)
Replied 01 April 2012
Investing in property isn't a good idea. No amount of technical skills in cash flow forecasting can give you an accurate picture as to how much liquidity you going to need. There will always remain some uncertainty. Real estate is an illiquid investment and not to mention the paper work following it. When you will need liquidity, it will be very tough for real estate investment.
If you have 20 lacs surplus, here is what you can do:-
1) Invest 10 lacs in Bank FD in which you will earn approx 6% post-tax return - Rs. 60,000/- p.a
2) Invest this Rs. 60,000 in purchasing two insurance policies a) Keyman insurance policy for yourself having around 25 lacs sum assured, and this premium can be deducted from the income reducing your tax liability 2) general term policy if you are a middle-aged of 25 lacs sum assured, as this is low cost high sum assured. The premium of the two policy will be taken care by itself, from the interest earned from the FD.
3) Invest the 5 lacs in Bank FD and the let interest earned be reinvested.
4) Invest the last 5 lacs in sweepstake FD with your Bank linked to your current account.
Sambit Patel
(Director)
(180 Points)
Replied 01 April 2012
You mean, all the remaining money to get into a virtual FD account with the bank ?
So, thats like lets say 8 lacs per month stays in my current account each month and that makes 6 x 12 = 72 lacs.
So, 72 lacs gets into the FD ?
Isnt it all going to be taxable and I end up paying huge tax ?
Is there a way, I can withdraw money and justify and invest in my own way or save them in my lockers.
Possible ?
Sambit Patel
(Director)
(180 Points)
Replied 01 April 2012
Sine I and dad are the directors, I was thinking to pay myself and dad 3 lacs salary every month, so those funds from current accounts gets into our salary accounts and then we simply withdraw it every month.
Is it the right way to plan ?
Mihir
(Wealth Manager)
(5293 Points)
Replied 01 April 2012
If you want a complete planning then you need to disclose complete information. There are going to be many questions.
1) Whats your company type? Proprietorship, partnership, private limited co.
2) Whats the nature of business? trading, services provider, manufactorer
3) What are the operating expenses? expenses to run the business
4) What are your future plans for your business? growth, expansion, diversification
5) Whats your normal business turnover? below or above tax audit limit
6) Whats the average income of the directors?
7) If its private limited co, what business related provisions are incorporated in Memorandum and articles of association?
And many more questions
Business planning, tax planning and financial planning are all different, and I guess you need to figure out all of them. If you think your CA is learned and experienced, he might give you some valuable inputs. But like you said, you are earning 8 lacs surplus each month, which means you have to provide tax planning for this income even if you put the money in locker. It is always better to invest than to keep the money idle in a locker. If nothing works, then use it to expand your business, which will also reduce your tax liability.
Sambit Patel
(Director)
(180 Points)
Replied 01 April 2012
If you want a complete planning then you need to disclose complete information. There are going to be many questions.
1) Whats your company type? private limited co.
2) Whats the nature of business? services provider
3) What are the operating expenses? Software purchase, server payments, day today expenses, salary, payments to our employees in vietnam and philipines, photography goods, normal expenses (food, fuel,etc)
4) What are your future plans for your business? Im not planning anything right now, until I get my tax and fund planning done well. As there is no point in making money, if we cant use it well and save it.
5) Whats your normal business turnover? This financial year, 1 crore.
6) Whats the average income of the directors? I paid, 30k to myself and dad, but CA has asked me to make it 2 lacs per month from this year, so we can use the figures well.
7) If its private limited co, what business related provisions are incorporated in Memorandum and articles of association? For that, I have to check papers.
And many more questions
My problem is, I dont have time to sit with the CA and discuss things.
Mihir
(Wealth Manager)
(5293 Points)
Replied 01 April 2012
1) You can set the director salary at about Rs. 80,000 pm each
2) Take keyman insurance policy for yourself at Rs. 50,000 pa
3) Open FD of 20 lacs
4) Open sweepstake account
5) There is nothing wrong in transfering some surplus in general reserves. In future, you can convert it into equity and increase share capital of the company.
6) You can take a loan from the company on a nominal interest and invest it real estate in your name. You have to pay interest to the company, and you can earn rental on the property. Take another loan from the company on interest to invest in FD in your name.
7) In a software company, labour turnover is high. So you can provide some special benefits to the employees who have worked in your company for a long time. Buy group retirement funds for employees to retain them.
In my opinion, the future has never been so uncertain as it is today. So if you plan cautiously, you and your company can be well protected by any untoward economic crisis. Its good to be optimistic but its even better to be realistic. So yes, putting little amount in locker is also not a bad idea. One who has liquidity wil be king in the future.
Sambit Patel
(Director)
(180 Points)
Replied 01 April 2012
1. Okay, so lets say 2 lacs in salary, 2 lacs as expenses and so remains 6 lacs profit each month. Can we ask the bank to take all the funds automatically to a FD and whenever we need funds, it can be pulled from that FD and side by side, I can earn interest on that FD as well.
2. I pay my personal income tax as well, so I have done LIC (26,000) , HDFC Crest (50,000) , NSC Certs (30,000) . So, my 1 lac is done as per the IT laws tax saving plans. Why do I need to do this new insurance policy ? How does it help ?
3. FD of 20 lacs with which bank would be good and doesnt it invite the IT guys to my office ? And how does that get charged in the company taxes ?
4. Ok, I have no idea about commerce, so your terms dont get into my head mate. Im a pure science guy! LOL! So, I dint understand this. I will check with bank, what is sweepstake account.
5. I have to buy 2 house for my parents and one for my sister, which gets around 48 lacs. Can I simply withdraw from the current account and buy the 2 house ? Or is it illegal ?
6. I think, I said about it on 1st point. So, I might be confused.
7. Right now, I simply pay them salaries and havent done any plans for them. I will do that, once we cross 20 employees. For now, I simply pay them the salaries to their salary account.
8. Yes, my main motto is get as much as into the locker, as Im planning to build a new office next year, so I dont want to let them stay in the account and end up going as taxes. I want to withdraw everything what remains and put into my new office saving locker. Now, you must have understood my requirements.
Now I feel like, I should have done a Income Tax and Tax Planning course. Ha ha!
Mihir
(Wealth Manager)
(5293 Points)
Replied 01 April 2012
1) Sweepstake account is like an FD linked to your current account. Whenever there is excess surplus, the funds will be automatically transferred to your FD from the current account to earn interest, and will be transferred back to current account as and when shortfall in current account arise.
2) Keyman insurance policy is like a life policy taken by the company on the life of the director. Something happens to the director, the company will be the beneficiary. Premium paid on keyman insurance is business expenditure. Get your office insured under standard fire and peril policy, with additional cover for office equipment, which is also business expenditure.
3) In your personal tax, you need to take mediclaim of about 20 lacs. You can even take an deferred annuity single premium policy in your children's name. Invest Rs. 20,000 each year in Infrastructure bonds u/s 80CCF. Invest at least some portion in PPF account.
4) You can take housing loan to purchase 2 houses. You can take a loan from the company for the down payment and pay interest to the company, and avail deduction of the interest paid for home loan in your IT returns.
5) I don't think it is a big issue of having surplus funds. You can put it in your locker. Let some funds build-up in order to purchase another office.
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