Dec 12, 2013

Run for Unity !!

Gujarat CM Narendra Modi urges youth of India to join Run for Unity online on www.runforunity.com to tribute Iron Man of India Sardar Patel's 63rd death anniversary on Sunday, 15th December 2013. Run for Unity is organised in major cities of India to pay tribute to Sardar Patel.

Narendra Modi's effort to start a movement to collect iron for Statue of Unity will set off with the event and complete before the Republic day 26th January 2014. Registrations invited across the country from fellow citizens to participate in the event.

Mumbai, Delhi, Kolkata, Ahmedabad, Lucknow, Chandigarh and Pune are major cities gearing up for the run for unity on Sunday. Run for Unity length is 2 kms and it will be finished in 2 hours at the hosting cities across India by 11 AM.

Near about 1 Million visitors are registered online to participate in the event across India as per website live statistics and more are counting to make it a great success as online movement.

Register @ http://www.runforunity.in/

Personal Finance – Tips for trying times!


Personal Finance is more or less like the game of Candy Crush. Those who have been too much engrossed in their Facebook profiles or have been anywhere near their Android or iOS machines, probably have been playing or have seen someone playing this crazily addictive game. Now, most people would be wondering the connection between Candy Crush and personal finance.
In Candy Crush, one proceeds to the later stages without losing a single life, only to find a seemingly easy stage turning into a challenging affair. The players are left with no option but to stick at that level for days or even weeks. Life is no different. People can hum along comfortably for days, weeks, months or years, leading an easy going life, only to find something stopping them from proceeding on the same track. This something often comes from nowhere and holds the capability of making life challenging. It can either be a major unexpected expense, job loss or one of a thousand other things.
Whether playing Candy Crush or the game of life, moving in a well-planned and watchful manner is the only solution to deal with challenging stages. If a major expense comes in the way, one needs to figure out the probable methods at the disposal for paying it off. Having a contingency fund can help in dealing with the expenses and getting back on feet easily.

Why is Personal Finance Important?
The fear of interruption in the regular flow of income when one needs to deal with something out of the ordinary like raising a child, purchasing a new asset, paying for higher education, starting a new business or dealing with any other unexpected expenditure can make one go crazy. If there was a comfortable cushion to fall upon, taking decisions during such times would be a lot easier. Thus, creating a fund for such foreseen and unplanned contingencies would be an ideal step towards strong personal financial planning.

Income Shortages
Whether such situations arise in due course of time or not, the regular income of an individual is always at a big risk. There is a risk of facing an accident, which is, in most cases, insured or the risk of losing a job, which is definitely not insurable, or just any other kind of risk that might hamper regular income for a certain period. 

People could be wishing for this risk to part ways with them, even as they put aside some extra money or invest with the aim of availing long term benefits. In order to deal with such situations without any financial difficulties, it is advisable to set aside a contingency fund that acts as an insurance against the income shortage or cessation during tough times.

The contingency fund is necessarily set aside from the regular monthly income. To save a decent sum for problematic or needy situations, one needs to come up with an estimate of the amount that must be saved. There are two methods that can help in making this estimate. The first method is simple and requires keeping aside an amount that would last for about 6-8 months. The second method is to analyse the household expenses and identify the crucial ones that are needed for running the household. Food, utility bills, rent, EMIs, medical expenses and other mandatory expenses should be considered when figuring out the amount of contingency funds to be set aside that can provide for the household during financial difficulties.

Managing Regular Income
When one puts 20% of the monthly income towards saving, it becomes necessary to allot 30% of the remaining income towards the contingency fund, which can be kept in the form of safe, flexible and readily accessible, liquid investments. To pace up the contingency fund development process, one can allocate any additional incomes like incentives, festive bonus or other similar income towards the contingency fund. Enhancing the lifestyle with the extra amount of money can wait, but a misfortune won’t. Tightening the spending and transferring any additional household savings or surplus income to the contingency fund would always be an ideal practice to follow.

Dealing Wisely
The final step towards wise personal financing would be to define the situations that would require withdrawing money from the emergency funds, and be committed towards it. In the event of a contingency, one can choose to liquidate the investment or take a loan against it. However, if there is a risk of interruption in the monthly income, liquidating the investment is the best option as no regular income would be available every month for repaying the loan amount.

On the whole, it is important to allocate as much money as possible towards building an emergency fund. It gives the required peace of mind and confidence for dealing with bad situations and taking tough decisions that might change one’s life completely.

Courtesy : BankBazaar

Home vs. Plot – Which is a better investment?!



Buying a plot in any part of India can be challenging unless you have sound financial backing for initial investment. Banks do offer a loan for the purchase of a plot and even for construction such as SBI Realty, HDFC Plot Loans, Indian Bank Plot Loan etc. However, the associated tax benefits are subjective to whether you complete constructing a house on the plot or not, and even if you do, the benefits are offered only for the first year.
On the other hand, in case of flats, loans are easier to avail, albeit, at similar interest rates. However, flat purchase attracts a lot of tax benefits, especially for first time home buyers.

Which Requires More Investment?
Building one’s own house can be a challenge since one has to constantly monitor the construction activities, right from meeting with architects to ensuring raw materials are used correctly. Also, a common problem faced by most first time home builders is the tendency to stretch the budget while constructing the house, resulting in overspending. With flats, a definite rate has to be paid to the builder; and apart from the house and registration costs, the buyer only has to spend on getting the interiors done. At any price range, constructing one’s own house will be more expensive when compared to buying a flat of a similar size and dimensions; however, it gives the owner the freedom to choose the layout and design.

Which has Better Resale Value?
When one considers the resale value of the house, most people who are looking for an independent house prefer to buy a plot and construct their own house as opposed to buying a built house. However, with the cost of construction and land escalating, there are buyers for building independent houses too. In case of a house, the value will have a direct correlation with the amenities within the house and accessibility around it. In case of flats, the value of the property rises as the demand for flats within the colony rises. However, houses have a higher resale value than flats, primarily because the person buying the house also becomes the owner of the plot of land on which the house has been constructed.
Which has a Higher Rate of Return?
In case of constructing a house on a plot, while the land value appreciates, the house value depreciates due to wear and tear. Owners must pay special attention towards space planning, construction quality, and quality of amenities etc. as they are the decisive factors for valuation. One reason why the value of the house is higher than flats is because of the demand-supply differences. The supply of independent houses is lower than that of flats. Also, the owner of the house has the option to get permission for adding additional floors to the house and renting or reselling them.

What to Check before Buying Land?
Buying land has become a risky business in major cities due to the number of instances of fake registration papers. Hence, it is essential to check under whose name the land is registered. Further, one must look out whether the house is stuck in litigation and the seller has sole ownership of the land with no other claimants.

Documents to Be Checked Before Buying a Land
Document
What to Check?
Title Deeds
 If it is in the seller’s name alone and no other person is involved
 If the seller has permitted access to others through this land
Tax Receipt and Bills
Property taxes paid to the Government is up-to-date with latest receipts
If there are any notices of requisition relating to the property which are outstanding
Water and electricity bills have been paid up-to-date
Encumbrance Certificate
Ensure that the land does not have any legal dues attached.
It is issued by the sub-register office where the deed has been registered.
Pledged land
All loans for which the land has been given as pledge have been repaid
Release Certificate issued by the bank
Land Measurement
Land Measure before registering the property by a recognized surveyor
It is advisable to get all the documents to be checked by a lawyer to ensure they are original and other requisite authorities too.
Apart from the paperwork, it is also essential to check for the connectivity of the house, its proximity to key places such as market, hospitals, schools, transportation etc. Also, one must ensure that the property is not isolated as many instances of robbery are being reported.

Building a home is a greater challenge than buying a flat. However, it is much more satisfying since the owner of the house is involved in every step of the construction process and everything is done as per their likes.

Courtesy : BankBazaar

To be or not to be a priority banking customer!


Priority Banking or Privilege Banking is a relatively new term in the Indian banking context. Many banks in India, especially the private banks have followed international banks in providing specialised services to a certain set of customers known as priority customers. These customers are determined usually by the average balance they maintain with the bank or based on the number of years they hold the banking relationship. While in some cases, customers are automatically offered priority banking status, there are many instances when one has to apply for this.
So is priority banking the same as wealth management services offered by banks? The answer is no. Wealth management service is concerned with providing first class customers with customized services on all their financial needs, which includes investment advice and portfolio management. Priority banking on the other hand deals with providing the same banking services to priority customers at specialised rates or offering a particular convenience level. While wealth management is not priority banking, priority banking as a part of its services may include wealth management. Let’s look at some of the benefits which a priority banking customer can experience:

  • Dedicated service area in the branch, thus eliminating the need to queue up for transactions
  • Client relationship managers assigned to take care of all banking needs
  • Free ‘at-par’ cheque books and waiver of charges on a host of products like NEFT, RTGS, demand drafts, cheque returns, duplicate statements, stop payment of cheques etc.
  • Premium debit and credit cards free of cost
  • Free cheque pick up facility
  • Concessions in locker rent
  • Access to exclusive lounges and other areas
  • Preferential pricing on a variety of products and services
  • Relationship benefits across branches in different locations

The above are a few illustrative benefits and can vary from one bank to another. While the gamut of services and benefits covered are not important, it is useful to see that priority banking customers often stand to gain compared to normal customers.
So does it make sense to become a priority banking customer with your bank? It is first important for you to ascertain two things – your banking needs and if the priority banking status is offered for free. While in many cases priority banking is free and is based on the past history of the account, some banks charge for offering this service. For example, Standard Chartered Bank charges a fee for providing priority banking services and this is set out in the priority banking tariff sheet of the bank which changes from time to time.
Ascertain if you have to pay to become a priority banking customer. If yes, then evaluate your banking needs. As far as banking needs are concerned, each individual and household has different needs depending on their financial situation, background, how tech-savvy they are, etc. You will need to determine if you currently need heavy banking services for your personal and professional needs or if banking is only a small part of your financial life. For most people, banking stops with depositing and withdrawing cash, opening fixed deposits, operating the locker and maybe take demand drafts. Now, with the advent of mobile banking and internet banking, the need for cheque books, demand drafts and physical visits to bank branches is also greatly reduced for the common man. You can carry out most services on the internet by simply logging in to your account, with a click of the mouse. In such a scenario, applying for a priority banking account by paying a fee does not make much sense.
On the other hand, if you think you will need to avail some services repeatedly from your bank, you can consider a priority banking relationship. For instance, you may have the need to take demand drafts at regular intervals, which entails hefty demand draft charges. Or you may not be tech-savvy and therefore may need to visit the bank regularly. You may also want an unlimited cheque book facility, which is not available to you as a normal customer of the bank. In such cases, you can look at priority banking as an option to enhance your banking experience. However, always remember to compare the benefits you receive vis-à-vis the cost borne by you to avail such services.

Courtesy : BankBazaar

Dec 8, 2013

Why you must include PPF, tax-free bonds in portfolio


The season of tax-free bonds is on.

With companies like IRFC, IIFCL and NTPC still to launch their issues in this financial year, there would be many opportunities for ones who have missed out.

Retail investors, who have found little relief in the stock markets, want to get onto the bond bandwagon.

For a good reason, too, as the interest rates are at eight-nine per cent for a 10-year period.

But if you are already investing regularly in similar long-term instruments like public provident fund, don’t stop investing in them just because the rates on these instruments are higher marginally.

While both these instruments seem to be competing for your surplus cash because of their long-term and tax-free advantages, they play different roles in your portfolio.

PPF allows you to prepare a retirement kitty whereas tax-free bonds ensure that you have a regular cash flow.  

For a priority perspective, Sumeet Vaid, of Ffreedom Financial Planners, says that consider tax-free bonds only after exhausting the PPF limit.

“Tax-free bonds make sense if you are looking for cash flow.

“The annual or half-yearly dividend option is good.

“But there is no secondary market for these bonds.”

There are some major differences between the two.

PPF is limiting because you can invest only up to Rs 100,000 in a year whereas tax-free bonds allow up to Rs 10 lakh (Rs 1million).

The lock-in periods are 15 year and 10 year, 15 year and 20 year for PPF and tax-free bonds.

In the former, there is partial withdrawal allowed after seven years.

While you can sell tax-free bonds in the secondary market, the absence of any depth would force you to sell for a discount.

The interest for PPF is announced every year. For the current financial year, that is, 2013-14 the rate is 8.7 per cent. 

Of course, these are lower than bank fixed deposits, which offer 9-10 per cent for one year and above.

But since the interest income from such bonds is tax-free, the effective yield works out better than bank fixed deposits.

One must also remember that in case of PPF the amount invested is also tax-free, which is not the case with tax-free bonds.

Here is it only the interest income that is tax-free.

Another option is the tax-saving bank fixed deposits, which have a lock-in of five years.

Some banks offer these for a maturity of up to 10 years.

In this case too, the investment limit is Rs 100,000, which is exempt from tax.

But the interest earned is taxed.

Also, these are more attractive when interest rates are high, which is why they have been popular this year.

Investors can use PPF to accumulate the funds for retirement and tax-free bonds for a regular post-retirement income, says Nikhil Naik, managing director, Naik Wealth.

“We have seen that people keep renewing the money in their bank FDs.

Such people can consider putting some part of that money in tax-free bonds and keep a small part in FDs for the liquidity.

“Investors must remember that tax-free bonds offer opportunity at the moment,” he says.

Courtesy : rediff.com

Your wait for that big I-T refund just got longer


If you are expecting a huge income-tax (I-T) refund, you may have to wait a bit longer than you earlier thought. 

To limit the government's fiscal deficit for the financial year at 4.8 per cent of gross domestic product (GDP), despite rising subsidies, the finance ministry has decided to go slow on I-T refunds, besides slashing Plan expenditure substantially.

According to officials, small I-T refunds are being cleared but the big ones - those running into lakhs of rupees - are being held back for now. 

That is because tax collections have remained subdued so far, making it difficult for the government to meet its direct-tax collection target of Rs 6,68,108 crore for 2013-14.

The direct-tax collection (net of refunds) in the April-September period this year increased only 13.33 per cent - compared with the projected 19 per cent growth - to Rs 2,84,339 crore. 

The refund claims during the period, on the other hand, increased a mere 3.13 per cent to Rs 53,568 crore. 

"More than 80 per cent of the refunds are being given, but most of these are for small amounts," says a finance ministry official, asking not to be identified.

A further moderation in income-tax refunds is likely to be seen in the remaining months of the current year. In 2012-13 - the total refunds in the year had fallen about 13 per cent from the previous one to Rs 82,704 crore - too, the refunds had come down in the second half.

However, slowing down refunds may not be enough to contain fiscal deficit at 4.8 per cent this year, given that the rate of economic growth (without adjusting for inflation) is expected to be lower than that projected in the Budget, pushing up fiscal deficit (as per cent of GDP). 

Also, a rise in the government's expenditure on subsidies is exerting pressure on the non-Plan side - the petroleum subsidy is likely to be around Rs 1 lakh crore, against Rs 61,772 crore provided for in the Budget.

So, Plan expenditure could see a cut. Expenditure of ministries like rural development, health & family welfare and human resource development would be slashed heavily in the Revised Estimates for 2013-14. The communications & IT, home and power ministries are among other ministries to see significant expenditure cuts.

According to officials, the Plan expenditure cut in 2013-14 would be under the same heads as in 2012-13. Almost all departments had seen Plan expenditure cuts in 2012-13 - the reduction was steeper for the ministries mentioned. 

This had helped bring Plan expenditure down by Rs 92,000 crore, or 17 per cent of the Budget estimate for 2012-13. This year, the cut is likely to be heavy but a little less than in 2012-13, so that growth prospects are not hit.

"Every effort will be made to lower wasteful expenditure, so that the fiscal deficit is contained - without compromising on GDP growth. Any funding related to election work or where funds have been utilised is not being reduced," says another official.

With issues related to the external sector on the wane, the finance ministry is focusing on growth and inflation. These are going to be priorities before the country goes to polls in 2014.

Officials say growth in the second half of 2013-14 would be better than in the first, especially with a slow growth rate in the same period last year (low base) giving statistical advantage. Lower current account and fiscal deficits will further support growth, they add.

The finance ministry expects the country's GDP growth rate for the year to be 5-5.5 per cent. Independent analysts, however, expect it to be less than five per cent.

Courtesy : rediff.com

Nov 28, 2013

Popular alternatives for a personal loan!


When you are in the urgent need of cash, the easiest option seems to be taking a personal loan. But with the raging interest rates these days, it’s not quite wise to get into the vicious cycle of debt. Banks also tend to look at your entire financial profile before accepting you for eligibility. What if you could have an option apart from personal loan in times of crisis?

Here are some quick fixes as alternatives to personal loans –

Loan against fixed deposits – This is the quickest possible loan because banks lend against their own fixed deposits. The repayments of this type of loan should be done within the fixed deposit tenure. The biggest advantage is there is minimal documentation required and loans are available over 80% of the fixed deposit value. Also, your fixed deposit continues to earn interest even during the tenure of the loan. However, you must discipline yourself to repay the loan every month like an EMI.

Gold loan – Initially started off as a popular source of finance in rural and semi-urban areas, gold loans have off late become extremely popular in metros as well. This type of loan provides immediate liquidity on the basis of one’s jewellery without having to sell it away. Further, there are no processing charges and prepayment fees. The loan amount depends on the purity and weight of the gold that is given. Although this loan does not necessitate previous credit history, banks are going stringent on these after recent RBI regulations. Further, the interest is not cheap and is comparable with personal loans.

Loan against Property – You can borrow against your property and the loan amount is calculated on the basis of value of property and the borrower’s capacity to repay. Refinancing the property is an option if the value of loan is to be increased or the property value has risen over a span of time. Failure in prompt repayment can result in loss of ownership, and hence absolute care must be taken, as a property is usually of higher value than any other form of security.

Loan against shares – Banks lend against the shares of specific companies which you hold. However, not all shares you hold qualify for such loans. Each bank has a different list of approved securities which qualify for such loans. The amount depends upon valuation of security and ability to repay and service the loan. Although you can receive money without liquidating your investments, the amount granted as a proportion of the security offered is much lower compared to other forms of loans. With present volatile stock markets, this may not come cheap as well.

Loans against Life Insurance policies – Loans that are granted on the basis of life insurance deals have lower rates of interest and easy options for repayment. Loan amount is dependent on the value of the policy. It can be repaid anytime during the term of the policy. In the event of an unpaid loan amount, interest will be deducted from the claim. This is a quick loan with minimal documentation.

Loan against Public Provident Fund (PPF) – Loans can be taken on the basis of PPF but with tenure only up to 2 years. If the first loan is repaid, the borrower is entitled for another loan if they are within 3 to 6 years of opening an account. The benefit of this loan is that you can borrow without breaking your PPF and also with minimum documents.

Summary of Salient Features of Different Kinds of Loans

Factor
Loan against Fixed Deposit
Gold Loan
Loan against Property
Loan against Shares
Loan against Life Insurance
Loan against PPF
Eligibility
Fixed deposit should be for at least a year
Available for just gold components. Not valid for other stones, metal or platinum.
No mortgage issues. Property should not be under ownership disputes. Minimum income from the land should be Rs 1 lakh
Only individuals are eligible.. Loan is granted only on the basis of bank’s approved list of shares
They are sanctioned only on endowment plans, after completion of 3 years of the entire premium
It is available from the 3rd up to 6th year and up to 25% of balance at the end of 2nd year
Documents
Fixed Deposit Receipt
Proofs for identity and address of the individual
Proof of residence, identity, age, income, property documents and signature
Proofs of address, identity and signature. Power of attorney, transfer pledges and forms
Actual documents of the policy
PPF passbook
Rates of Interest
1% or 2% more than the rate on the fixed deposit
10% to 17%; Higher in the case of gold loans from NBFCs
13% to 16%
13% to 16%
8% to 9%
2% above the rate of interest for PPF
Processing Time
2 or 3 days
1 working day
10 or 15 days depending on the lender.
7 to 15 working days
2 to 3 days
1 or 2 working days

You can take a look at the above mentioned options see which one might suit you best. If you are in urgent need of cash but for a short period of time, you might want to consider these alternatives. Evaluate your need and financial position before deciding on any kind of loan, as these will have direct implications of your financial plan.


Courtesy : BankBazaar

Common issues faced by home loan borrowers!


The volatility in interest rates in India has affected borrowers of all types of loans. However, home loan borrowers are the most affected, as home loans are by far the biggest loans quantum-wise. Discrepancy in interest rates between existing borrowers and new borrowers, porting of home loan, stringent rules by lenders and clauses on fixed rate home loans are some of the issues faced by home loan borrowers in the country.

Let’s look at them in greater detail:

One of the most common issues faced by existing home loan borrowers is the discrepancy in interest rates paid by them vis-à-vis a new borrower. While this is a valid complaint, let’s first see what causes this discrepancy. Interest rates on home loans are usually linked to the benchmark rate of the bank (be it the Prime Lending Rate – PLR or the more recently introduced Base Rate, as the case may be). From this benchmark rate, a fixed rate is either deducted (in the case of a PLR) or marked up (in the case of a Base Rate) to arrive at the floating rate on the home loan. Any changes in the benchmark rate will thus automatically result in a change in the interest rate on the home loan as well.

For example, consider a borrower who has taken a home loan from a Housing Finance Company (HFC) at terms which state that his interest rate will be 300bps lower than the prevailing PLR. This was the agreement entered into with the bank at the time of availing the loan. The PLR at the time of granting the loan was 15%, and the interest rate on the home loan thus stands at 12%. Now, if after 2 years, the PLR is reduced by 50 bps to 14.5%, then the interest on his home loan also automatically falls to 11.5%. On the other hand, in order to attract customers, a new borrower may be offered terms with a mark down of 350 bps. As a result, the interest rate he gets on his home loan will be 11% only. This is the reason for the discrepancy in interest rates.

In recent times, in view of the increasing incidence of customers switching banks to avail better rates, the existing borrowers are being offered an option to change to new rates in the same bank by paying a switch fee or a conversion fee. This can be 0.5% to 1% of the outstanding loan amount. This is a good way of availing interest rates offered to new customers. However, this scheme is not actively pushed by banks, and not all lenders offer this too.

In such a situation, most existing borrowers resort to porting their home loans to banks which offer lower interest rates. This has been encouraged by RBI by removing the prepayment penalties on floating rate loans. However, it is important for customers to read the fine print before taking this step, as there may be many unanticipated costs to be borne. Processing fees, stamp duty, notarization charges, franking charges and insurance premium are some of the likely costs which a customer needs to bear. This can easily work out to be 0.5% to 0.75% of the loan amount. Add to this the requirement of submitting all documentation again to the new bank. It is therefore important to understand the merits of switching your home loan, and try to use the option of staying with your old bank using the switching fee option, wherever possible.

Another issue faced by fixed rate home loan borrowers in the applicability of the reset clause. Fixed rate loans are not fixed for the entire loan tenure. The reset clause is invoked as and when applicable according to the terms of the agreement. Thus, if there is a scenario of increasing interest rates in the economy, banks will reset the interest on the fixed rate home loan. Although there is no option to remove this clause, borrowers can search for banks that offer fixed rate loans with no reset clause.

Borrowers also sometimes face the issue of the inflexibility on the bank’s part to adjust the EMI amount or tenure in case of an interest rate revision. The hassle of reworking EMIs as well as changing ECS mandates may deter banks from changing the EMI amount. However, from the customer point of view, it must always be remembered that reducing the tenure is a better option compared to reducing the EMI amount in case of a downward interest revision, to save on interest costs.

It is hoped that RBI and the Government will continue to take proactive steps in addressing the concerns of home loan borrowers – both existing as well as new borrowers.

Courtesy : BankBazaar

Nov 19, 2013

New rule lowers HRA exemption claim limit


CHENNAI: If you are a salaried taxpayer claiming HRA (house rent allowance) deduction, watch out. The central government has lowered the exemption limit for reporting the rent received. Salaried taxpayers claiming HRA exemption and paying a rent of over Rs 1 lakh per year have to give landlord's PAN (permanent account number). Till now, if the total rent paid was less than Rs 15,000 a month there was no need to submit the landlord's PAN details. The new rule effectively lowers the rent limit from Rs 15,000 a month to Rs 8,333 per month for claiming HRA exemption without making any disclosures.

"Further, if annual rent paid by the employee exceeds Rs 1,00,000 per annum, it is mandatory for the employee to report PAN of the landlord to the employer," the Central Board of Direct Taxes said in its latest circular. "In case the landlord does not have a PAN, a declaration to this effect from the landlord along with the name and address of the landlord should be filed by the employee," it said.

Though incurring actual expenditure on payment of rent is a pre-requisite for claiming deduction under section 10(13A) of the I-Tax Act, it has been decided as an administrative measure that salaried employees drawing HRA up to Rs 3,000 per month will be exempted from production of rent receipt.

The new rule is aimed at people claiming HRA exemption for living in their own house. "It has to be noted that only the expenditure actually incurred on payment of rent in respect of residential accommodation occupied by the assessee subject to the limits laid down in Rule 2A, qualifies for exemption from income-tax," CBDT said in its circular.

Thus, HRA granted to an employee who is residing in a house/flat owned by him is not exempt from income-tax. "The disbursing authorities should satisfy themselves in this regard by insisting on production of evidence of actual payment of rent before excluding the house rent allowance or any portion thereof from the total income of the employee," CBDT said.

Courtesy : times of india

Oct 3, 2013

Take a tax break... a must read


The financial year is drawing to a close and taxpayers have started looking for options to minimize taxes. However, you will be happy to know that the income tax act offers many more incentives and allowances, apart from the popular 80C, which could reduce the tax liability substantially for salaried individuals.
The components of salary include basic salary, dearness allowance (DA), house rent allowance (HRA), conveyance, city compensatory allowance, variable incentives and perks.
You can opt for the following options to get tax benefits.
Salary restructuring with allowances and perks: Instead of going for a high basic salary, you can take reimbursements, allowances and perks, which are exempt from tax. However, your employee provident fund (EPF), gratuity and superannuation are all a percentage of your basic. So, by reducing your basic to allow for higher allowances and reimbursements, you will reduce your EPF, gratuity and superannuation. While EPF is totally tax-exempt, gratuity up to Rs 10 lakh is non-taxable as also the commuted pension portion of superannuation.
Transport allowance: Transport allowance provided by an employer for commuting between your residence and your place of work is exempt up to Rs 800 per month (if free conveyance is not provided by the employer).
House rent allowance: Individuals living in a rented accommodation should include HRA as part of salary. The least of the following amount is exempt under Section 10(13A): i) HRA actually received; ii) Rent paid in excess of 10 per cent of salary; iii) 50 per cent of salary (if rent paid in a metro), or 40 per cent of salary (other than metro city).
Maximum benefit of HRA can be derived by having all the above three components to be of more or less the same amount. Salary for this purpose means: Basic plus DA (forming part of benefits) +commission on sale at fixed rate. There is no exemption if you live in your own house or a house for which you don't pay any rent. You have to provide to the employer a proof of the rent payment. However, if the HRA is up to Rs 3,000 per month, you don't need to provide a receipt to the employer.
HRA and home loan: Suppose you are living in a rented house in the city where you work and you are repaying a home loan on a property elsewhere. In this case, you can get HRA deduction as well as take the tax benefit of the home loan. The provisions dealing with HRA and home loan benefits are separate in the income tax act. (rental income is taxable after standard deduction of 30 per cent).
Leave travel allowance (LTA): You can claim your LTA, which is available twice in a block of four years.
It is based on expenses actually incurred on travel fare, if (i) the travel is undertaken by you and can include your family members; and (ii) is for proceeding on leave to any place in India.
The LTA block is measured in calendar years; the current block is from January 1, 2010, to December 31, 2013.
"Family" here is defined as spouse, children, parents, brothers and sisters. Family members have to be wholly or mainly financially dependent on you for claiming LTA. Also, LTA exemption does not apply to more than two children born after October 1, 1998.
If you cannot take the benefit of LTA in a block, only one of the two allowed journeys can be carried forward. It should be carried forward to the first calender year of the immediately succeeding block. The carry forward has no detrimental effect on the new block of four years.
Apart from one journey carried forward from the last block, you will still be eligible for LTA of the two journeys in the new block.
The exemption on LTA is subject to limits. For example, if you travel by air, the exemption will be on economy class air fare of the national carrier by the shortest route to the place of destination, or amount actually spent, whichever is less.
Where the places of origin of journey and destination are connected by rail, the exemption will be equal to AC first class rail fare by the shortest route to the place of destination or the amount actually spent, whichever is less.
You can also claim exemption on the following:
Children education allowance: up to Rs 100 per month per child for maximum two children
Hostel expenditure allowance: Rs 300 per month per child for maximum two children
Allowance to meet the cost of travel on tour or transfer, including packing and transportation of personal items
Allowance on tour or for the period of journey in connection with the transfer to meet the ordinary daily charges incurred by employees during absence from their normal place of duty
Allowance to meet expenditure incurred on a helper, who is engaged for the performance of duties of an office or employment of profit.
Allowance for encouraging academic, research and training pursuits in educational and research institutions
Allowance to meet the expenditure incurred on the purchase or maintenance of uniform to be worn during performance of duties.
Amount of employer's contribution towards recognized PF (up to 12 per cent of salary); approved superannuation fund; group insurance schemes; employees state insurance schemes; fidelity guarantee scheme.
Any allowance to compensate for the increased cost of living prescribed under Rule 2BB. It includes city compensatory allowance, border area, hilly area and field area compensatory allowances, special allowance to members of armed forces, subject to limits under Section 10(14).

Knowing these alternative avenues to trim your tax liability will help you avoid last minute hassles of tax planning. Plan well in advance to file well in time.

Courtesy : Yahoo Finance

Spend for your kids, get tax benefits


In today's world of ever increasing expenses, spending on your children results in a substantial outflow from your pocket. However, did you know that you can get tax benefits on many expenses and investments made in your child's name? This includes a wide variety of expense heads and investments. Most of these investments fall under the ambit of Sec 80C within the Rs. 1 lakh limit. Here are a few such cases, which will help you reduce your tax outflow:

Interest on Education Loan: The cost of education for your child is a huge outflow, and needs to be well planned. Most of you may opt to take a loan to fund your child's higher studies. While this results in a repayment burden, you can gain partially, as the interest portion on education loan is fully tax deductible under Section 80E of the Income Tax Act. This loan can be taken by the borrower, parent or spouse of the student from a recognized financial institution. The loan must be taken for a full-time course, which can either be a graduate course in engineering, medicine or management or post graduate course in engineering, medicine, management, applied sciences or pure sciences including mathematics and statistics.

Payment of tuition fees: Tuition fees paid by the parent to fund his child's education in any school, university, college or any other education institution within India can be deducted under Sec 80C, upto Rs. 1 lakh in a year. The amount of deduction is restricted to two dependent children and should pertain only to actual tuition fees paid. However, both husband and wife have a separate limit of two children. So each parent can claim for two children each.

Health insurance premium: When you take a health insurance for your child, you can claim the premium paid as a deduction from your income, upto a Rs. 15,000 in a year.

Expenses on treatment of disabilities and certain ailments: The Income Tax Act allows the parent to claim a deduction from his income, an amount incurred towards treatment of specific disabilities and illnesses of his child under two sections. Sec 80DD of the Act states that expenses incurred towards medical treatment of dependent children suffering from a disability are eligible for deduction. The limit of deduction under this section is Rs. 50,000 for a normal disability (impairment of atleast 40%) and Rs. 1 lakh for severe disability (impairment of 80% or above). Sec 80DDB of the Act allows expenses incurred towards treatment of specified illnesses for children to be deducted from income, upto Rs. 40,000.

Deduction of allowances: There are a host of allowances specified in the Income Tax Act, which is allowed by an employer as a deduction from the income of the employee. The first is a hostel allowance of Rs. 300 per month per child, upto a maximum of 2 children. However, these expenses need to be incurred in India. The next is an education allowance, wherein Rs.100 per month per child upto a maximum of two children is exempted from income. Here also, the expenses need to be incurred in India. Medical expenses incurred for dependent children are allowed as a deduction upto Rs. 15000 per year on furnishing of medical bills. Most of these upper limits are those which have been set several years ago, and seem like an insignificant amount today, on the back of growing inflation. Several representations have been made to the Government to increase the exemption limits of these allowances.

Minor child's income: When you make investments in your child's name, the income earned from these investments will be clubbed with your income. However, if you have invested anywhere in your minor child's name and this investment generates an income, you can claim upto Rs. 1500 as a deduction on this income. This is available for up to two children. For example, you can invest upto Rs. 15000 in a long term FD which gives an annual return of 10%, and be exempt from tax. Remember that if the interest is on a compounding basis, the interest amount will grow over the years, resulting in an increase in tax liability.

Formation of a Trust: You can set up a trust in your minor child's name to save on tax. You will need to make an irrevocable transfer to the trust, so that the money will not be claimed by you. When you make investments through this trust, the income made through these investments will not be clubbed with your income. Even though the trust has to pay tax on this income, the total tax liability will be lesser if the income is clubbed with your income.

When you have children, you will be forced to incur various kinds of expenses on them. A smart investor is one who knows how to get maximum benefit on the expenses incurred on his children, as well on the investments made in their name.

Courtesy : Reuters

Here's how economic indicators can affect your financial life


You couldn't have escaped some of these statements in the recent past: The market has tanked, the GDP figures were disappointing. 
Sure, the disappointment in the tone and falling economic indicators must have caught the attention of every investor.
But what most have missed is that the market is increasingly getting influenced by economic indicators and events — that too in faraway lands — in a big way.
Therefore, it is important to keep a close eye on the developments in this space. Also, all these events cannot be seen in isolation.
Read on to understand the impact of five such factors on your financial life:
Gross domestic product
You must be familiar with opinion pieces that talk about how India, after witnessing the highs of over 8-9% growth in the previous decade, is crawling at a growth rate of just under 5% now.
Ratings agency Crisil, in a report released recently, said the growth estimate has been reduced to "a decade-low of 4.8%" for 2013-14.
In simple terms, the Indian economy is expected to continue to be sluggish. Slower growth, thus, dents job prospects, forcing many to rein-in their aspirations and reset the timelines of their financial goals.
Inflation
Given that price rise has been the one of the chief causes of governments being voted out of power in the past, it would be safe to assume that even laypersons are aware of how inflation — rate of growth in prices — affects their consumption spends.
From an individual's perspective, the consumer price index (CPI) and food inflation are more relevant than the wholesale price index (WPI) inflation. As per the figures released by the commerce ministry, CPI inflation for August 2013 is down to 9.52% from 9.64% in July.
Wholesale price inflation, on the other hand, inched up from 5.79% in July 2013 to 6.1% in August. Food items were costlier by 18.8%, compared to the same period last year.
RBI’s monetary policy
The Reserve Bank of India, through its policy measures, influences the interest rate movements in the market using several tools at its disposal, including repo and reverse repo rates.
Any action on this front directly impacts interest rates in the system, which in turn affect your home loan or fixed deposit rates. For instance, a hike in the repo rate could push up the interest rates on your loans and also deposits.
Therefore, it is important to understand the implications of changes in policy rates. "This helps us understand at what rates RBI is willing to lend and borrow from banks.
This, in turn, helps us gauge if banks will provide cheaper loans going ahead or will they become more expensive.
This can help individuals plan long-term money commitments, which require loans or mortgages, better," says Apte.
Exchange rate
Though it is now hovering around the Rs 62-levels, the freefall of the rupee, which has depreciated by around 15% since May visa-vis the US dollar, has been the subject matter of a number of news reports, analyses and, of course, jokes.
On Tuesday, the rupee ended at Rs 62.46 to the US dollar.
For individuals, the immediate impact is seen in the form of rise in inflation.
A diminishing rupee adds to the expenses of travelling abroad, particularly the US — be it for leisure, business or studies. Moreover, it adversely impacts corporate earnings, barring export-dependent sectors like IT, taking a toll on your equity investments.
Stock market indices
An indicator of the economic situation and the level of business confidence in the country, any rise or fall in Nifty or Sensex is directly reflected in your equity investments — stocks or mutual funds — on a daily basis.
Moreover, they give a sense of where the economy is headed.

"These indices are keenly watched by investment professionals, as they tend to be the barometers of economic conditions in the industry and hence, the economy as well," says Apte.

Courtesy : economictimes

Want to withdraw from your provident fund account? Here's how!



A provident fund (PF) is basically a plan to provide financial security after retirement. It is, therefore, not advisable to withdraw any amount from one's provident fund account as PFs are primarily meant for retirement planning, and retirement planning is the most important goal in any person's life.

"No need to say one should avoid doing so unless there is a great emergency, as the amount should be utilized post one retires or in case one stops working and his/ her earnings have depleted. For other emergencies, one should look at money from investments in other instruments like debt funds, liquid funds or a savings bank account, etc," suggests Anil Chopra, Group CEO, Bajaj Capital.

In fact, there are various advantages of investing in a provident fund (PF). Generally, the return on provident fund is higher than inflation, and is totally tax fee. Thus, withdrawing out of it would have the following consequences:

1) Retirement planning would go haywire

2) Tax-free status would be lost because that money cannot be put back. For example, let's say, someone has a balance of Rs 50 lakh in his provident fund account, and he wishes to withdraw Rs 25 lakh out of that. This amount of Rs 25 lakh cannot be put back into it later, as it is not allowed as per rules.

Therefore, "withdrawal from a PF account is generally discouraged, as the purpose of opening it and accumulating money there is mainly for the second innings of your life, which is post retirement," says Chopra.

Nitin Vyakaranam, Founder & CEO, Arthayantra.com, is of similar opinion. "Withdrawing PF stands out as the classic case of lack of prioritization and holistic approach in our financial decision making process. By making withdrawals from the PF to fund other goals, we end up pushing our retirement age or making higher contributions towards building retirement fund during the last few years of our employment," he says.

However, in case one wants to withdraw money from his/ her PF account, the rules for the same are very stringent, which also vary as per the types of provident funds. In India PFs are of three kinds:

a) Public Provident Fund (PPF) - For general public

b) Employees Provident Fund (EPF) - For private sector employees

c) General Provident Fund (GPF) - For government sector employees

In case of PPF, which is normally meant for 15 years, withdrawal is allowed before that also, but under very stringent norms. For example, no amount can be withdrawn at all for the first six years. After six years, the amount equivalent to 50 per cent of the balance, which was there more than 3 years ago, can be withdrawn. Thus, the entire money cannot be withdrawn before the end of 15 years. Even after 15 years, it can be rolled over for another period of 5 years and after that every five years it can be rolled over or closed.

Similarly, in case of EPF or GPF, withdrawal is not allowed generally unless one has given up working or wants to be self-employed, etc. As per EPF rules, you are allowed to withdraw money only if you have no job at the time of withdrawing your fund and if 2 months have passed. Only transfer is allowed in case you have switched to a new job. Some people, however, withdraw the EPF after 60 days of leaving the organization, stating that they don't have any job, but this is illegal as per the EPF rules, if you are doing so after switching to a new job.
Thus, if you have no job at the time of withdrawing your fund and if 2 months have passed after leaving your organisation, then you are allowed to withdraw the fund. A declaration is required to be given stating the reason for the same. Otherwise, partial withdrawal is allowed in certain cases, which is in the form of loan, where one has to pay back that amount later and before that, has to state the reason for opting for withdrawal, for example, self or daughter's marriage, buying a home, education of self or children, medical treatment for self or family, among others.

There are certain specified criteria under which partial withdrawal is permitted. In case of education or marriage, for instance, the employee should have completed at least 7 years of employment or service. The maximum aggregate withdrawal can't exceed 50 per cent of the total contributions made by you and withdrawal can be made only thrice during a person's total service tenure. Proof of education or wedding is also required to be submitted.

Likewise withdrawal is permitted for medical treatment of self, spouse, parents and children. In this case, however, there is no restriction regarding the number of years of service. But the maximum amount one can withdraw is six times the basic salary and proof of hospitalization is required.

In case you wish to withdraw from your EPF account for purchase/construction of a house, then you need to have completed at least 5 years of service. The maximum withdrawal amount is 36 times your monthly salary (for construction of property) and 24 times (for purchase of property). In this case withdrawal is allowed only once during the entire service tenure.

For alteration or renovation of house, withdrawal is allowed up to 12 times your monthly salary and only once during the entire service tenure. But the house need to be registered in your or your spouse's name or should be owned jointly.

If you need to withdraw for repayment of home loan, then you should have completed at least 10 years of employment. The maximum withdrawal amount is 36 times the monthly salary of yours and withdrawal is allowed only once during the entire service tenure.

If one has retired or stopped working, he/ she needs to fill a PF withdrawal form and share his/ her bank account number, which has to be counter signed by the employer. After this, the money is directly sent to one's bank account. The process takes longer in case of EPF - anywhere between 2 weeks to may be up to two months also.

"On the other hand, if you have a PPF account, withdrawal is very easy after completion of 15 years. You can collect the demand draft or cheque by going to the post office or bank on the same day or get the money transferred in your bank account. Thus, one can get the money in a day's time," informs Chopra.

Also, if one wishes to withdraw before the end of 15 years, let's say 6 years, the amount which can be withdrawn as per rules will be calculated, and by filling an application in the prescribed format, it can be taken out maximum in one day's time. Thus, withdrawing from PPF is easier than withdrawing from EPF or GPF.

Courtesy : economictimes