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

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

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

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