You should know all about Gratuity Act, 1972 (India)

What is it?

Gratuity is a part of salary that is received by an employee from his/her employer in gratitude for the services offered by the employee in the company. Gratuity is a defined benefit plan and is one of the many retirement benefits offered by the employer to the employee upon leaving his job. An employee may leave his job for various reasons, such as - retirement/superannuation, for a better job elsewhere, on being retrenched or by way of voluntary retirement.

Payment of Gratuity Act, 1972 provides for a scheme for the payment of gratuity to employees engaged in factories, mines, oilfields, plantations, ports, railway companies, shops or other establishments. The Payment of Gratuity Act is administered by the Central Government in establishments under its control, establishments having branches in more than one State, major ports, mines, oil fields and the railways and by the State governments and Union Territory administrations in all other cases.

The employer may pay the gratuity proceeds from his current revenue. They may set up a gratuity fund as a part of their financial planning. Many insurance companies have designed special schemes which relate to gratuity.

Eligibility

As per Sec 10 (10) of Income Tax Act, gratuity is paid when an employee completes 5 or more years of full time service with the employer(minimum 240 days a year). In other word if an employee at least completed 4 years and 240 days of his employment with the employer then he/she is eligible for the gratuity.

How much your gratuity amount?

The amount you get as gratuity depends on the number of years you have served and the last drawn monthly salary. Roughly, you get half a month’s Basic and DA for every completed year of service. Here’s the formula to calculate gratuity: (Number of years of service) * (Last drawn monthly Basic and DA) *15/26. So, if you have served 30 years and draw monthly Basic and DA of Rs. 20,000 when you leave the job, you get gratuity of Rs. 3,46,154 calculated as (30 * 20,000 *15/26). Your employer can choose to pay you more but the maximum amount of gratuity according to the Act cannot exceed Rs. 10 lakh. Amount paid above this will be in the nature of ex-gratia — something voluntary and not mandated according to law.

If you serve more than six months in the last year of employment, it is considered as a full year of service. For instance, if your tenure is 30 years and 7 months, the years of service for gratuity calculation will be rounded off to 31. But if you serve 30 years and 5 or 6 months, then the number of years of service will be considered as 30. For your convenience I had given a link below to calculate your gratuity.

Waiving the rule

Going by the book, gratuity is payable only if you have been with the employer for five years or more. But this rule is waived if an employee dies or is disabled. In such cases, gratuity is paid to the nominees or to the employee, even if the tenure is less than 5 years.

Even employees not covered under the Payment of Gratuity Act are entitled to gratuity. But in such cases, the formula for gratuity calculation differs. It is computed as the (number of years of service) * (average monthly salary in the last 10 months of employment) * (15/30). This computation makes the gratuity amount lesser than that under the Act. For instance, in the above example, an employee not covered by the Act will be entitled to Rs. 3,00,000 as gratuity, calculated as (30 * 20,000 * 15/30). This is Rs. 46,154 lower than employees covered under the Act are entitled to. Another difference is that only fully completed years of service are considered in the calculations, and partial service in the last year, even if it in excess of six months, is ignored. For instance, service of 30 years and 7 months, will be considered as 30 years and not 31 years.


Another positive is the favourable tax treatment that gratuity receipt enjoys. Tax treatment

If you are a government employee, then the entire amount you get is exempt from tax. If you are not a government employee but are covered under the Act, you get tax deduction for an amount which is the lower of the following:

a) Actual gratuity received
b) 15 days Basic and DA for each completed year of service (according to calculations in the example above)
c) Rs. 10 lakh

Say, in the instance above, your employer paid you gratuity of Rs. 5,00,000, which is more than the Rs. 3,46,154 actually payable under the law. You will enjoy tax deduction on Rs. 3,46,154 and the surplus Rs. 1,53,846 will be subject to tax. Note that the total tax deduction on gratuity amounts received, including those from previous employers in earlier years, cannot exceed Rs. 10 lakh.

Employees not covered under the Payment of Gratuity Act are also entitled to tax deduction on the amount they receive. The deduction rules are similar to those applicable for employees covered by the Act.

Here is the Gratuity Calculator to calculate your gratuity receivable.

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What is EMI and how is it computed?

EMI is an oft repeated term that is associated with any loan taken. Let us understand how EMI works and what are the different aspects associated with EMI. TheEMI facility helps the borrower plan his budget. The EMI is calculated taking into account the loan amount, the time frame for repaying the loan and the interest rate on the borrowed sum.

An equated monthly installment (EMI) is the amount of money that is paid back to the lender on a monthly basis. It is essentially made up of two parts, the principal amount and the interest on the principal amount divided across each month in the loan tenure. The EMI is always paid up to the bank or lender on a fixed date each month until the total amount due is paid up during the tenure.

Now, you might assume that the equal parts of the principal and interest is repaid to the financial institution every month, however this not the case. During the initial years the interest component repaid is higher and during the latter years of repayment the principal component is higher. So, if you think you have paid half of the amount borrowed from the bank in 5 years in a 10 year loan tenure, that would not be the case. You would probably have reduced the total interest component due considerably and would have only repaid the interest component.

Here is a simple example that explains how the repayment of your EMI reduces your loan amount during repayment period leading up to the end of the loan tenure.

Here the loan amount is 100000, which is lent at a interest rate of 12% with a loan tenure of 12 months.

The monthly EMI is calculated at the annualized rate of 12% and amounts to Rs.8,885 per month with the total interest component amounting to Rs.6619.

You will notice that the Interest repaid decreases with each passing month and the principal repaid increases with each passing month. This means that with a larger loan amount of say 5 L with a longer tenure of 20 years, the interest component will be the greater portion of the EMI, which will reduce leading up to the loan tenure, while the reverse is true for the principal component.

Amortization Table

Month no.	Outstanding amount	Interest paid this month	Principal paid this month	EMI Payment for this month
1	100,000	1,000	7,885	8,885
2	92,115	921	7,964	8,885
3	84,151	842	8,043	8,885
4	76,108	761	8,124	8,885
5	67,984	680	8,205	8,885
6	59,779	598	8,287	8,885
7	51,492	515	8,370	8,885
8	43,122	431	8,454	8,885
9	34,668	347	8,538	8,885
10	26,130	261	8,624	8,885
11	17,507	175	8,710	8,885
12	8,797	88	8,797	8,885

Claim process for your health insurance policy!

A health insurance provides you protection against expensive treatment costs. It guards you against paying the full costs of medical services when you’re injured or sick. It not only relieves you from financial distress but also gives you confidence to fight those odds in life. With your health insurance, you can afford the medication cost in your desired hospital and need not compromise on the quality of treatment to save some cash.

To make insurance experience hassle-free, insurance companies are providing world-class services to their customers. This include handling claims processing professionally and compassionately. Although your insurance company sells an insurance plan to you, but when you apply for claims, they are either processed by their in-house team or are outsourced to “Third Party Administrator (TPA)”. TPA is the organisation or institution authorized by IRDA and engaged by the insurance company for a fee, for providing policy and claims services to the insured person for an insurable event.

Health Claims can be obtained mainly in two ways:
    a) Cashless Claim

    b) Reimbursement Claim

Cashless Claim with Network Hospital:

Process for availing Cashless Claim (for planned hospitalization):

There are times when you plan your hospitalization in advance, especially when you know about the occurrence of an event like maternity, surgery etc. In those situations, you might prefer treatment in a hospital of your choice where you can also avail cashless facility through your health insurance plan. Follow the below mentioned process for hassle free Health Insurance Claim during planned hospitalization:

Step 1: Approach Network Hospital of your choice for Cashless Treatment

Step 2: Contact the Hospital counter that deals in insurance requests, at least 3-4 days prior to the date of hospitalization. Produce your health insurance card to identify yourself as the beneficiary for cashless service.

Step 3: The hospital, after verifying customer details, sends request to insurance company or TPA. Coordinate with network hospital to forward pre-authorization request (by fax) to insurance provider/Third Party Administrator (TPA).

Step 4: Insurance company/TPA reviews your request and authorizes cashless claim services as per the policy benefits and its terms & conditions.

Step 5: TPA sends the response to the hospital. Your claim request may be approved or denied depending on your policy T&C. The time taken for processing and approving cashless claims varies from 1 hour to 1 day (depending on the insurance provider).

Step 6: (i) If your claim is approved, get admitted to hospital without any deposits and avail cashless services as per your plan. On discharge, verify the hospital bills for accuracy. Any amount over pre-authorized limit to be paid by you or your family members at the time of discharge.

(ii) If your claim is rejected due do some reason, proceed with the usual hospitalization process as a cash patient i.e. pay all your bills and later apply for reimbursement claim with your insurance provider.

Note: Denial of “Cashless Facility” is not denial of treatment. You may continue with the treatment, pay for the services to the hospital, and later submit the claim for processing and reimbursement.

Cashless Claim Process for unplanned/emergency hospitalization:

An individual cannot always plan for his hospitalization in advance. There can be situation when you need life-saving emergency treatment immediately, for instance, in case of accident, unexpected illness etc. For those unexpected moments, keep your family members informed about your insurance details and below procedure for hassle-free claims processing:

Step 1: Get admitted to the hospital for emergency treatment

Step 2: Patient or his family members should approach the hospital counter with patient’s health insurance details (Health Insurance Card). This should ideally be done within 24 hours of getting admitted to the hospital. Family members can also contact the insurance provider or TPA directly for sharing health insurance details, in case of lack of assistance from the hospital.

Step 3: Patient’s family members to co-ordinate with hospital and TPA for arranging the pre-authorization request.

Step 4: TPA to process the request as per policy terms and conditions within defined time period (varies from 1 hour to 1 day).

Step 5: If the request is approved, proceed with cashless services at the hospital else family members need to settle the bills at the time of discharge.

Step 6: If claims were rejected, then proceed with the usual hospitalization process as a cash patient i.e. pay all your bills and later apply for reimbursement claim with your insurance provider.

Whenever you register a loss with claims team (TPA), be ready with the following information:

a) Contact details of insured,
b) Name of the Insured
c) Policy number
d) Date and time of problem
e) Nature of problem
f) Location of problem

If your claims are rejected for cashless services, you can still apply for reimbursement of your claims by submitting following documents.


Original Documents to be submitted:

a) “Claim form” duly filled and signed by the beneficiary i.e. the Insured
b) Hospitalization discharge slip/card/summary
c) Hospital bills with their payment receipts
d) Surgical summary (in case the Life Insured has undergone a surgery)
e) All supporting diagnostic reports and prescriptions
f) All Pharmacy receipts and corresponding prescriptions
g) Ambulance invoice, if applicable

Self-attested copies of following documents:

a) Health card or Policy document
b) ID proof of the insured

The documents mentioned are only indications. Based on the circumstances of the claim, the insurer may however, request additional documents.

Tip: It is always important to follow the right process. If your claims are rejected, always check the reason by calling up the customer care unit of your insurance provider or Third Party Administrator (TPA).

It is also important to know exclusions in your health insurance plan. The common exclusions, for which no payment is made by insurance companies are:

a) Occurrence of illness/hospitalization within 30 days of start of your policy may stop you from all the benefits. Once your policy starts, initial 30 days are considered as a cooling or waiting period. Accident, however, is an exception to this criterion.

b) Treatments received outside India are generally not covered by insurance providers in India. If you are planning for a treatment abroad, it is advisable to check your insurance plan well in advance.

c) Non-allopathic treatment, Cosmetic Surgery, HIV/AIDS, dental treatment (except due to accident), routine eye and ear treatment (cost of routine eye and ear examinations, cost of spectacles, laser surgery for correction of refractory errors, contact lenses, hearing aids, dentures and artificial teeth) etc. are some of the exclusions that most insurance companies do not pay for.

d) Any Pre-existing disease prior to the commencement of your health insurance plan is not covered in the first 2-4 years of the policy depending on your age and the nature of the policy.

Reimbursement Process for Non-Network Hospital:

It may be possible that the hospital that you picked for your treatment or when you were admitted in an emergency is not covered under list of network hospitals of your insurance provider. In that case, you can follow the below mentioned process to avoid chaos at the last moment.

Reimbursement of claims in case of planned hospitalization:

Step 1: Approach the non-network hospital of your choice and inform your insurance provider/TPA at least 3-4 days in advance i.e. before getting hospitalized

Step 2: Get admitted and pay all your bills as a cash customer.

Step 3: Within 7 days of discharge, fill complete details in your claim form and submit it along with other supporting documents (indicative document list mentioned above) to your insurance provider/TPA

Step 4: Your insurance provider/TPA will verify all the documents and settle your claim within 15 days to 1 month of request.

Reimbursement of claims in case of unplanned/emergency hospitalization:

Step 1: Get admitted to the hospital for emergency treatment

Step 2: Patient or his family members should inform the insurance provider/ TPA about insured patient’s hospitalization and share his/her health insurance details (Health Insurance Card). This should ideally be done within 24 hours of getting admitted to the hospital.

Step 3: Pay all your hospital bills at the time of discharge

Step 4: Within 7 days of discharge, fill complete details in your claim form and submit it along with other supporting documents (indicative document list mentioned above) to your insurance provider/TPA

Step 5: Your insurance provider/TPA will verify all the documents and settle your claim within 15 days to 1 month of request.

Tips for faster Claim Settlement:

a) Intimate your insurance provider/TPA immediately (as early as possible) about hospitalization
b) Always repay your insurance premium in time (on/before due date)

c) Submit complete documentation and correct information to your insurance provider

Also read my post Claiming health insurance from multiple insurers!

Exemptions under Section 10 of Income tax act

Income tax act provides multiple tax exemptions to every individual. A lot of such exemptions fall under section 10 of income tax act. Following are the tax exemptions provided under section 10:

Agricultural Income
Income received from agriculture is totally exempt from tax if it is the only source of income in the financial year. However, if it is accompanied by income from other sources, it is taxable.

Leave Travel Allowance (LTA)
LTA is exempt to a certain extent for domestic travel under section 10(5) of income tax. The exemption is subject to the LTA limit specified in the individual’s salary.

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Life Insurance
The payment proceeds of a life insurance policy are exempt under section 10(10D). This includes maturity amount as well as death claims.

Gratuity
Gratuity amount received by a government employee is totally exempt from tax. For others covered under payment of gratuity act, it is exempt to the least of the following:

1)      15 days salary based on last drawn salary for each year of service.
2)      Rs. 10,00,000
3)      Gratuity received

For those not covered under gratuity act, it is exempt to the least of:

1)      Half month average salary for each year of service completed.
2)      Rs. 10,00,000
3)      Gratuity received

Leave Encashment
For a government employee, leave encashment upon retirement or leaving the job is tax free under section 10. For a non-government employee, it is exempt up to least of the following:

1)      Earned leave (no. of months) * Average monthly salary
2)      10 * Average monthly salary
3)      Rs. 3,00,000
4)      Actual leave encashment received

Commuted Pension
Commuted pension for govt. employees is fully exempt. For others, it is exempt to least of the following:

1)      If gratuity is received, up to 1/3rd of the pension received.
2)      If gratuity not received, ½ of the pension received.

Compensation under VRS
Compensation received under VRS scheme upon voluntary retirement is exempt up to maximum of Rs. 5,00,000.

Provident Fund
Payments received from Provident Fund (PF) are exempt as part of section 10. However, PF withdrawal is taxable for less than 5 years of service. Also, EPF balance can be withdrawn only subject to few conditions.

HRA
House Rent Allowance (HRA) for an employee is exempt to the least of the following:

1)      HRA received
2)      Rent paid – 10% of salary
3)      50% of salary for Delhi, Mumbai, Kolkata and Chennai and 40% elsewhere.

Dividends received
Dividends announced by any company in case of mutual funds or stocks are exempt from tax in the hands of an individual, irrespective of the company paying tax on it.

Equities held for more than 1 year
Any equity instrument, share or mutual fund held for more than 1 year is free from tax at the time of sale. This is also known as long term capital gains.

Superannuation fund
Any amount received from an approved superannuation fund is exempt from tax in the hands of an individual.

Transport allowance
Transport allowance is exempt up to Rs. 800 per month i.e. Rs. 9,600 per annum. Transport allowance here means expenditure incurred for travel between place of residence and place of work.

Education and Hostel allowances for children
Education allowance is exempt up to Rs. 100 per month per child for a maximum of 2 children. Hostel allowance is exempt for hostel expenditure up to Rs. 300 per month per child for a maximum of 2 children.

Interest on Securities
Income from securities in the form of interest, premium, etc from certificates, bonds and deposits is exempt from tax.

Conclusion
These are some of the important exemptions provided to individuals under section 10 as per income tax act. There are also several such exemptions available in this act. Hope this piece of information is useful to you. Do share your views and opinions on this.

courtesy : investmentyogi

Fixed deposit tax and other features

Stock market is not the place to be for conservative investors. If you do not have time for research and you don’t understand how market behaves, it’s recommended to keep safe distance. Uninformed investors should opt for safer investment avenues like Bank Fixed Deposit and if you are a little more adventurous, you can go for company fixed deposits.

Today, banks are offering interest rates on fixed deposit in the range of 7 to 9.25%. Bank Fixed Deposit is quite safe as most of the banks employ enough checks and balances so that people’s money is not at risk. RBI too backs all the banks with respect to deposits and there is no scope for default. Bank Fixed Deposit is the most popular investment in India and high interest rate scenario makes it more attractive. Investor is worry free regarding research and can sit at home without worrying until the tenure of the deposit completes. There is enough flexibility in terms of premature closing, tenure and interest payments that makes this option desirable. Let’s find out how good this investment option is and who should opt for it.

Important Features of Fixed Deposit

• Tenure of Fixed Deposit varies from 7 days to 10 years
• The interest can be compounded quarterly, half-yearly or annually
• Minimum deposit amount is Rs 1,000 and there is no upper limit
• Frequency of interest payment is on monthly or quarterly basis and interest reinvestment option is also available
• Interest Income is Taxable

Why you should invest in Bank Fixed Deposit?

Fixed deposits are touted as one of the safest investments and one should consider investing in them because of following reasons

Safety Concerns:

Investors, who are more concerned about safety, should go for bank FD. There is almost zero default risk and no uncertainty in the future cash flows. You can align tenure of the fixed deposit with your long-term goals like child’s marriage or education.

Source of regular income:

Bank FD can be used as source of regular income, since interest on the Fixed Deposit account is credited to the savings account specified by the holder on a monthly or quarterly basis.

Addressing Emergency Capital Requirements:

In case of emergency, you can withdraw money prematurely, subject to some penalty, as prescribed by the bank on the date of deposit. You can also avail loan facility up to 90% of principal and accrued interest. Almost all the banks provide this facility against your Fixed Deposit.

Extra Benefit for Senior Citizens:

Senior citizens get extra benefits in the form of higher interest rates which are 25 to 50 basis points above the normal rates.

Tax Implication

The taxation rules on fixed deposits are quite simple. The interest earned on Fixed Deposit is added to the total income of a person and then taxed according to his tax slab. Also, if the total interest earned on all your fixed deposits is higher than Rs 10,000 in a financial year, tax is deducted at source as per the Income Tax Act, 1961.

The principal amount invested in fixed deposits with a maturity period of over and above 5 years is eligible for tax deduction under section 80C, but the interest earned on the deposit is still taxable.

Investment in fixed deposit gets slightly disappointing if we take taxation into consideration especially for an investment of tenure less than five years. Adding inflation in calculation makes the situation worse.

Conclusion

Investment decision always works on risk reward concept. No investment option is better than the other. It is the investor who has to decide what he wants from any investment and then invest accordingly. Although the taxation rules make this option a little less attractive, once we take time and knowledge factors into consideration this, weakness turns into strength.

courtesy : investmentyogi

How to save tax on Long Term Capital Gains?

Buying a property and selling it at a higher price later is very common. Since, most investors sell their property at a profit, every profitable sales transaction attracts certain tax liability. The tax rate however depends on several factors. As the amount involved in sale/purchase of a property is usually very high, the resultant tax amount thereby is sky-rocketing. So as to reduce tax burden for investors, the Government of India has laid down several alternatives for availing tax exemption under the Income Tax Act.

Before computing the net tax liability and investing your funds in right avenues to save tax, it is first important to understand classification of your gains arising from sale of a property. A property held for 3 years or less, attracts Short-Term Capital Gain (STCG), when sold at a profit. The gain from this sales transaction is added to the tax payer’s income and taxed as per the income tax bracket he falls under. For instance, if a tax payer falls under the tax slab of 30 percent, the STCG will also be taxed at the rate of 30 percent. The tax on STCG however, is not eligible to any type of exemptions.

The tax payer is liable to pay Long Term Capital Gain (LTCG) if he holds a property for more than 3 years before selling. Since the LTCGs are usually very large, there are several provisions available to reduce tax burden arising from these transactions. Some of these are indexation, lesser tax rate and deductions available as per income tax act. So as to reduce the tax burden, indexation factors inflation in its calculation by using the Cost Inflation Index. Please read my article on “Capital Gains” to understand in detail the computation of capital gains. The tax rate of 20 percent on LTCG brings down the amount of tax payable significantly as compared to the STCG tax (where STCG is 30%). Apart from this, there are several exemptions/ deductions available to reduce LTCG tax burden of the assessee. These deductions are available in the following circumstances:

a) LTCG arising due to sale of a residential unit and investment made in a new residential unit;
b) LTCG arising due to sale of an agricultural land and investment made in a new agricultural land;
c) LTCG arising on compulsory acquisition of lands and buildings of an industrial undertaking and investment made for purchase of land or building to shift or re-establish the industrial undertaking;
d) LTCG arising from transfer of machinery or plant or building or land of an industrial undertaking situated in an urban area and an investment made on machinery or plant or building or land for the purpose of shifting the industrial undertaking to any area other than urban area;
e) LTCG arising on sale of asset other than a residential unit and investment made in a residential unit;
f) Investment in financial assets;
g) Investment in equity shares.

You can avoid paying LTCG tax partially or completely if you invest your funds wisely. The Income Tax Act allows several exemptions for saving your LTCG tax liability. It is important for an investor to be aware of these exemptions to lessen his tax burden. Following are some of the popular ways to save Long Term Capital Gain tax:

1. Investment in residential property in specific time frame (Section 54/ 54F):

As per the income tax provisions, LTCG arising from sale of a capital asset (residential or non-residential property) is exempt under Section 54/54F if the net sale proceeds are invested in purchase or construction of one residential property, subject to following conditions:

Condition (i): The investor/seller should use the funds from capital gain to purchase a new residential house within 1 year before or 2 years after the transfer date (sale/transfer of the original property).

Condition (ii): If the investor intends to invest his money in under-construction residential property or construct his own residential property, the construction needs to be completed within 3 years from the date of transfer of the original property.

Condition (iii): The investor should not own more than one house (other than the new house) on the date of sale or purchase. Or, should not construct any residential house (other than the new house) within a period of three years, after the sale date.

Condition (iv): The investment in new residential property has a lock-in period of three years. If the new property is sold within a period of three years, the exemption claimed with respect to the old property shall be revoked and the capital gains become taxable.

Condition (v): If amount invested for buying a new house is more than the capital gain, then the maximum amount of tax exemption be restricted to proceeds from LTCG invested for buying a new house. In other words, maximum exemption cannot exceed the amount of LTCG used for buying a new house. The balance amount of LTCG (after investing in new property), if any, is taxable at 20%.

Condition (vi): As per union budget for FY 2014-15, for availing the benefit of LTCG tax exemption, the investment should be made only in one residential house property situated in India, not abroad.

2. Deposit funds in Capital Gains Account Scheme (CGAS):

So as to avail tax benefit, the capital gains should be re-invested in a residential property before filing income tax return of that year. And of you are unable to find the right property for you or invest that money in another property before the due date (usually 31st July) of filing tax return, then the unutilized sale proceeds can be deposited into Capital Gains Account Scheme (CGAS). Taxpayers can avail exemptions under the CGAS only when the amount of capital gain, or net consideration, is deposited by the last date for filing the income tax return.

There are 2 categories of Capital Gains Account:-

Deposit Account Type A: All deposits into this account are in the form of savings. This account is suitable for taxpayers who want to construct a house over a long period as withdrawals are permitted according to the provisions of the scheme.

Deposit Account Type B: This account is similar to a term deposit as it is payable after a fixed time duration. The depositor can opt to keep the deposits cumulative or non-cumulative and withdrawals from this account can be made only after a stipulated duration.

The Capital Gains Account however, is only a temporary arrangement to park your funds for 2-3 years. The withdrawals from these accounts should be made to pay for purchasing/constructing a residential property only.

3. Investment in bonds (Section 54 EC):

LTCG arising from the transfer of any long term capital asset are exempt under section 54EC if the investor, within a period of 6 months of sale, invests the capital gain in notified bonds issued by the National Highways Authority of India (NHAI) or Rural Electric Corp. (REC) Ltd for a minimum period of 3 years. This is restricted to a cap of Rs.50 lacs per financial year. These bonds are also known as capital gain bonds.
An investor who wishes to claim the exemption from LTCG tax has to invest the amount in the capital gain bonds within 6 months from the date of sale (of property) or before the due date of filing income tax return (usually 31st july), whichever is earlier.
The interest rate offered on above mentioned bonds is currently 6% and the interest income from these bonds is not tax-free.
Tax treatment for Capital gains is different from regular income. It is important for an investor to be aware of its computation and the availability of various options to save his/her tax liability.

courtesy : bankbazaar

When you struggle to repay your education loan!

An education loan is structured very differently compared to other loans from banks. As it is a loan which is used to fund education, the repayment of the principal of this loan begins after the student completes his education. This is unlike other loans, where both the principal and the interest amounts are repaid from the beginning of the loan. The repayment of an education loan starts after a moratorium, which is like a holiday period. This period usually extends to one year after completion of the course or six months after getting a job, whichever is earlier.

The first factor to remember while borrowing an education loan is to begin paying the interest amount while studying. Banks give an option to the borrower to repay the interest from the beginning of the loan, or along with the repayment of the principal. In case of the former, the interest levied is simple interest. By the time the loan is ready for repayment, the interest accrued during the study period is not included in the EMI payments. As a result, the burden of repayment is much lower. Further, some banks also give an interest subsidy of up to 1% if the interest is regularly serviced during the study period.

It is usually advisable that the borrower has a repayment plan in place before the repayment commences. However, sometimes, borrowers are unable to repay their education loan after education. The student is unable to get a job offer, or is offered a job where the salary is very low. This can result in a problem in loan repayment. What happens then?

If the borrower has not proactively approached the bank and discussed the concern on repayment, then the bank is unaware that the borrower will not be repaying the loan. So after waiting for a month or two, banks generally issue a formal notice to the borrower. Non payment of EMI also attracts a penalty. If there is no response from the borrower even after the issue of notice, the bank can take charge of the collateral given for the loan. Education loans are usually guaranteed by a parent or spouse or someone with a healthy asset base. The guarantor will be contacted and the collateral may be realized to close the loan.

However, note that this is an extreme scenario. As a prudent borrower, if you feel that you will be unable to repay the bank loan, you must inform the bank of the situation well in advance. Based on the validity of the case and your scenario, banks can work out one of the following solutions:

• Increase the tenure: Education loans come with tenures of 5 to 7 years. If the bank feels that your crisis situation is temporary and that you will start earning well in some time, they may agree to increase the tenure of the loan to up to 10 years or 15 years as the case may be. An increase in tenure means that the EMI will fall. A lower EMI may still be affordable to you, if you are earning a salary much below what was expected when the loan was taken. But do not forget that as in any other loan, a longer tenure means you will be paying a higher interest overall, for the full tenure of the loan.
• Extend moratorium period: Although this is rare, this is not completely impossible. If you have a good credit background, your negotiation skills are good and the reason for not landing a job is genuine, the bank may just agree to extend your moratorium period by six months to 1 year. This option is also possible if the borrower wishes to pursue higher studies immediately and so takes a top up loan. This can bring a huge relief as you do not have to manage EMI payments along with your regular expenses. However, remember that since you will continue to service interest, your interest outflow will be quite high.
• Income linked repayment: Another option to bargain with the bank is to ask for an income linked repayment scheme. Banks abroad have sophisticated software which can model this automatically. In India, at present, there is no provision to adopt this in banks. Nevertheless, a simpler model may soon be available, which captures the fact that individuals generally earn lower in the first few years of their career. This is in effect like a step up EMI option of a home loan, where the initial years of the repayment will carry a lower EMI and this will be increased as the years go by and the salary increases.

Avoiding payments or not informing the bank can be quite harmful for your credit health, as this can affect your credit standing adversely. Considering that there will be many more important loans you would want to borrow later in life, it is always better to keep the 

courtesy : bankbazaar