List of banks for your PPF investments

List of banks for your PPF investments

What is PPF?

Public provident fund is a popular investment scheme among investors courtesy of its multiple investor-friendly features and associated benefits. It is a long-term investment scheme popular among individuals who want to earn high but stable returns. Proper safekeeping of the principal amount is the prime target of individuals opening a PPF account.

Why open a PPF account?

A public provident fund scheme is ideal for individuals with a low-risk appetite and is okay to invest their money in the long term. Since this plan is mandated by the government, it is backed up with guaranteed returns to protect the financial needs of the masses in India.

Eligibility Criteria

Indian citizens residing in the country are eligible to open a PPF account in his/her name. Minors are also allowed to have a Public provident fund account in their name, provided it is operated by their parent.

Non-residential Indians are not permitted to open a new PPF account. However, any existing account in their name remains active till the completion of tenure. These accounts cannot be extended for 5 years – a benefit available to Indian residents.

Interest in a PPF Account

The interest payable on the public provident fund scheme is determined by the Central Government of India. It aims to provide higher interest than regular accounts maintained by various commercial banks in the country.

Interest rates currently payable on such accounts stand at 7.9% and are subject to quarterly updates at the discretion of the government.

How to Open a PPF Account

Both offline and online procedures are available for an individual provided he/she meets the requisite parameters mentioned in the eligibility criteria. Activating PPF online can be done by visiting the portal of a chosen bank or post office.

The following documents have to be produced at the time of activation of a public provident fund account –

KYC documents verifying the identity of an individual, such as Aadhaar, Voter ID, Driver’s License, etc.
PAN card.

Residential address proof.

Form for nominee declaration.
Passport-sized photograph.

Tax Benefits

Income tax exemptions are applicable on the principal amount invested in a PPF as an account. The entire value of an investment can be claimed for tax waiver under section 80C of the Income Tax Act of 1961. However, it should be kept in mind that the total principal that can be invested in one financial year cannot exceed Rs. 1.5 Lakh.

The total interest accrued on PPF investment is also exempt from any tax calculations.

Therefore, the entire amount redeemed from a PPF account upon completion of maturity is not subject to taxation. This policy makes the public provident fund scheme attractive to many investors in India.

List of Banks Offering PPF Accounts

Allahabad Bank
Corporation Bank
Bank of Baroda
HDFC Bank
ICICI Bank
Axis Bank
Kotak Mahindra Bank
State Bank of India and its subsidiaries which include the following –
- State Bank of Travancore
- State Bank of Bikaner and Jaipur
- State Bank of Hyderabad
- State Bank of Patiala
- State Bank of Mysore
Canara Bank
Bank of India
Union Bank of India
Oriental Bank of Commerce
Central Bank of India
Bank of Maharashtra
Dena Bank
Syndicate Bank
United Bank of India
Indian Overseas Bank
Vijaya Bank
IDBI Bank
Andhra Bank
Punjab National Bank
UCO Bank
Punjab and Sind Bank

These are some of the common PPF Account opening banks. There are other banks too and if you hold a savings account with another bank that is not on the list, you can find out whether the bank is a PPF Account opening bank or not.

A Fixed Interest Of 8.5% With Low Interest- Invest Now?

Hi fellow investors

Have you recently checked returns of debt investment options like Fixed deposits/Liquid Funds? I am sure you would have been very disappointed by the return numbers there. The approx interest from some of the popular debt investments today are::

1. Overnight/Liquid Debt Funds (Up to 90 days): 3.5% - 4.0%
2. Short term Debt Funds (1-3 yrs): 5.5% - 6.5%
3. Fixed Deposits (1-5 years): 5.5% - 6.5%
4. Bharat Bond ETF (5-year bond) - 5.46%
5. Public Provident Fund (PPF) (15 years) - 7.1%

Clearly, the returns have reduced by 3%-5% across different debts in the past few months and debt as an investment category doesn't look very attractive. With the latest inflation number hovering at 6%, our money invested in the above debt options barely covers the impact of inflation on our expenses.

What if I told you that there was an option to earn 8.5% per annum?

For salaried fellow investors, it is something you deal with every payslip; Employee Provident Fund (EPF), giving an interest rate of 8.5% (for FY 2020-21) which is not only risk free, but also tax free.

How can you make the most of it?

If you are a salaried individual and your company has a provident fund and you have not opted for EPF, you could opt for it as in the current market scenario no other debt investment is giving returns as high as 8.5% p.a.

1. Maximize your EPF Limit

If you are just contributing only INR 1,800 (the minimum required under EPF rules) towards your EPF account, you could consider increasing it making it to 12% of your basic salary. That way you can make the full use of the EPF limit available to you.

2. Invest as VPF (Voluntary Provident Fund)

Where you are already investing 12% of your Basic Salary towards EPF and want to invest more to earn 8.5% you have an option to increase your contribution in EPF by opting for VPF (Voluntary Provident Fund). You can invest an amount up to your entire 'Basic' salary with the EPFO and earn the same interest rate of 8.5%. Please note your employer is not obliged to match this higher contribution and hence, it is called a 'voluntary' provident fund.

Features of VPF that you must know of

It will earn you the same interest as your EPF i.e. 8.5% per annum (currently)
It will have a lock-in period of 5 to 10 years but you can withdraw for some specific reasons. Check out when can you withdraw from your EPF here.
Your employer will not match the contribution of your VPF unlike EPF
our contribution to VPF is eligible for tax deduction under section 80C.
The interest earned from VPF would also be tax-free (provided it is not withdrawn within the first 5 years).

So, if you have funds that you want to invest in risk-free investments and can park it for a while, (EPF + VPF) is a good debt investment option and can be mapped to your retirement goal.

How much should you invest in VPF?

We are not advising you to invest your entire salary as VPF and have no money to pay your bills or cover your short term goals. We also don't want you to miss out on your equity investments that result in wealth creation over the long run. You can compute how much to invest as your VPF as under:

For example, if your in-hand salary is INR 1,50,000 per month (A basic component of INR 50,000):

12% of your basic salary i.e. INR 6,000 would be invested as your EPF.
A matching amount of INR 6,000 will be contributed by your Employer.
If your monthly expenses are INR 100,000, you have a monthly savings of INR 62,000 (INR 50,000 + INR 12,000).

Now if you are looking to invest in VPF, the lower of the 2 parameters will help you compute the same.

Limit I:
Not more than 40% of your total portfolio holding should be in illiquid investments (Know about the step-by-step process to withdraw your EPF). You can ensure this by not contributing more than 40% of your monthly savings towards Illiquid investments.
Accordingly, 40% of your savings (INR 62,000) will be INR 24,800 out of which INR 12,000 is already invested as EPF. So the balance you could additionally invest is INR 12,800 as per this.

Limit II:
It should be considered as a part of the contribution you make towards your retirement goal. Now if your retirement goal requires you to invest 18,000 per month for the next 25 years to achieve your corpus to retire peacefully (based on Wealth Cafe Investing tool) and you are already investing INR 12,000 from the EPF, then only the balance of INR 6,000 should be invested towards VPF.

Limit III:
You are already investing INR 12,000 towards EPF. A maximum of another INR 38,000 can be invested by you in VPF.

Based on the above limits, INR 12,800 or INR 6,000 or INR 38,000 whichever is lower can be additionally invested in your VPF.

For simplicity sake, the above computation assumes that you are not investing your money in any other illiquid investments and are not saving for your retirement in any fund apart from EPF and VPF. If you are doing so, the amount invested in that could be reduced from the amount arrived at in Limit I & II above.

Another advantage of using the VPF route is that it is invested directly from your salary and then the balance salary comes to you, ensuring the consistency of your investments.

Do review your numbers and you will have to contact your HR/accounts team to start contributing to VPF. Let us know if you have any questions about this in the comments section of our blog.

Disclaimer: - The articles are for information purposes only. Information presented is general information that does not take into account your individual circumstances, financial situation, or needs, nor does it present a personalized recommendation to you. You must consult a financial advisor who understands your specific circumstances and situation before taking an investment decision.

Debt / Equity / Investments / Money tips / Salary - 07/15/2020

Be the champion of your Investments - A Liverpool Fan's Analogy

Hi fellow investor,

Date night discussions with my husband does belong to our goals or my travel plans but the evenings he gets a chance to contribute to our conversations (which is not rare), it is a detailed discussion on how sports can help you build character, release stress, and become a better strategist. For me, sports was always Cricket and Sachin (why not!); but this weekend I was celebrating the championship win of Liverpool Football Club (they won the domestic league after 3 decades) with my husband.

I am not a football expert; but yes, in the past one year, I have heard enough stories and 'force watched' some late-night matches with my husband to understand what this win means to him and in general to everyone who is a football fan. So along with one such discussion, we have together compiled this financial learning from the win of Liverpool and we hope that you will enjoy this too.

Learnings from the Liverpool championship after 30 years:

Planning & Strategy Is Most Crucial For Your Win
The player cannot just kick a football anywhere he wants - similarly you just can't get up and start investing your money anywhere you want. There are defined goals and strategies to put your money (like the ball) in the right asset classes. As they say - A goal without a plan is just a wish.

The way the Liverpool team transformed itself from very ordinary gameplay to a very possession and pressing-oriented gameplay with a purpose behind every move, and every player in the team has a specific role to play, similarly there is a definite role to be played by every asset in your portfolio and you should invest by maintaining your asset allocation and goals.

Some Championships Take Time
Don't jump ship after every loss - Liverpool, historically one of the largest and most successful clubs in the football world had to wait for 30 years to win a domestic league cup. They won the champions league last year making it 6 Champions League titles (a record number of Champions League by an English club). But they were just a point shy of a Domestic League last year which cost them the title (but that did not make me stop supporting the club). Finally, they made it happen this year!! So yes, at the face of it one may say 30 years too long but it is important to know what has happened right and wrong in these years.

Similarly, when you are investing, some of your best investments may give you unexpected loss in some years and you may tend to dump them. If you start selling with every sight of loss, your investments will not have enough time to compound and grow. Every decision to invest, stay, and sell must be made based on an appropriate analysis of the variations in the returns and your goals.

Focus On The Management Style
A new manager who took charge almost 5 years ago, brought about some gradual changes to the club for good, resulting in all the success the Club garnered in these 5 years.

Similarly, when you are investing in Stocks or Mutual Funds, a change in management (style of investing) can move your investments either towards good or bad. Hence, it's important to know about your managers, their style of investing, and whether that matches your expectations from the investment or not. It is not only numbers that show you performance but also non-financial things like the attitude and strategy of the management.

A Good Strategy May Take Time To Show Results
Give time to your fund managers/advisors - Jurgen Klopp took over Liverpool FC almost 5 years ago (in October 2015) and the first 3 years were only spent in organizing/ streamlining the team, picking up the right player to include in the squad and prepping them. There was not much belief then as compared to now. In the past year, Liverpool FC has won 4 major honors in football that made them the world Champions in 2020. But when someone with new strategies comes in we need to be patient about the kind of results they can show.

The same applies to our investments and advisors. No one holds a magic wand and it takes time to show results; in the right hands, there is a possibility of the results compounding over time and give the investors exponential returns. Don't go asking - 'Kitna returns milega?' as your first question to your advisors.
"Sometimes it is not about money, but rather the process of managing the money" - Anonymous

To sum up, have a plan for your investments and see them work towards that plan instead of letting time and circumstances let your goals fade away. Discuss the plan with your partners and family just like you discuss sports and movies. In the last year I learnt a lot about about football and Liverpool over the dinner table. But we never forget to sit and discuss our investments each month and review our statements because remember - You will never walk alone.

Investments / Money tips - 07/08/2020

How can I downsize my portfolio? - Part 2

Hi fellow Investors,

As discussed 2 weeks back (in our article - How many Mutual Funds should you have, an investor should not have more than 5-6 Mutual Funds in his/her portfolio. These should be restricted to 1 Mutual Fund scheme to invest in each Mutual Fund category based on your risk profile, goals, and other requirements. As a follow up to this, we told you that we shall tell you how to downsize/limit your portfolio to 5-6 Mutual Fund schemes.

The simplest way to do this is to first identify which Mutual Fund categories you need to invest in (based on your risk and goals) and identify the right schemes in each category (it is advisable to invest in schemes that are right for you and not look for the best schemes). This will give you your desired holding of Mutual Fund Schemes.

Once you have done that, it is important to take stock of mutual funds that you already have.

Make a list of all your investments in Mutual Funds. To do this, you can download your Consolidated Account Statement from CAMS Online. It will give you transaction wise details of all your mutual fund transactions provided you have used your existing email ID when doing the transactions. Otherwise, if you have an agent or use a platform for investing in mutual funds - you can ask them as well for a holding report.

Compare the existing holding of schemes with the list of desired holding schemes determined above.

SELL unwanted schemes

The way to downsize is to redeem the extra/unwanted schemes and invest the proceeds from the redemption into the desired mutual fund schemes. You can exit from some scheme and buy another scheme in the same category (hence, setting off your loss or gain). You will have to trim your portfolio to reduce it to 5-6 mutual fund schemes.

How should you decide what to sell?

Maintain your Asset Allocation
We always tell you to do this and this time around as well, it's the same solution. Your investments in various asset classes should be made to achieve the right allocation. Even with Mutual Funds, your split between Debt & Equity should be based on your asset allocation. You can read more on this here - https://financial.wealthcafe.in/how-should-you-invest-right-now/

% of your portfolio - Small value funds
You can choose to sell the schemes where the invested amount is low and they are only increasing the number of schemes you hold.

Underperforming funds
Analyze the performance of your invested funds and understand which are the funds you should have in your portfolio. Exit from risky funds and poor performing funds. This can be understood by checking the returns of your scheme with the underlying benchmark returns.
Currently, almost all your investments pre-march would be performing poorly, hence it is important for you to check funds past consistent performance and not just last 2 months' results.

Minimalism is the key to a cleaner and better portfolio as the reduced number of funds makes it easier for you to analyze your invested funds regularly and also, take a more informed decision with respect to your investments. Also, the cost of managing these funds is reduced.

Where you have just started investing, keep in mind that every time you want to invest more money, you need not invest that in a new mutual fund scheme. You can instead increase your SIP amounts in your existing schemes.

Consult an Advisor
Where you already have 15 - 20 Mutual Funds and are finding it difficult to select which ones to keep and which ones to let go, it is advisable to get the assistance of a financial advisor who will go through your risk profile and advise you exactly which mutual funds to hold and for how long. Where you need an advisor/financial planner for your specific financial needs, you can reach out to us at https://ria.wealthcafe.in/

Investments / Money tips / Mutual Funds - 07/01/2020

How Many Mutual Funds Should You Have? (Part 1)

This week I am back with some discussion around Mutual Funds. In one of my workshops, during our mutual fund's discussion, I had this one trainee ask me - So what's your number?

I stared at her for a while not knowing what I am supposed to answer to that. Well, she rephrased her question, 'What is the number of mutual funds you are invested in?' I said, '6 Mutual Funds'.She had the bewildered look on her face wondering how I had so fewer funds. I decided to show her my portfolio.

How many mutual funds schemes should you own?

Owning around 5-7 mutual fund schemes across various categories is enough. These many mutual fund schemes will help you diversify, do your asset allocation, and also map these investments to your goals. You can invest your savings in the mutual fund schemes as per the below categories:

Large Cap Mutual Fund (Equity)
Large & Mid-Cap Mutual Fund (Equity) (your ELSS tax saving schemes are generally a Large & Mid Cap Mutual Fund)
Mid Cap Mutual Fund (Equity)
Small-Cap Mutual Fund (Equity)
Thematic Mutual Fund (where you understand specific sectors and have a higher risk-taking appetite)
Short Term Debt Mutual Fund (For your short term goals)
Long Term Debt Mutual Fund (For your long term goals)

In addition to the above, I have one Liquid Mutual Fund where I park my Emergency Funds. You can park your Emergency Fund in a Bank Fixed Deposit as an alternative.

Why only 5-7 Mutual Funds?

When you invest in Mutual Funds, you already diversify your risk across the stocks of the companies a particular mutual fund has invested in. Hence, with a large-cap mutual fund, your risk is diversified across more than 70 stocks that particular large-cap mutual fund has invested in. Investing in three different large-cap funds is not going to reduce your risk further, it will only make your investment portfolio messy.

'Mutual funds investing is to diversify your risk and not to di"worsify" the same'.

Further, reducing the number of schemes to a minimum of 5 also reduces the cost of managing the same and the time that goes in keeping a track of it and analyzing it regularly.

What do I do when I have more savings to Invest?

Increase your investment in the existing mutual fund's schemes you own.
Investing in a new scheme every time you have extra savings will just lead you to own 15-20 mutual funds schemes with no plan in sight. Hence, it is important to do your due diligence and identify the mutual funds you want to invest in and stick to them.

Yes, you must review your schemes regularly to see how are they performing in various market cycles but know that all schemes will not give you the best results always. There are some time periods where mid-cap and small-cap schemes will do better, other times when large-cap schemes will outperform and sometimes your debt investments will be the best performer for the year. Hence, it is important to be diversified across categories.

'Every time I check for the best mutual fund scheme and invest in the ones that are on the top'

Studies have proven that selecting mutual funds based on high-performance track records is naive. The Star rating of various mutual fund keeps changing, a fund that is top rated in this one year, is hardly the top-rated fund in the subsequent years. Tim Courtney, a chief Investment advisor of US-based Burns Advisory did backtesting of past performance of the funds most highly rated, he found that they usually performed poorly after they have gotten 5 ratings. Hulbert financial digest, an investment newsletter found that if investors continually adjusted their mutual funds' holdings to hold only the highest-rated funds, a total stock market index would have beaten them by 45.8 % in the past decade (he studied funds from 1994 to 2004 in the USA). In fact over the years, it has gotten even more difficult to beat the markets and get alpha on your investments. - extracts from Millionaire extracts - How to build wealth living overseas by Andrew Hallam

Hence, just investing in top-rated schemes is not going to give you the desired returns but only make your portfolio messy and not even get you the best returns.

Wealth cafe Takeaway - While you are investing in 5-7 different schemes across the options stated above, ensure that you invest across various AMCs as well. This will ensure that you are diversifying your risk and your entire money is not with only one AMC.

We shall follow up this article with a part 2 on how to downsize your portfolio.

Until then, keep reading, if you find this helpful, do share it with your friends.

Disclaimer: - The articles are for information purposes only. Information presented is general information that does not take into account your individual circumstances, financial situation, or needs, nor does it present a personalized recommendation to you. You must consult a financial advisor who understands your specific circumstances and situation before taking an investment decision.

Making Money / Money tips / Mutual Funds / Uncategorized - 06/17/2020

One size does not fit all!

Hi fellow investors,

Ever walked into the ladies' shoe section of the mall during the sale season?

They have long tables filled with all kinds of shoes and each table has the shoe size written on it. I happened to have very petite feet (a size 36) and I look forward to the sale season to upgrade my shoe collection. And during the sale, I go to the mall oozing with enthusiasm to pick up some great heels at flat 50% off, fight off scores of other women and claw my way to the front of the table only to find ugly black chappals in my size!

However, at the end of the store, there is a table filled with some amazing shoes and without the commotion around it, but they are SIZE 41 - 42. Ugh! I hate having small feet during the sale season. All the best brands have their best discounts on shoes in the 40-42 size range. They even have color options! They have so many great options that I am even tempted to try them on just to see what they'd look like. But I do NOT buy these shoes because they are NOT my SIZE. They may be the BEST shoes out there but I DO NOT BUY it. Why would anyone spend money on shoes that would ever fit them, right?

So, in spite of knowing not to buy shoes that do not fit them, why do people invest without knowing what is the right fit for them?

Everyone is always searching for:
'The best Mutual Funds to Invest in?'
'Tell me where can I get the maximum return possible'
'How much returns will I make through this investment'

The best returns are in the shoe of size 42 but clearly, they do not fit me and will only be a waste of money and similarly, so will your investments if they are bought considering only the 'best returns' as criteria.

You need to invest your money in the investments which are 'RIGHT' for you as per your risk profile. The investments which fit perfectly well in the asset allocation determined by your risk profile just as my feet size determine the final shoe design I pick.

What is this Risk Profile?

The risk profile is your risk-taking capacity and how much risk you can take so that you can peacefully sleep at night. It is based on your ability to take a risk and your willingness to take the risk. Where the ability is more a function of your age, your money, and your goals, willingness is completely behavioral and is determined by your life experiences and education.

Before you start your investments, it is very important that you take a risk profile test (we have attached an indicative risk profile for your reference) and know what is the RIGHT Debt-Equity mix for you.

High Risk = High Returns
Low Risk = Low Returns

Where you make the investment decision based on the risk you are taking, you will eventually be able to achieve your goals with peace of mind and not worrying about the volatility in the markets.
Shouldn't that be the whole point of investing in the first place?

Hence, don't just run behind the highest returns, they might not be the right fit for you. Instead, understand what you want to achieve by investing, plan accordingly, and then invest.

Disclaimer - These articles are for information purposes only. Information presented is general information that does not take into account your individual circumstances, financial situation, or needs, nor does it present a personalized recommendation to you. You must consult a financial advisor who understands your specific circumstances and situation before taking an investment decision.

Investments / Money tips - 06/10/2020

Questions Related to Income Tax

GENERAL FAQs

How will I get my excess paid tax refunded back?

Once you file an income tax return, the excess fund will be transferred to your bank account or by cheque once the refund gets processed.

Is it possible to communicate with CPC in paper form?

No, no paper communication is allowed with CPC.

What is the toll-free CPC help line number?

It is 1800-425-2229.

What to do when an assessee is not able to call on toll-free number from abroad?

In that case, you can use the chargeable number 080-22546500 to contact IT department.

What is the email id to contact CPC?

There is no Email ID provided from CPC to contact them. The only way is through the toll-free and chargeable contact number.

What are the working hours of CPC?

It is 8.00 am to 8.00 pm from Monday to Friday, excluding all the national holidays.

How to claim a refund for TDS deducted due to late PAN submission?

Your employer can file the “Correction Statement” and provide your PAN information. In this case, you have to file IT return even if your income is below the tax slabs.

Do I have to file Original return once again, if the Original e-return declared to be invalid due to non-receipt of ITR-V?

If the ITR-V has not been received by the CPC and you have the 120 day period remains, then you will have to sign a new ITR-V form and send it to CPC within the time frame. But if the time frame has expired, then you have to file a revised return which will be ultimately treated as original return.

What is the password to open ITR-V

The password to open ITR-V is the combination of your PAN number and your DOB. It should be last 5 digits of your PAN number and ddmmyyyy of the DOB.

Can more than one ITR-V be sent in one envelope?

Yes, more than one form can be sent together in one envelope but one needs to take care that the barcode does not get folded.

Can I send the ITR-V to CPC by Registered Post?

No, ITR-V can be sent only via ordinary post or speed post.

I am not receiving any communication from ITD CPC regarding receipt of ITR-V, Intimation u/s 143(1) or other communications. What should I do?

All the CPC communications are done by email and mobile number and that is why you must check this information first. Go to the E-filing website and access the user account and review the details. For help, contact your tax practitioner.

How many times can I file the revised return?

You can do it multiple times till the expiry of one year time limit.

How can a taxpayer find his Assessing Officer (AO) Code?

Go to www.allindiaitr.com and log into your account. Under the account tab, click on “services” menu and under that click on “Know Your Jurisdiction” tab.

FAQs ON BANK DETAILS

What is IFSC Code and where to find it?

It is called as Indian Financial System Code, which contains 11 alpha numeric characters which is a must required thing for electronic transfers. This code can be found in the cheque leaf or from the passbook or you can get it by contacting the bank.

What is MICR code and where to find it?

Magnetic Ink Character Recognition is required for cheque processing technology and can be found in the bank account cheque book.

What is a bank branch code?

It is a unique code for a bank branch which helps in recognizing it.

What is ECS?

It is an electronic fund transfer mode that can be used for paying interest, dividends, pension and to pay bills for electricity, telephone or water.

FAQs ON CONTACT DETAILS

Is it mandatory to enter email id and if so, then Which email ID should I provide?

Yes, it is mandatory to provide email ID while filing e-return through online system. You must enter your personal email ID.

Should I provide my permanent address or current address?

You can provide either of them, whichever is best available to communicate.

Which documents will serve as proof of 'identity' for individuals and HUFs?

The following documents are needed:
Matriculation certificate
School leaving certificate
Educational degree certificate from a recognized institution
Depository account
Bank account
Credit card
Water bill receipt
Ration card
Property tax assessment order
Passport
Voter identity card
Driving license
Certificate of identity signed by an MP or an MLA or a municipal councillor or a Gazetted officer

FAQs ON RESIDENTIAL STATUS

What will serve as the proof of 'address' for individuals and HUFs?

All of the below mentioned documents can be used as address proof:

Electricity bill
Telephone bill
Depository account
Credit card
Bank account
Ration card
Employer certificate
Passport
Voter identity card
Property tax assessment order
Driving license
Rent receipt
Certificate of address signed by an MP / MLA / Municipal councilor / Gazetted officer.

Does taxability change as per residential status?

Yes, it does depends on the residential status of the taxpayer.

Income Tax / Money tips - 06/08/2020

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How to Save Long Term Capital Gains Tax from Property?

The long-term capital gains from property can be huge especially if the asset was held for really long term. These gains are taxed at 20% + cess (effectively 20.8% from FY 2018-19) which can cause a major dent in the amount received on sale. So if we have an option to save, we must save on this tax. The post below gives details of the 3 sections concerned with the Saving of Long Term Capital Gains Tax from Property.

As capital gains taxation is concerned property can be two types:

Residential(house, apartment used for residential purpose)
All others(this includes land, commercial buildings etc)

There are 3 sections using which tax payers can use to save tax on their long-term capital gains. We discuss these one by one:

Section 54(buy residential property on sale of residential property)
Section 54EC(buy specified bonds on sale of any property – land/building/residential/commercial)
Section 54F(buy residential property on sale of any property – land/building/residential/commercial)

We discuss each section in detail:

Section 54 (buy residential property on sale of residential property)

Section 54 is applicable in case of long-term capital gains arising out of sale of any residential property. The exemption is up to following:

Purchase of another residential property(including under construction property) 1 year before the sale of 2 years after the sale and/or
Construction of residential property within 3 yearsof sale
From FY 2019-20 a person can nowbuy two houses on sale of 1 house if the capital gains are less than Rs 2 crore. This benefit can be availed only once in lifetime. [proposed in Budget 2019]

The new property purchased or constructed should not be sold with-in 3 years of purchase/construction. In case the sale happens within 3 years, the purchase price of the property would exclude the capital gains exemption that was claimed.

There is NO limit to the amount of capital gains that can be exempted u/s 54. If the long-term capital gains are less than or equal to the new house purchased/constructed, the entire gains would be tax exempted. In case the capital gains are more, the difference of capital gains and cost of new house would be taxed.

The NEW House should be on the same name as on the previous property which was sold.

Even if the builder fails to hand-over the under construction property with-in 3 years, the exemption still holds.

Relevant Points:

The section 54 tax exemption is available only if the amount is invested in only one residential property in India [Budget 2014]

Under section 54, the tax payers are given 2 years to purchase the house or 3 years to construct it, however the long-term capital gains arising out of sale is taxable in the financial year the transaction happened. Both the above provisions are not consistent to each other. To avoid this, the tax payer has to deposit all their unutilized long-term capital gains in “Capital Gains Account Scheme” of banks before the due date of filing returns (in most cases before July 31). The income tax return forms ask for details of the capital gains account, which should be filled in correctly. Also, the amount which has already been utilized for purchase/construction would be exempted from capital gains.

In case the amount deposited in capital gains account has not been utilized (partially or fully) within 3 years, it would be considered capital gains of the year in which the 3 years would be completed from the date of sale.

Section 54EC (buy specified bonds on sale of any property)

You can save long term capital gains on assets if you invest the gains in specified long term capital gains bond within 6 months of sale of asset. As of today, NHAI (National Highway Authority of India), REC (Rural Electrification Corporation) and PFC (Power Finance Corporation) issue capital gains bond and have annual interest rate of 5.25%. The interest earned is taxed as per the income tax slab. Also, the bonds have tenure of 3 years which would increase to 5 years from FY 2018-19 (as changed in Budget 2018). Until this year these bonds were available for long term capital gains from any asset but from FY 2018-19 the capital gains resulting from sale of property (land/building/residential/commercial) can only be invested.

Section 54F (buy residential property on sale of any property)

Any long-term capital gains arising due to sale of any asset can be made exempt by:

Purchase of another residential property(including under construction property) 1 year before the sale of 2 years after the sale and/or
Construction of residential property within 3 yearsof sale

In case entire amount is not invested in new purchase, the exemption would be proportionate.

Amount Exempt = Capital Gains X [Amount Invested / Net Sale Consideration]

The NEW House should be on the same name as on the previous property which was sold.

Even if the builder fails to hand-over the under construction property with-in 3 years, the exemption still holds.

There are certain limitations:

The tax payer should not have more than 1 residential house as on the date of sell of the asset.
The tax payer purchases any residential house other than the new house within 1 year of sale.
The tax payer constructs any residential house other than the new house within 3 years of sale.
Budget 2014 also made it compulsory that the new house should be located in India. Also, the capital gains account scheme can be used by the tax payer if required.
The proceeds should not be invested in a commercial property or in another vacant plot.

Some of you may be confused between Section 54F and 54. Below is a comparison to make things more clear:

Section 54F Vs 54:

	Section 54	Section 54F
When Applicable?	buy residential property on sale of residential property	buy residential property on sale of any property
Full Exemption?	To claim full exemption all Capital Gains must be invested in new house	To claim full exemption entire sale receipt must be invested in new house
Any Limit	No such conditions	Should not own more than one residential house at the time of sale of the original asset

We have explained all 3 sections – Section 54, Section 54EC and Section 54F which can be used to save long term capital gains tax on property.

Money tips / Tax - 06/05/2020

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Can I claim Tax Benefit on both HRA & Home Loan?

Can I claim Tax Benefit for both HRA & Home Loan? – A question which is often asked by many tax payers. This is mainly because many employers do not allow both tax benefits together in certain situations. Unfortunately this is NOT the right thing to do.

Both HRA and Home Loan Interest tax sections are unrelated. You claim tax benefit on HRA (House Rent Allowance) under section 10(13A) while the tax benefit on payment of interest on home loan comes under section 24(b). However there can be issues if both the sections are used together with the intent of tax evasion.

We can have four situations for people claiming HRA & Home Loan tax benefit.

Rented house in place of employment and own house in different city
Own flat in city of employment and stay on rented house in same city
Own flat in city of employment and stay with parents/siblings in the same city and pay them rent
Rented house in different city and own house at place of employment

Rented house in place of employment and own house in different city

This is a very easy situation to handle. You can easily claim tax benefit on both and NO employer has issue with this arrangement.

Own flat in city of employment and stay on rented house in same city

This is tricky situation. The first logical question which comes to mind is why would any person owning house in the same city stay on rent? Most employers have issue with this arrangement and may not give tax benefit on both HRA & Home Loan.

But legally you can claim tax benefit on both if you can give a valid reason for this arrangement. The reasons can be its more convenient to stay. For e.g. your flat is on the outskirts with almost negligible public transport, you might not want to live there and rather stay close to your place of employment. The other reason could be the owned house is smaller for the size of family.There are misconceptions that there should be minimum distance between two houses. All this is myth! All you need a genuine reason to stay on rent.

Also if you move to your new owned house in the middle of financial year, its a genuine thing to do and you can claim HRA for the period you stayed on rent and house loan benefit for the entire year. In case your employer is not ready to give tax benefit on both – you can claim HRA tax benefit from employer and claim tax benefit on Home Loan while filing your Income Tax return.

The other question is should the owned house be assumed to have notional rent? The answer is No. If you receive actual rent then show, only then you need to pay tax on that.

3. Own flat in city of employment and stay with parents/siblings in the same city and pay them rent

The situation is similar as discussed above with the difference being your landlord or landlady is your close relative like parents/siblings. Any such rental transaction is full with suspicion and so you should be very careful if you use this for tax saving. You must do the following:

Actually pay the rent through Cheque/ECS etc. and receiver should give rent receipt for the same.
The landlord/lady should show this rent as “income from house property” and pay taxes on the same.

There have been cases where rent paid to close relatives have been denied tax benefit by income tax department as there was NO evidence of actual transaction. So stay careful.

4. Rented house in different city and own house at place of employment

There may be case where you have rented a place where your spouse/parents stay (in a different city) while you own a house at the city of your employment and stay there. In this case you cannot claim HRA tax benefit as HRA is paid for staying on rent for purpose of employment. However you can easily claim home loan tax benefit.

Money tips / Tax - 06/04/2020

Why do people 'NOT' consider financial education ' Important'?

Hi fellow investors!

A very dear friend visited me for lunch recently, and we had a nice afternoon chat. It was such a relief to see a new face to talk to and eat with. He also happens to be the Marketing Executive for another education company and we got talking about Wealth Cafe and why we conduct money workshops and teach financial education.

The most important discussion we had was around 'WHY' so many people don't consider financial education or money as a priority, and my usual long phone conversations with Harsh Vardhan Dawar (Founder & Director of Wealth Cafe) also majorly revolve around the 'WHY' and 'HOW' of Financial education, I thought it would be interesting to share the same with you this week.

Why it is important yet difficult to study about managing your OWN Money & Investments?

1. Money takes time to grow!

It does and we have always said it. When you buy chocolate, you get to enjoy it within 10 seconds of you purchasing it, whereas when you invest, you may finally enjoy its fruits only after years. Your Fixed Deposit of 10,000 becomes 10,600 after 1 year. 365 days. 8,760 hours. It takes time and it requires the investor to wait for it to grow.

Remember - Don't wait to Invest, Invest, and Wait.

2. Not a part of our dinner table discussions or school gang chats

Do you talk to your family about where you should invest your money or have your parents discussed it with you over dinner? If you have, then it's amazing, but most families don't have this discussion. Also, when we're hanging out with our friends we almost never talk about investments, savings, or goals (we may have mentioned the economy and stock market but not concrete discussions on how you can plan your finance).

#letschangethedialogue.

3. Money matters

For most of us, money is important until we have enough to buy and do what we want to do at the moment or maybe in the near future. Many of us are at a phase where we want to earn more and work (job/freelance) for it is the only option. Money matters a lot but only to the extent where it adds comfort to our present life.

We generally don't tend to ponder over questions like 'Will I have enough when I retire?' or 'Can I quit my job to start something of my own?'

4. Money is boring

Well, I have to face this, I love reading and talking about money and investments, but for a person without a financial background, it may not be as exciting. Not many people are pumped about getting up from their beds and reading about the nuances of Mutual funds or FDs. It is akin to researching the bacteria that caused you the toothache.

But if you love yourself, you go to be on top of your health and wealth. Either learn about it or have an expert take care of it for you.

5. Not a priority

While my friend and I were having this long discussion, I asked him if he had ever taken the effort to educate himself about money matters, and surprisingly, his answer was no! He said that there was never enough time for him to sort his finances or read up about it. Work always kept him busy and Alas! this is the most important reason.

If any of these reasons are blocking you or holding you back, let's work on it together.

When you work hard your entire life to make money, you can work a little to make your money work hard for you. It's all about prioritizing.

The important subject of Money Management is not taught at any level of school or college in India which is why the financial literacy of India is at a meager 2%. Without proper knowledge about financial products, one cannot make the right decision with respect to investments. At Wealth Café, we are working on doing that, our everyday effort is to make finance simple for you :).

Here's wishing that you also start taking that small effort to make your own money a priority for you.

Where you think any of your friend or family could benefit from this, please do share via email or Facebook :)

Disclaimer - The articles are for information purposes only. Information presented is general information that does not take into account your individual circumstances, financial situation, or needs, nor does it present a personalized recommendation to you. You must consult a financial advisor who understands your specific circumstances and situation before taking an investment decision.

Making Money / Money tips / Uncategorized - 06/03/2020

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