There are lock-in periods that need to be observed in case you have claimed deduction against repayment of home loan
Ashwini Kumar Sharma | Last Published: Mon, Jan 08 2018. 08 20 AM IST | LiveMint.com
There are various income tax sections under which you can claim deductions for expenses and investment incurred by you during the relevant financial years. Such deductions help you to bring down the taxable income for the respective fiscal and consequently reduce your tax liability.
However, in many cases, a lock-in period is specified—under the section of the Act as well as the instrument against which you may have claimed a deduction. If you fail to observe the lock-in period, the deductions that you availed can be revoked.
Let’s read more about the lock-in periods that need to be observed in case you have claimed deduction against repayment of home loan principal amount.
The deduction on home loan
If you take home loan for purchase or construction of a house, the capital repayment and interest paid on the home loan qualify for deduction under separate income tax sections. While principal repayment qualifies for deduction under section 80C of the Income-tax Act, 1961 and has an overall limit of Rs1.5 lakh a year, the interest payment on home loan qualifies for deduction under section 24(b) of the Act, with an overall limit of Rs2 lakh a year. There is an additional deduction of Rs50,000 for interest payment on home loans under section 80EE for the first-time homebuyers.
While there is no lock-in period for deduction claimed against interest payment on home loan under section 24(b) or 80EE, the section 80C(5) (relating to repayment of principal) of the Act stipulates that if you sell your house within 5 years from purchase or date of possession, the deduction claimed on principal repayment during previous years gets revoked. In this case, all the deductions claimed for home loan principal repayment under section 80C during the previous years too have to be clubbed together and added to income of the year of sale, and be taxed accordingly.
Let us assume you had bought a house in May 2014 with a home loan, and had claimed about Rs4 lakh under section 80C over the last 3 financial years—FY2014-15 to FY2016-17. If you sell the house now, the entire Rs4 lakh claimed earlier as deduction under section 80C will get added to your income for FY2017-18 and you will have to pay tax on the total income as per the income tax slab applicable to you.
Apart from home loan principal amount, the stamp duty and registration fee paid for registration of property also qualify for deduction under section 80C in the year of purchase. If you had claimed stamp duty and registration fee as deduction, you need to observe the 5-year lock-in in these cases too.
If the property is sold before 5 years, the deductions claimed against stamp duty and registration fee will get revoked and get added to the income of the year of sale and tax accordingly.
So, before you decide to sell your house, keep the lock-in criteria in mind. Else, your tax liability may increase considerably in the year of sale.
Suresh KP | Feb 15, 2017, 05.48 PM | Source: Moneycontrol.com
Investing in tax saving ELSS mutual funds would help you to save tax u/s 80C as well as giving superior returns.
Many of the tax payers are looking for various options to save income tax u/s 80C. While there are several options to save tax, one of the attractive ways is to invest in tax saving funds, technically known as ELSS.
What are tax saving funds?
Equity Linked Saving Scheme (ELSS) or tax saving funds provide tax exemption u/s 80C along with higher returns compared to any other tax saving option. Investments in ELSS upto Rs 1.5 lakh bring in tax deduction under section 80C.
Compared to other tax saving schemes like Tax saving FD, PPF, NSC etc, ELSS offers higher returns. However, a point to note is that these returns are not guaranteed. These ELSS have low lock in period of 3 years. Other instruments have lockin period ranging between 5 years to 15 years.
After taking into account these benefits lets look at five ELSS that can be considered as good investment options to save tax and create wealth.
1) Reliance Tax Saver Fund
This MF scheme objective is to generate long term capital appreciation from a list of stock portfolio and invests predominantly in equity and equity related instruments in India. This scheme has provided 20.3% annualized returns in last 5 years. Even in last 3 years, this scheme provided 30% annualized returns. This scheme is ranked by Crisil as Rank-3 (1 is vergy good performer and 5 is weak performer)
2) Axis Long Term Equity Fund
This tax saving scheme aims to generate regular long term capital growth from a diversified portfolio of equity and equity related securities in India. This mutual fund scheme is the top performer in the ELSS funds over five years time frame. This scheme has provided 21% annualized returns in last 5 years. Even in last 3 years, this scheme provided high returns of 24.9% annualized returns. This scheme is ranked by Crisil as Rank-4 (1 is vergy good performer and 5 is weak performer)
3) DSP BR Tax Saver Fund
The mutual fund scheme aims to generate medium to long-term capital appreciation from a diversified stock portfolio of equity and equity related securities along with tax savings. This mutual fund scheme is the top performer in the ELSS funds.This scheme has provided 20.4% annualized returns in last 5 years. Even in last 3 years, this scheme provided good returns of 26.6% annualized returns. This scheme is ranked by Crisil as Rank-1 (1 is vergy good performer and 5 is weak performer)
4) Birla SL Tax Relief 96 Fund
This mutual fund scheme aims for long term capital appreciation by investing upto 80% in equity and balance in debt related instruments. This scheme has provided 19.1% annualized returns in last 5 years. Even in last 3 years, this scheme provided good returns of 25.6% annualized returns. This scheme is ranked by Crisil as Rank-2 (1 is vergy good performer and 5 is weak performer).
5) Franklin India Tax Shield Fund
The MF scheme aims medium to long term growth of capital along with income tax rebate. This scheme has provided 17.5% annualized returns in last 5 years. Even in last 3 years, this scheme provided good returns of 24.3% annualized returns. This scheme is ranked by Crisil as Rank-3 (1 is vergy good performer and 5 is weak performer).
Smart investors would invest in a good ELSS mutual funds which helps them to save tax and also provides high returns compared to any other tax saving options.
The author of this article is founder of Myinvestmentideas.com.
By Narendra Nathan, ET Bureau| 9 May, 2016, 12.29PM IST | Economic Times
If you have an outstanding home loan, and happen to have just received an annual bonus or any other lump sum payment, should you use it to prepay your loan? Or, should you invest it to meet some other goals? Assess the following conditions to arrive at the right decision.
The first variable to be considered is psyche: some people may not be comfortable with a large housing loan and to reduce their stress they may want to get rid of the loan burden at the earliest. For them, settling the question of how to use their bonus is simple: just pay off the loan. Gaurav Mashruwala, Sebi-registered investment adviser, categorically states: “You should pay off the home loan at the earliest. Several unfortunate happenings— job loss, death of the earning member, serious illness, etc—can cause trouble during the 10-15 year loan period. Treat it as a mind game and not a numbers game.”
Tax benefit is the next variable. If a home loan does not seem like the sword of Damocles hanging over your head, it makes sense to continue with the regular EMI schedule. This is because of the tax benefits that a home loan offers. The principal component of the EMI is treated as investment under Section 80C. The interest component is also deducted from your taxable income under Section 24. The annual deduction in respect of the interest component of a housing loan, for a self occupied house, is limited to Rs 2 lakh per annum.
You won’t be able to claim deduction on interest paid above Rs 2 lakh. So, if your annual interest outgo is higher than Rs 2 lakh, it makes sense to prepay the loan, and save on future interest payment. For example, the annual interest on a Rs 70 lakh outstanding loan, at 9.5%, comes out to be Rs 6.65 lakh. After taking into account the Rs 2 lakh deduction under Section 24C, the interest component will fall to Rs 4.65 lakh, and bring down the effective cost of interest from 9.5% to 8.64%, even for the people in the 30% tax bracket.
You can, however, optimise the tax benefits if the loan has been taken jointly, say, with your spouse. “If joint holders share the EMIs, both can claim Rs 2 lakh each in interest deduction,” says Harsh Roongta, Sebi-registered investment adviser. In case of joint holders share the EMIs, both can claim Rs 2 lakh each in interest deduction,” says Harsh Roongta, Sebi-registered investment adviser. In case of joint holders, there is no need to prepay if the outstanding amount is less than Rs 40 lakh.
There is no cap on deduction in lieu of interest paid on home loan, if the property is not self-occupied. “Since there is no cap for interest on loan against second or rented out homes, there is no need to prepay it,” says Naveen Kukreja, CEO and Co-founder, Paisa Bazaar. Bear in mind, by prepaying your loan, you may also forego future tax benefits. For instance, if by prepayment, you bring down your outstanding loan amount to Rs 20 lakh, your annual interest outgo for subsequent years may fall below Rs 2 lakh. Thus, you won’t be able to avail of the entire tax-deductible limit and, in such a scenario, prepayment may not be a good strategy. Also, building an emergency fund, if you don’t have one, should take a priority over prepaying the housing loan: “Make sure that you have a contingency fund in place before opt for prepaying your home loan,” says Roongta.
The third key variable is returns from investment of the lump sum at hand. As a thumb rule, you should go for investment, instead of prepayment, only when the post-tax return from the investment is likely to be higher than the effective cost of the housing loan. For investors in the 30% tax bracket, and whose outstanding home loan balance is less than Rs 20 lakh, the effective cost of loan is only 6.65%. Since there are several risk-free, tax-free debt options such as PPF, Sukanya Samruddhi Yojana and listed tax-free bonds, which offer higher annualised return than this, it makes sense to invest in them.
All the debt products mentioned above are long-duration products. If your risk-taking ability is higher and time horizon is longer, you can consider investing in equities, which can generate better returns “It’s sensible for long-term investors (five year-plus holding period) to go for equities, provided they are savvy and understand the risks involved there,” says Kukreja.
There are some home loan products that provide an overdraft facility of sorts and help you maintain liquidity. All you have to do is to park the surplus money in these products and not bother with whether it’s a prepayment or not. It’s like prepayment with the option of taking out that money, in case you need it in future for personal use or for investment purpose. The strategy of maintaining the housing loan interest close to Rs 2 lakh per annum can also be managed by these special loan products. And even if you are going to invest, the SIPs can go from this account.
“I park my bonus and do SIPs in equity from the loan account,” says Kukreja. Most banks charge more for these special loan products. “Though the stack rate differential is more, you can bring it down by bargaining with the banks,” he adds.
Source : http://goo.gl/3ce3eL
Bindisha Sarang | Apr 4, 2016 10:49 IST | First Post
Public Provident Fund (PPF) gives you tax free returns of 8.1%. But, did you know the returns can be more from your PPF account if invested at the right time? Read on.
PPF account allows you to invest Rs 1.5 lakh ever year. And, thanks to Sec 80 C, the returns are tax free. While the interest on the PPF account balance is compounded annually, the interest calculation, however, is done every month. The interest is calculated on the lowest balance in your account between 5th and the last day of the month.
What does this mean? Simply put, if you deposit the amount after 5th, you miss earning interest for that particular month.
So, the smart thing to do is to make the most of your PPF account by putting money on or before the 5th of every month.
Even better, in case you have idle money at your disposal, a single deposit of Rs 1.5 lakh can be put into your PPF account before 5 April, right at the start of the new financial year, to earn interest for the whole year.
But if you don’t have that kind of lump sum money, make sure you make a a monthly investment before the 5th of every month. Of course, the minimum you can invest in PPF is Rs 500 a month.
Source : http://goo.gl/R8Gmoy
A homebuyer will be able to avail tax deduction of Rs.2 lakh on interest paid even if the house is ready in five years from the end of the finance year in which the home loan was taken
Ashwini Kumar Sharma | Last Modified: Thu, Mar 03 2016. 07 07 PM IST | Live MInt
Budget 2016-17 did not have much to offer to the individual taxpayer, as there was no change in slab rates nor was there an increase in deduction limits under various sections. However, it offered some relief to those who had recently bought or are planning to buy an under-construction apartment. The change, which is related to deduction against repayment of home loan, is small but holds big benefits for many homebuyers. In a recent story (http://bit.ly/1Qjwg84), we had stated how real estate project delays increase the effective cost of home buying by more than 25% for a homebuyer, and that the loss of tax benefit due to project delay is the biggest culprit. The new tax benefit offered in the Budget helps here. Here’s how.
Existing tax rules
Tax benefit on repayment of home loan helps homebuyers bring down the tax outgo substantially. According to the Income-tax Act, 1961, a borrower can claim deduction under section 80C against principal repayment, which has an overall limit of Rs.1.5 lakh, and up to Rs.2 lakh for payment of interest under section 24(b) for a self-acquired house. If the house is leased out, then the entire interest paid on home loan can be claimed as deduction. These tax breaks, however, are available based on the ownership of property.
Until the construction of the property is complete and you have the registration and ownership documents, you may not be able to claim these deductions. So, no possession means no tax benefit on the huge home loan. And that’s not all.
The bigger problem is when construction of a property gets delayed.
As per the prevailing tax rules, if the property does not get completed within three years, the maximum deduction allowed to a taxpayer for interest on home loan reduces to Rs.30,000 per annum. One can only claim deduction up to Rs.2 lakh if the property she buys gets completed within three years from the year in which the loan was taken. However, given the current condition of the real estate market, on an average, residential projects are getting delayed by 24-30 months. So, for those who take a loan to buy an under-construction property, delay in delivery leads to a substantial hit on tax savings.
In his Budget proposal for 2016-17, the finance minister proposed to increase the time limit for completion of projects from three years to five years. So, once implemented, a homebuyer will be able to avail tax deduction of Rs.2 lakh on interest paid even if the house is ready in five years from the end of the finance year in which the home loan was taken.
If you take a home loan in August 2016, and you get the house in March 2022 or before, you get the full Rs.2 lakh tax break. However, if you get the house after March 2022, you will not get the full benefit.
Source : http://goo.gl/Os5wAL
NDTV Profit Team | Last Updated: February 12, 2016 12:42 (IST)
The purchase of a house, by taking out a home loan, is considered good by personal finance experts, who generally scoff at long-term liabilities.
A house, unlike other personal goods such as cars, is considered to be an asset. There’s tax benefit too. Home buyers can claim an exemption of up to Rs. 1.50 lakh on principal payments for home loan under Section 80C of the Income Tax Act.
Buyers can avail Rs. 2 lakh deduction paid towards interest component of home loan per year.
The above-mentioned benefits apply for self-occupied properties and not for under construction houses. Further, in case of a delayed possession, the tax benefits get reduced substantially. Many a times, tax payers – unaware of this provision – claim full tax benefits on their home loan and get notices from the tax department.
According to Section 24B of Income Tax Act, a person can claim a tax deduction of up to Rs. 2 lakh on the interest paid on a self-occupied house if the possession of the property is done within three years of taking the loan.
In case the possession is given after three years, then the amount of deduction is reduced to Rs. 30,000 per year.
This means in case of delayed possession (when houses are delivered three years after a home loan has been taken), buyers can claim only Rs. 30,000 (15 per cent of the current allowed deduction of Rs. 2 lakh) as exemption.
Those who unknowingly claim exemption can get into serious trouble and may have to pay huge penalties, experts say.
“If the home buyer in such cases still claims interest of Rs. 2 lakh per annum, the tax office could disallow the deduction of Rs. 1.7 lakh per annum which could result in additional tax and interest payable by the home buyer to the tax office. At their discretion the tax office can also levy penalty for claiming excessive deduction,” says Parizad Sirwalla, National Head-Global Mobility Services-Tax, KPMG.
The penalty in this case may range between 100 per cent and 300 per cent of the extra tax deductions claimed, says Amit Maheshwari, managing partner of Ashok Maheshwary & Associates.
Tax experts say that home buyers are getting tax notices for claiming over Rs. 30,000 deduction, despite delayed possession. “As people are getting the possession of the house which they booked five to seven years back now, tax department are scrutinising the returns and people are getting notices from the tax department for the same,” says Sudhir Kaushik, chief financial officer, Taxspanner.com.
Tax experts believe that Finance Minister Arun Jaitley in the budget should relook at the tax benefits offered on home loans. “It may be worthwhile to consider an amendment in the provision not limiting such deduction to Rs. 30,000 per annum in cases where the delay in completion of construction is caused on account of reasons beyond the control of the home buyer,” says Parizad of KPMG.
Tapati Ghosh, partner at Deloitte Haskins & Sells, said: “One of the measures that could be considered is the extension of time limit to 5 years at least for the under-construction properties.”
Source : http://goo.gl/AGvChJ
Ashwini Kumar Sharma | Last Modified: Thu, Jan 28 2016. 03 09 AM IST | Live MInt
Borrowing money to buy a house not only gets you an asset but also helps you save on taxes along the way
Given the high property prices in metros, on an average an apartment having two bedrooms, hall, and kitchen of 1,200 sq. ft in an ordinary location will cost at least Rs.60 lakh or Rs.5,000 per sq. ft and or more. So, to buy such a house, most people take the help of a home loan, which usually forms 70-80% of the apartment’s value. This is probably the biggest loan that a person will ever take; thankfully, the related tax breaks are also significant. For example, a person servicing a home loan can claim deduction against principal repayment as well as against payment of interest. For investors, this enhances their profit margins. “Taking a home loan for investing in a residential property can significantly affect the buying decision,” said Amit Maheshwari, managing partner, Ashok Maheshwary and Associates, a chartered accountancy firm. Take a closer look at your home loan’s tax benefits.
Deduction on repayment
The equated monthly instalment (EMI) that you pay has two components, principal and interest. Both qualify for tax deduction under two separate sections of the Income-tax Act, 1961. Principal repayment can be claimed as deduction under section 80C of the Act, whereas interest under section 24(b).
Various other investments and expenses qualify for deduction under section 80C, which has an upper limit of Rs.1.5 lakh. However, section 24(b) provides exclusive deduction against interest payment on home loan. In this, you can claim deduction for interest payment on borrowed capital for the purpose of purchase, construction, repair, renewal or reconstruction of the house property. If home loan is taken for purchase or construction of a house, the exemption limit if the house is self-occupied is capped up to Rs.2 lakh, but there is no cap if the house is let out.
Take a joint home loan
Often borrowers take a joint home loan to enhance the loan eligibility. This is usually done along with spouse, parents, or in certain cases, with siblings. The tax benefit can be claimed by all the borrowers individually, provided they are co-owners of that property too. “When a property is purchased jointly, and the loan is co-borrowed, the deduction of Rs.2 lakh and deduction under section 80C (maximum Rs.1.5 lakh) is allowed to both the co-owners cum co-borrowers in the ratio of their ownership,” said Archit Gupta, chief executive officer and co-founder, http://www.cleartax.in. If you buy a property along with your spouse and both of you share equal rights over the property, you both are eligible to claim deduction equally. So, if the total payment in a year towards home loan is Rs.6 lakh, with Rs.1 lakh as principal and Rs.5 lakh as interest, both the borrowers can claim Rs.50,000 each under section 80C (against principal) and Rs.2 lakh each under section 24(b), if it’s a self-occupied house, or Rs.2.5 lakh each if it’s a let-out property.
Things to remember
You can only claim tax benefit on repayment of home loans once the property is complete. If you buy an under-construction property, you are not allowed to claim the deduction till the time the property is fully completed and you get possession.
“(But) pre-construction interest can be claimed in five equal instalments starting from the year in which construction is completed (within the overall limit mentioned above),” said Gupta. For instance, if you have paid Rs.5 lakh as interest on home loan during the construction period, you can claim Rs.1 lakh (one-fifth of Rs.5 lakh) each year, after you get possession of the house.
In case of a joint loan, typically lenders insist on borrowers opening a joint bank account to pay EMIs. Make sure each co-borrower contributes according to her respective share in the joint account. It helps to provide proof of contribution or payment to the taxman in case of scrutiny.
A home loan is a big liability, but it also offers substantial tax breaks. Understand these carefully so that you can make the best of the situation.
Brijesh Parnami | 07 Apr, 2015 17:56 IST | Business World
Home loan can be burdensome as you think the interest outgo squeezes your income. But on the contrary, it actually helps you save more money by providing a breather from taxes, writes Brijesh Parnami, Chief Executive Officer, Destimoney Advisors
Tax outgo skims the hard-earned money you make out of your jobs and businesses. However, to be a responsible citizen, there is no other way out. One has to submit taxes without a fail, to allow the government to take up tasks meant for creating better services and infrastructure for its people.
To ease the tax burden, the government from time to time provides breather in the form of tax rebates. One of the effective tools for saving tax is a home loan. By purchasing a house, you not only become eligible for tax deductions but also a proud owner of a home.
The sole aim of the government to provide lucrative tax breaks on home loan is just to push people to purchase properties. By doing so, it keeps the housing segment booming, the ripple effect of which is seen on other sectors as well.
Home loans are a great way to save tax and enjoy long-term relief. Income Tax Act, 1961 states that loans can be used as tax-saving instruments too. After procuring a home loan for purchasing a property, a person can claim tax deductions on the principal amount as well as on the interest that he would be paying towards servicing the loan.
Tax benefits on home loans are available under the Income Tax Act Sections 24, 80C and 80EE. Only individuals and HUFs (Hindu Undivided Families) are eligible for the benefits. These tax benefits are available only on home Loans and not on Non-Home Loans such as loan against property (LAP) etc.
Tax Benefit On Home Loans
Purchasing a home does not come easy. There is a fat chunk of money that that has to be paid as down payment and for the rest a home loan can be taken, for which one has to pay higher interest rates. But this home loan is your saviour from the taxes that you have to pay year after year. As home loans are for long term, one can enjoy the tax benefits on it during the designated period for which the loan has been sanctioned.
Tax benefits are available on two components of a home loan — Principal amount and the Interest. While the benefit on principal repayment can be availed under Section 80C, the same can be claimed on the interest repayment under Section 24.
The UPA government had introduced Section 80EE in the budget 2013-14 offering additional tax benefits on interest repayment, with certain riders. First time buyers were who took home loan in the financial year 2013-14 became eligible for availing additional tax benefit on Rs 1 lakh for interest payment over and above the tax deduction available under Section 24. For unutilized interest, the deduction was available for financial year 2014-15 as well. This additional tax saving means provided people more room to save extra bucks. But the government did not extend it in the following years and this year too there was no mention of Section 80EE.
For the financial year 2015-16, the benefits are available on Section 80C and Section 24 only.
·Section 80C — On repayment of Principal Amount & Stamp Duty/Registration Charges
On Repayment of Principal Amount
The amount that is repaid by the borrower towards the principal component of the home loan is allowed as tax deduction under Section 80C of the Income Tax Act. One can avail maximum tax deduction to the tune of Rs 1.5 lakhs under this section. This limit of Rs 1.5 lakhs is towards the total amount paid collectively for PPF, Tax Saving FDs, Equity oriented mutual funds, National Savings Certificates, among others.
The section does not allow the benefit during the years when the property is under construction mode. One can avail the tax deduction only after completion certificate has been given. However, important point to note is that a taxpayer can aggregate the interest that has been paid when the construction was on and can claim the deduction in five equal instalments in the five consecutive financial years, beginning the year during which the construction completes.
However, if the owner sells the property on which he has sought the tax benefit within the five years from the date of obtaining the possession then no tax deduction is allowed. If the assessee has availed tax benefits during this period, then it is treated as income and makes it liable for tax payment.
Also, the deduction is available on payment basis, notwithstanding the year in which the payment was made.
On Stamp Duty & Registration Charges
Section 80C also provides for tax deduction on the stamp duty and registration charges that are paid while purchasing the property. One can claim the deduction as prescribed in section 80C i.e. a maximum of Rs 1.5 lakhs and it is again the total amount paid collectively for PPF, Tax Saving FDs, Equity oriented mutual funds, National Savings Certificates, among others. The deduction can be claimed in the year in which these payments are made.
Section 24 — On payment of interest
In case of purchase of property, this benefit can be availed only when the construction of property is complete and the possession certificate has been provided. Other than purchase of property, the tax deduction is allowed on loans taken for construction, repair, renewal and reconstruction of a residential house property. The income on house property is adjusted with amount of Interest paid on home loan.
Rs 2 lakh is the maximum deduction limit one can enjoy under this section in case of self-occupied property. Besides, if the property is not completed within three years from the date of loan sanction, the interest benefit comes down to Rs 30,000 from Rs 2 lakh.
In case the property is not self occupied, there is no limit and one can claim the whole interest for tax deduction sake. However, there is a fine print here: If the owner does not self occupy the property and resides at any other place due to responsibilities related to job or business, then the deduction one can avail is only Rs 2 lakh.
Unlike the deduction available under section 80C on payment basis, the deduction under this section is available on accrual basis. So the deduction has to be claimed on yearly basis even if even if no payment has been made during the year.
*Borrowers are advised to consult Tax Consultant/Chartered Accountant in all the cases.
Source : http://goo.gl/63Nzfq
TNN | Apr 7, 2015, 06.55AM IST | Times of India
It’s the start of the financial year 2015-16. This is also the time when every investor should put in place a plan for investing and saving on taxes using all the options that the government has given to them. However, according to financial planners and advisors, while putting in place a long-term financial plan, the main aim should not be tax savings. The main aim should be to build the required corpus for the goal for which you are investing. Here are some tricks that will help you build wealth in the long run without much thought…
Use your bonus wisely
This is the time lot of people get a bonus. According to top of ficials at mutual fund houses and financial advisors, rather than spending on things that may not be an absolute necessity, you can invest the whole or a major part of the bonus in an equity mutual fund. Let us assume that you get a bonus of Rs 3 lakh this year and you put the whole amount in an equity mutual fund.
Now let us also assume that every year your bonus increases by 10% while the equity fund you are investing in, over a 10 year period, gives you a return of 12% per annum.At the start of the second year, your bonus is Rs 3.3 lakh and at the start of the third year it is at about Rs 3.6 lakh. At this rate, at the start of the 10th year, your yearly bonus will be about Rs 5.7 lakh. But if you have invested your yearly bonus every year in the equity fund that gave an annual return of 12%, your total corpus at the end of the 10th year will be a little over Rs 80 lakh. This looks like a staggering amount, but there is no magic in it.
Make good use of ELSS
According to financial planners and advisers, equity-linked savings plans (ELSS) floated by mutual fund houses are one of the best tax saving options for investors. This is because in the long term they have the potential to generate an average annual return of 12%, saves on taxes under section 80C of Income Tax Act and has a lock-in of just three years.
The returns from all ELSS are also tax free while the costs are around 2.5% per annum, one of the lowest for similar products. In comparison, most of the other tax-saving options cannot generate as high a return, costs are higher and returns are taxed on redemption. A combination of some of these factors makes such products unattractive in comparison to ELSS. So suppose after taking care of your contributions to provident fund, home loans, etc, you are still left with about Rs 60,000 to invest to save taxes under section 80C, go for one or more SIPs aggregating Rs 5,000 per month so that your yearly contribution is Rs 60,000.At about 12% average annual return, in 10 years, this can grow to be a Rs 11.6 lakh corpus.
Use excess cash intelligently
If you keep your excess cash that you need at a short notice, you probably keep it in your savings bank account. However, a better alternative is to keep it in a liquid fund of a good mutual fund house. Compared to 4-6% annual return that you can get in your savings bank account, liquid funds on an average has given a return of over 7.5% in the last five years while some of the best liquid schemes have returned over 8.6%. This higher return comes at a slightly higher risk and slightly less liquidity , that is about 24 hours, compared to money at call in case of savings bank accounts. So, if you can manage your cash inflows and outflows well, you can put your extra money in liquid schemes and earn much higher returns. There’s alternative to FDs Fixed maturity plans (FMPs) are a good alternative to fixed deposits (FDs). If you are keeping your money in FDs for three years or more, FMPs of similar maturities can give you a much better return as FMPs enjoy long-term capital gains tax advantages if the money is kept for more than three years. FDs do not enjoy similar benefits.
Source : http://goo.gl/KowGgd
SUKANYA KUMAR Founder & Director, RetailLending.com | Jan 27, 2015, 10.55 AM IST | Moneycontrol.com
Home loan is a cheap source of money to buy a house which generally appreciates in value in long term. Mortgages come with additional benefits such as tax benefits, access to more funds and offer opportunity to manage one’s money matters better.
There is a huge sense of achievement in buying your own home. Even more so today with the skyrocketing property prices, a home purchase is truly a great accomplishment in all aspects. Some home buyers may even be lucky enough to consider buying a home without a mortgage, but even if you can afford it, it may still be an intelligent decision to opt for a mortgage. Stumped?! Its true. A mortgage is a liability that even financial wizards would approve of. It should not be looked as a mere debt, but a tool of convenience.
Many home buyers may look to over-stretch their financial capability in the aim of buying a property without a mortgage, but a home loan can actually come with its own advantages. Today, the smart borrower can reap multiple benefits from a great home loan product. The best reason to opt for a mortgage is that it’s comparatively the cheapest form of credit available. What the point of forgoing a cheap form of credit, and then, taking expensive personal loans, car loans, or using credit cards to meet your financial requirements? A cheap form of credit also enables a greater monthly cash flow for you and your family, and if this money is invested well, you could even beat you own home loan interest rate in returns!
Everyone buys a home with the view that it will increase in value over time. If they felt otherwise, they would just rent! If history is a good indicator, your home’s appreciation, in most cases, will surpass the amount of interest you end up paying over the home loan tenure. Some home buyers may avoid a home loan as it comes with a monthly cash burden, but they don’t realize that overtime your disposable income will increase. The EMIs that may seem like a big chunk of your monthly take home will actually get easier to pay with time. Buying a home outright is similar to locking up the funds in your locker when you can use the funds by opting for a home loan. These extra funds can be invested to create even more wealth for you and your family.
Finally if these reasons were not enough, a home loan can help you save a significant amount of tax. The last budget raised the deduction against interest on home loan payment from the old Rs. 1.5 lacs to Rs. 2.0 lacs. In real terms, this will enable taxpayer to save an additional Rs. 15,450 on their tax liability. With the increase in the deduction in interest rate, the borrower is actually ends up setting off a portion of the interest paid in turn, having an even lesser interest component on the mortgage.
These benefits demonstrate how home loans are actually convenient rather than the belief that they are a debt, and should be avoided. Today, borrowers are in an envious position as lenders fight hard to increase their market share. This means that prospective borrowers have access to great home loan products, terms, and in most case, even other benefits such as over-draft or top-up to allow the borrower to have access to even more funds. These facilities can be used for any reason during the tenure of the home loan. Understanding all the products to choose the best one can help a borrower to come out in a greatly advantageous position. Here, it would be wise to consult a home loan advisor to ensure that the home loan product you choose is the best for you, and you know how to use the other facilities of the mortgage for your best interests.
In conclusion, a home loan is good debt. It is the cheapest form of credit available, can help you to have a great cash flow and create further wealth for your family, and is a tool to help save tax! Further, it is an investment, which appreciates in value from the day you buy it as opposed to other purchases such as gadgets and mobiles, which go down in value the day you buy them; this is a fantastic reason why buying a home is a great decision. When investing into a home, buyers should not shy away or avoid a mortgage, but instead embrace it. Moreover, with all the options available the borrower should take time in choosing the best option, and to be safe, consult experts for advice. A mortgage can provide a substantially greater liquidity and financial flexibility, and is truly a tool of financial convenience!
Source : http://goo.gl/a8sKSH
Sukanya Kumar, Founder and Director, RetailLending.com | Mumbai | January 27, 2015 16:34 IST | IndiaInfoline.com
For most people, applying for a home loan can tedious and stressful period, and in the process, prospective borrowers may end of ignoring certain aspects of their mortgage in a rush to get the process completed. These aspects may end up being a cause of great anxiety in the future, and it is better to be aware and abreast at the outset of the process. Let’s take a closer look at things you just cannot ignore while applying for a mortgage!
How did you compute the Amortization Schedule?
Everyone, who has in-depth knowledge of mortgages, should be able to explain to you how the equated monthly installment (EMI) is calculated and the relevance of an amortization schedule. It is just not another excel spreadsheet which is shared with all new trainees so that they can forward the same to you to win your business over! This is important for you, as you must understand the ratio in which the principal & interest is spread over the sheet. This will help you decide your interest paid every financial year & save tax. Not saving correctly is a loss and constitutes as a ‘charge’.
Is this loan a Daily Reducing or Monthly Reducing Balance?
Many years ago, when there were only a couple of lenders in mortgage industry, annual reducing rate was the only choice. This meant whatever principal you pay throughout the entire year will be deducted from your principal after completing one year! This meant paying interest on the paid loan amount too! The same is the difference between daily & monthly reducing balance. Are you getting the principal repaid amount adjusted the very next day of your making the payment, or after your next monthly payment date? Paying interest for already paid loan amount is terrible. Don’t you think you should find that out before you choose your lender to save this cost? You sure do.
How does part pre-closure happen in your bank? If I prepay 500 Grand’s on 22nd Jan, when do you reduce my outstanding principal?
Many a times you will find that while closing down your loan, you are forced to pay interest till the next EMI date, or sometimes the closure amount claimed by the lender specified in their foreclosure letter is- “Same for the next 15 days”. Well, how can that be? The closure amount should be different for different dates as interests are calculated daily. Your closure amount cannot be same on 16th & 30th of the same month. Then what you are paying on 16th must be including the next 15 days’ interest. Isn’t it?
When does my EMI start if I draw down my loan on middle of a month?
This is a very interesting question, please do calculate and check how many days of interest are you paying before your actual EMI starts! For example, if you are drawing down your loan on 25th of January, ideally you will be asked to pay simple interest (Pre-EMI) for balance 6 days of the month and then your EMI should start. Question is when does your EMI start? If it starts in February, then how much of that EMI is principal and how much is interest? Some lenders will start EMI from March. So, how is that math done? You need complete transparency on this one!
How do you calculate Pre-EMI for an under-construction property? When does the lender issue the pay-order & when does your developer receive it? If delayed, who pays for the delay in delivering it?
Please note that it is you who always ‘pay’. It is neither the lender nor the developer in any circumstance. So, it should be planned enough, for you not to lose any of it. The Pre-EMI (simple interest) is calculated on the number of days you remain drawn down, before you actually start the EMI. On the other hand, if the amount is not delivered in time to the builder, you may face consequences of delay-penalty, losing builder-subvention interest or something more. So, the gap between the pay-order being prepared by your lender (when your clock starts) to the delivery to developer needs to be monitored by you or your adviser, so that you do not pay interest just like that which is an unnecessary ‘cost’ to you!
What are the charges for switching loan from Fixed to Floating option or vice-versa? Or, switching between different mortgage products?
In India, the loan rates are extremely volatile. We have experienced a range between 7 – 13.50% within 6 years on a home loan! One might laugh saying ‘why didn’t you do something about it on your own mortgage!!’, the answer is- “This is exactly what has given me the life’s bitter experience to be able to advise today.” 🙂 I was asked to pay a 2% switch fee to be able to shift between products. Floating to Fixed, or simply Floating Standard to Floating Overdraft! Please do not make the mistake I made, of not asking your lender’s rep or adviser on this ‘hidden’ fact.
Is there any Documentation Charge in any stage?
Often lenders ask you to do fresh ECS or sign new loan kit while altering rate/margin/product/product-variant, out of the turn. This might involve a fee. Not knowing about it in advance will constitute it to be termed as ‘hidden’. This is generally a very nominal cost, but in my opinion, lenders can easily do away with it.
Does your company follow same rate norms for new & old borrowers? What is the past two-year trend on the differential rate, if any, and why is the difference?
Lenders reduce the offer rate in the market by two ways-(a) By reduction in their base rate or prime lending rate (PLR) and (b) by fluctuating the margin for the new borrowers. Wherein the first one is always welcome as it offers transparency to the existing borrowers, you may sometimes just get a shock to find that the new borrowers from the same lender is getting a better rate than yours. Studying the history of the lender will help you understand the trend with the particular one. The lender who is prompt in reducing base/PLR should be your choice. Servicing loan at a higher rate for even one month is going to matter and obviously it is an outflow from your pocket, hence a ‘hidden charge’.
What are the associated fees like legal, valuation, documentation, administrative, mortgage origination, intimation of registration etc.?
Lenders generally speak about the fees levied directly by them like processing fee. You will find advertisements claiming ‘nil processing fee’ during festive seasons, year-end closure for the lenders or may be while wanting steep rise in portfolio etc. Please understand that processing fee isn’t the only fee you pay for acquiring your Mortgage. Seek complete transparency in all ‘charges’ even if the lending institution does not levy it directly. So, a lawyer fee, technical evaluation fee, Govt. levy, other charges & expenses should be clearly explained to you before you land up thinking ‘I don’t mind paying, but why was I not told?”
Does your chosen lender give Provisional Tax Certificate in advance?
Not receiving provisional tax certificate means you will have to allow your employer to keep deducting tax every month from your pay & when you receive it from your lender at the fag end of the financial year, submission date to your office may be over. All you can do now is to wait for tax refund after filing your ITR. To avoid is craziness, your lender should give you the provisional projected interest and principal outflow statement in advance, which you should submit, in your office immediately to avoid getting deduction on your pay slip every month. The final tax certificate, if has any differential amount, will only have to be paid by you, without having to wait for any refund. Not receiving it upfront will be a ‘costly’ affair!
Cost of stress, having to follow up, coordinating between lender, builder/seller and you, worrying day-in-and-out also costs!
Your business is to get a stress-free mortgage and ours is to make sure you get that. If you are the one is picking up the phone every-time to call the lender or your adviser to know what is happening on your loan application, and not being responded to, I can imagine what is happening on your work-life and how stressed you are even at home! Please do not ignore the ‘price’ you pay for not getting any service. Choose a lender who has good market reputation of customer-orientation and choose the adviser and service-provider that has knowledge, experience & an infrastructure to support you every time you need service.
There are plenty individual loan agents floating in the market who sell all types of loans, credit cards, insurance, holiday package……all at a time! Think before you engage them for a promise of a good ‘deal’. You may not find him after your application gets logged in his code in the bank or he may even not have a direct agreement with the bank at all and working with another person of an agency! The agency may not even know this guy and you can’t even report him! The signs will be: he will be desperate for your business, will offer you the moon, will always assure you that he will do ‘whatever you want, sir’.
The stress of not having a good mortgage-lender and adviser can be as bad as not having a supporting partner. Ultimately, you are getting into a 15-20 years of commitment! It should be from both sides. Isn’t it?
Source : http://goo.gl/FeCIJa
By Reena Zachariah, ET Bureau | 13 Feb, 2015, 10.12AM IST | Economic Times
MUMBAI: Investors may soon get tax benefits in retirement plans run by mutual funds. The government is considering a proposal by the capital market regulator to introduce retirement savings plan under section 80CCD of the Income Tax Act, which allows investors to claim tax deductions.
The government may announce this in the Budget. The Securities and Exchange Board of India (Sebi) has proposed that a long-term product, such as mutual fund linked retirement plan (MFLRP), with tax incentive can play a significant role in mobilising household savings to the capital markets. Currently, individuals investing in National Pension Scheme (NPS) are eligible to claim income tax deductions under section 80CCD.
Sebi has proposed that the investment under this plan may be categorised under E-E-E status, which stands for exempt, exempt, exempt. The first exempt means that investments are allowed for tax deduction, the second means individuals do not have to pay any tax on the returns earned during the tenure. The third implies the investment is tax-free at the time of withdrawal.
“Mutual fund pension products have a tax treatment different from that of the NPS. One key differentiator is that NPS contributions by employers are exempt up to 10% of salary,” said Gautam Mehra, partner, PricewaterhouseCoopers. “A uniform tax treatment across all pension products similar to that available to the NPS will greatly enhance the reach and penetration of these products and help in garnering long-term capital from a wide section of the working population.”
At present, tax incentives for savings are provided under section 80C of the I-T Act. The section covers products such as employee provident fund (EPF), public provident fund (PPF), NPS, equity unit linked insurance plans ( ULIPs), life insurance premium, and mutual funds’ equity-linked saving schemes (ELSS) among others.
In this crowd, mutual fund products such as ELSS and pension schemes are ranked lowest in the priority of an investor.
Mutual funds are hoping this tax incentive would help them attract funds better. Under the EPF Scheme 1952, there is a mandatory requirement for membership by workers earning up to 6,500 per month. Those earning above this threshold have the option to choose EPF where both employee and employer contribute equally. Most of the contributors to the EPF corpus are voluntary contributors.
Globally, whenever governments have provided tax incentives, it has led to significant increase in the share of long-term retail money in mutual funds, said analysts. The Mutual Fund Linked Retirement Plan is designed to be similar to the 401(k) plan of the US.
“Across most of the world, market-linked retirement planning has been a turning point for high quality retirement savings, which are actually tuned to savers’ needs. Savers get choice, they get flexibility, and they get returns,” said Dhirendra Kumar, CEO, Value Research.
Sebi has proposed that all mutual funds should be allowed to launch pension scheme, which would be eligible for tax benefits under section 80CCD. Currently, three mutual fund pension schemes are eligible for the purpose of claiming deduction under section 80C of the I-T Act,
“Most first-time investors in equity mutual funds tend to come in through the ELSS route. Tax savings have always been a big draw for investors across all categories. In 1999-2000, there was a huge increase in the flow of long-term equity into MF schemes due to Sections 54ea and 54eb, which enabled an investor to save on capital gains,” said Vikaas M Sachdeva, CEO, Edelweiss Asset Management.
The regulator has also proposed that in case of merger of mutual fund schemes, such transaction should be exempted from levy of capital gains tax. At present, when a shareholder gets shares in a merged company, it is not treated as a transfer and not subjected to capital gains tax.
Ashwini Kumar Sharma | First Published: Wed, Jan 14 2015. 07 01 PM IST | Live Mint
You can claim tax benefit for both, but only if you fulfil the conditions
If you are living on rent and also servicing a home loan, you can take advantage of claiming tax exemption for both house rent allowance (HRA) and repayment of home loan. The equated monthly installment (EMI) against your home loan is a combination of principal repayment and interest on the outstanding loan. All three—HRA, principal repayment and interest payment—can be claimed as exemption under separate sections of the Income-tax Act. However, there are certain conditions that you need to fulfill before you can do so. Let’s have a look at these.
Exemptions and deductions
Income tax rules allow tax payers to claim exemption against some investments and expenses that the assessee has incurred out of her gross income. While exemption for HRA can be claimed under section 10(13A) of the Income-tax Act, principal repayment of home loan and interest on it can be claimed under sections 80C and 24b, respectively.
HRA can be claimed as lowest of actual HRA received from the employer or 50% of the salary for employees living in metro cities (40% for those residing in cities other than metro) or actual rent paid minus 10% of salary (basic + dearness allowance + turnover based commission).
Principal repayment exemption can be claimed up to the threshold limit under section 80C, which is Rs.1.5 lakh, or the actual principal repaid, whichever is less.
Similarly, interest repayment can be claimed up to the threshold limit under section 24b, which is Rs. 2 lakh (if the house is self-occupied) or actual interest paid on home loan, whichever is lesser. In case the house you own is rented out, you can claim the entire interest you pay on the home loan as deduction.
What are the requisites?
You can claim HRA exemption if you are living on rent, whereas you claim deduction for repayment of home loan. You can claim tax benefit for both, but only if you fulfil the conditions.
Let’s say you have bought a house by taking a home loan and you also live in it. In this case, you will not be able to claim HRA, but will be able to claim tax benefits on both the principal and interest.
If you have bought a house with the help of a home loan and live in another house on rent, you can claim tax benefit for both. But if the house you bought and the house you live in are in the same city, you should have a genuine reason for not living in the house that you own. The reasons could be that the house you own is too far from your workplace, or the commute is very difficult.
You may need to provide these explanations to your employer, or the income tax authority in case there is a scrutiny of the details that you have provided.
Source : http://goo.gl/KGBqc3
By ET Bureau | 22 Jan, 2015, 10.29AM IST | Economic Times
MUMBAI: The government may consider the demand of banks to make fixed deposits for three years and more tax-free instead of the five-year lock-in period at present, providing these lenders a level-playing field with mutual funds and tax-free bonds that have been weaning away a large chunk of investors.
Indicating this possibility, officials said bank executives and heads of financial institutions also requested finance minister Arun Jaitley in a pre-budget meeting to consider separate tax slabs for corporate entities on the lines of different tax slabs for individuals.
“The view from the pre-budget meeting is that FDs of lower maturity should be considered for tax benefits,” said a person present in the meeting.
Bankers say this will discourage people from opting for other instruments like mutual funds, which have a lock-in period of three years. The terms of schemes eligible for tax rebate under Section 80 C are not uniform; while public provident fund has a lock-in period of 15 years, it is six years in the case of national savings certificate and three years in equitylinked savings schemes (ELSS).
“Largely, it will bring flexibility to people in terms of lock-in and lower lock-in will make it (the sum invested) available after three years,” said Suresh Sadagopan, founder of Ladder 7 Financial Advisories. “This will bring bank FD in direct competition with ELSS.”
Financial saving as a percentage of gross domestic saving fell to 7.1% in 2012-13 from 7.2% in the previous year. Gross domestic saving fell to 30.1% from 31.3% during this period.
At present, investment up to Rs 1.5 lakh in certain instruments including various post office schemes, public provident fund, bank deposit, life insurance and principal paid on housing loan is eligible for a tax rebate.
Source : http://goo.gl/unqOIj
By Neha Pandey Deoras | Jan 12, 2015, 06.40AM IST |Times of India
ET Wealth graded the eight most common tax-saving investments on the basis of returns, safety, liquidity, flexibility, taxability of income and cost of investment. Here’s a look at these eight instruments.
The hike in the deduction limit under Section 80C means that a taxpayer can reduce his tax by up to Rs 15,000. But the higher limit may not be of much use if you don’t know which tax-saving option suits you best. ET Wealth graded the eight most common tax-saving investments on the basis of returns, safety, liquidity, flexibility, taxability of income and cost of investment. Here’s a look at these eight instruments.
There are compelling reasons why ELSS funds should be part of the equity allocation in a taxpayer’s investment portfolio in 2015. Returns in past three years 27.34%. They may be low on safety but they score full points on all other parameters. The returns are high, the income is tax free, the investor is free to alter the time and amount of investment, the lock-in of 3 years is the shortest among all tax saving investments and the cost is only 2-2.5% a year. The liquidity is even higher if you opt for the dividend option and the cost is even lower if you go for the direct plans of these funds.
Smart tip: Invest in the dividend option which acts as a profit-booking mechanism and also gives you liquidity. Dividends are tax-free.
For a lot of people, Ulip is still a four letter word. However, investors need to wake up to the new reality.
An ordinary Ulip is still a costly proposition for the buyer. But the online avatar of these marketlinked insurance plans is a low-cost option far removed from what was missold to investors a few years ago. The Click2Invest plan from HDFC Life, for instance, charges only 1.35% a year for fund management. Ulips can be used as a rebalancing tool by the savvy investor. He can switch from equity to debt and vice versa, without any tax implication. Buy a Ulip only if you can pay the premiums for the full term. Also, take a plan for at least 15 years. A short-term plan may not be able to recover the high charges levied in the initial years.
Smart tip: Don’t invest in the equity fund at one go.
Invest in a liquid fund and then shift small amounts to equity fund.
Budget 2014 also hiked the annual investment limit in the PPF. Returns 8.7%. Risk averse investors can now sock away more in the ultra-safe for 2014-15 scheme. The PPF scores high on safety, taxability and costs, but returns are not so attractive and liquidity is not very high. The scheme will give 8.7% this year but don’t count on this in the following years. The interest rate on small savings schemes such as the PPF is linked to the government bond yield and is likely to come down in the coming years.
Smart tip: Open a PPF account in a bank that allows online access. It will reduce the effort.
SR CITIZENS’ SAVING SCHEME
The Senior Citizens’ Saving Scheme (SCSS) is an ideal tax saving option for senior citizens above 60. Returns 9.2%. The money is safe and for 2014-15 returns and liquidity are reasonably good. However, the interest income received from the scheme is fully taxable.The interest rate is linked to the government bond yield. It is 1 percentage point higher than the 5-year government bond yield. Unlike in case of the PPF, the interest rate will remain unchanged till the investment matures.
Smart tip: Stagger your investments in the Senior Citizens’ Saving Scheme across 2-3 financial years to avail of the tax benefits.
The New Pension Scheme (NPS) is yet to become a popular choice because of the complex procedures involved in opening an account. Returns 8-11% in past five years. But investors who managed to cross that chasm have found it rewarding. NPS funds have not done badly in the past five years. The returns from the E class funds are in line with those of the Nifty, while corporate bond funds and gilt funds have given close to double-digit returns. But financial planners believe that the 50% cap on equity investments is too conservative. The other sore points is the lack of liquidity and taxability of the income. The annuity income will also be fully taxable.
Smart tip: Start a Tier II account to benefit from the low-cost structure of the NPS.
BANK FDS, NSCS
Bank FDs and NSCs score high on safety, flexibility and costs but the tax treatment of income drags down the overall score. Returns 8.5-9.1% for 2015. The interest rates are a tad higher than what the PPF offers but the income is fully taxable at the slab rate applicable to the individual. They suit taxpayers in the 10% bracket (taxable income of less than `5 lakh a year). The big advantage is that these are widely available. Just walk into any bank branch and invest in its tax saving fixed deposit.
Smart tip: Build a ladder by investing every year.After the fourth year, just reinvest the maturity amounts in fresh deposits.
Pension plans from insurance companies remain costly investments that are best avoided. Returns in past three years 8-18%. Instead, it may be a better idea to go for retirement funds from mutual funds. They give the same tax benefits but don’t force the investor to annuitise the corpus on maturity. He is also free to remain invested beyond the age of 60. Till now, all the pension plans were debt-oriented balanced schemes.Last week, Reliance Mutual Fund launched its Reliance Retirement Fund, an equity-oriented fund.However, ELSS schemes and Ulips can be used for the same purpose.
Smart tip: Wait for the launch of retirement funds and assess their performance before investing.
Traditional insurance plans are the worst way to save tax. Returns 5.5-6%. They require a multi-year commitment and give very poor returns. The insurance for 20 year regulator has introduced some plans customer-friendly changes but these plans still don’t qualify as good investments. The only good thing is that the income is tax free. But then, so is the income from the PPF and tax free bonds. Another positive feature is that you can easily get a loan against such policies, which gives some liquidity to the policyholder.
Smart tip: If you have a high-cost insurance plan, turn it into a paid-up policy to ease the premium burden.
Source : http://goo.gl/lAQFGL
By Parizad Sirwalla | Dec 12, 2014, 01.39PM IST | Economic Times
With the ever-spiralling property prices, obtaining a loan from a bank is almost inevitable. In double-income urban families it is now common to share the financial burden as well and apply for joint home loans. Taking a joint housing loan along with your spouse (assuming the other is an earning member) can increase your repayment capacity and also enhances the loan eligibility amount.
A joint housing loan can also bring tax benefits and this has been a big draw with many working couples. The Income Tax Act, 1961 (Act) allows both principal repayment (under Section 80C of the Act) and interest payments (under Section 24(b) of the Act) as deductions from your income. Thus, for the principal payment an individual can claim up to Rs 1.5 lakh per annum and on interest payment (on construction / purchase of self -occupied house property) up to Rs 2 lakh per annum.
So, you can save up to Rs 3.5 lakh per annum. This limit doubles in the case of a joint-loan.
Here’s is a comparison of the tax benefits between a single housing loan and a joint one:
Assumptions: Principal repayment during a financial year (FY) – Rs 5 lakh per annum and interest payment (assuming on self -occupied house property) during a FY – Rs 7 lakh per annum.
If this property is rented, then the rental income will also be taxable for the spouses in proportion of their share. Also, the entire interest of Rs 7 lakh can be claimed by the spouses in the proportion of their share of payment. Here’s an example:
Assuming that the rental income earned during a financial year is Rs 20 lakh and the principal repayment during a financial year is Rs 5 lakh while the interest paid (assuming on self -occupied house property) during a year is Rs 7 lakh. Here’s how your taxable income will be calculated.
Also, from a wealth tax perspective, share of each spouse on the house can be claimed by them as exempt from wealth tax; as one house is exempt from wealth tax.
Source : http://goo.gl/3ViMo3
Rajiv Raj | Dec 9, 2014, 04.49 PM | Business Insider
Earning your first salary is undiluted pleasure. It is all too easy to get soaked in its headiness and go a bit haywire in your expenses. However, this is a curial period of your life to build it financially. Decisions made in these initial years will affect your financial status throughout the life.
So if you are young and have just started earning, here is some important money advice that will serve you well for life.
1. Start with a small fixed saving every month
When we first start earning, money always seems short. We are perpetually overdrawing from a credit card or waiting for the next salary to come in. Even so, it is essential to start saving early. Even a small amount grows fast if invested early, much faster than a larger amount invested a few years later. The power of compounding helps money grow in multiples over a longer period of time. To ensure that there is a compulsory saving, invest in an instrument like Systematic Investment Plan (SIP) or a recurring deposit, and instruct your bank to directly debit your account at the beginning of the month.
2. Start building your Cibil credit score
Your borrowing and repayments is what builds up your credit score. Borrowing could be spending on a credit card or taking an EMI loan for a car or even a home loan. Importantly, the loans need to be repaid on time to build a positive credit score. Also avoid spending more than 30% of your credit limits. Maxing out on the credit cards will bring down your credit score. At this stage of life, building a good Cibil credit score is of paramount importance as you will soon be in the market for the all important home loan, and a good Cibil credit score can make all the difference.
3. Buy insurance
For most Indians, insurance is a source of investment. Insurance,however should be used only to cover risk. Buy a term policy that is easy on the pocket and serves the purpose of giving you risk cover. The remaining amount must be invested in other areas.
4. Take advantage of the benefits offered by your company
Many company offer reimbursements for health-related expenses. They also help you to structure your salary in the most tax-effective manner. Some companies may also offer group life insurance and medical insurance, where the rates work out to be much cheaper. Become friends with the people in human resources and take advantage of what the company has to offer its employees.
5. Pay attention to taxes
The government of India gives its citizen excellent opportunities to save tax along with encouraging investments. You can get exception under sector 80 C upto Rs 1.5 lakh in taxes every year by simply investing in your Provident Fund account or paying your life insurance premium etc. Also do file your tax returns on time to avoid the heavy penalties.
6. Make a career plan
It is essential to make a career continuity plan. You may have joined a firm as a graduate, but to move ahead an advanced degree is needed. A rough plan must be chalked out. For instance, you might want to study for an MBA degree in 2 years time. So you need to plan out the source of finance to pursue the course along with living expenses for that period. An education loan can be taken, but to avail that loan you must have a good Cibil credit score. It is a full circle which comes back to prudent spending and investments.
About the author: Rajiv Raj is the director and co-founder ofwww.creditvidya.com.
Source : http://goo.gl/zQYyVU
ET Bureau | Nov 10, 2014, 08.00AM IST | Economic Times
Deepak Gupta and his lawyer wife, Jayshree, have decided to buy a house after staying in a rented flat for seven years. Based on his current income, Deepak is eligible for a smaller loan. However, both of them are keen on a bigger house in the same locality. The lender suggests a joint home loan, and the Guptas want to know the benefits and risks of a loan with the spouse?
Joint debt has become a part of the household finance these days, but one must take into account a few things before opting for it. First, being a co-borrower for a house does not automatically make one a co-owner. Second, repayment of a joint home loan is the collective responsibility of both the borrower and co-borrower and each of them is liable for the loan.
A joint home loan also means eligibility for a higher loan amount. The lender takes into account both their incomes to determine the eligibility of loan, and this can enable the Guptas to buy the bigger house that they want. Both can enjoy the tax benefit available for a home loan and individually claim deduction. This is for both repayment of principal under Section 80C and interest repaid under Section 24 of the Income Tax Act. This brings down the family’s total tax liability. However, co-ownership is mandatory to avail of tax benefits.
However, there may be problems for Guptas in case of divorce. If the spouse who is moving out of the house refuses to pay the loan, or if one of them files for insolvency, or if one passes away, it becomes the co-borrower’s responsibility to repay the entire loan. In the event of a default, there could be legal action against all joint borrowers.
The repayment record of a joint home loan reflects in the credit score of all co-borrowers. Hence, a default in payment by the partners can impact the eligibility for a loan in the future. In cases of amicable separation, the Guptas might want to convert the joint home loan to a single loan, but the lenders will not permit it if the eligibility criteria comes under stress and could ask for an alternate co-borrower.
While joint home loans offer benefits, precautionary measures must be taken to protect one from associated risks. Before Jayshree signs as a co-applicant, she should ensure the ownership right to property. The couple should also take separate term plans to reduce the financial burden on one spouse in case of the other’s demise.
Source : http://goo.gl/4jIY0K
Babar Zaidi | Sep 15, 2014, 06.27AM IST | Times of India
A recent survey by global professional services firm Towers Watson says that saving for retirement is a big concern for Indian employees, with 71% of the respondents worried that they are not saving enough. In another survey conducted by ET Wealth last year, respondents listed volatility of returns (32%), low savings rate (26%) and lack of reliable financial advice (25.4%) as their biggest retirement worry.
That’s surprising, because a majority of the respondents of both surveys were already investing in a product that takes care of all these concerns.The Employees’ Provident Fund (EPF) managed by the Employees’ Provident Fund Organisation (EPFO) ensures that an individual puts away enough for retirement every month. With 12% of his basic salary and a matching contribution by his employer, a subscriber to the EPF should be able to accumulate a decent amount by the time he retires. If someone started working at the age of 25 in April 2000 at a basic salary of `10,000 a month and got a raise of 10% every year, he would roughly have accumulated `16 lakh in his PF account by now. If the trend continues, he would have saved about `1.23 crore by the time he is 55 years old (see graphic) and more than `1.7 crore of tax-free money on retirement at 58.
Despite the tremendous opportunity, most contributors to the EPF won’t reach the `1 crore milestone. More than 13% of the respondents to the ET Wealth survey withdrew their PF balance each time they changed jobs. Withdrawing from the PF can be counter-productive on two counts. One, the withdrawn amount is usually blown away on discretionary expenses and retirement savings are back to square one. Two, if the individual withdraws his PF balance before completing five years, the amount becomes taxable.
Another 20% of the respondents to our survey said they dipped into the PF corpus for other needs.The EPFO allows an individual to withdraw from his PF account for specific needs, such as constructing or buying a house, children’s education and marriage or a medical emergency.
Should EPF invest in stocks?
The other concern about volatility of returns is also not an issue with the PF. The EPF invests in debt instruments that deliver stable returns. EPFO rules allow the EPF to invest up to 15% of its corpus in stocks but the Central Board of Trustees has steadfastly ignored suggestions to this effect.
Many financial experts, including Finance Ministry officials, have castigated the EPFO for this aversion to stocks. They say the EPF is a low-yield debt-based scheme that can never beat inflation.At a recent meeting of the EPFO, it was pointed out that the returns offered by the EPF since 2005, when adjusted to inflation during the period, were in the negative. The `100 put into the EPF in 2005, when marked to inflation, were worth only `97 now.Experts argue that the only way the EPF can beat inflation is by investing some portion of its gargantuan corpus in the stock markets. But while the inflow of fresh investments will be good for the equity markets, they may not have the same impact on investor returns. The New Pension System (NPS) funds for central government workers are allowed to invest up to 15% of their corpus in Nifty-based stocks in the same proportion as their weightage in the index. We looked at the SIP returns of these funds in the past 5-6 years and found that they were not significantly higher than what the 100% debt-based EPF has churned out. In fact, two of the funds have actually given lower returns. This despite the fact that these funds have invested right through the bear phase of 2008-9 and the markets are at all time high levels right now. Our calculations are not based on point-to-point returns but on SIP returns. We took into account the NAVs of the first reporting day of each month and then worked out the internal rate of return.
Don’t shun equities altogether
Having said that, we must add that a certain portion of your retirement savings should certainly be allocated to equities. It’s only that this equity exposure need not be through the EPF. Any retirement plan has to be a combination of several investments. Keep the EPF as the debt portion of your retirement plan and invest 5-20% in equities through a diversified fund.
Interestingly, though the pension fund managers of these NPS funds can invest up to 15% of the corpus in equities, they have allocated less than 8% to stocks. “Pension fund managers have been conservative because markets have been volatile.The negative impact of equity is magnified in the short term so they have shied away from maxing the equity exposure to 15%,” says Manoj Nagpal, CEO of Mumbai-based wealth management firm Outlook Asia Capital.
Compulsory and linked
The third concern about the lack of reliable advice is also laid to rest by the EPF. It is compulsory and an individual has no option but to contribute to it.What’s more, it ensures regular savings. According to estimates by HR firms, the average hike this year was 10.5%. How much was your hike? More importantly, did you increase your SIPs by the same proportion? Not many people care to do that. They spend more, buy more, party more but keep investing the same amount.
The EPF is different. Your contribution is linked to your income, so when you get a pay hike, your EPF contribution will go up in the same proportion.If your basic salary is `30,000 a month, you will be contributing `3,600 plus a matching contribution by your employer. If you get a 20% hike and your basic becomes `36,000, your contribution will automatically increase to `4,320. This is a great way to build a corpus in the long-term.
The icing on the cake is that you can invest more than 12% of your basic salary. Millions of Indians welcomed the move when the budget hiked the annual investment limit in the PPF to `1.5 lakh. But Delhi-based PSU manager Naveen Parashar was not one of them. “I can’t understand why salaried taxpayers are so excited about this development.They have always had the option to invest in the Voluntary Provident Fund (VPF) and get the same tax benefits offered by the PPF,” he says nonchalantly. Parashar puts an additional `14,700 into the VPF every month, taking his overall contribution to the EPF to `31,700 a month. This forced saving has helped him build a sizeable corpus in the past 15 years.
Central Provident Fund Commissioner K.K.Jalan echoes Parashar’s views. “The VPF is an ideal saving instrument for high-income earners looking to build a tax-free corpus. Unlike the PPF, there is no limit to how much one can invest,” he says.
The new look EPFO
The EPFO is fast shedding its dowdy image and using technology to turn into a more professional and nimble organisation. It has made several other investor-friendly changes in the past 12 months.Last year, it introduced the online facility for transferring the balance to a new account. This year, it has made it possible to check the account online.Going forward, all members are expected to have a Universal Account Number and this will be portable across employers and cities. In fact, UANs have already been allotted to 4.17 crore active contributors to the EPF. In the first four months of this financial year, the EPFO settled nearly 43 lakh claims. Of these, more than 68% were settled in less than 10 days.
Source : http://goo.gl/ag49rJ
Integra’s Take: If you are salaried, use Voluntary Provident Fund (VPF) smartly as there is no annual limit unlike PPF. Never withdraw your EPF balance, always chose to transfer on changing your job.
NDTV Profit | Updated On: September 13, 2014 12:35 (IST)
The Public Provident Fund (PPF) is one of the most popular tax-saving schemes. In a further boost to its attractiveness, Finance Minister Arun Jaitley in the Budget increased the ceiling on PPF investment to Rs. 1.5 lakh from Rs. 1 lakh. The government has issued a notification raising the annual PPF deposit limit to Rs. 1.5 lakh.
Mr Jaitley also increased the maximum amount eligible for deduction through permissible investments under 80C of the Income-Tax Act to Rs. 1.5 lakh, from Rs. 1 lakh. PPF is one of the financial savings that qualifies for Section 80C tax benefits. Not only the money you invest in PPF is exempt from tax under Section 80C, the interest you earn on the PPF investment is also exempt from tax.
How PPF interest is calculated: The interest on PPF account is no longer fixed and is now pegged to the yield on government bonds. The government declares the interest rate payable on PPF every year. For 2014-15, the government has announced interest rate of 8.70 per cent (compounded yearly).
The interest on balance in your PPF account is compounded annually and is credited at the end of the year. But the point to remember is that the interest calculation is done every month: the interest is calculated on lowest balances in account between 5th and the last day of the month.
So if you deposit after 5th of a month, you don’t earn interest for that month.
The ideal way to maximise the interest on your PPF account would be to invest Rs. 1.5 lakh (the maximum investible amount in a year) at one go at the beginning of the financial year. PPF accounts follow an April-to-March year so to earn the maximum interest, you should deposit the amount on/before 5th of April every year. A one-time deposit will earn interest for the whole year.
Deposits in PPF account can be made in lump-sum or in maximum 12 installments.
On the other hand, if you want to deposit some amount every month, remember to deposit on/before 5th of that month. This will help you to earn interest for that month.
Suppose, you deposit Rs. 15,000 every month in 10 instalments. A back-of-the-envelope calculation suggests that if you deposit before 5th of every month, you can earn extra monthly interest of close to Rs. 105 and for 10 months it would help you to earn Rs. 1,050 more, at the current interest rate of 8.7 per cent. For a long-term investment product like PPF, if you follow the habit of depositing before 5th of every month, it could mean bigger retirement kitty for you.
Disclaimer: “Investors are advised to make their own assessment before acting on the information.”
Integra’s Take: PPF is ideal for the Self-Employed, Businessmen, Professionals and all those who do not have access to EPF and VPF. The suggestion made in the above article suits this community as they are capable of making lump-sum investment. Save >> Regularly!
By Preeti Kulkarni, ET Bureau | 17 Jul, 2014, 10.30AM IST | Economic Times
Get ready to revise the proposed investment declaration you had submitted to the human resource (HR) department in April. The two proposed changes in personal taxation in the Budget — enhanced limit for tax-saving investments under Section 80C to Rs 1.5 lakh and interest on housing loan to Rs 2 lakh — will have an impact on salaried tax-payers and they will have to revise their declaration to get the extra tax benefit immediately. However, you may have to wait till the Parliament passes the Finance Bill.
“Budget proposals do not become a law immediately. That happens only after both the Houses of Parliament pass the Bill and the President of India gives his assent,” explains Vaibhav Sankla, director, H&R Block.
Typically, the Union Budget is presented in February, and the changes in taxation come into effect from the next financial year. This year, it was delayed due to the elections and the changes will be effective in the current fiscal. Employers are likely to send e-mails seeking revised declaration sometime next month.
Save More for Tax Benefits
Yes, saving that extra Rs 50,000 on taxes under Section 80C is a heady feeling. But, before filling the proposed investment declaration, evaluate whether you can actually make that investment. You will have to save more to earn the deduction. Unfortunately, your income and expenses remain the same. Work with actual numbers to figure out whether it will be possible to save extra Rs 50,000.
“Take into account your likely expenses in the next few months to ascertain whether you will be able to direct an additional Rs 50,000 towards tax-saving investments,” says Suresh Sadagopan, certified financial planner and founder, Ladder7 Financial Advisories. You can also consider adopting a staggered approach.
If you feel that setting aside an additional amount for claiming tax benefits may affect your shortterm cash flows, consider other options too. “For example, though repayment of housing loan principal is eligible for deduction, many taxpayers do not claim the benefit as their contribution to EPF corners a large part of the limit. Now, with an enhancement in this limit, they can avail of tax relief on the principal repayment,” he adds. Similarly, you can factor in the tuition fees paid to your children’s school too. Instead of setting aside additional funds, evaluate such options or consider forgoing a part of the savings on tax outgo, to ensure comfortable liquidity.
Your decision may impact your future financial plans. For example, choosing PPF to save tax means you are locking-in your money for a period for 15 years, though partial withdrawals are allowed after the sixth year. Sure, you can keep the PPF account active by paying as little as Rs 500 in a year, but you wouldn’t achieve your financial goal of planning for retirement.
Avoid Financial Troubles in March
If you try to be adventurous and commit to save more, beware of its consequences. You could face temporary liquidity issues and if you fail to meet the necessary investment requirement, the company may deduct taxes for the entire fiscal. Now, your actual investment proofs, which employees submit during the December-February period, need not strictly adhere to figures and taxsaver avenues mentioned in your proposed declaration.
Source : http://goo.gl/Zbd3uw
Press Trust of India | Updated On: January 07, 2014 16:44 (IST) | NDTV Profit
Salaried taxpayers, who want to claim I-T exemption on house rent allowance exceeding Rs. 1 lakh per annum, will have to obtain the PAN card number and other details of their landlord on a plain A-4 size paper before submitting it to their employer.
A number of tax department officials PTI spoke to said the circular does not state that such a document has to be a ‘sworn affidavit’ or a ‘notarised document’. Hence, an individual should obtain the information from his or her landlord on a simple plain A-4 size paper.
The tax returns and exemptions filing season will gather momentum in the coming days as the financial year closes on March 31 (2013-14).
“The department has a number of technical platforms to check the authenticity of this information that is provided to it by a salaried taxpayer. The circular has not stated explicitly about the kind of document so it is considered that a plain piece of paper would do,” a senior department officer said.
The Income Tax department will require this document to enable exemption for a taxpayer under House Rent Allowance (HRA) after the Central Board of Direct Taxes (CBDT) issued a circular in this regard in October last year.
The circular (08/2013) states that “…an employee claiming exemption from tax with respect to House Rent Allowance received is now required to report the PAN of the landlord to the employer, if the rent paid by the employee to the landlord exceeds Rs. 1 lakh per annum, along with the rent receipt.”
It further adds that “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 employees.”
Source : http://goo.gl/7g2D88
InvestmentYogi.com | Updated On: December 25, 2013 13:42 (IST) | NDTV Profit
Leave travel allowance (LTA) is a common form of tax exemption given to the employees by most employers. Though it is quite simple, it often brings about a lot of questions among those claiming exemption on it.
In this article, we will answer the 10 most commonly-asked questions on LTA.
1. When can we claim LTA?
Tax exemption on LTA can only be claimed if you have applied for leave from your company for travel and if you actual make a journey.
2. What does LTA cover?
LTA covers only the cost of travel for the trip. Hotel accommodation, food, etc. cannot be claimed for exemption.
3. Whom does it cover?
LTA exemption covers you and your family. A family, under LTA, includes spouse, parents, siblings, and children. The cost of other relatives cannot be claimed.
4. How many times can we claim LTA?
LTA can be claimed twice in a block. The blocks are decided by government. They are 2010-2013, 2014-2017 and so on.
5. What type of transport does LTA cover?
LTA can be claimed for travel through rail, air or any other public transport. However, you should keep in handy the proof of travel as it may be needed by your employer.
6. Is International travel permitted?
No, LTA covers only domestic travel.
7. What is the maximum limit on LTA exemption?
LTA exemption is limited to the amount of LTA paid to the employee as part of the CTC. One cannot claim exemption beyond the actual LTA amount being provided.
8. Can a husband-wife duo claim LTA?
Yes, both the spouses can claim the exemption on LTA from their employers. However, both of them cannot claim for the same journey.
9. Can we carry forward LTA?
Yes. In case you have only claimed LTA for one journey in a block, you can make another journey in the first year of the next block and claim it. In such a case, 3 journeys can be claimed for the block in total.
10. Can LTA be claimed if the actual claiming person has not travelled?
No, LTA cannot be claimed for the family if you as a claiming person are not included in the travel.
LTA exemption is available for the shortest route travelled and can be availed only for travel on working days. You can also claim LTA while filing your taxes. Proofs are not needed by the I-T department initially, but it is always better to keep them handy.
InvestmentYogi.com is a leading personal finance portal.
Disclaimer: All information in this article has been provided by InvestmentYogi.com and NDTV Profit is not responsible for the accuracy and completeness of the same.
Source : http://goo.gl/uYlQcm
InvestmentYogi.com | December 20, 2013 15:39 (IST) | NDTV Profit
At the end of every financial year, many tax payers frantically make investments to minimize taxes, without adequate knowledge of the various available options. The Income Tax Act offers many more incentives and allowances, apart from the popular 80C, which could reduce tax liability substantially for the salaried individuals. Here are seven smart tips to help you save more and reduce taxes.
1. Salary Restructuring
Restructuring your salary may not always be possible. But if your company permits, or if you are on good terms with your HR department, restructuring a few components could reduce your tax liability.
- Opt for food coupons instead of lunch allowances, as they are exempt from tax up to Rs. 60,000 per year
- Include medical allowance, transport allowance, education allowance, uniform expenses (if any), and telephone expenses as part of salary. Produce bills of actual expenses incurred for these allowances to reduce tax
- Opt for the company car instead of using your own car, to reduce high prerequisite taxation.
2. Utilizing Section 80C
Section 80C offers a maximum deduction of up to Rs. 1,00,000. Utilize this section to the fullest by investing in any of the available investment options. A few of the options are as follows:
- Public Provident Fund
- Life Insurance Premium
- National Savings Certificate
- Equity Linked Savings Scheme
- 5 year fixed deposits with banks and post office
- Tuition fees paid for children’s education, up to a maximum of 2 children
3. Options beyond 80C
If you have exhausted your limit of Rs. 1,00,000 under section 80C, here are a few more options:
- Section 80D – Deduction of Rs. 15,000 for medical insurance of self, spouse and dependent children and Rs. 20,000 for medical insurance of parents above 65 years
- Section 80CCF- Deduction of Rs. 20,000, in addition to the Rs. 1,00,000 under 80C, for investments in notified infrastructure bonds
- Section 80G- Donations to specified funds or charitable institutions.
4. House Rent Allowance
Are you paying rent, yet not receiving any HRA from your company? The least of the following could be claimed under Section 80GG:
- 25 per cent of the total income or
- Rs. 2,000 per month or
- Excess of rent paid over 10 per cent of total income
This deduction will however not be allowed, if you, your spouse or minor child owns a residential accommodation in the location where you reside or perform office duties.
If HRA forms part of your salary, then the minimum of the following three is available as exemption:
- The actual HRA received from your employer
- The actual rent paid by you for the house, minus 10 per cent of your salary (this includes basic dearness allowance, if any)
- 50 per cent of your basic salary (for a metro) or 40 per cent of your basic salary (for non-metro).
5. Tax Saving from Home Loans
Use your home loan efficiently to save more tax. The principal component of your loan, is included under Section 80C, offering a deduction up to Rs. 1,00,000. The interest portion offers a deduction up to Rs. 1,50,000 separately under Section 24.
6. Leave Travel Allowance
Use your Leave Travel Allowance for your holidays, which is available twice in a block of four years. In case you have been unable to claim the benefit in a particular four- year block, you could now carry forward one journey to the succeeding block and claim it in the first calendar year of that block. Thus, you may be eligible for three exemptions in that block.
7. Tax on Bonus
A bonus from your employer is fully taxable in the year in which you receive it. However request your employer for the following:
- If you anticipate tax rates to be reduced or slabs to be modified in the subsequent year, see if you could push the bonus payment to the subsequent year
- Produce your tax investment details well before, to prevent your employer from deducting tax on bonus before handing it over
A Final Word
Keep in mind the below points, to avoid the hassles of last minute tax planning.
- Give your employer details of loans and tax saving investments beforehand, to prevent any excess deduction
- Check the Form 16 received at the end of each year from your employer thoroughly
- It is important to start your tax planning well before 31st March, and to file your returns before the 31st of July each year
InvestmentYogi.com is a leading personal finance portal.
Disclaimer: All information in this article has been provided by InvestmentYogi.com and NDTV Profit is not responsible for the accuracy and completeness of the same.
Source : http://goo.gl/nFCwmS
While present market uncertainty may influence decisions, one should maintain a long-term perspective, says Pooja Vora.
Pooja Vora | Monday, Nov 18, 2013, 10:47 IST | Agency: DNA
Where you invest at a given point in time reflects two things; your approach towards money management and the market condition prevailing at that stage. However, like most decisions in life, a proactive approach makes a lot more sense rather than reacting in haste when markets display volatility.
For instance, many individuals tend to ‘dump’ their positions in equities and shift investments to items like real estate when markets are down. Ironically, that is when one should be investing more and picking up shares of fundamentally sound companies that have scope for growth in future once the markets return to normal.
However, the good news is that Indian investors have gradually begun to show greater maturity when it comes to investments than they did earlier. As per the Equitymaster Investor Survey 2013, conducted earlier this year with over 16,000 respondents, investors no longer see stock market performance in isolation. When asked about the reason for disappointing performance of their portfolio, 24.3% respondents blamed global economic crisis. More importantly, 34.6% of the respondents believed that their own greed to earn quick results resulted in losses. Thus the understanding that one cannot take macro headwinds and stock valuations for granted came out clearly in the survey.
38.5% of the respondents said that stocks and equity funds formed the largest chunk of their portfolio. In fact even real estate (net of loans taken) ranked a tad lower at 34.7%. An overwhelming 65.7% of survey takers claimed that they wish to remain invested in their stocks.
More than 70% of the respondents were looking at a period of 3 to 5 years for BSE-Sensex to touch all time highs of 30,000 plus, something that is not impossible. Faith in long term investing and compounded returns from equities resonated in survey replies. Well informed, careful and disciplined investing can go a long way in helping more investors realise their wealth building targets the survey concluded.
Where should you invest in the current scenario?
Ashish Shanker Head – Investment Advisory, Motilal Oswal Private Wealth Management, points out, “The last three years have been extremely challenging for investors as equity markets have been flat with a few stocks doing well and a large set of stocks losing value. Fixed income investors have also been short changed as returns post tax have barely kept up with inflation.
Consumer inflation has been running close to double digits. As a result a lot of savings have been invested in gold and real estate as they continued to deliver good returns.”
“Reversion to mean is a very powerful concept in investing, as asset classes and markets tend to move in cycles. If one were to crystal gaze into the future and guesstimate as to which asset classes or securities would do well over the next 3 to 5 years the following thoughts come to my mind:
Equities: I believe government and private sector balance sheets in capital intensive sectors will continue to be stretched and face headwinds. Hence, I recommend investing in good quality companies which are in consumer facing businesses (FMCG, telecom, autos, retail banks) or have export earnings (IT, pharma). These sectors and companies will continue to do well and outperform. If one does not have the ability to pick stocks there are funds which can be looked at.
Duration Funds: With 10 year govt. bond yields close to 9%, funds which invest in long dated government and PSU bonds will do well over the next year as RBIs focus will gradually start shifting to growth and hence, it will ease rates which should lead to a rally in bonds in 2014. Investors with a one year time horizon should look to invest in gilt funds or dynamic bond funds.
Gold: Investors should continue to hold some gold in the portfolio as it provides a hedge against global volatility.
Avoid investing in residential real estate as prices have run up sharply and we could enter a prolonged consolidation phase.
Source : http://goo.gl/mw6bLb
K. Ramalingam | Updated On: September 11, 2013 19:26 (IST) | NTDV Profit
Buying a house means making your dream come true. Unless you have loads of money to pay for your dream house, you spend hours and days looking for a suitable property for achieving this, carrying out all possible background checks and finally scouting for the best deal on a home loan.
Though most of us avail home loans, there are a few less-known facts about them which are worth knowing. Let’s take a look at two simple questions:
1. What are the available tax deductions for your under-constructed house?
2. Do you still get tax benefit from your home loan, if you have taken it from a friend and not from a bank?
Many of you might not be having answers to these questions. To realise that one is ignorant is a great step to knowledge.
So let’s try and explore these new dimensions of home loans:
Tax deductions for under-constructed houses
Do you know that you should have a certificate of ownership and possession of the house to claim tax under Section 80C? Without complete and proper analysis, investors presume that they can claim for tax deductions of their houses which are under construction and go ahead with the loans.
Let’s take an example. Say Mr Gupta bought a house on loan on 25th November, 2009. He paid a total sum of Rs. 5 lakh as interest in the next 3 years and obtained possession on 19th November, 2012. He could claim this Rs. 5 lakh of interest in equal installments, which is 1,00,000 per year from 2013 to 2017, in the next 5 years. Total limit for this exemption will still be Rs. 1.5 lakh per year.
The above example explains the real scenario. Therefore, you cannot claim the interest but deductions can be claimed later on in 5 equal installments for next 5 years from the end of the financial year of possession.
Extension or renovation of your house
If you are taking a loan for extending or renovating your existing house, you can only claim the interest amount under Section 24 and not the principal under Section 80C. However, the limit in this case is only up to Rs. 30,000 for owner-occupied properties. If it is a rented or leased property, or a second home which is not a self-occupied property, the tax deduction is not limited.
Selling a house serving home loan
If you sell your house within 5 years from the date of buying, all the tax benefits which you have claimed under Section 80C will be added in your salary in the year of sale and termed as income.
For example, if you bought a flat in July 2011 and in next 3 years you have claimed Rs. 2 lakh under Section 80C, this amount will become your income in the financial year in which you sell the property and will be taxed accordingly. However, the interest component is not reversed.
Loan taken from family and friends
Under Section 24, you can claim up to Rs. 1.5 lakh per year of interest on your loan. You will be able to claim this even if you want to take it from your friends, parents or any other individual. However, in order to be eligible for claiming the principal amount under Section 80C, you need to avail the financial lending from some bank or financial institution.
Knowledge is power. Knowing these less-known facts about home loans will help you take better decisions. Informed decisions lead us to better results. And better results lead to progress, productivity and prosperity.
K. Ramalingam is the chief financial planner at Holistic Investment Planners, a leading financial planning and wealth management company. The opinions expressed here are the personal opinions of the author. NDTV is not responsible for the accuracy, completeness, suitability or validity of any information given here. All information is provided on an as-is basis. The information, facts or opinions appearing on the blog do not reflect the views of NDTV and NDTV does not assume any responsibility or liability for the same.
Source : http://goo.gl/OiwxLr
By ET Bureau | 8 Jul, 2013, 12.13PM IST12 comments | Economic Times
As the 31 July deadline approaches to file your returns, here’s how to ensure you don’t commit errors and receive a tax notice.
1) Availing of deduction twice
This is a common error that many salaried taxpayers commit. If you had switched jobs during the previous financial year, you might have got the Form 16 from both employers. While the first company may have deducted the tax correctly, the second might have deducted very little. It would have considered only the income for the rest of the year and given you the basic exemption of Rs 2 lakh, as also the deduction under Section 80C. However, these must have already been factored in by the previous company. “You might have to pay additional tax in such a situation,” says Sudhir Kaushik, co-founder of tax filing portal, Taxspanner. com.
Don’t think you can escape by ignoring the previous income in your tax return. The computerised scrutiny will immediately detect the discrepancy. There will also be a mismatch in your TDS details because the previous employer would have deposited the TDS on your behalf, along with your PAN and other details.
2) Not mentioning exempt income
Dividends are tax-free. So are longterm capital gains from stocks and equity funds, as well as the interest on your PPF investments and tax-free bonds. There is also no tax to be paid on agricultural income and gifts from specified relatives. Even though these are tax-free, all exempt incomes must be mentioned in the tax return. Ignore this at your peril.
The new rules for tax filing announced this year state that if the total exempt income during the year exceeded Rs 5,000, you will have to use ITR 2 to file your return.
3) Not including interest
Last year’s budget had introduced a new Section 80TTA, which gives a deduction of up to Rs 10,000 on interest earned on your balance in the savings bank account. Many taxpayers think this deduction also includes the interest earned on bank deposits. The interest earned on fixed deposits and recurring deposits is fully taxable at the normal rate. You have to mention it under the head ‘Income from other sources’ in your tax return.
Tax is payable even if the TDS has been deducted. TDS is only 10% (20% if you haven’t submitted your PAN details), and if you are in the 20-30% bracket, you need to pay additional tax. The interest on NSCs is also taxable.
4) Not checking TDS details
Before you file your returns, check whether the tax you had paid for last year has been correctly credited to your name. The Form 26AS has details of the tax deducted on behalf of the taxpayer and can be easily checked online. It is easier if you have a Net banking account with any of the 35 banks that offer this facility.
Otherwise, you can go to the official website of the Income Tax Department and click on ‘View your tax credit’. The first-time users will have to register, but it takes less than 5 minutes before you can log on and view your details.
5) Not mailing ITR V in time
The ITR V is the acknowledgment of your tax return. It is to be submitted along with your return if you file offline. If you have efiled your return without a digital signature, you need to take a print of the ITR V, sign it and send it to the CPC in Bangalore by ordinary mail.
This should be done within 120 days of uploading your return. The filing process is complete only after the ITR V is received at the CPC. You can check the status of your ITR V on the official website of the Income Tax Department. If it has not been received within 7-10 days of mailing, call up the Ayakar Sampark Kendra or send another copy.
Source : http://goo.gl/fkGnY
The Hindu|Balaji Rao|June 28, 2013
Insuring our home loan is not something we do instinctively, but it’s a smart way to protect our investment
It does not seem like an important or urgent decision, so you either put it off or don’t do it at all. But this is one expense that might well be an investment — home loan insurance.
Since the tenure of home loans is longest compared to other kinds of loans, we could all be vulnerable to mishap in some form, such as illness or death of one of the chief earning members of the household while one is in the middle of repaying the loan. That’s why it makes prudent sense to cover the risk by insuring it.
There are two ways of insuring the loan, and should be ideally done at the time of availing the loan itself. The first is to buy a term assurance policy for the specific tenure of the loan, and pay the premiums through the tenure. The second is to opt for a single premium plan.
For example, if you are 30 years old, and have taken a home loan of Rs. 30 lakh for a period of 20 years, then you should take a pure risk cover for a sum assured of Rs. 30 lakh. The annual premium will be in the range of Rs.6,000 per annum, payable through the tenure of the policy (Rs. 6,000 x 20 years). In case of untimely death of the insured person, the insurance company will reimburse the sum assured to the legal successor or nominee, and it can be used to clear the loan outstanding as on that year.
The second option, which comes highly recommended, is to avail a Home Loan Protection Plan. Offered by most insurance companies, it ensures that the outstanding loan, up to the amount insured, is repaid in the unfortunate event of the death of the borrower. Unlike the previous plan where the premiums are paid throughout the policy term, here it is a ‘single premium decreasing term assurance plan’ where, as the loan outstanding reduces, the sum assured also reduces in the same proportion. This means the insured person only pays premiums for the amount outstanding and does not keep paying premiums for the entire amount.
The one-time premium amount will be based on the age of the borrower, loan amount and loan tenure. For the above quoted example, the premium could be around Rs. 80,000.
Home Loan Protection Plans are often sold along with the housing loan since most HFIs and banks either have in-house insurance agencies or tie-ups with some. Some banks also add the premium charge to the loan itself.
A point to be noted is that under the single premium method, if the borrower dies during the course of repayment, after adjusting the outstanding loan amount, any balance is paid to the nominee or legal successor. Thus, if the loan tenure is 20 years and the outstanding loan amount is Rs. 20 lakh, against an originally borrowed amount of Rs. 30 lakh, then at the end of five years if the borrower dies, the bank will adjust the loan outstanding and the balance of Rs. 10 lakh will be paid to the legal successor.
It is easy to conclude that if death does not occur during the loan repayment tenure, the premiums paid are a waste of money. But the point of insurance is that it is a hedge against risk. Over a period of 20 years, anything can happen and the premium should thus be seen more as an investment. You can avail tax benefits too under Sec. 80C on the premiums paid.
Source : http://goo.gl/j7PSh
By Preeti Kulkarni, ET Bureau | 17 Jun, 2013, 03.56PM IST|Economic Times|
MUMBAI: As July 31 – the last date for filing your income tax returns – approaches, it’s time to brace yourself for the annual ritual. However, this year, you will not have the luxury of simply gathering all the relevant documents and handing them over to your tax consultant. You will have to adopt a more proactive approach this year, as all tax-payers with a taxable income of over Rs 5 lakh are now required to file their return online.
Naturally, this development could unnerve many tax-payers, particularly those who are not conversant with the computer and the Internet.
However, the process is not as cumbersome as it is assumed to be. If you are a salaried individual not liable to pay any additional taxes and are not expecting any refund from the income tax department, you can follow these simple steps to complete the process within an hour:
Step 1: Log on to http://www.incometaxindiaefiling.gov.in and register yourself, if you haven’t done so already. Your PAN will act as your user ID.
Step 2: The next step is to download the ITR form applicable to you. You will find the forms in ‘Downloads’ menu. This year, most tax-payers will have to download Form ITR 2 as those with tax-exempt income of over Rs 5,000 cannot file their tax return using Form Sahaj (ITR 1). In simple terms, if your salary includes components like conveyance allowance, house rent allowance (HRA), leave travel allowance, etc, which collectively exceed Rs 5,000 in a year, you will have to opt for ITR-2.
Step 3: Once you download the Return Form’s excel utility, you need to enter all the details asked for by referring to the Form 16 issued by your employer.
Step 4: Now, validate the information by clicking the ‘Validate’ key. An XML sheet will be generated and saved on your computer.
Step 5: Upload the XML file on to the I-T e-filing website after selecting AY 2013-2014 and the applicable ITR form. You will be asked whether you wish to digitally sign the file. If you have obtained the DS (digital signature), select ‘Yes’. Otherwise, choose ‘No’ and proceed further.
Step 6: If the process is completed as per the requirements, the site will flash a message indicating the success of your e-filing process. You can check your mailbox to ascertain whether your ITR-Verification form has been mailed to your registered e-mail ID.
Step 7: Next, get a print-out of your ITR-V, sign the form (in blue ink) and send it by ordinary post to the Income Tax Department-CPC, Post Bag No-1, Electronic City Post Office, Bangalore – 560 100, Karnataka within 120 days of filing your returns electronically.
Step 8: If you do not receive any acknowledgement from the I-T Department, you should send the form again. However, avoid enlisting the services of courier companies, as your form will not be accepted. Forms sent through Speed Post, though, will be accepted.
By: Preeti Sharma and Ravleen Sethi|Jun 4, 2013, 12.12PM IST|Economic Times|
The Tax return filing for most of us is like the toughest exam, it brings nervousness and trouble and when completed, there is a sigh of relief!
We often consider filing of the tax return is the end of the whole story. There is misconception that once the tax return has been filed, work is over until the next tax return filing deadline. This is what even Gaurav thought when he filed his tax return for the year 2011-12.
Gaurav is a software engineer with an IT company and his personal tax situation is not very complex. His only sources of income are salary received from his employer and a small amount of interest from his savings bank accounts. He reported these incomes and filed his tax return before 31 July 2012 and took a deep breath, he too thought it is all over.
He was a relieved man until one day, when he received an e-mail from the tax department. “An e-mail from the tax department” – he thought he had landed in trouble. Shivering and tensed, he opens the mail which said that his ITR-V was not received by the Income tax Department – CPC, Bangalore. And there he sat, now confused what ‘ITR-V’ meant and not knowing what was he supposed to do next. He quickly caught hold of his return files and glanced through the papers of his last tax return. He realized that the acknowledgement of the income tax return is called the ITR-V. When he read the document hard, he found a caption on it reading that it is required to be signed and sent to the Income tax Department – CPC, Bangalore within 120 days of e-filing of his tax return. “How could I miss this?”, so thought Gaurav as he quickly signed the ITR-V and sent it off through Speed Post.
Gaurav soon realized that tax return filing may not necessarily end with the deadline. One needs to watch out a host of other factors even after filing of the tax return.
A few days later while I was sitting with Gaurav I offered him a few handy tips that one should be vigilant of even after the tax returns have been filed. Here are the tips for the readers:
The process of return filing is complete only once a signed copy of the ITR-V has been sent to the Income tax Department – CPC, Bangalore after e-filing of the return. The ITR-V should be sent within 120 days of filing of the return.
It is necessary that the credit of taxes deducted at source as claimed in the tax return is also appropriately reflected in the Form 26As. If not your refund may not be processed. In case the credit in the Form 26As does not match with the amount claimed in the tax return, you may have to approach the deductor of tax and ask him to revise his quarterly TDS tax return. Once the deductor’s quarterly TDS return has been revised, the credit will automatically get updated in the Form 26As.
Be watchful of emails, letters and notices received from the Income tax Department and respond to them within the requisite time. The process of responding to the notices has been simplified now and in many cases one can directly send the details and documents to the Income tax Department – CPC, Bangalore online.
The Indian tax authorities follow a well laid out procedure for assessment of income and taxes. As provided in the India tax law, after the preparation of a tax return, the total income and tax of an individual is re-assessed by the tax office. Tax returns to be assessed by the tax officer are chosen on a random basis. If the tax office determines any differences in the amount of income or tax, they send an intimation/notice to the individual. One must be promptly respond to such notices.
If you have missed the deadline for filing of your tax return, you may still be able to file your tax return after the deadline. A belated Income-tax return for the tax year 2012-13 can be filed upto 31 March 2015. However, in such a case, the following points need to be noted:
a)A belated return cannot be revised if certain errors / omissions are discovered after filing the return of income
b)Certain losses under some heads of income cannot be carried forward to subsequent years for being set-off against future income
c)If any taxes remain unpaid, then simple interest @1% per month is payable on such outstanding tax liability upto the date of payment of such tax. In case the return of income is not filed within 1 year from the end of financial year, the tax officer has the power to levy a penalty of Rs 5,000.
Be careful of spam e-mails on income tax refunds. Such e-mails may ask you to disclose your Permanent Account Number and personal information which can be misused by the sender.
With these simple tips, we hope the tax return filing will no more be life’s toughest exam.
(The authors are Senior Tax Professionals, Ernst & Young. Views expressed are personal)