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Tax Planning

Should I invest in CPSE ETF

Most mutual funds in India are generally pretty much like numerous other funds. Many claim uniqueness but are in reality occur in a mould which are set on common platforms. However, if there’s one fund that has some legitimate claim to being distinctive from every other, then it’s the CPSE ETF.

The name stands for Central Public Sector Enterprises Exchange Traded Fund, which really is a mouthful but virtually explains what the fund is. Needless to say, the uniqueness, on it’s own does not signify that the fund is investment worthy ­ it’s unusual nature {means that|implies that|ensures that} investors must {look at it|view it|consider it} closely.

Currently , this fund is in news because it’s having an’FFO ‘, a’Further Fund Offer ‘, that is not really a common term either. To know how this fund is structured and how a FFO plays a function in deciding whether you must invest in this fund or not, one needs to know the unusual advantage this fund gives to investors who invest in FFOs and those who committed to the the initial NFO

ETFs are often predicated on an equity index and replicate that index within their portfolio to ensure that investors can invest in it easily. The CPSE fund’s underlying index is one which NSE created specifically for this fund when it was launched. The index has ten stocks as its components, Coal India, GAIL, ONGC, Indian Oil, Bharat Electronics, Oil India, PFC, REC, Container Corp and Engineers India.While ETFs are MFs, are bought and sold on stock exchanges like mutual funds. An investor who would like to invest in this basket of public sector stocks can buy this ETF instead.

At the time of the fund’s launch in March 2014, investors who had invested in the initial offering received a 5% discount in price over what would have been the normal price. Moreover, there clearly was a unique ‘loyalty bonus’ built in to the fund ­ if the initial subscribers stuck around for a year , then they’d get  a 115 bonus.

They certainly were sweeteners that the government had thrown in to make sure that investors bought the fund in good numbers in the NFO and then made adequate returns to stay| enthusiastic about the fund. This structure has succeeded in this job and so it’s not surprising that the government is repeating the incentives now when it needs a fresh round of disinvestment.

Investors who invest in FFO too will receive a 5% discount on the market price of the underlying stocks, along with bonus units after finishing a year. Investors from the initial offer of 2014 have observed money grow 12.21% pa, in addition to the bonus, that was an additional one time boost of 6.66%.

Clearly , this can be a fund that has reasonably good returns, especially with the enhancement of the special deal given by the government. So could it be a great investment for fresh investors? It’s important to note that the advantages this fund brings includes a large amount of caveats.

In the first place it is a thematic fund, and it’s generally not good for fund investors to invest in sectoral or even a thematic fund ­ diversified funds are usually better.

However, even though one accepts the logic of a particular theme, it needs to be an investing-related theme, like banks or IT or consumer goods or auto or something different seems like doing better compared to rest of the market. The CPSE ETF is in contrast to that. Instead, it is a thematic fund where the theme is actually the promoter. What’s worse is that it’s not really a promoter who has a great track-record of looking following the interest of the business or minority shareholders.

Given the necessity of the government to keep returning for more funds, and the sweeteners it has put with this deal, investing a small amount in the fund might make sense, as long as an investor understands the uncertainties that originates from being the Government of India’s business partner.


Revised Interest Rate on Small Savings Schemes for Financial Year 2014-15

interest rate on various  savings deposits

Interest Rate on Saving Schemes

The Government of India on the recommendations of the Shyamala Gopinath Committee for Comprehensive Review of National Small Savings Fund (NSSF),  has revised the Interest Rates for Small Savings Schemes for the Financial Year 2014-15.

With the approval of the Finance Minister, the rates of interest on various small savings schemes for the FY 2014-2015 effective from 01.04.2014, on the basis of the interest compounding/payment built-in in the schemes, shall be as under :

Scheme Name Rate of Interest w.e.f. 1-Apr-2013 Rate of Interest w.e.f. 1-Apr-2014 Change over last year
Savings Deposit 4.00% 4.00% NIL
1 Year Time Deposit 8.20% 8.40% 0.20%
2 Year Time Deposit 8.20% 8.40% 0.20%
3 Year Time Deposit 8.30% 8.40% 0.10%
5 Year Time Deposit 8.40% 8.50% 0.10%
5 Year Recurring Deposit 8.30% 8.40% 0.10%
5 Year Senior Citizens Savings Scheme (SCSS) 9.20% 9.20% NIL
5 Year Monthly Income Scheme (MIS) 8.40% 8.40% NIL
5 Year NSC 8.50% 8.50% NIL
10 Year NSC 8.80% 8.80% NIL
PPF 8.70% 8.70% NIL

PPF rate remains unchanged at 8.7%. While 5 year NSC and 10 year NSC interest rates also remains unchanged at 8.5% and 8.8 % respectively.

The revised rates apply only to the new accounts opened during the respective year (except PPF where the new rate is applied on the outstanding account balance). For existing accounts the contracted rates remain unchanged until maturity.


50% discount on health insurance for families with girl child

medical insurance family

50% discount on family floater if you have girl child

The country’s largest general insurance company, New India Assurance, on the eve of International Women’s Day launched a special health insurance scheme for families with girl child.

The scheme ‘New India Asha Kiran’ is a floater policy offered to the entire family, but restricted to families with girl children.

The policy gives 50 per cent discount for the girl children. Further, in case of accident to parents, the sum insured will be placed as fixed deposit in the name of the girl children. Sum assured offered are Rs 2 lakh, Rs 3 lakh, Rs 5 lakh and Rs 8 lakh. As a family floater policy, it covers immediate family including the proposer, spouse and dependent girl children.

This health insurance policy also has daily cash benefit on hospitalization, critical care benefit up to 10 per cent sum insured and reimbursement of emergency ambulance charges.

The company also announced health policies with added benefits for women that are being sold through a tie-up with the all women bank “Bharatiya Mahila Bank”.

Speaking on the occasion, Chairman and Managing Director of New India Assurance G. Srinivasan said “We have launched this product, specially designed for families with only girl children, on the occasion of International Women’s Day. This product is reasonably priced as discounts are offered for insuring girl children”.

Other health insurance policies that have been launched with Bharatiya Mahila Bank, especially for women, include BMB Saki, which is targeted at lower income group women, and BMB Nirbhaya for women in higher income groups. One unique feature of these policies is that they include maternity benefit.

The company has posted a 36 % rise in net profit at Rs 701 crore in the third quarter ended December 31, 2013 from Rs 517 crore in the same period last year.


Not filing proper income tax return – expect a notice from IT department soon

not filed income tax return

Not Filed Income Tax Return

If you have made a cash deposits of more than Rs. 10,00,000.00  in your saving bank accounts, or have invested more than Rs. 1 lakh in shares, or have received interest income of more than Rs. 50,000, but have not filed your taxes for this assessment year, beware, as over 40.72 lakh high value spenders are under the scanner of the Income Tax department, and your name may be featuring in their list.

Not only cash deposits, the income tax department has compiled a list of  persons who have invested more than Rs. 2,00,000.00 in mutual funds, or more than Rs. 5,00,000.00  in  bonds or debentures, more than Rs. 1,00,000.00 in stocks.

The income tax department official data contains a list of 15,55,220 people who have purchased or sold immovable property of Rs 30,00,000.00 or more; 20,61,443 people who have made transactions of Rs 2,00,000.00 or more in a year through credit card; people who have received interest income of Rs 50,000 and above from banks and people who have purchased bullion or jewelry of Rs 5,00,000.00 or more.

The Financial Intelligence Unit (FIU) has been assigned task of looking for such suspicious and high-value money transfer. “We just want to send the across the message that nothing in clandestine and the department would get to know every transaction especially high value ones”, and failure to declare correct income and liability is now taken on a priority basis in the department and defaulters stand to be penalised up to 300 % on the evaded tax and prosecution in a court of law is also initiated, said a senior I-T department official. Income tax department has compiled a list of 40,72,829 potential tax evaders.

The idea behind publicising this is to make such people file their tax return before 31st March 2014 and increase the tax collection in this fiscal year. With technical solutions at the department’s disposal, there is a lot of information that is readily available to the authorities.


Interest Rate on Employee Provident Fund raised for 2013-14

Employee provident fund

Interest rate on EPF Account

Contrary to the expectation of retaining the 8.5% interest rate on the Employee Provident Fund for the financial year 2013-2014, the Employees’ Provident Fund Organisation (EPFO) has decided to  raise the Provident Fund interest rate from 8.5 % to 8.75 % for yr 2013-14. Last year also, in the fiscal year 2012-13, EPFO had increased the interest rate to 8.5% from previous 8.25%.

The EPFO in its proposal to the trustees earlier has observed that “Payment of interest to the members is expenditure for the Trust (EPFO), which is to be met out of its earnings. Thus, the rate of interest should be commensurate with the total earnings of the Trust,”. The EPFO, with an estimated income of approx. Rs 20,797 crore, needed Rs 20,740 crore to pay 8.5 % interest to the subscribers and thus would have left a surplus of around Rs. 57 crores.

The Central Board of Trustees, which is the apex decision making body of EPFO, has approved the interest rate that will now be forwarded to the finance ministry for formal notification.


Employee Unique Identification Number required for all Mutual Fund Transactions

Investments in Mutual Funds

EUIN for Investments in Mutual Funds

In order to address the problem of mis-selling of Mutual Fund products, SEBI (Regulatory body) has made it mandatory to mention the unique identification number (EUIN) of the employee / relationship manager / sales person of the distributor interacting with the investor, in addition to the AMFI Registration Number (ARN) of the distributor.

What is Employee Unique Identification Number (EUIN) :

EUIN is a unique number that will capture the identification of the sales person / employee / relationship manager interacting with the investor, irrespective of whether the transaction is “Execution only” or “Advisory”. It is allotted to each Sales Person holding a valid NISM certificate and associated with an ARN holder who wish to interact with the investor for the sale of mutual fund products. However, a mere quoting of EUIN will not give an “advisory” character to the transaction.

ARN holders are requested to intimate AMFI, in case they employ any ‘Sales Person’ so that EUIN could be allotted to them.

Purpose :

It has been observed that there is a lot of mis-selling happening in the mutual fund sector. And at times it becomes difficult to track the person responsible for such mis-selling. EUIN will assist in tackling the problem of mis-selling even if the employee / relationship manager / sales person leaves the employment of the distributor or his / her sub broker.

Is it Mandatory to provide EUIN in transaction ?

Quoting of EUIN is mandatory irrespective of whether the transaction is “Execution only” or “Advisory”. The ARN Holder should put his / her EUIN in the column provided in the application form. Investors are therefore advised to check & mention the AMFI allotted ‘Employee Unique Identification Number (EUIN)’ of the distributor’s sales personnel who has advised / executed the investment/switch.

However, in case of certain exceptional instances where the investment / switch has been carried out or submitted without any interaction by the employee / sales person / relationship manager of the distributor / sub broker with respect to the transaction, Investors are requested to submit the following declaration separately:

“I / We hereby confirm that the EUIN box has been intentionally left blank by me/us as this transaction is executed without any interaction or advice by the employee / relationship manager / sales person of the above distributor / sub broker or notwithstanding the advice of in-appropriateness, if any, provided by the employee / relationship manager / sales person of the distributor / sub broker.”

Separate declaration must be furnished for each separate transaction / application. Investors are advised to use new application forms which have the provision for ARN code, Sub broker ARN code, EUIN, Sub broker code (code allotted by the ARN holder).

Applicable Transactions :

  • EUIN Applicable : Purchases, Switches, Registration of Systematic Investment Plan (SIP) and Registration of Systematic Transfer Plan (STP) including transactions routed through stock exchanges
  • EUIN Not Applicable : Registration of Systematic Withdrawal Plan, Ongoing instalments under SIP / STP / SWP, Dividend Reinvestments, allotment of Bonus Units and Redemption, transactions routed through overseas distributors.

As an Investor what you must ensure ?

  • If routed through a distributor, please use new forms that have space for EUIN and Sub broker code and must ensure that the application form shall have a valid EUIN besides a valid ARN code and, Sub broker ARN code.
  • Investors transacting online or through any other mode offered by a distributor, do mention the EUIN and sub-broker ARN code while placing the transaction. In case of transaction where there is no interaction with any representative / agent of a distributor, investors are requested to clearly indicate the same by submitting the above declaration format.

Challenges :

Challenge will come to ensure that all salespersons are EUIN compliant. Moreover mis-selling is so rampant at all levels and mere getting EUIN may not prevent employees to indulge in mis-selling. There is still no clarity on what constitutes mis-selling. Though the new system of labelling the mutual funds is already there, yet its not fool-proof. Further, mutual fund advisors rarely undertake proper risk profiling of the clients, or ascertain their needs and goals.


Your insurance policies are set to change

insurance policies

New guidelines for Insurance policies

You will soon be offered new insurance policies with added benefits. IRDA has mandated some key changes in the insurance policies for the benefit of policyholders. The new guidelines will offer better life insurance cover, better surrender values and improved disclosures. All the 24 insurance companies (including LIC) have to withdraw all existing products and come out with new ones.

Old policies, where the contract had already been made, will continue to get renewed. However, at the time of renewal of group policy, the insurer will have to give the policyholder an option to switch to the modified version. In case the policyholder does not switch to the new modified policy, the insurance company will have to take a written consent that the policyholder will continue with the old policy.

Though the deadline to roll out new policies was 1st October, IRDA has extended the date to 1st January’ 2014, except for the insurance products which offer highest NAV, or are indexed linked. You may be curious to know the new guidelines for the insurance policies. As per new guidelines issued by IRDA, all new insurance products will be divided into three broad categories —

• Traditional
• Variable
• Unit-linked

Traditional Products: The earlier versions of traditional insurance products, viz. participating and non-participating would continue. Henceforth, all traditional products will have a higher death cover. Regular paying premium policies will have a cover of 10 times the annualised premium paid for people with an age of less than 45 years and 7 times for others.

Bonus for participating policies will be linked to the performance of the fund and is not declared or guaranteed in advance. However, in case of non-participating policies, the return in the policy is to be disclosed in the beginning.

Unit-linked Products : Due to various charges in the insurance policy, the investment growth gets reduced. Now the insurers have to inform policyholders about such reduction in the yield of their products on a monthly basis. Further an annual certificate has to be issued, mentioning the premiums paid and the charges, including the tax, deducted from the fund value.

Variable Products : All variable insurance plans will guarantee a minimum rate of return at the beginning of the policy. Variable insurance products will be treated at par with Unit-linked Products, including charge structure and the commission package as applicable for Unit-linked Products. Agents of such policies will get commission of up to 10% only.

Commission Structure : As per new guidelines, commissions will be linked to the premium paying period for all products and will be less for policies with shorter tenure. Single premium-non pension products will earn commission of up to 2% of the premium paid. In case of regular premium paying insurance policies, a policy with a premium paying term of up to 5 years, will earn a commission of up to 15% in first year and 7.5% in second and third year. Subsequent years will earn up to 5% of commission in such policies. For premium paying term of more than 12 years, commission can be up to 35% (for companies older than 10 years) and 40% (for companies not older than 10 years).

Lock-in period / Surrender : For Unit-linked Products, the lock-in period will continue to be five consecutive years from the date of commencement of the policy. In case of Unit-linked and Variable insurance products, the maximum surrender charge will be Rs.6,000 in the first year, tapering off to Rs.2,000 in the fourth year and becoming nil fifth year onwards Further, except in the case of death or any other contingency covered under the policy during this five year period, the proceeds of discontinued policies cannot be paid to the insured.

Based on the premium paying term, all individual non-linked life insurance and pension policies will have a minimum surrender value. The policy shall acquire a guaranteed surrender value, if all the premiums have been paid for at least three consecutive years for products with a premium paying term of 10 years or more. Similarly, for products with a premium term of less than 10 years, if all premiums have been paid for at least two consecutive years, the policy shall acquire a guaranteed surrender value of any subsisting bonus.

For pension products, the insurer has to offer insurance cover throughout the deferment period or offer riders. In all such pension products, the sum of all rider premiums attached to the pension product cannot exceed 15% of the premium paid. Such rider premiums will be separately accounted for and cannot be included in arriving at the assured benefit.

Revival of policies : To revive a discontinued policy, the insurer will collect all due and unpaid premiums without charging any interest or fee. However, the insurer can levy policy administration and premium allocation charges and any guarantee charge, if such a guarantee is reinstated.

For policies that have not completed two years of revival period at the end of the lock-in, the insurer will have to take written consent from the policyholder to revive the policy immediately or within the two-year period.

Health insurance : Now, all health insurance products, except for customised products, would be renewable for life-time. All new individual health insurance policies, except those with tenure of less than a year, will have a free-look period and this will be applicable at the inception of the policy. Also, cumulative bonus will not be allowed on benefit-based policies with the exception of personal accident cover. Insurers now have to settle claims within a period of 30 days from the receipt of all documents.

Health insurance providers will have to provide coverage to non-allopathic treatments also. But to avail of the cover, the policyholder will have to get the treatment done in a government hospital or in any institute recognised by the government or any accredited institute by the Quality Council of India or the National Accredition Board on Health. In case of claim, no-claim bonus can be reduced proportionately, but cannot be made zero.


Understanding Financial Planning and the key areas of a Financial Plan

Financial Planning

Financial Planning

A life without goals is really not worthy.

Goals may include worldly things like buying a home, saving for your child’s education or marriage or planning for retirement or even planning a vacation. In order to accomplish these goals, a proper planning and management of your money is required.

Thus Financial planning is the process of meeting your life goals through proper management of your finances.

Globally, money environment has witnessed a sea change in the last few years. Gone are the days when there were limited investment options and investors did not have much to plan on their investments and generally, bank managers, accountants, share broker and insurance agents generally provided advice on investment to individuals. Most of it is restricted to recommending you one particular product, more often from their own parent company or is guided by their targets or commission.

But now we have multiple choices. This has added complexity to the decision-making process about our money. And thus more and more people are now turning to professional financial planner for a comprehensive roadmap on financial planning to achieve their all money related goals. A financial planner in essence, assist them to make informed decisions about their money and how it can be used to best advantage.

Financial planning essentially involves the following steps:

1. Assessment: The first step is to assess the financial position with the help of personal financial balance sheets and income statements. A personal balance sheet includes personal assets such as investments in various financial instruments, including bank, cash, property etc. The balance sheet also includes personal liabilities, which includes all the loans, credit card balance, any other liabilities.

2. Defining goals: As explained earlier goals may include worldly things like buying a home, saving for your child’s education or marriage or planning for retirement or even planning a vacation. One must also define objective and time frame of goals.

3. Making financial plan: The financial plan gives you  the structure and clear cut roadmap to achieve  your goals. A financial plan includes the investments you can make (with whatever existing fund and income sources), their expected yields, your current and expected future income and expenses. It also helps you visit your current investments and help you take a decision on whether to keep them or replace them with more secure / better yielding asset. It also help you look at the current expenses and how they might impact your financial goals.

4. Execution: An effective execution of  personal financial plan can help you achieve your financial goals. Your financial planner plays a very crucial role in helping you execute the plan.

5. Monitoring: You must take help of your financial planner to monitor your financial health and the effectiveness of the investments you have made. It is essential to monitor on a regular basis as the micro and macro economic changes might ask you to take a look into your current financial health.

Some of the key areas that a well drafted Financial Plan must include are:

a) Current financial position: This can be ascertained with the help of making a net worth statement that includes your assets and liabilities.

b) Emergency fund: Emergence fund helps you meet your emergency expenses. A reasonable amount of money which may be calculated depending on the your current lifestyle, family, flow of income.

c) Risk and Protection planning: Risks in the context of financial planning can be divided into liability (loans etc.), property (fire, theft etc.), death (loss of income to your dependents) , disability and health (medical emergencies). Lets look at the generally heard life insurance. Different people buy life insurance for different reasons, but most of us have a need for it at some point in our lives. The type we need, the amount we need, and the reasons why we need it may change; but it definitely plays a vital role in most financial plans. Here are some reasons why people purchase life insurance:

To Pay off debts
Life insurance can be an inexpensive way to make sure there is ready cash to cover any financial obligations (Loans etc.) you leave behind.

Replace your income for your family
It helps to cover the uncertainties in our life. It helps your Children to complete their education, your wife to take care of the household expenses, your dependent parents to live their life comfortably in case you are not with them.

Tax planning ( u/s 80 C )
Many people use life insurance as part of tax planning strategy designed to potentially reduce taxes.

One must choose his insurance plan with utmost care. The choices available are:

  • Term Insurance
  •  Endowment
  •  Whole Life Insurance
  •  Medical Insurance (Regular)
  •  Critical Illness
  •  Accidental and Permanent Disability
  •  Key Person Insurance
  •  Employee Benefit

Other Key Insurance requirement includes :

  •  Vehicle Insurance
  •  House Insurance
  •  Factory Insurance
  •  Travel Insurance
  •  Professional Indemnity

Determining how much insurance to get, at the most cost effective terms will help you get better value for money.

d) Investment planning: What rate of return do you need to meet your goals? Are your current investments achieving the return? What is the best asset allocation (Mutual Fund, FD’s, Bullion, Cash, Insurance, PF, Bonds, Property etc.) suited to your profile. What investments opportunities do you use to implement this asset mix? What shall be the best Mutual Fund, FD and other such investments are suited to your needs?

Their is no definite answer to all these. It all depends on person to person. You may have a different risk profile, life goals, time horizon, and current portfolio than that of your friend.

e) Tax planning: Tax Planning essentially means using a strategy to either reduce or shift your current tax liabilities. Even Government allows and encourages tax saving to us. Tax planning saves you your hard earned money. And avoids last minute rush to put your money into investments such as u/s 80C. And other sections also you ample opportunity to save you your taxes.

There are investments that are totally exempted from Tax on their profit. And some get concessional tax treatment, which means they are taxed at a lower rate. It also benefits if you meticulously define out in whose name in the family to invest, so as to reduce the tax liability, if any. A salaried person can also reduce its Tax liability by various means. Lets look at some of the tax saving instruments :

U/s 80C
Public Provident Fund. Maximum amount is s. 70000/- in a year
Employee Provident Fund
National Saving Certificates
Kisan Vikas Patra
Insurance Policies
Tax saving FDs
New pension schemes
Senior citizen saving scheme
Children Tuition fee
Repayment of housing loan (Principal)

U/s 80CCF
Specified Infrastructure bonds upto Rs. 20000/-

U/s 80D
Premium paid for mediclaim insurance for individual Rs. 15000/- and another Rs. 20000/- if paid for parents who are senior citizens

U/s 80DD
Expenditure on handicapped dependents from Rs. 50000/- to Rs. 100000/- depending on the severity

U/s 80DDB
Expenditure incurred on specified diseases or ailments

U/s 80E
Interest paid on higher education loan

U/S 24(1)(Vi)
Interest paid on housing loans

f) Retirement Planning: Old Age typically brings income Insecurity, dependency on children, medical expenses, but most of the people are generally not worried about their old age and retirement.  Let’s start tackling the how of retirement planning by asking the No.1 retirement question: “How much money do I need at the time of my retirement’’ ?

The answer to this question contains some good news and some bad news. First, the bad news: There really is no single number that would guarantee everyone an adequate retirement. It depends on many factors, including your desired standard of living, your expenses (including any medical costs) and your target retirement age. Now for the good news: It’s entirely possible to determine a reasonable number for your own retirement needs. All it involves is answering a few questions and doing some number crunching. Providing you plan ahead and estimate on the conservative side, it’s entirely possible for you to accumulate a nest egg sufficient to last you through your golden years. There are several key tasks you need to complete before you can determine what size of nest egg you’ll need in order to fund your retirement. These include the following:

Decide the age at which you want to retire.
Decide the annual income you’ll need for your retirement years. It may be wise to estimate on the high end for this number. Generally speaking, it’s reasonable to assume you’ll need about 70% – 80% of your current annual salary in order to maintain your current standard of living.
Determine a realistic annualized real rate of return (net of inflation) on your investments. Conservatively assume inflation will be 6-7 % annually.
A realistic rate of return would be 7 -10%. Again, estimate on the low end to be on the safe side.

g) Estate planning: Estate Planning essentially includes having a succession plan in place, so that your dependents, other family members and the people you love must know how your assets be distributed in an unfortunate event of you being no more in this world. If a person dies without a will or trust, known as dying intestate, he / she generally leaves heirs confused or fighting over who gets what from their assets.
In order to have a good succession plan in place, one must consider the following :
• Decide whether you need will or living trust!
Both are part of estate planning. A Will act as a guide on distribution of assets. Living trust is generally safer and let your assets be distributed in a cost effective manner and without the hassle of probate of will. You can have a living trust that allows you manage your assets during your life. And after your demise these assets are then passed on to your beneficiaries. Trusts are more helpful when you have valuable properties and / or a complex successor tree. Having both will and trust is a better idea in certain cases.

Who shall be the beneficiaries
• If your children are still very young then who shall be their guardian
• Who shall be the best person to execute your will or act as successor trustee
• Assignment of medical power of attorney
You must take inventory of all your assets, which includes your
• Immovable and movable property
• Financial assets such as shares, bonds, insurance policies
• Business interests
After you have taken the stock of all your assets, name the beneficiaries to whom you wish to pass on your assets. You can make changes in your will any time; make sure to add details of the old will to avoid any ambiguity. You must also review your succession plan regularly, especially if you there is a change in your marital status or a new baby is born.

Determining how much insurance to get, at the most cost effective terms will help you get better value for money.


Senior Citizens Savings Scheme, 2004

Senior Citizens Scheme

Senior Citizens Scheme

1. What are the salient features of the Senior Citizens Savings Scheme, 2004?

The salient features of the Senior Citizens Savings Scheme, 2004 are given below.

Tenure of the deposit account 5 years, which can be extended by 3 years.
Rate of interest 9.2 per cent per annum
Frequency of computing interest Quarterly
Taxability Interest is fully taxable.
Whether TDS is applicable Yes. Tax will be deducted at source.
Investment to be in multiples of ` 1000/-
Maximum investment limit ` 15 lakh
Minimum eligible age for investment

60 years (55 years for those who have retired on superannuation or under a voluntary or special voluntary scheme). The retired personnel of Defence Services (excluding Civilian Defence Employees) will be eligible to invest irrespective of the age limits subject to the fulfillment of other specified conditions

Premature  closure/withdrawal facility Permitted after one year of opening the account but with penalty.
Transferability Not transferable
Tradability Not tradable
Nomination facility Nomination facility is available.
Modes of holding

Accounts can be held both in single and joint holding modes. Joint holding is allowed only with spouse.

Application forms available with

Post Offices and designated branches of 24 Nationalised banks and one private sector bank

Applicability to NRI, PIO and HUFs

Non Resident Indians (NRIs), Persons of Indian Origin (PIO) and Hindu Undivided Family (HUF) are not eligible to open an account under the Scheme.

Transfer from one deposit office to another

Transfer of account from one deposit office to another is permitted.

2. Can a joint account be opened under the scheme with any person?

Joint account under the SCSS, 2004 can be opened only with the spouse. [Rule 3 (3)]

3. What should be the age of the spouse in case of a joint account?

In case of a joint account, the age of the first applicant / depositor is the only factor to decide the eligibility to invest under the scheme. There is no age bar/limit for the second applicant / joint holder (i.e. spouse). [Rule 3 (3)]

4. What will be the share of the joint account holder in the deposit in an account?

The whole amount of investment in an account under the scheme is attributed to the first applicant / depositor only. As such, the question of any share of the second applicant / joint account holder (i.e. spouse) in the deposit account does not arise. [Rule 3 (3)]

5. Whether both the spouses can open separate accounts in their individual capacity with separate limit of Rs.15 lakh for each of them?

Both the spouses can open individual and / or joint accounts with each other with the maximum deposits up to Rs.15 lakh each, provided both are individually eligible to invest under relevant provisions of the Rules governing the Scheme. (Rules 3 and 4 )

6. Whether any income tax rebate / exemption is admissible?

No income tax / wealth tax rebate is admissible under the Scheme. The prevailing Income Tax provisions shall apply. (GOI letter F. No.2/8/2004/NS-II dated October 13, 2004)

7. Is TDS applicable to the scheme?

Yes, TDS is applicable to the Scheme as interest payments have not been exempted from deduction of tax at source. (GOI letter F. No.2/8/2004/NS-II dated March 28, 2006)

8. Whether any minimum limit has been prescribed for deduction of tax at source?

Tax is to be deducted at source  as per the minimum limit prescribed by the Government.

9. What is the rate at which TDS is to be deducted from the account holder?

The rate for TDS for a financial year is specified in Part II of Schedule I of the Finance Act for that year. (GOI letter F. No.2/8/2004/NS-II dated June 06, 2006)

10. Whether TDS should also be recovered from the undrawn interest payable to the legal heirs of the deceased depositors?

Tax shall be deducted at source even from any interest paid / payable to the legal heir of the account holder. (GOI letter F. No.2/8/2004/NS-II dated June 06, 2006)

11. Whether TDS on interest payments will be applicable with retrospective effect or prospective basis?

TDS is applicable from the very first day when SCSS, 2004 was made operational regardless of the fact that the Central Government or Reserve Bank of India or any authority might have issued any Notification / circular / clarification at a later stage. (GOI letter F. No.2/8/2004/NS-II dated June 06, 2006)

12. Whether only one person or number of persons can be nominated in the accounts opened under the Scheme?

The depositor may, at the time of opening of the account, nominate a person or persons who, in the event of death of the depositor, will be entitled to payment due on the account. [Rule 6 (1)]

13. Can a nomination be made after the account has already been opened?

Yes, nomination may be made by the depositor at any time after opening of the account but before its closure, by an application in Form C accompanied by the Pass book to the deposit office. [Rule 6 (2)]

14. Can a nomination be cancelled or changed?

Yes, the nomination made by the depositor may be cancelled or varied by submitting a fresh nomination in Form C to the deposit office where the account is being maintained. [Rule 6 (3)]

15. Can nomination be made in joint account also?

Nomination can be made in joint account also. In such a case, the joint holder will be the first person entitled to receive the amount payable in the event of death of the depositor. The nominee’s claim will arise only after the death of both the joint holders. [Rule 6 (4)]

16. Can a person holding a Power of Attorney sign for the nominee in the nomination form ?

No, a person holding a Power of Attorney cannot sign for the nominee in the nomination form. (GOI letter No. F.15/8/2005/NS-II dated March 02, 2006)

17. In case of a joint account, if the first holder / depositor expires before maturity, can the account be continued?

In case of a joint account, if the first holder / depositor expires before the maturity of the account, the spouse may continue the account on the same terms and conditions as specified under the SCSS Rules. However, if the second holder i.e. spouse has his / her own individual account, the aggregate of his/her individual account and the deposit amount in the joint account of the deceased spouse should not be more than the prescribed maximum limit. In case the maximum limit is breached, then the remaining amount shall be refunded, so that the aggregate of the individual account and deceased spouse’s joint account is maintained at the maximum limit. [Rules 6 (4) and 8 (3)]

18. What happens to the accounts if both the spouses are maintaining individual accounts and not any joint account and one of them expires?

If both the spouses have opened separate accounts under the scheme and either of the spouses dies during the currency of the account(s), the account(s) standing in the name of the deceased depositor / spouse shall not be continued and such account(s) shall be closed. [Rule 5 of the Senior Citizens Savings Scheme (Amendment) Rules, 2004 notified on October 27, 2004]

19. Whether any fee has been prescribed for nomination and / or change / cancellation of nomination?

No fee has been prescribed for nomination and / or change / cancellation of nomination(s) in the accounts under the SCSS, 2004. (GOI letter F. No.2/8/2004/NS-II dated October 13, 2004)

20. What is the age limit in the case of retired Defence Personnel for investment in the scheme?

The retired personnel of Defence Services (excluding Civilian Defence Employees) will be eligible to subscribe under the scheme irrespective of the age limit of 60 years subject to the fulfillment of other specified conditions. (The Senior Citizens Savings Scheme (Amendment) Rules, 2004 notified on October 27, 2004)

21. What is the meaning of ‘retirement benefits’ for the purpose of SCSS, 2004?

“Retirement benefits” for the purpose of SCSS Rules have been defined as ‘any payment due to the depositor on account of retirement whether on superannuation or otherwise and includes Provident Fund dues, retirement / superannuation gratuity, commuted value of pension, cash equivalent of leave, savings element of Group Savings linked Insurance scheme payable by employer to the employee on retirement, retirement-cum-withdrawal benefit under the Employees’ Family Pension Scheme and ex-gratia payments under a voluntary retirement scheme’. (Rule 2 (a) of the Senior Citizens Savings Scheme (Amendment) Rules, 2004 notified on October 27, 2004)

22. Can deposits under the SCSS scheme be made only from amounts received as retirements benefits?

In case an investor has attained the age of 60 years and above, the source of amount being invested is immaterial [Rule 2 (d)(i)]. However, if the investor is 55 years or above but below 60 years and has retired under a voluntary scheme or a special voluntary scheme or has retired from the Defence services, only the retirement benefits can be invested in the SCSS. [Rule 2(d) (ii)].

23. Is there a period prescribed for opening deposit account under the SCSS scheme, by the senior citizen, from the retirement benefits?

If the investor is 60 years and above, there is no time period prescribed for opening the SCSS account(s). However for those below 60 years, following time limits have been prescribed.

(a) the persons who have attained the age of 55 years or more but less than 60 years and who retired under a voluntary retirement scheme or a special voluntary retirement scheme on the date of opening of an account under these rules, subject to the condition that the account is opened by such individual within three months of the date of retirement.

(b) the persons who have retired at any time before the commencement of these rules and attained the age of 55 years or more on the date of opening of an account under these rules, will also be eligible to subscribe under the scheme within a period of one month of the date of the notification of the SCSS, 2004 i.e. 27th October 2004, subject to fulfillment of other conditions. [Rule 2 of the Senior Citizens Savings Scheme (Amendment) Rules, 2004]

(c) the retired personnel of Defence Services (excluding Civilian Defence Employees) will be eligible to subscribe under the scheme irrespective of the above age limits subject to the fulfillment of other specified conditions. [Rule 2 of the Senior Citizens Savings Scheme (Amendment ) Rules, 2004]

24. Can an account holder obtain loan by pledging the deposit / account under the SCSS, 2004?

The facility of pledging the deposit / account under the SCSS, 2004 for obtaining loans, is not permitted since the account holder will not be able to withdraw the interest amount periodically, defeating the very purpose of the scheme. (GOI letter F. No.2/8/2004/NS-II dated May 31, 2005)

25. Is premature withdrawal of the deposits from the accounts under the SCSS, 2004 permitted?

Premature withdrawal / closure of the deposits from the accounts under the SCSS, 2004 has been permitted after completion of one year from the date of opening of the account after deducting the penalty amount as given below.

(i) If the account is closed after one year but before expiry of two years from the date of opening of the account, an amount equal to one and half per cent of the deposit shall be deducted.

(ii) If the account is closed on or after the expiry of two years from the date of opening of the account, an amount equal to one per cent of the deposit shall be deducted.

However, if the depositor is availing the facility of extension of account under Rule 4 (3), then he/she can withdraw the deposit and close the account at any time after the expiry of one year from the date of extension of the account without any deduction. [Rule 9 (1) (a) (b) and (2)]

26. Are Non-resident Indians, Persons of Indian Origin and Hindu Undivided Family eligible to invest in the SCSS, 2004?

Non resident Indians (NRIs), Persons of Indian Origin (PIO) and Hindu Undivided Family (HUF) are not eligible to invest in the accounts under the SCSS, 2004. If a depositor becomes a Non-resident Indian subsequent to his/her opening the account and during the currency of the account under the SCSS Rules, the account may be allowed to continue till maturity, on a non-repatriation basis and the account will be marked as a Non-Resident account. [Rule 13 and GOI letter F.No.2/8/2004/NS-II dated June 19, 2006)

27. Can an account be transferred from one deposit office to another?

A depositor may apply in Form G, enclosing the Pass Book thereto, for transfer of his account from one deposit office to another. If the deposit amount is rupees one lakh or above, a transfer fee of rupees five per lakh of deposit for the first transfer and rupees ten per lakh of deposit for the second and subsequent transfers shall be payable. [Rule 11 and GOI Notification GSR.(E) dated March 23, 2006)

28. Can an SCSS account be extended?

A depositor may extend the account for a further period of three years by making an application to the deposit office within a period of one year after maturity.

29. Does an account, which is not extended on maturity, earn any interest?

In case a depositor does not close the account on maturity and also does not extend the account, the account will be treated as matured and the depositor will be entitled to close the account at any time subject to the condition that the post maturity interest at the rate as applicable to the deposits under the Post office Savings Accounts from time to time will be payable on such matured deposits upto the end of the month preceding the month of the closure of the account.

30. What happens if an account is opened in contravention of the SCSS Rules?

If an account has been opened in contravention of the SCSS Rules, the account shall be closed immediately and the deposit in the account, after deduction of the interest, if any, paid on such deposit, shall be refunded to the depositor. (Rule 12)

31. Which are the banks authorized to open an account under the SCSS, 2004?

At present, 24 Nationalized banks and one private sector bank, as per list below, are authorized to handle the SCSS, 2004. It may be noted that only designated branches of these banks have been authorized to handle SCSS, 2004.

  1. State Bank of India
  2. State Bank of Hyderabad
  3. State Bank of Bikaner and Jaipur
  4. State Bank of Patiala
  5. State Bank of Mysore
  6. State Bank of Travancore
  7. Allahabad Bank
  8. Andhra bank
  9. Bank of Baroda
  10. Bank of India
  11. Bank of Maharashtra
  12. Canara Bank
  13. Central Bank of India
  14. Corporation Bank
  15. Dena Bank
  16. Indian Bank
  17. Indian Overseas Bank
  18. Punjab National Bank
  19. Syndicate Bank
  20. UCO Bank
  21. Union Bank of India
  22. United Bank of India
  23. Vijaya Bank
  24. IDBI Bank
  25. ICICI Bank Ltd.


Investments options available in India for NRIs and PIOs

Investment options available for NRIs

Investment options for NRIs

More and more NRI’s (Non Resident Indians) and PIOs (Person of Indian Origins) are investing in India in order to get higher returns on their investments as compared to the country they are living in. And the Government of India has also made it easy for NRIs and PIOs to invest in India. NRIs and PIOs are permitted to open bank accounts in India out of funds remitted from abroad, foreign exchange brought in from abroad or out of funds legitimately due to them in India, with authorized dealer.

What are the different types of accounts which can be maintained by an NRI/PIO in India?

If a person is NRI or PIO, she/he can, without the permission from the Reserve Bank of India (RBI), open, hold and maintain the different types of accounts given below with an ‘Authorised Dealer’ in India, i.e. a bank authorised to deal in foreign exchangeNRO Savings accounts can also be maintained with the Post Offices in India. However, individuals/ entities of Bangladesh and Pakistan require prior approval of the Reserve Bank of India.

Types of accounts which can be maintained by an NRI / PIO in India :

A. Non-Resident Ordinary Rupee Account (NRO Account)

NRO accounts may be opened / maintained in the form of current, savings, recurring or fixed deposit accounts.

● Savings Account – Normally maintained for crediting legitimate dues /earnings / income such as dividends, interest etc. Banks are free to determine the interest rates.

●  Term Deposits – Banks are free to determine the interest rates. However, theycannot be higher than those offered by them on comparable domestic rupee deposits.

● Account should be denominated in Indian Rupees.

● Permissible credits to NRO account are transfers from rupee accounts of non-resident banks, remittances received in permitted currency from outside India through normal banking channels, permitted currency tendered by account holder during his temporary visit to India, legitimate dues in India of the account holder like current income like rent, dividend, pension, interest, etc., sale proceeds of assets including immovable property acquired out of rupee/foreign currency funds or by way of legacy/ inheritance.

● Eligible debits such as all local payments in rupees including payments for investments as specified by the Reserve Bank and remittance outside India of current income like rent, dividend, pension, interest, etc., net of applicable taxes, of the account holder.

● NRI/PIO may remit from the balances held in NRO account an amount not exceeding USD one million per financial year, subject to payment of applicable taxes.

● The limit of USD 1 million per financial year includes sale proceeds of immovable properties held by NRIs/PIOs.

● The accounts may be held jointly with residents and / or with non-resident Indian.

● The NRO account holder may opt for nomination facility.

● NRO (current/savings) account can also be opened by a foreign national of non-Indian origin visiting India, with funds remitted from outside India through banking channel or by sale of foreign exchange brought by him to India.

● Loans to non-resident account holders and to third parties may be granted in Rupees by Authorized Dealer / bank against the security of fixed deposits subject to certain terms and conditions.

B. Non-Resident (External) Rupee Account (NRE Account)

● NRE account may be in the form of savings, current, recurring or fixed deposit accounts. Such accounts can be opened only by the non-resident himself and not through the holder of the power of attorney.

● NRIs as defined in Notification No. FEMA 5/2000-RB dated May 3, 2000 may be permitted to open NRE account with their resident close relatives (relative as defined in Section 6 of the Companies Act, 1956) on ‘former or survivor ‘ basis.  The resident close relative shall be eligible to operate the account as a Power of Attorney holder in accordance with the extant instructions during the life time of the NRI/PIO account holder.

● Account will be maintained in Indian Rupees.

● Balances held in the NRE account are freely repatriable.

● Accrued interest income and balances held in NRE accounts are exempt from Income tax and Wealth tax, respectively.

● Authorised dealers/authorised banks may at their discretion/commercial judgement allow for a period of not more than two weeks, overdrawings in NRE savings bank accounts, up to a limit of Rs.50,000 subject to the condition that such overdrawings together with the interest payable thereon are cleared/repaid within a period of two weeks, out of inward remittances through normal banking channels or by transfer of funds from other NRE/FCNR accounts.

● Savings – Banks are free to determine the interest rates.

 Term deposits – Banks are free to determine the interest rates of term deposits of maturity of one year and above. Interest rates offered by banks on NRE deposits cannot be higher than those offered by them on comparable domestic rupee deposits.

● Permissible credits to NRE account are inward remittance to India in permitted currency, proceeds of account payee cheques, demand drafts / bankers’ cheques, issued against encashment of foreign currency, where the instruments issued to the NRE account holder are supported by encashment certificate issued by AD Category-I / Category-II, transfers from other NRE / FCNR accounts, sale proceeds of FDI investments, interest accruing on the funds held in such accounts, interest on Government securities/dividends on units of mutual funds purchased by debit to the NRE/FCNR(B) account of the holder, certain types of refunds, etc.

● Eligible debits are local disbursements, transfer to other NRE / FCNR accounts of person eligible to open such accounts, remittance outside India, investments in shares / securities/commercial paper of an Indian company, etc.

● Loans up to Rs.100 lakh can be extended against security of funds held in NRE Account either to the depositors or third parties.

● Such accounts can be operated through power of attorney in favour of residents for the limited purpose of withdrawal of local payments or remittances through normal banking channels to the account holder himself.

C. Foreign Currency Non Resident (Bank) Account – FCNR (B) Account

● FCNR (B) accounts are only in the form of term deposits of 1 to 5 years

● All debits / credits permissible in respect of NRE accounts, including credit of sale proceeds of FDI investments, are permissible in FCNR (B) accounts also.

● Account can be in any freely convertible currency.

● Loans up to Rs.100 lakh can be extended against security of funds held in FCNR (B) deposit either to the depositors or third parties.

● The interest rates are stipulated by the Department of Banking Operations and Development, Reserve Bank of India. In respect of FCNR (B) deposits of all maturities contracted effective from the close of business in India as on November 23, 2011, interest shall be paid within the ceiling rate of LIBOR/SWAP rates plus 125 basis points for the respective currency/corresponding maturities (as against LIBOR/SWAP rates plus 100 basis points effective from close of business on November 15, 2008). On floating rate deposits, interest shall be paid within the ceiling of SWAP rates for the respective currency/maturity plus 125 basis points. For floating rate deposits, the interest reset period shall be six months.

● When an account holder becomes a person resident in India, deposits may be allowed to continue till maturity at the contracted rate of interest, if so desired by him.

● NRI can open joint account with a resident close relative (relative as defined in Section 6 of the Companies Act, 1956) on former or survivor basis. The resident close relative will be eligible to operate the account as a Power of Attorney holder in accordance with extant instructions during the life time of the NRI/ PIO account holder.

Can an individual resident Indian borrow money from his close relative outside India ?

Yes, an individual resident Indian can borrow sum not exceeding USD 250,000 or its equivalent from his close relatives staying outside India, subject to the conditions that:

  1. the minimum maturity period of the loan is one year;
  2. the loan is free of interest; and
  3. the amount of loan is received by inward remittance in free foreign exchange through normal banking channels or by debit to the NRE/FCNR(B) account of the NRI.

Can an individual resident lend money to his close relative NRI / PIO?

Yes, an individual resident can lend money by way of crossed cheque /electronic transfer within the overall limit of USD 200,000 per financial year under the Liberalised Remittance Scheme, to meet the borrower’s personal or business requirements in India, subject to conditions. The loan should be interest free and have a maturity of minimum one year and cannot be remitted outside India.

Can an individual resident repay loans of close relative NRIs to banks in India?

Yes, where an authorised dealer in India has granted loan to a non-resident Indian such loans may also be repaid by resident close relative (relative as defined in Section 6 of the Companies Act, 1956), of the Non-Resident Indian by crediting the borrower’s loan account through the bank account of such relative.

What are the other facilities available to NRIs / PIO?

A. Investment facilities for NRIs :

NRI may, without limit, purchase on repatriation basis:

● Government dated securities / Treasury bills

● Units of domestic mutual funds;

● Bonds issued by a public sector undertaking (PSU) in India.

● Non-convertible debentures of a company incorporated in India.

● Perpetual debt instruments and debt capital instruments issued by banks in India.

● Shares in Public Sector Enterprises being dis-invested by the Government of India, provided the purchase is in accordance with the terms and conditions stipulated in the notice inviting bids.

● Shares and convertible debentures of Indian companies under the FDI scheme (including automatic route & FIPB), subject to the terms and conditions specified in Schedule 1 to the FEMA Notification No. 20/2000- RB dated May 3, 2000, as amended from time to time.

● Shares and convertible debentures of Indian companies through stock exchange under Portfolio Investment Scheme, subject to the terms and conditions specified in Schedule 3 to the FEMA Notification No. 20/2000- RB dated May 3, 2000, as amended from time to time.

NRI may, without limit, purchase on non-repatriation basis :

● Government dated securities / Treasury bills

● Units of domestic mutual funds

● Units of Money Market Mutual Funds

● National Plan/Savings Certificates

● Non-convertible debentures of a company incorporated in India

● Shares and convertible debentures of Indian companies through stock exchange under Portfolio Investment Scheme, subject to the terms and conditions specified in Schedules 3 and 4 to the FEMA Notification No. 20/2000- RB dated May 3, 2000, as amended from time to time.

● Exchange traded derivative contracts approved by the SEBI, from time to time, out of INR funds held in India on non-­repatriable basis, subject to the limits prescribed by the SEBI.

Note : NRIs are not permitted to invest in small savings or Public Provident Fund (PPF).

B. Investment in Immovable Property

● NRI / PIO / Foreign National, who is a person resident in India (citizen of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal and Bhutan would require prior approval of the Reserve Bank of India), may acquire immovable property in India other than agricultural land/ plantation property or a farm house out of repatriable and / or non-repatriable funds.

● The payment of purchase price, if any, should be made out of

(i) funds received in India through normal banking channels by way of inward remittance from any place outside India or

(ii) funds held in any non-resident account maintained in accordance with the provisions of the Act and the regulations made by the Reserve Bank of India.

Note : No payment of purchase price for acquisition of immovable property shall be made either by traveller’s cheque or by foreign currency notes or by other mode other than those specifically permitted as above.

● NRI may acquire any immovable property in India other than agricultural land / farm house plantation property, by way of gift from a person resident in India or from a person resident outside India who is a citizen of India or from a person of Indian origin resident outside India

● NRI may acquire any immovable property in India by way of inheritance from a person resident outside India who had acquired such property in accordance with the provisions of the foreign exchange law in force at the time of acquisition by him or the provisions of these Regulations or from a person resident in India

● After the purchase is made, it is required to file a declaration in form IPI 7 with the Central Office of Reserve Bank at Mumbai within a period of 90 days from the date of purchase of immovable property or final payment of purchase consideration along with a certified copy of the document evidencing the transaction and bank certificate regarding the consideration paid.

● An NRI may transfer any immovable property in India to a person resident in India.

● NRI may transfer any immovable property other than agricultural or plantation property or farm house to a person resident outside India who is a citizen of India or to a person of Indian origin resident outside India.

In respect of such investments, NRIs are eligible to repatriate:

● The sale proceeds of immovable property in India if the property was acquired out of foreign exchange sources i.e. remitted through normal banking channels / by debit to NRE / FCNR (B) account.

● The amount to be repatriated should not exceed the amount paid for the property in foreign exchange received through normal banking channel or by debit to NRE account (foreign currency equivalent, as on the date of payment) or debit to FCNR (B) account.

● In the event of sale of immovable property, other than agricultural land / farm house / plantation property in India, by a person resident outside India who is a citizen of India  / PIO, the repatriation of sale proceeds is restricted to not more than two residential properties subject to certain conditions. The balance amount of sale proceeds if any or sale proceeds in respect of properties purchased prior to 26th May 1993, will have to be credited to the ordinary non resident rupee account of the owner of the property. Applications for necessary permission for remittance of sale proceeds should be made in form IPI 8 to the Central Office of Reserve Bank at Mumbai within 90 days of the sale of the property.

● If the property was acquired out of Rupee sources, NRI or PIO may remit an amount up to USD one million per financial year out of the balances held in the NRO account (inclusive of sale proceeds of assets acquired by way of inheritance or settlement), for all the bonafide purposes to the satisfaction of the Authorized Dealer bank and subject to tax compliance.

● Refund of (a) application / earnest money / purchase consideration made by house-building agencies/seller on account of non-allotment of flats / plots and (b) cancellation of booking/deals for purchase of residential/commercial properties, together with interest, net of taxes, provided original payment is made out of NRE/FCNR (B) account/inward remittances.

Repayment of Housing Loan of NRI / PIOs by close relatives of the borrower in India

Housing Loan in rupees availed of by NRIs/ PIOs from ADs / Housing Financial Institutions in India can be repaid by the close relatives in India of the borrower.

C. Investment under the Portfolio Investment Scheme (PIS)

NRIs and PIOs are permitted purchase or sale of equity shares / CCPS / CCDs of Indian companies listed on Indian stock exchanges through a registered broker, subject to the following conditions:

● The total paid-up value of shares or convertible debentures purchased by an NRI both on a repatriation and non-repatriation basis does not exceed 5% of the paid-up value of the Indian company’s shares

● The aggregate paid-up value of shares or convertible debentures purchased by all NRIs in the Indian company does not exceed 10% of the paid-up value of the Indian company. The ceiling of 10% can be raised to 24% through a special resolution.

The sale proceeds of equity shares / CCPS / CCDs are permitted to be credited by the NRI to:

● His / her NRO account where the purchase was made out of the funds held in his Non Resident ordinary (NRO) account or where the purchase was on non-repatriation basis

● His / her NRE/FCNR/NRO account where the purchase was on a repatriation basis.

D. Facilities to returning NRIs/PIOs

● Returning NRIs/PIOs may continue to hold, own, transfer or invest in foreign currency, foreign security or any immovable property situated outside India, if such currency, security or property was acquired, held or owned when resident outside India

● The income and sale proceeds of assets held abroad need not be repatriated.

Foreign Currency Account

● A person resident in India who has gone abroad for studies or who is on a visit to a foreign country may open, hold and maintain a Foreign Currency Account with a bank outside India during his stay outside India, provided that on his return to India, the balance in the account is repatriated to India. However, short visits to India by the student who has gone abroad for studies, before completion of his studies, shall not be treated as his return to India.

● A person resident in India who has gone out of India to participate in an exhibition/trade fair outside India may open, hold and maintain a Foreign Currency Account with a bank outside India for crediting the sale proceeds of goods on display in the exhibition/trade fair. However, the balance in the account is repatriated to India through normal banking channels within a period of one month from the date of closure of the exhibition/trade fair.

Resident Foreign Currency Account

● Returning NRIs /PIOs may open, hold and maintain with an authorised dealer in India a Resident Foreign Currency (RFC) Account to transfer balances held in NRE/FCNR(B) accounts.

● Proceeds of assets held outside India at the time of return can be credited to RFC account.

● The funds in RFC accounts are free from all restrictions regarding utilisation of foreign currency balances including any restriction on investment in any form outside India.

● RFC accounts can be maintained in the form of current or savings or term deposit accounts, where the account holder is an individual and in the form of current or term deposits in all other cases.

RFC accounts are permitted to be held jointly with the resident close relative(s) as defined in the Companies Act, 1956 as joint holder (s) in their RFC bank account on ‘former or survivor basis’. However, such resident Indian close relative, now being made eligible to become joint account holder shall not be eligible to operate the account during the life time of the resident account holder.

General facilities

Can Exchange Earners Foreign Currency (EEFC) accounts be held jointly with a -resident Indian?

Yes, EEFC account of a resident individual can be held jointly with a resident close relative on a ‘former or survivor’ basis.

However, such resident Indian close relative will not be eligible to operate the account during the life time of the resident account holder.

Can a resident individual holding a savings bank account include nonresident close relative as a joint account holder?

Yes, individuals resident in India are permitted to include non-resident close relative(s) as a joint holder(s) in their resident bank accounts on ‘former or survivor’ basis. However, such non- resident Indian close relatives shall not be eligible to operate the account during the life time of the resident account holder.

Can a resident individual gift shares/securities/convertible debentures etc to NRI close relative?

Yes, a resident individual is permitted to gift shares/securities/convertible debentures etc to NRI close relative up to USD 50,000 per financial year subject to certain conditions.

Can a resident individual give rupee gifts to his visiting NRI/PIO close relatives?

Yes, a resident individual can give rupee gifts to his visiting NRI/PIO close relatives by way of crossed cheque/electronic transfer within the overall limit of USD 200,000 per financial year for the resident individual and the gifted amount should be credited to the beneficiary’s NRO account.

What types of services can be provided by a resident individual to his / her nonresident close relatives?

A resident may make payment in rupees towards meeting expenses on account of boarding, lodging and services related thereto or travel to and from and within India of a person resident outside India who is on a visit to India. Further, where the medical expenses in respect of NRI close relative are paid by a resident individual, such a payment being in the nature of a resident to resident transaction may also be covered under the term “services”.


HUF and Financial Planning

hindu undivided family

Importance of HUF

As per Hindu Law, a Hindu Undivided Family (HUF) is a legal term related to the Hindu Marriage Act and consists of a family consisting of all lineal male descendants of a common ancestor and includes their wives and unmarried daughters. Hindu Undivided Family (HUF) has been granted the status of an independent tax entity. Thus, an HUF has assumed a useful role in personal financial planning.

Let us first understand the structure of a HUF. A HUF consists of “Karta” , “Coparcener” and “Members”. A Karta is the senior most male member of the family. Only the Karta has the right to manage the property and business of the HUF. He can enter into contract on behalf of the HUF and bind all the members to the extent of their share in the property / business. If Karta of the family passes away, his wife cannot become the Karta. His eldest son will take his place. If the chooses not to become the next Karta, he can give up his right and the next son in line can take his place.

Coparceners are all the other male members of the family. A Hindu coparcenary includes the sons, grandsons and great-grandsons of the holder of the joint family property. By virtue of their birth, they acquire an interest in the property. All the coparceners and Karta may authorise any one or more adult coparceners to manage the business. Such a person is known as “Manager”.

Female Coparceners: The Hindu Succession (Amendment) Act 2005 has given equal rights to male and female in the matters of inheritance as a result a daughter also acquires status of Coparcener. Some experts also believe that in absence of any male member or only/all male member(s) is/are minor, a female member can become Karta / manager of HUF after this act. The female members are also called members.

No Formal action is required to form a HUF. It automatically comes as soon as you are married. However, it is advisable to register HUF by furnishing a creation deed. But do remember that you cannot mention the property and assets under HUF in your Will.

Besides other things a HUF is useful in saving taxes. Under the Income Tax Act, a HUF is treated as a separate entity for the purpose of assessment. The income of a joint Hindu family can be assessed as the income of a HUF only if there is a coparcenary. and there should be a joint family ancestral property. HUF is regarded as a separate entity and can earn income from the following sources:

1.. Income from House Property
2.. Profits from business or profession
3.. Capital gains
4.. Income from other sources

Tax structure of a HUF is similar to an individual tax payer and thus is also eligible for the benefits u/s 80C and other such exemptions and benefits. The ways you can save taxes with HUF are:

Saving tax by getting gifts

Take gifts in the name of HUF. That way the gift will be treated as income of HUF and taxed separately. You can take Rs 50,000 as gift from strangers and dont have to pat tax on this Rs. 50,000. But actually it can go up to Rs 2.0 lacs which is the tax free limit of total income, You can claim the benefits of section 80C and thus you can have a total income of Rs. 3,00,000 and not pay any tax in HUF.

Assign ancestral properties and wealth to HUF and invest it

If your family is going to receive an ancestral property or any wealth, then it’s better to transfer it to your HUF so that whatever earnings happen in future in form of rental income or capital appreciation of assets becomes income of HUF and taxed in its own hands. This is yet another way to reduce your total tax liabilities.

Invest and make payments with HUF income

As HUF enjoys separate tax benefit and exemptions under sec 80C, 80D, 80G, 80L, 54, 54F, invest in life and health insurance for family, PPF, ELSS and other instruments from the income of HUF.

Pay Remuneration to Karta

One way to reduce tax is to pay remuneration to Karta and the members for their services rendered to the family business. This remuneration would be allowed as a deduction from the total income of the HUF.

Wealth Tax

As per Wealth Tax Act 1957, a HUF enjoys a distinct liability and thus have a separate exemption under wealth tax liability and other benefits u/s 5 of the wealth tax act.


I-T dept will “Name and Shame” the habitual tax defaulters

I-T dept to publish name of habitual tax defaulters

Name and shame habitual tax defaulters

The habitual ‘Tax Defaulters’ are going to get a lot of publicity soon. All thanks to the Income Tax department, who has decided to publish the particulars of ‘chronic’ tax defaulters.

The list will include defaulters who either have a huge outstanding tax against their name and are absconding / failed to reply back repeatedly to IT department notice / habitual evaders / defaulters whose assets are not identifiable. Such names will be published on the IT department website once the procedure and process of finalizing the defaulters and such cases is identified.

The department has noticed that while its public campaign asking taxpayers to pay their dues has had a positive result, yet there are select cases of ‘chronic’ and ‘persistent’ defaulters who needs to be put in public domain so as to obtain some information / leads in these cases.

The department ‘may’ upload on its website such cases on the lines of the ‘Wanted’ list uploaded by other agencies like police and  CBI. And those providing leads may get rewarded if IT department is able to recover any dues from the defaulter. On a later stage defaulters names may even get publish in print media.

The target of cash collection for the I-T arrears demands during the FY 2012-13 was fixed at Rs 41,115 crores. Out of this, a cash collection of Rs 13,432 crores has been achieved. Total collection of arrears for FY 2011-2012 has reached up to Rs 22,882 crores.


Interest rate cuts in Public Provident Fund, National Savings Certificate, Post Office Scheme

interest rate on ppf and other schemes in 2013

Interest Rate Effective 1st April’ 2013

Government has reduce interest rates on the popular small saving schemes by 0.10 %. The new rates will be effective from 1st April’ 2013, and would applicable for fiscal year 2013-2014. From year 2012, Government had decided to link the small savings returns with the market rate. The new rates for small saving schemes are announced at the beginning of financial year.

The rate of interest on PPF (Public Provident Fund) has been cut down from the previous 8.8 % to 8.7 % now.  The other popular scheme with investors is NSC (National saving Certificates). Effective 1st April’ 2013, you will earn 8.8% on NSC with maturity period of 10 years, and 8.5% on NSC with maturity period of 5 years. Till now the rates were 8.9% and 8.6% respectively.

Rate of interest on Senior Citizens Savings Scheme (SCSS) will  be 9.2 %, down from the earlier 9.3 %.

However, rates on savings deposit schemes and on fixed deposit of up to one year run by post offices has been kept unchanged at 4 % and 8.2 %, respectively. MIS (Monthly Income Schemes) of 5 year maturity will earn an interest of 8.4 %.

The finance ministry said G-Sec (Government securities) rates have fallen more sharply than reduction in small saving instruments and the Government is still trying to protect small investors. The average yield has been 8.2 % in the 10 yr Govt Bonds.


The most commonly asked questions on PPF (Public Provident Fund)


Public Provident Fund

PPF, Public Provident Fund, is a favorite investment avenue, thanks to the tax free, risk free and a good rate of interest. Here are some of the frequently asked questions regarding Public Provident Fund.

1.. Who can open a PPF account ?

A resident Indian Individual can open a PPF account on his or her own behalf and / or on behalf of a minor of whom he / she is the guardian.

2.. Can a NRI open a new PPF account?

A NRI (Non Resident Indian) cannot open a PPF account. However if a resident who subsequently becomes an NRI during the currency of the maturity period prescribed under PPF can subscribe to his/her account till maturity but cannot extend the account.

3.. Who can not open a PPF account ?

a ) NRI as explained above.

b ) Grand parents cannot open a PPF account on behalf of their minor grand children. However, in case of death of both the father and the mother of a child, their grand parents can open a PPF account in the capacity of the guardians of the minor grand child.

c) A ‘HUF’ or an individual on behalf of  ‘Association of persons’ can not open a PPF account.

4.. Can I open more than one PPF account ?

No. Only one PPF account can be maintained by an individual, except for an account opened on behalf of a minor child.

5.. How can I apply for PPF account : 

PPF account can be opened with a post office or with a bank. To apply for the Provident Fund account, you will have to fill a PPF account opening form, and enclose the following documents as per the KYC norms :

a ) Copy of address proof such as passport, voter id, recent Electric bill etc.
b ) Copy of Photo identity proof such as PAN card, voter id card, Driving license, Passport etc.
c ) Passport size photograph (1 or 2 copies depending on the institution).

6.. What is the minimum amount required to open a PPF account ?

Minimum amount required to open a PPF account is Rs. 500. The subscription into an account can be made in a single lump sum or in installments not exceeding twelve in a financial year.

7.. What is the minimum and maximum amount allowed in a PPF account ? 

An individual on his own behalf and on behalf of a minor of whom he is the guardian can subscribe with a minimum of Rs. 500 and a maximum Rs. 1,00,000/- (at present)  in a financial year. The ceiling on deposits as provided for by the Central Government from time to time is both for individual self account and account(s) opened on behalf of minor(s) of whom he is the guardian, taken together.

8.. What happens if I fail to deposit any amount in my PPF account ?

When an investor fails to deposit the minimum amount required in any year, such account is treated as discontinued. Till the account is revived, he can not take any loan or make any partial withdrawal from such account. Also no other PPF account can be opened in addition to the discontinued account.

9.. Can I revive the discontinued PPF account ?

A PPF account, if discontinued for some reasons, can be revived by making a payment of  Rs. 50/- for each year of default, along with the arrears, ie. Rs. 500/- for each default year.

10.. Can a PPF account be transferred ? 

Transfer of a PPF account from the post office or bank “Account Office” where it is held, to another post office or other branch of the same bank, or other authorized banks, “Account Office”, can be done.

A PPF account is not transferable from one individual to another. Similarly, the nominee cannot continue the account of a deceased subscriber in his own name.

11. What is the procedure of transferring the PPF account ?

A transfer form, along with the written application for such transfer, needs to be made to the bank or post office where the individual has the PPF account. After verification, bank / post office issues a new passbook with the past credit shown as balance transfer.

12.. What is the maturity period of a PPF account ?

The period of a PPF account is 15 years from the end of the year in which the account was opened.

13.. Can a PPF account continue with deposits after maturity ? 

After the maturity of the PPF account, an individual can exercise an option to subscribe for a further block of 5 years by submitting an application before the end of first financial year after such maturity. Partial withdrawals in the block periods shall be limited to one per each financial year and can not exceed 60% of the balance outstanding at the commencement of the block period. On completion of the first block period, an individual may continue to subscribe for further such block periods.

14.. Can withdrawals be made from the PPF account ?

Withdrawals can be made from a PPF account any time after the expiry of five years from the end of the year in which the initial subscription was made. A subscriber may, if he so desires, apply with his pass book to the ‘Accounts Office’  for withdrawal an amount not exceeding 50% of the amount that stood to his credit at the end of the forth year immediately preceding the year of withdrawal or at the end of preceding year, whichever is lower, less the amount of loan, if any, drawn by him and which remains to be repaid.

15 .. How many withdrawals can be made from a PPF account ?

No more than one withdrawal is permissible during any one financial year.

16.. Can a withdrawal is allowed from a minor’s PPF account ? 

Withdrawals from a minor’s account can be made subject to guardian furnishing a certificate stating that  “the amount sought to be withdrawn is required for the use of the said minor who is alive and is still a minor.”

17.. Can a PPF account continue without deposits after maturity?

A subscriber can retain the PPF account after maturity without making any further deposits. The balance will continue to earn interest. The subscriber is allowed to make one withdrawal of any amount from the PPF account in each financial year.

18.. Can nomination be made in PPF account ?

Nomination of one or more persons can be made to receive the amount standing to the subscriber’s credit in case of death. However in the case of a minor’s account, no such nomination facility is available.

19.. Can there be a change in nominations ?

Yes, changes to previous nomination(s) are possible by applying a fresh nomination(s). Every nomination and every cancellation or variation must be registered in the ‘Accounts Office’ and shall be effective from the date of such registration, the particulars of which shall be entered in the pass book.

A minor can also be made a nominee. In such cases where nominee is a minor, the subscriber may appoint any person to receive the amount due under the account in the event of the death of the subscriber during the minority of such nominee.

20.. What happens if the subscriber or a nominee dies ?

If a subscriber to an account in respect of which a nomination is in force dies, the nominee(s) may make an application to the ‘Accounts Office’ together with proof of death. If any nominee is dead, the surviving nominee or nominees shall, in addition to the proof of death of the subscriber, also furnish proof of the death of the deceased nominee.

Where there is no nomination in force at the time of death of the subscriber, the amount standing to the credit of the deceased after making adjustment, if any, in respect of interest on loans taken by the subscriber, shall be repaid by the ‘Accounts Office’ to the legal heirs of the deceased on receipt of application in required format along with the letter of indemnity, an affidavit, a letter of disclaimer on affidavit, and a certified copy of certificate of death of such subscriber.

21. Can I take loan  from my PPF account ?

A subscriber can avail a loan on his PPF deposit any time after the expiry of one year from the end of the financial year in which the initial subscription was made but before the expiry of five years from the end of the financial year in which the initial subscription was made subject to the limit of sum not exceeding 25% of amount that stood to his credit at the end of the second year immediately preceding the year in which the loan is applied for.

22.. How can we repay the loan taken from a PPF account ?

The principal amount of the loan is to be repaid by the subscriber before the expiry of 36 months from the first day of the month following the month in which the loan is sanctioned. The repayment can be made in one lump sum or in monthly installments. After the principal amount of the loan is fully repaid, the subscriber shall pay the interest amount in not more than two monthly installments.

23.. What is the rate of interest charged on a loan taken in a PPF account ?

Rate of interest is calculated at 2% above on the principal amount for the period commencing from the first day of the month following the month in which the loan is availed up to the last day of the month in which the last installment of the loan is repaid.

24.. Can a female change her name in the PPF account after her marriage ?

In the event of her marriage, a female subscriber can submit to change her surname by submitting documentary evidence of the same.

25.. Can a NRI repatriate withdrawals from PPF account ?

NRIs can credit the withdrawal proceeds from PPF account into the NRO account. And can remit from the NRO account as per the maximum amount permissible during the given financial year. You would need to follow certain procedure, as stipulated by the RBI, for such repatriation which are applicable for that year.

26.. Can the PPF account be attached ?

Yes, the PPF account can be attached by the Income Tax and Estate Duty authorities. However, the PPF act only gives the account holder immunity against attachment under a decree / order of a court of law.

27.. How much is the interest in PPF account ?

Now the most important question on the rate of  interest in the PPF account. Currently the rate of interest on a PPF account is 8.8%. The rate of interest is notified by the Central Government in official gazette from time to time, and is calculated for calendar month on the lowest balance at credit of an account between the close of the fifth day and the end of the month and is credited to the account at the end of each year.


What is the Cost Inflation Index ?

indexation benefit

indexation benefit for long term capital gains

You can save substantial amount of Income tax on your long-term capital gains arising out of selling your immovable property if you take advantage of the Cost Inflation Index.

Cost Inflation Index  is a measure of inflation, notified by “The Central Government” for the purpose of calculating long term capital gains on sale of assets. It is not available for short-term capital gains or  losses.

Section 48 of the Income-Tax Act defines the index as what is notified by the Central Government every year, having regard to 75 per cent of average rise in the consumer price index (CPI) for urban non-manual employees for the immediately preceding previous year.

Inflation reflects an erosion in the purchasing power of money. Indexation, while calculating the long term capital gains, helps us to counter the erosion in the value of the asset over a period of time. Cost Inflation Index is notified by the Central Government every year taking 1981-82 as base year.

Calculating Long Term Capital Gain with the help of Cost Inflation Index

A) Sale Consideration                                                                         xxx


B) Expenses incurred for transfer                                                       xxx

C) Indexed Cost of Acquisition
Cost of Acquisition * CII(Year of Sale)/
CII(Year of Purchase)                                                                         xxx

D) Indexed Cost of Improvement
Cost of Improvement * CII(Year of Sale)/
CII(Year of Purchase)                                                                         xxx

E) LTCG                                                                                              xxx

Table of Cost Inflation Index

Financial Year Cost Inflation Index
2012-2013 852
2011-2012 785
2010-2011 711
2009-2010 632
2008-2009 582
2007-2008 551
2006-2007 519
2005-2006 497
2004-2005 480
2003-2004 463
2002-2003 447
2001-2002 426
2000-2001 406
1999-2000 389
1998-1999 351
1997-1998 331
1996-1997 305
1995-1996 281
1994-1995 259
1993-1994 244
1992-1993 223
1991-1992 199
1990-1991 182
1989-1990 172
1988-1989 161
1987-1988 150
1986-1987 140
1985-1986 133
1984-1985 125
1983-1984 116
1982-1983 109
1981-1982 100


Understanding capital gains, exemptions and tax implications

Capital gains tax in india

Capital Gains

If you have sold a residential property, the income of which is chargeable under the head “Income from house property”, or transferred any other capital asset, then you are liable to pay tax on the capital gains.  Let us understand how the capital gains tax works.

Capital Asset means property of any kind (Fixed, Circulating, movable, immovable, tangible or intangible) whether or not connected with business or profession, subject to the following exclusions:

  1. Stock-in-trade

  2. Personal effects of the assessee

  3. 6½% Gold Bonds, 1977 or 7% Gold Bonds, 1980 or National Defence Bonds, 1980 issued by the Central Government

  4. Agricultural land in a rural area

  5. Special Bearer Bonds, 1991 issued by the Central Government and

  6. Gold Deposit Bonds issued under Gold Deposit Scheme 1999.

Depending on the period of holding and the asset class, the capital assets are divided into short term and long term capital assets. Both are subject to different tax rates. Lets first look at the definition of these two types of capital assets.

Short term capital asset means a capital asset held by an assessee for not more than 36 months immediately preceding the date of its transfer. However, in the following cases, an asset held for not more than twelve months, is treated as short-term capital asset :

  1. Quoted or unquoted equity or preference shares in a company

  2. Quoted Securities

  3. Quoted or unquoted Units of UTI

  4. Quoted or unquoted Units of Mutual Funds specified u/s. 10(23D)

  5. Quoted or unquoted zero coupon bonds

All other capital asset which does not fall into the above short-term capital assets are put in the category of long term capital assets.

For the tax purposes, the computation of both the capital gains are calculated on the following basis:

Computation of Short Term Capital Gains

Computation of Long Term Capital Gains

Full consideration


Full consideration


Less: Expenses on Transfer


Less: Expenses on Transfer


Net Consideration


Net Consideration


Less: Cost of Acquisition


Less: Indexed Cost of Acquisition


Less: Cost of Improvement


Less: Indexed Cost of Improvement


Short term capital gains


Long term capital gains


Less: Exemption u/s 54B/D/G


Less: Exemption u/s 54 to 54GB


Taxable Short term capital gains


Taxable Long term capital gains  NET


Indexed Cost of acquisition is calculated on the following basis:

Cost of acquisition * Cost inflation index for the financial year in which the asset is transferred / Cost inflation index for the first financial year in which the asset was held by the assessee or the year beginning on 1.4.1981, whichever is later or the year of Improvement of the asset

However, in case of Bonds, Debentures except capital indexed bonds depreciable assets, and for non-residents even if they are long term capital assets the benefit of indexation is not available.

Capital Gains Tax :

Capital asset

Transactions where STT -“Securities Transaction Tax” is paid

Transactions where STT – “Securities Transaction Tax” is not applicable / paid

Long Term

Short Term


Short Term

Without Indexation

With Indexation

Listed Equity Shares





Applicable Tax Slab

Unlisted Equity shares





Applicable Tax Slab

Listed Debentures





Applicable Tax Slab

Unlisted Debentures





Applicable Tax Slab

Equity oriented mutual funds





Applicable Tax Slab

Non – equity oriented mutual funds





Applicable Tax Slab

Immovable Property





Applicable Tax Slab


Saving Capital Gains Tax:

Short-term capital gain is necessarily taxable and cannot be avoided. On the other hand, depending upon the asset, tax on long-term capital gain can be saved by making investments in specified instruments and assets. For example, long-term gains from sale of a residential house may be saved by investing the capital gain amount in another residential property, either one year before or within two years of date of sale or  investing the capital gain amount (from any asset, whether residential house property or not) in bonds under sec. 54EC  Lets look at such available exemptions:

Exemption available for long term capital assets:

Depending upon the nature of the capital asset and the manner of utilization of the consideration received on transfer, various exemptions are available u/s 54, 54B, 54D,54EC, 54F, 54G and 54GA of the Income-tax Act. You are allowed to avail exemption from the long term capital gains as per the following provisions:

Long Term Capital Gains
u/s 54 u/s 54EC u/s 54F
i  Assessees Eligible Individual and HUF Any person Individual and HUF
ii Eligible Assets Long Term Capital Assets, being House Property used for residential purpose. This property must be held for a period of not less than 3 yrs. Long Term Capital Asset. Residential property must be held for a period of not less than 3 years. Any Long Term Capital Assets other than a residential  property. However the assesse must not own more than one residential property.
iii Investment in new assets to be made. Residential property Specified bonds of NHAI / REC Residential property
iv Condition for acquiring of the new assets Purchase of a residential property within 2 yrs from the date of transfer, Or within 1 yr prior to the date of transfer, Or construction of a residential house within 3 yrs from the date of transfer Six months from the date of transfer Purchase of a residential property within 2 yrs from the date of transfer, Or within 1 yr prior to the date of transfer, Or construction of a residential house within 3 yrs from the date of transfer
v Amount Exempted Lower of investment made in the new assets or the amount capital gain Amount of investment made in the new assets or capital gain, which ever is lower, subject to a maximum amount of Rs. 50 Lakhs in a financial year Investment in the new asset / Net sale consideration X capital gains. If cost of new house is more than the net consideration of original asset then the whole of such gains are exempted


The following points must be kept in consideration :

  1. In case the new asset is transferred before the completion of 3 yrs from the date of purchase or construction, such Capital Gains exempted earlier will become chargeable to tax in the year of transfer of new asset.

  2. In order to avail the exemption, such gains are to be reinvested, w

    ithin six months or before the due date of return (which ever is earlier). If the amount is not so reinvested, it is to be deposited on or before that date in account of specified bank/institution and it should be utilized within specified time limit for purchase/construction of new asset.

    Cost of long term specified asset, which is considered for the exemption under section 54 EC, should not be eligible for deduction u/s 80 C, i.e., investment made in such bonds u/s 54 EC is not eligible for deduction u/s 80 C.

  3. U/s 54F Capital Gains exempted earlier shall be chargeable to tax —

    a) If the assessee purchases within 2 yrs or constructs within 3 yrs any residential house other than the one in which reinvestment is made &

    b) If the new asset is transferred within a period of 3 years from the date of its purchase/construction.

Capital Gains account Scheme :

If your want to buy a new residential house property with sale proceeds of your house property sold, but  are unable to purchase it by the time you file your income tax return, you have to deposit the money in a Capital Gains Scheme Deposit Account (CGSDA), available with most of the public sector banks, in order to claim the benefits of Sec 54.

The amount deposited in a CGSDA has to be utilized for buying a new house within 3 years. If a new house is not purchased within 3 years using this amount, the entire amount is treated as long term capital gain for the previous year. And if only a part of the amount is spent in purchasing a new house, the remaining balance amount is treated as long term capital gains for the previous year.


Budget 2013 — Highlights for you

simplifying budget 2013

budget 2013

Want to know in brief about the budget 2013. Here are the highlights of the budget in simple words.

1.. Income Tax Slab : There is no change in the Tax slab. However an individual with an income of Rs. 5,00,000 will get a tax credit of Rs. 2000/-. Thus if your net tax payable is Rs 10,000, your liability will be limited to Rs 8,000 only. In other words, if your income is less than Rs. 5,00,000, your basic threshold limit for tax trigger now effectively stands at Rs. 2,20,000/-.

2.. Earning more than 1 cr. : If you are those lucky 42,800 tax payers in India, who are earning more than rupees one crore, then you will have to pay an additional one time surcharge of 10% for the FY 2013-2014. This will be in addition to the education cess paid on total income-tax.

The impact of surcharge will be contained by marginal relief, which means that the surcharge can not be in excess of income that exceeds Rs. 1 cr. Thus if your taxable income is Rs.1,00,05,000, your total tax liability will increase by Rs.5,000 only and not Rs. 2,90,000.

3.. Interest on home loan: If you take a housing loan of a maximum Rs 25 lakh this year, you can claim an additional tax break of Rs 1 lakh on interest payment. This is in over and above the current limit of Rs 1.5 lakh. But it is subject to the following conditions:

a) The amount of loan sanctioned for acquisition of the residential house property must not exceed Rs. 25 lakh.

b) The value of the residential house property must not exceed Rs. 40 lakh.

c) Loan should be obtained from bank / home finance institution and must be sanctioned during the period beginning 1st April, 2013 and ending on 31st March, 2014.

d) The assessee should not own any other residential house property on the date of sanction of the loan.

e) If the interest payable is less than Rs. 1 lakh, the balance amount can be allowed in next assessment year.

4.. Rajiv Gandhi Equity Saving Scheme (RGESS): Now an individual with an income of up to Rs. 12 lakh can invest in Rajiv Gandhi Equity Saving Scheme (RGESS). Earlier only those with income of Rs 10 lakh and less could invest in the scheme. This scheme is available to the new retail investor who acquires listed equity shares / equity oriented mutual funds in accordance with the scheme.

It is further proposed to provide deduction for three consecutive years, beginning with the year in which the listed equity shares or listed units were first acquired by the new retail investor.

5.. Tax free bonds: You can soon look forward to more tax-free bonds. The finance minister has permitted some institutions to issue tax free bonds in 2013-14 for up to Rs 50,000 cr. Some institutions are expected come with tax free bonds soon.

6.. Inflation indexed bonds: And if you are worried about the inflation eating into your savings, then their is a good news for you too. There shall be a an announcement soon on “Inflation Indexed Bonds” and “Inflation Indexed National Security Certificates”.

7.. Fewer hassles to buy life insurance: Finance minister has also made it clear that ‘know your client’ (KYC) requirement once fulfilled for a bank, are enough to buy an insurance policy. Such a KYC compliant individual need not go through another such process conducted by insurance company.

Banks are also allowed to act as an insurance broker. Now banks can sell insurance of multiple insurance companies, instead of just one company. This further increases number of options for customers and help them move ahead in the financial world.

8.. TDS on transfer of immovable properties:  FM has proposed that every transferee / purchaser, at the time of making payment or crediting of any sum as consideration for transfer of immovable property (other than agricultural land) to a resident seller, shall deduct tax, at the rate of 1% of such sum. This amendment will take effect from 1st June’ 2013

9.. Securities transaction tax: It has been proposed to reduce Securities Transaction Tax (STT) for certain transactions such as equity futures on recognized stock exchanges (from 0.017% to 0.01%), redemption of equity-oriented mutual fund units (from 0.25% to 0.001%) and sale of equity-oriented mutual fund units on recognized stock exchanges (from 0.1% to 0.001%). STT of 0.1% levied on the purchaser of equity-oriented mutual fund units on stock exchange is also abolished.

And if you are a derivative trader in commodities market, you have to pay CTT at the same rate applicable to equity futures. There was no CTT earlier.

10.. Custom duty on luxury Cars: Basic customs duty on new passenger cars and other motor vehicles (high-end cars) costing more than US $ 40,000 and / or engine capacity exceeding 3,000 cc for petrol run vehicles and exceeding 2500 cc for diesel run vehicles has been hiked to 100 % from 75 % earlier.

Import duty on motorcycles above 800 cc will also go up from 60% to 75%. Duty on sports utility vehicles has also been increased from 27 % to 30 %, excluding those used for commercial purposes. Likewise, duty on yachts and similar vessels has also been raised to 25 % from 10 % earlier.

11.. Importing Gold:  Duty-free limit on imported jewellery raised to Rs 50,000 in the case of a male passenger and Rs 100,000 in the case of a female passenger.

12.. DDT on mutual funds: FM has proposed to increase dividend distribution tax (DDT) on debt fund investments for retail investors from 12.5% to 25%.
DDT is the tax that debt mutual funds pay on the dividend income that has to be distributed to its investors. Liquid funds now pay a DDT of 25% (exclusive of surcharge and cess). All other types of debt funds pay 12.5% (exclusive of surcharge and cess) on income distributed to retail investors.
According to the budget proposals for the year starting 1 April, DDT paid by all types of debt funds (liquid funds and other debt MFs) to retail investors will be 25%.

13.. Bank for women: India will start its first bank exclusively for women by October 2013. The government will provide initial capital of Rs.1,000 crore to get the venture going. It will lend mostly to women entrepreneurs, women self-help groups. and will employ predominantly women.

14.. Others:

a) Mobiles costing more than Rs. 2000 will get slightly expensive as the duty has been increased from 1% to 6%.
b) Increase on tax of payments by way of royalty from 10 % to 25 %.
c) Concessional rate of tax at 15 % for an Indian company on income received from its foreign subsidiary.
d) Increase in specific excise duty on cigarettes, cigars will make them a little costlier.
e) Set top boxes – Import duty increased – 5% to 10%.
f) Service tax will not be levied on A/C restaurants that do not serve liquor.
g) Investor with stake of 10 % or less will be treated as FII; any stake more than 10 % will be treated as FDI.
h) Fiscal deficit for current fiscal estimated at 5.2%.
i) GDP growth for 2013-14 seen at 4.8%.
J) Increased allocation in defence to Rs 2.03 lakh crore in FY 14.


Last date for filing Income Tax returns extended to Aug 31′ 2012

The government has extended the last date for filing of income tax returns for 2011-12 by a month. The Central Board of Direct Taxes (CBDT) has extended the ‘due date’ of filing of all returns for the Assessment Year 2012-13 to August 31, 2012. The last date of filing of returns was July 31,2012.

The board has also relaxed the compulsory e-filing of returns for representative assessees of non-residents and in the case of private discretionary trusts, if the total income exceeds Rs. 10 lakh. Considering the difficulties faced by agents of non-residents in electronically furnishing the returns, due to more than one agent for different transactions or a person in India may be an agent of more than one non-resident, now e-filing is no more mandatory for this category.

Salaried employees earning up to Rs 5 lakh a year need not file income tax returns from this year provided the total income of the employee does not exceed Rs 5 lakh and also the annual interest earned from savings bank account must be less than Rs 10,000. But in case one wishes to claim the tax refund then filing of return is necessary. The e-filing of returns for Hindu Undivided Family (HUF) has been made mandatory.


Salaried employees with an annual income of up to Rs 5 lakh are now exempted from filing income tax returns for FY 2011-1

In a statement issued by the Govt. this week, Salaried employees with an annual income of up to Rs 5 lakh are now exempted from filing income tax returns for FY 2011-12 provided they don’t have any other income.

Individuals having interest earnings from savings bank deposits are also exempted from filing returns if the interest component is less than Rs 10,000 a year. The total income of Rs 5 lakh means gross income of an employee after deductions. The exemption has been made conditional to an employee having provided his PAN to his employer and all interest income from savings account reported before Form 16 is generated.

Exemption to file returns also applies to those whose tax liability has been taken care of by the employer and deposited to the government through Tax Deducted at Source deposits. In case an employee has tax refund claim, he will need to file returns. The exemption will also not apply to those to whom the tax authorities have issued notice to file I-T returns.


How to survive in these uncertain times

uncertain financial markets

how to survive in these uncertain times

Everyone is worried about their money and wondering what to do with their money and investments in these uncertain times when there are inflationary pressures, economic gloom and choppy equity markets. Global markets are hostage to political actions (remember Greece) as well as facing its own structural headwinds from deleveraging. Sensex is down on concerns about global growth, rising local debt, fiscal and current account deficits, high inflation ranging 8-9% and slowing GDP. Policy paralysis at the government level is now talk of the town and, more recently, the INR has declined and is now trading at its historical lows. High salaries are becoming hard to justify and Job promotions are held up. And now Fitch Ratings cut its credit outlook for India to negative from stable, nearly two months after rival Standard & Poor’s made a similar call, citing risks that India’s growth outlook could deteriorate.

Concerns are genuine, but we must ensure that we do not panic and survive these times. We need to review our portfolio, revisit our strategies and plan our future course of action.

Lets look at the areas where your money is parked right now and how you can prevent loosing it.

1.. Equity based mutual funds

Investment in Equity and Mutual Funds must always be for the long time. The markets at this juncture could loose another 20% or gain another 20% in 2012-2013. Stick with funds that have high Sharpe ratio. Avoid sector funds. It is advisable to invest in diversified large cap. Mid cap will be more volatile in next one year and might take more beating if the markets fall. Though they are also the one who might get you better returns if the market rise from here, yet might want to wait for some time to get into these.

One common mistake investors do is to invest in mutual funds that were on the top last year. Getting a couple of percentage points more last year is not much of a consolation if the gains of the last three to 5 years get are not up to the mark. Look at the consistent performers, even if they are not on the top always.

Investors who are investing through SIP should continue with it. That allows them to buy more units at lower NAV and thus average out their purchase price. If you do not want to take any risk than invest in an income fund and regularly transfer a fixed smaller amount to an equity fund.

2.. Debt funds

You are loosing money here also. With high inflation the real rate of returns in some cases is even negative. And now fund houses such as SBI, JP Morgan and Principal have either introduced or have increased exit loads ranging between 0.15 – 0.5% on early exits on fixed income funds.

Study the type of debt fund you have. It is likely to be primarily based on the time duration where you have ultra short term funds, short term funds, income funds (for long duration) or the dynamic bond funds, which can go across duration. While investment in equities are advisable for the long time, you must choose investment in debt funds as per the time horizon and underlying objective.

Funds holding a portfolio of bonds with longer maturities see more price fluctuations due to the change in interest rates with the underlying portfolio suffering the most on mark-to-market valuation. This can be seen in the performance of debt funds wherein long-term debt and gilt funds have shown relative underperformance compared with their short-term counterparts.

The rising interest rates augured well for debt investments that offered fixed maturities, considering these are held until maturity and do not bear any mark-to-market risk. That was the reason fixed maturity plans have been in the reckoning of late due to their investment in fixed-income instruments such as certificates of deposit, the rate on which has moved up to almost 10% from 5% last year. Since these funds invest into deposits maturing in line with the investment horizon of the fund, there is no mark-to-market risk involved.

We can expect the benchmark rates to gradually start coming down, thus the market rates will also come down. That will have an impact more on the short term interest rates than the long term rates. So the strategy should be to stay invested, have a short term kind of scheme maturing in the next two to three years rather than a long term scheme of say 6-10 years.

3.. Equity Market

Indian markets have performed badly compared to its peer in Asia and emerging markets. S&P and Fitch have cut down Indian ratings and GDP estimates, inflation is still a concern and IIP data is disappointing, FY11-12 Q4 results were moderate with continuing weak margins. Rupee has depreciated and FIIs have sold heavily. The elections in Greece came in favour of the markets, but the renewed fears over Spain’s increasing borrowing costs due to the rise in the bond yield is again keeping the markets worried

Looking at sectors, banks are under pressure because of falttish rate environment, steady margins, poor asset quality and rising credit costs. IT industry though looking positive in long term is unlikely to spark in 2012. Though unlikely, if the inflation falls at a fast rate and rates are lowered than expected this year, it might have a positive impact on infrastructure, auto and construction sector.

All these will ensure that the markets will remain volatile for some time now. However, there is silver lining here. The current market conditions give ample opportunity to stack up bluechip companies with strong fundamentals and attractive valuations. Do not look at timing the market. Start picking up stocks value at current levels. Sell those stocks which has management issues or where the competition, with in the industry, is performing well but this particular company has continuing difficulty in keeping up with the competition.

4.. Bank FD and other Fixed Income

Due to high inflation real rate of return in some cases was either very poor or was in negative. The steady increase of rates has been halted. We might see some rate cut in the coming months, if not sooner as indicated by the RBI. Thus stay invested if you have invested at the higher rates because you might not get these rates soon.

If you have no exposure to these instruments, start looking for the best rates available and park some funds for longer duration. Avoid callable bonds and NCDs as once interest rates fall, they wont give you the returns that you are enjoying today. Also avoid floating rate bonds where again the interest rates are likely to come down in the coming year.

5.. Unit Linked Insurance policies (ULIP)

Insurance are for a long time. Even though your agent told you about how you can withdraw your money in 3 to 5 years, it is never advisable. Most ULIPs have a load structure where charges are deducted in the first 2-3 years of the policy and it takes a little while before you can see the value of your fund going up. Treat these ULIPs as your friend for life. Keep investing for the entire period with an objective of using this money as Retirement Fund and marriage or education fund for your children. Besides the insurance cover that you are getting. But do not withdraw or surrender your policy, even if the agent ask you to do so repeatedly. If your policy has a feature of systematic transfer plan (STP), then utilize the same.

If you are thinking of buying a fresh ULIP for you or your kid, then look at online term plans. They come real cheap and get you bigger insurance cover at a low price, while invest the amount systematically into other various asset class to build up a target corpus.

6.. Precious Metal

Trading at almost Rs. 30,400 per 10 gm, Gold has broken its previous records in the Indian Market. After hitting Rs. 75,000, silver has been trading in the range of Rs. 53,000 to Rs. 55,000 for quiet some time now. European crisis, choppy market and depreciating rupee has made investors run towards Gold. It is a good asset class, especially when there are uncertainties in the market.

It is advisable that you continue holding on to Gold and Silver. But in case you wish to invest further into it than invest only if you are looking at only one year horizon or if you do not have sufficient investments in the Gold. Silver has always been volatile, but is looking attractive at these levels. Invest in Silver only if you can withstand the volatility and stay invested for a long time. If you are concerned about the purity, ease of buying/selling and safety of holding gold in physical form then you can look at investment in the e-gold from National Spot Exchange (NSEL) or a Gold ETF.

7.. Real Estate

You have been waiting for the loan rates to come down before you invest in the property, whereas property prices at most places are steadily moving upward. If you have been delaying your decision than it was of worth no use.

Invest in property before it reaches out of your current budget. There will never be a right time or the best price. Even at today’s rate you will find that you had invested at a good value. The properties prices are unlikely to come down, unless we see real worse economic situation. Look at smaller or even studio apartments if you have budget constraints. Go for home loan. But see your monthly income and expenses before deciding on your loan amount. It must not put unnecessary burden on you. Loan will save you taxes on principal as well as on interest payment. Look at the builders and projects which have the track record of delivering in promised time.

8.. Loans

If you have surplus or can manage for a little while than go for repayment of loan. Even partial repayment of loan shall do. After a little while you will find the RBI softening the rates. Consider migrating to the lender who will offer you loans at lower rate at that time. If you are buying a car, evaluate leasing as an alternate option. Though the decision to lease or buy will always depend on your personal circumstances. If your objective is to get rid of annoying little car payments and you actually want to take ownership, buying a car may be the best option. However, if your goal is to have a new car every few years and also minimize your monthly costs, then leasing a car may be a good option.

Lessons to be learnt

Firstly never panic. And must not take any decision in haste. Study your investments well before signing on the dotted lines. Understand the risks associated with the asset class. There must also be enough flexibility so as to move in and out of the same, in case you have to. Have some buffer, especially if the goals are short term.

Always have a balanced portfolio. Look at your risk appetite. And spread your risk over various class of assets. Even in the same asset class never put your entire eggs in one basket. Revisit your portfolio at regular intervals. Exit those investments that have gone wrong or are not in sync with market or your goals. For example, if you are invested in equities and have a long term goal, stay invested even if the markets are down for some time, subject to the companies you are invested in are fundamentally strong. Rather than selling or waiting for markets to move up, invest when the markets are down.

Encash the opportunities. Explore the cheaper or better options available and migrate from the existing ones. Like if the FD rates are high switch from the older ones. And when rates soften, migrate from the higher loans.


The Online submission of ITR-1 (SAHAJ) and ITR-4S (SUGAM) for AY 2012 -2013 has been enabled

The Online submission of Tax Return, ITR-1 (SAHAJ) and ITR-4S (SUGAM), for Assessment Year 2012 -2013 has been enabled. One can log in at for the same.

You can also view your Tax credit statement (Form 26AS) in the my account section before filing your e-return.

Download the excel format of ITR-1 (SAHAJ) and ITR-4S (SUGAM) here :


Interest rates on small saving schemes wef 1st April 2012

The Government of India has revised the interest rates on small savings schemes on the recommendations of the Shyamala Gopinath Committee which had suggested linking of interest rates on small savings with that of the market, and an annual revision of such schemes.

The new rates will be effective from April 1, 2012 and will remain valid during 2012-13.

Interest rate on PPF has been increased by 0.2 % to 8.8 %. EPF rates stands at 8.25 %.

NSC (National Savings Certificates) with maturity of 5 and 10 yrs, up by 0.2 % each, will give 8.6 % and 8.9 % respectively.

The rate for SCSS (Senior Citizens Savings Scheme) has been hiked to 9.3 % from 9 % at present.

Interest rate for 3 year time deposits has been increased from 8 % to 8.4 %. Similarly, interest rate on 5 year time deposit has been raised from 8.3 % to 8.5 %.

The 5 year recurring deposits will get you an interest of 8.4 % as against 8 % at present.

There has been no change in the savings deposit rate which has been retained at minimum of 4 %.

Quick Reckoner:

w.e.f. 1.4.2012
Savings Deposit
1 year Time Deposit
2 year Time Deposit
3 year Time Deposit
5 year Time Deposit
5 year Recurring Deposit


5 year SCSS
5 year MIS


5 year NSC

10 year NISC




DTC rates proposed to be introduced for personal income tax.

Income Tax Exemption limit for the general category of individual taxpayers proposed to be enhanced from Rs. 1,80,000 to Rs. 2,00,000 giving tax relief of Rs. 2,000.

Upper limit of 20 per cent tax slab proposed to be raised from Rs. 8 lakh to Rs. 10 lakh.

New Income Tax Limits

Upto Rs. 2,00,000 for General category (Both men and Women) – Nil

(This limit is Rs. 2,50,000 for senior citizens)

Rs. 2,00,000 to Rs. 5,00,000 – 10%

Rs. 5,00,000 to Rs. 10,00,000 – 20%

Rs. 10,00,000 onwards – 30%

Proposal to allow individual tax payers, a deduction of upto Rs. 10,000 for interest from savings bank accounts. Other bank deposits like FD will not attract this clause.

Proposal to allow deduction of upto Rs. 5,000 for preventive health check up. This is within the overall limits of Rs. 15,000 u/s 80 D.

Tax saving u/s 80CCF for investment in Infrastructure bonds abolished for FY 2012-13.

Life Insurance deduction available only if premiums are below 10% of Sum Assured. Tax exemption u/s 80C shall apply only to the Insurance policies where the premium or other payment made on an insurance policy, other than a contract for a deferred annuity, does not exceed 10% of the actual capital sum assured.

Senior citizens not having income from business proposed to be exempted from payment of advance tax.

Securities Transaction Tax (STT) reduced from 0.125% to 0.1%

As per the new sub-section (5D) to Section 80 G any payment exceeding a sum of Rs. 10,000 shall only be allowed as a deduction if such sum is paid by any mode other than cash.

TDS @1% at the time of real estate sale above 50 lac. If you sell your any kind of property / real estate, and if the selling price is more than Rs. 50 lacs, you will have to compulsorily pay TDS @1% , even though after indexation and your decision to use the funds in next house purchase, your overall tax out of the transaction might be Zero. In such cases where the tax is nil, you will have to claim that tax amount back by filing a return. Property registration at the registrar office will not be permitted without proof of deduction and payment of this TDS.

Exemption from Capital Gains tax on sale of residential property, if sale consideration is used for subscription in equity of a manufacturing SME for purchase of new plant and machinery.

The amount of duty free goods you can bring from outside India increased to Rs. 35,000 from the earlier Rs. 25,000 for adults and children above age 10.

Tax filing compulsory for any resident who holds a property outside India even if the taxable income in India is below the limit.

Rajiv Gandhi Equity Saving Scheme to allow for income tax deduction of 50 % to new retail investors, who invest upto Rs. 50,000 directly in equities and whose annual income is below Rs. 10 lakh to be introduced. The scheme will have a lock-in period of 3 years.

Proposed to levy 1 % excise duty on non-branded gold jewellery besides doubling import duty on gold to 4 %.

Proposed that jeweller should collect 1 % tax from every buyer if sale consideration exceeds Rs. 2,00,000 in cash.

Branded silver jewellery has been fully exempted from excise duty.

Turnover limit for compulsory tax audit of account and presumptive taxation of SMEs to be raised from Rs. 60 lakhs to Rs. 1 crore.

Proposal to extend the levy of Alternate Minimum Tax to all persons, other than companies, claiming profit linked deductions.

Tax proposals for 2012-13 mark progress in the direction of movement towards DTC and GST.


GDP is estimated to grow by 6.9 % in real terms in 2011-12, after having grown at 8.4 % in preceding two years. India however remains front runner in economic growth in any cross-country comparison.
India’s GDP growth in 2012-13 expected to be 7.6 per cent +/- 0.25 per cent.

Fiscal deficit at 5.9 per cent of GDP in RE 2011-12.

Fiscal deficit at 5.1 per cent of GDP in BE 2012-13.


Interest rate on EPF savings for 2011-12 slashed down to 8.25%

The interest rate on Employees Provident Fund (EPF) savings for 2011-12 has been slashed down to 8.25% from earlier 9.50%, which will leave many salaried employees with lower returns on their retirement savings. The 1.25 per cent cut in the interest rate is the single largest rate cut in over a decade.

The Employees Provident Fund Organisation (EPFO) had provided a 9.5 per cent interest rate to its subscribers for 2010-11 after it found Rs 1,731 crore surplus in its books. But the reserves were not enough to support this rate hike of 1 %, forcing EPFO to dip into this year’s income to fulfil last year’s promise. A 5.7% error in its income estimates for 2010-11 led to a Rs 510-crore deficit that was funded from this year’s income.

The interest rate on PPF (Public Provident Fund) remains unchanged at 8.6 %. Risk-free bank fixed deposits are earning over 9.25% currently. However one cannot ignore the tax benefit on the interest income that EPF provides.


Should we invest in NHAI tax free bonds?

NHAI (The National Highways Authority of India) is offering 10 and 15 yr redeemable secured debentures carrying an tax free interest rate of 8.2% and 8.3% respectively. It is open to general public and institutions as well as non resident Indians. The interest payout will come to you every year on 1st Oct. The issue is open from December 28, 2011 to January 11 2012. Minimum investment is Rs. 50,000/- and then in multiples of Rs. 1,000/-. It carries a AAA/Stable rating by CRISIL.

These bonds will not get any benefit of tax deduction u/s 80C or 80 CCF. These can be traded in stock exchanges. Hence, if you choose to sell them in the market, you will incur capital gains tax similar to other listed debt securities.If sold within one year of purchase, it will attract short-term capital gains tax. And if sold after a year, it will attract long term gains @ 10% without indexing the cost. But if held till maturity, there will be no tax liability.

For individuals in the highest tax bracket of 30.9%, the 10-year 8.2% tax-free bond gives an effective return of about 11.87%, and the 15-year 8.3% bond 12.01%.

However if you compare investing in NHAI bonds with Fixed Deposits, we recommend you go for FDs because of following reasons…

1) Interests from NHAI bonds will come to you every year and will not be reinvested back in the bonds. That means unless you are looking for periodic payout or would be very disciplined in investing back the annual payout in some other instruments, you will be loosing out the opportunity of compounding effect and reinvestment of interest amount.

2) Assuming, you are able to reinvest the interest amount from NHAI bonds back into some other instrument, with 7%-8% coupon, every year for 10 years, the net yield will still be less than investing in FDs with 9.25% taxable interest for the same period. The only exception is if you fall in the 10% tax bracket, you might gain investing in NHAI bonds rather than FDs.

So in nutshell, invest wisely and invest in NHAI bonds only if you fall in the tax bracket of 10%, or less or if you are sure that you will reinvest your money back into some other instrument.



Mistakes we should not make with our money

There are some financial mistakes we should not make, especially during these uncertain times. Some of the mistakes can cost a lot of damage, immediately and over a period of time on your financial health.

Holding back your investment decisions
Dont wait till tomorrow to start investing. In fact this is perfect time to start investing gradually. With whatever money you have. Best is to start with a SIP (Systematic Investment Plan).
Stock markets have corrected nearly 20% from its peak. And bank fixed Deposit (FD) interest rates are on average 9.5% to 10%. So pick your stock, best mutual fund and other financial instruments as per your risk appetite, time frame and investment objective.
Start investing for future. If you do not do it now, the best times will run out soon.

Spending more than you earn
So you cant avoid the temptation of upto 50% off. It does make sense if you prepone your purchases and save some money during the festive discount period. But what if you buy stuff which you actually do not NEED, and empty your pocket.
Most of our financial problems start when you spend more than you earn. You become an impulsive buyer and start spending on just about everything by taking loans.

Have a budget for almost everything. And keep a track on what you spend, and what you earn, so that you get a fair understanding on what you have and where your money is going.
Do not avoid taking tough decisions. If you have to cut down on some expenses this month because you overshot your budget last month, Do So.

Defaulting on loans
Do not default on your loans. Defaulting on loans will impact your credit rating. And it will impact your future credit standing for taking loans.
And if you default on your credit cards, you will not only downgrade your credit rating, but you might also be charged upto 38% annually on your outstanding amounts on credit card. Some times it is not so easy to discuss discuss with your spouse on the necessity of cutting down on expenses. But you have to do it. For a better tomorrow for both of you.

Feeling Poor
Stop feeling poor or sorry about yourself. If you feel that the world is conspiring to make you poor, it is likely to come true. Start thinking good about your money, finances and future. The tomorrow will be much better than today.

And lastly do not forget to review your financial standing on a regular basis. If not more, than atleast once a year. You may find a shift in your risk profile, some avoidable expenses and better investment opportunities.


Infrastructure Bonds (u/s 80CCF) IFCI and L&T

There is an additional opportunity for you to save tax on Rs. 20,000/- of taxable income by investing in Infrastructure Bonds u/s 80CCF. This is over and above the limit of Rs. 1,00,000/- of investments that qualify for tax rebate u/s 80C. An investment of Rs. 20,000 would get you maximum tax exemption of Rs. 2,060/- (if your current tax rate is 10.3%), Rs. 4,120/- (if your current tax rate is 20.6%) and Rs. 6,180/- (if your current tax rate is 30.9%).

IFCI (Sr IV) and L&T (2011 B Series, Tranche-1) has come out with their public offering of Infrastructure bonds u/s 80CCF. L&T Infrastructure bonds have slightly better rating than IFCI.


The bonds have a face value of Rs. 5000. A minimum of one bond applications is to be made, and in multiples of one bond thereafter. The bonds have a maturity period of 10 years or 15 years (depending on the series) and an initial lock in period of 5 years.

There are 4 options of investment in these bonds.
Series 1: Offering 9.09% cumulative coupon with a maturity of 10 years and a buyback after 5 years.
Series 2: Offering 9.09% annual coupon with a maturity of 10 years and a buyback after 5 years.
Series 3: Offering 9.16% cumulative coupon with a maturity of 15 years and a buyback after 7 years.
Series 4: Offering 9.16% annual coupon with a maturity of 15 years and a buyback after 7 years.

The issue is currently open and closes on 16th January, 2012.


L&T offers two series. Series 1 has interest rate of 9% payable annually. Series 2, the interest rate is 9% but compounded annually payable at the end of maturity. The maturity is 10 years from the deemed date of allotment. At the end of 10 years, the maturity amount shall be Rs. 2367.36 for every Rs. 1000/- invested.

The bonds have lock in period of 5 years from the date of allotment. It has three exit options which includes buyback after 5 years, or 7 years, and 10 years (which is at the time of redemption). If you go for buyback option after 5 years, you will get Rs. 1,538/62, and after 7 years you will get Rs. 1,828/04, for every Rs. 10,000/- invested.

The issue is currently open and closes on 24th of December, 2011.

If you fall in the tax slab of 30.90%, the effective yield on the 10 yr L&T bonds shall be 13.02% ( taking into consideration the amount of tax you save), whereas for 10 yr IFCI bonds the effective yield shall be 13.26%.

Both the bond are proposed to be listed on the BSE. After the lock in period of 5 years, trading is permitted, but in dematerialized form only. HUF can also apply for these bonds under the name of Karta. Documents required are:
1) Self-attested copy of PAN card.
2) Self-attested copy of residence proof.
3) Canceled cheque of the bank account to which the amounts pertaining to payment of refunds, interest and redemption applicable is to be credited.

Kindly note that if you need funds in the interim period, you cannot pledge or hypothecate these bonds and and there is no exit before the lock in period.


Small Saving Schemes to earn higher returns

From 1st Dec 2011 you will be able to enjoy higher returns on your small saving schemes. The rate of interest paid under the Post Office Savings Account has been increased by 0.5% to 4%. MIS (Montly Income Scheme) will get you 8.2% and PPF will get you 8.6%, an increase of 0.6%.

Also, the annual ceiling on investment under the Public Provident Fund (PPF) has been increased from Rs. 70,000 to Rs. 100,000. NSC’s will be for 5 and 10 years now, and the interest will be 8.4% and 8.7% respectively. The Government has decided to discontinue Kisan Vikas Patra (KVP’s).

The Government borrows money from a pool of small savings to finance its deficit, but for the current fiscal year the finance ministry had to resort to higher than budgeted market borrowings by as much as Rs. 530 billion as there were insufficient funds in the National Small Savings Fund. Rising interest rates has led to more people parking money in bank deposits rather than small savings like the NSC or the PPF.

This move will make more cash available to Government who is running low on the funds this year.


What is FMP (Fixed Maturity Plan)

A FMP (Fixed Maturity Plan) is a close ended, fixed income fund that has a predefined maturity date. A FMP typically invests in Debt instruments like securities issued by the Government of India (GILTS), Debentures, Commercial Paper and Certificate of Deposits. FMPs typically have no equity component. As investments generally do not flow in or out during the tenure of the scheme, a FMP is able to give fair idea on the expected returns. One must keep in the mind that the returns in FMPs are not guaranteed.

One can invest in FMP at the time of its initial launch only and redeem them only on maturity at a pre-stated period. However post listing most of the FMPs are traded on the stock exchange and thus provide some liquidity to the investor.

FMPs are tax efficient, both in short term as well as long term. There is a long term capital gains tax at either a rate of 10% without indexation or 20% with indexation (whichever is lower). And one can enjoy the benefit of double indexation if investment is held over two financial years. FMPs used to be in the investment domain of only large companies and HNI’s, but have now moved into general public domain.

The difference between FMP and FD are many, including, Tax treatment, in which FMP score better that FD. But FD offers fixed rate of return while FMP offers only expected rate of return. FMPs are also marginally riskier than FDs.


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