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What Should You Do With Your Old Inactive EPF Account?

I have come across many individuals who have changed jobs or quit their jobs and have their EPF account lying dormant. Some are lazy and some just do not know what to do. And others believe that they are earning interest on the balance lying in their EPF account.

EPF currently provides the tax-free 8.5% rate of interest. This is one of the best debt products which is offering such high returns with utmost safety. Hence, many salaried usually not withdraw their EPF and keep it as it is. However, there are certain rules to it. Don’t blindly believe that you can keep your EPF account as long as possible.

Existing Rules of EPF

Any EPFO Account which fails to make contributions for 36 continuous months (3 Yrs) is called an INOPERATIVE Account. In addition to this, if you applied for a withdrawal but due to wrong address, bank details, or some other reasons you fail to claim the amount and laying with EPFO for 36 months (3 Yrs) from the date of it become payable are also classified as INOPERATIVE Accounts.
However, later on, EPFO clarified that interest will be payable on such a non-contributory period for up to the age of 58 years of the member, this 3 years definition turned useless. As per the current rules, EPFO will credit the interest on such non-contributory accounts up to the age of 58 years. After 58 years, the account will be treated as INACTIVE (but not immediately after 3 years non-contributory period).

The retirement age for EPF is 55 years. Hence, EPFO will pay you the interest up to the age of 58 years (Retirement age+3 Yrs).

However, interest earned on such inactive accounts is taxable income for you. If you resign, retire, or get terminated from your job, but do not withdraw your EPF immediately then interest income earned on your EPF balance is taxable during this non-contributory period. The interest income earned during your employment remains tax-exempted though.

How much interest will you earn in an inoperative EPF account?

Unclaimed money from EPF accounts, as well as from small saving schemes, insurance companies, etc. was supposed to be transferred. As per the Senior Citizens Welfare Fund (SCWF) regulations, after an account has been classified as inoperative for ten years, the amount remaining in it is to be transferred to SCWF. If you do not withdraw the EPF account, then it will be moved to the SCWF account, where it will earn the interest rate of SCWF (declared by Govt on annual basis). The recently declared interest rate on Senior Citizen Welfare Fund interest rate for FY 2020-21 is 5.81%.

So if you keep your money in EPF accounts untouched after 10 years, it will only earn 5.81% (as of today). This interest is determined every year by the GOI.

Financial Conclusion: what you should do?

Your account will turn inactive only when you reach the age of 58 years and not withdraw the EPF balance (Earlier it was 3 years from the non-contributory period).
From the date of non-contributory EPF (i.e. the day you stop working and contributing to your EPF account) to the time of withdrawal, you are eligible to earn the interest. However, such interest is taxable.
If you keep your non-contributory EPF accounts for more than 10 years, then EPFO will move your account to SCWF.
Your EPF account will remain with SCWF for the next 25 years and earn the interest rate declared by Government on such SCWF
After the completion of 25 years with SCWF, if you still not withdraw your EPF account, then Government will forfeit the money. To get back the money, you have to knock the court.

Do remember that such a movement to SCWF will not happen automatically. Instead, EPFO will inform you through the contact details you linked to EPF accounts. If you still not respond and not withdraw, then they move to SCWF.

Hence, considering all these rules, it is always best to transfer your old EPF accounts to the existing active EPF account immediately. Otherwise, withdraw the EPF balance immediately after 2 months from the non-contributory period or unemployment.

 

Disclaimer: - The emails 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.

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How To Get Your Kids Started On Managing Finances

Hi there!

We have always firmly believed that money is a habit best developed as a child. Some concepts like Savings, spending smartly, and not borrowing for unnecessary things is best inculcated in our formative years.

For kids of ages 3 to 5

They've probably started collecting some decent pocket money from birthdays, holidays, or a small weekly allowance. This is when we can start to teach them the three basic things we can do with money: save it, spend it, and give it. You might set up three jars for them so they can more easily divide up their money into the save, spend, and give categories.

We’re not talking about a lot of money here, so as long as they’re putting something into each jar. Maybe the “spend” jar gets used to buy a candy bar in the grocery store or snacks for themselves. The “save” can be used for a special toy they want to splurge on. And the “give” money can be pulled out to give gifts to their parents/grandparents, buy something for your house help.

Introducing the idea of saving, spending, and giving money now, in its most basic form, will lay the foundation for how you talk to them about money in the years to come.

For kids of ages 6 to 10

By this age, kids are starting to develop a deeper understanding of how money works. They understand that grown-ups have jobs to make money and that much of what they see around them—their home, the car, their Friday night pizza dinner—is paid for with money. You can start to explain to them the difference between using cash, a debit card (cash that you keep at the bank and the bank then sends to the store), and a credit card (you borrowed that money and will have to pay it back to the bank later).

This is a good age to start letting them attempt to make their own simple purchases in a store. They’ll need your help with counting out the correct amount or with prompting when it’s the right time to hand over the money, but it’s good practice that will build their confidence about how the process works each time they do it.

If they don’t already have a bank account of their own, this is a great age to open one up. They may have some money they keep at home in their jars or piggy bank, but it’s also good for them to get accustomed to the idea of stashing some money away safely and watching it grow as they add to it over time. Take them to the actual bank to open the account (they will feel very grown up), and take them back, if you can, each time they want to make a deposit. (Actually depositing the money themselves really drives home the idea that they are adding to their own little pile of savings.)

For kids of ages 10 - 13

At this age, you should start talking to your kids about how you decide what you spend money on. “Being able to afford it” and “choosing to spend money on it” are two totally different things, and it’s at this age that kids can really start to grasp why you prioritize spending in one area over another. For their next birthday shopping trip, take them shopping with you and keep a fixed budget, let them decide if they want to buy that toy, or have a party.

This is also a good age to introduce the concept of long-term savings for bigger items. 

For kids of ages 13+

This is the perfect age to help them develop some different long-term savings goals, whether it be saving for a new gaming system, smartphone, computer, or even their first car. You should also be talking about what you can (or are willing) to pay for when it comes to college, so they’ll know what part they’ll need to plan for.

Eventually, our kids are going to graduate with debit cards and credit cards, but I’d suggest you keep them using cold, hard cash for as long as possible. They are more likely to develop good money habits if they feel that little bit of pain when they hand over all that hard cash for a pair of sneakers. You feel a purchase more when this type of exchange happens—I give you money, you give me shoes—and their wallet feels a bit slimmer afterward.

On the other hand, when you pay with a card—I give you a card, you give me shoes, and you give me the card back—the immediate impact isn’t felt, so the impulse purchases may soar.

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Teaching your children about money at any stage is going to take time on your part. But introducing them to money and imparting money management skills in these small ways mentioned above can go a long way in their future.

Kids will follow your lead. Remember kids are always observing adult behaviour and building their habits and worldview around your actions. Therefore, be slightly mindful about your relationship with money around your children so that you can set them up for financial wins and not woes.

 

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.

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10 Financial Lessons That You Must Know

These are basically the gospel truths of personal finance. It is a quick 3 min read but will definitely have more information than some long-form articles:

1. Time is a Scarcer resource than money - Invest in a way that you can have more control over your time.

2. Get rich quick and get poor quick are two sides of the same coin. As we always say: High Risk = High Returns and low Risk = Low Returns. Every time you look at returns, be prepared for the risk that comes with it.

3. A house that you live in is your consumption, not an investment. Your second house can be considered an investment.

4. Don’t pay interest to acquire something that loses value - Car & personal loans for weddings & travels must be avoided.

5. A rise in income shouldn’t mean a rise in lifestyle. Well as we reach the new financial year, many of us would be looking at bonuses and appraisals, plan to invest a part of it before we plan our expenses.

6. A penny saved is more than a penny earned. Save before you spend

7. Invest in your mind and skills first.

8. You don’t have to be rich to invest, but you have to invest to be rich.

9. Market corrections come more regularly than birthdays expect them. For those who have been investing from April 2020, be careful there is more to markets than just going up.

10. There is an inverse relationship between investment performance and time spent watching financial news. Only watching the news will not help you get high returns.

11. The more complicated the investment advice the less useful it is. Go for simple advice which can actually help you apply it.

12. Admire people who earn more money than you, not people who spend more money than you. Yes please, people who look rich are not always rich.
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We have our youtube videos live, where we are sharing highlights on investing in Equity this week - do check the videos to learn more here

 

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.

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Latest Post Office Interest Rates: April-June 2021

What are the Latest Post Office Interest Rates from April – June 2021? What are the latest Post Office interest rates on FDs, MIS, SCSS, NSC, KVP, PPF, and SSY Schemes?

Earlier the interest rates used to be announced yearly once. However, from 2016-17, the rate of interest will be fixed on a quarterly basis.

Below is the timetable for change in interest rates for all Post Office Savings Schemes.

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As per the schedule, Government announced the interest rate applicable to all Post Office Savings Schemes from 1st April 2021 to 30th June 2021.

On 31st March 2021, Government notified the interest rates which shocked many as the reduction was very high. 

As of now, the latest post office interest rates April – June 2021 will remain the same and they are as below.

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Let us see the trend of the pasty one year of Post Office Saving Schemes Interest Rates.

 

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8 Easy Ways To Reduce Your Expenses

Spend less than you earn. That’s the mantra of personal finance success. Every week, month, and year that you spend less than you earn, the more you save and the better your financial situation will be.

A big part of that solution is cutting back on spending, and for many people, the thought of cutting back on spending seems unpleasant. Losing out on the things that bring you pleasure in life seems like a pretty steep price to pay for a little financial success.

The secret is to intentionally target spending on the things you don’t care about and rarely use while holding steady on the things you do care about.

Scale back on entertainment costs
1. Cut cable: These days, streaming services and free over-the-air television provide more content than any one person could ever watch. Take advantage of the variety by eliminating cable service.
2. Focus your interests on finishing rather than collecting: Rather than collecting physical or digital items in a media collection, focus on actually finishing those things or enjoying them to completion. For example, instead of buying yet more books that go unread, aim instead to build a long list of books you have read. Make doing the center of your hobby, not buying. After all, isn’t that what you really love?
3. Don’t treat shopping as entertainment: It’s fine to go out in the town to be entertained but keep to a simple rule: don’t go into a store unless it’s for the purpose of buying something you’ve already decided you need before going in. Don’t go to stores just to browse for entertainment, as they’re designed to convince you to buy things you don’t need or even really want, but just react on impulse. Find other places to be entertained.

Reduce your food costs
4. Use a meal plan and make a grocery list: Instead of going to the grocery store whenever you feel like you need food, get into a routine of making a meal plan once a week, then constructing a grocery list from that plan. The time invested in making that plan is more than saved by spending less time in the store and having a list to stick to saves a ton of money on grocery store impulse buys that just sit in your pantry.
5. Learn how to cook: Cooking for yourself doesn’t have to involve three-course meals or Gordon Ramsey-level skills. Start by identifying things you enjoy eating, then look for how to easily prepare it from scratch and with basic ingredients.
6. Buy in bulk: The big bulk packages might seem like they have a high price, but they’re usually quite a bit cheaper per use, meaning you get more value for your dollar. If you frequently buy something at the store, look at the big bulk versions and save up for them. You’ll save over the long run. It's basically what our parents or grandparents did - buy - store and use efficiently.
Cut your monthly bills
7. Go through your bills: Sit down with every regular bill you have and go through it line by line, making sure you understand everything you’re being charged for. If something isn’t clear, Google it. If it doesn’t seem like something you should be charged for or is a service you don’t want, call the bill issuer and get it removed from future bills.
8. Cut your subscriptions down to just the things you actually use: If you have a subscription or membership that you haven’t used in the last month, cancel it. Turn off any auto-renew you have with that service and allow it to expire. You can always renew it in the future if you decide you have a need for it again.

What you should do with the money saved from trimming your budget?
The key to making frugal living tips really work for you is to not simply spend that money on something else fun. Keep your “fun” spending at the same level and use the money you save when you cut down your monthly budget on something smarter.  Cut un-fun things like your energy bill for something financially useful that can build a bright future for you.

One great option is to open an account and use your savings to create your emergency fund or you could save it up for your next trip. Whatever excites to reduce your unnecessary spending. These are just some of our suggestions. Do let us know what you had like to read and learn more about and we shall share more content on that.

 

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.

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Things To Remember Before Taking A Loan Against Property

Hello all!

We’ve all thought about purchasing property. If not now, then maybe sometime in the future. And we’re here to tell you that it’s not as easy a process as you might think. Many people consider that where they have a property, they can easily take a loan against it. Read this article to know some points you can keep in mind, before you approach your bank for the same.

A loan against property (LAP) is a secured loan that banks, housing finance companies and NBFCs provide against residential or commercial property. These loans are usually offered at a lower interest rate as compared to a personal loan or business loan and are disbursed at a reasonable time. Anyone with a pre-owned property can avail such loans, whether they are salaried or self-employed in a business or professional setup. The quantum of loan sanctioned is also higher than what may be offered in other available options.

The demand for LAP is increasing among individuals because of three primary reasons:

  • It is cheaper than a personal loan.
  • The applicant can continue to occupy his or her property even after the loan is availed.
  • The loan can be used for a variety of purposes such as unforeseen medical expenses, children’s higher education and marriage, or setting up a business.
  • Besides, existing customers of a bank or housing finance company need not go through the document verification process again.

A loan against property is a boon for both business owners and salaried employees. Self-employed who are seeking funds for expansion of their business can make use of this facility. Salaried professionals facing a sudden medical crisis that may require long-term treatment, including expensive surgery, or sending children to a foreign university for higher studies can avail the facility for raising funds. A LAP not only leaves one’s savings intact, but it also comes at low-cost EMIs with repayment tenures of as long as 15 to 20 years. The low-interest rates on such loans dilute the repayment burden.

All these and other benefits help in the growth of the business or safeguard the financial future of both the loan applicant as well as his or her family. The only criterion for availing of a loan against property is that the loan should be for a legitimate purpose.

While it is relatively easy for existing customers to receive a loan against their property, new customers will have to furnish the necessary documents as well as credit history, repayment capacity and marketability of the property to be mortgaged.

An existing customer can also apply for a ‘top-up’ loan, but this would depend on factors such as repayment history of a preexisting home loan and outstanding balance on that loan, monthly income and loan to property value ratio. However, a fresh property appraisal is not required as the property is already mortgaged with the lender.

While these are the basics of a loan against property, there are other aspects to the loan that applicants must know. These are:

Loan repayment:

Since the loan amount that can be availed of against property is high, it is important that the borrower fulfils the required income criteria to repay the entire loan. It can be repaid over a period of 12 months up to 20 years, though the tenure varies from one lender to another. 

Property valuation:

loan against property is provided against collateral; i.e., an immovable property such as a constructed residential/commercial property. Before deciding the eligibility and amount of loan, your lender will appraise your property. The amount will depend on the prevailing fair market value, not the past or potential future value. Housing finance companies usually provide up to 50-60 per cent of the market value of a property. Therefore, you should analyse the loan-to-value (LTV) ratio provided by your lender.

Ownership of property:

The lender will approve the loan only after it is convinced that your property has a clear and marketable title. Further, the co-owners need to be part of the loan and meet the criteria.

Any loan against property comes with a longer repayment tenure compared to a personal loan. The EMIs are spread over many years and the rate of interest is much lower. A longer tenure means lower EMIs, which reduces the monthly repayment burden.

Repayment Capacity:

The lender will evaluate your repaying capacity with the help of your income statements, repayment history, ongoing loans etc.

To sum up, a loan against property offers greater flexibility, lower interest rates, higher loan amount, and a longer repayment tenure and feasibility of end use. While the long-term advantages of this type of loan make it a much better option than personal loans, it is important to remember that if the borrower defaults on repayments, his or her rights over the property are transferred to the lender.

 

Disclaimer: - The emails 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.



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Mistakes To Avoid Before Making Tax Saving Investments

We have entered March 2021 and soon we will be celebrating our 1 year lockdown anniversary. It Maybe not so much of a celebration but still, we have survived 1 year of COVID with some gains and some losses, and lots of learnings. Another reason to look forward to March 2021, is the last month to make all your tax-saving investments!

Choosing tax regime without comparing liability The finance ministry in the previous financial year 2020 had introduced a new tax regime that gives individual taxpayers the option to pay income tax at a concessional rate.
Read more about old regime vs new regime

Notably, if you opt for the new tax regime with lower tax rates, you will have to forego the deductions and exemptions including the standard deduction, deduction under Section 80C, interest paid on housing loan, etc. This can be helpful if you do not want to lock-in your funds for a longer period in tax-saving instruments such as Tax Saving Bank FD, Provident Fund, etc.

Comparing liability under the existing and the new tax regime while helping you to decide on the most suitable option depending on your income and expenses and customize your investment preferences accordingly.

1. Failing to ascertain actual taxable income 

When computing the taxable income, it is important to take into account all sources of income. Besides the income from salary, you may have income from a business, rental income from property, interest from bank/post office deposits, capital gains from assets, or any other source.

Determining the taxable income is an important step in streamlining your tax planning exercise which will help you to correctly estimate the amount of tax-saving investment to be made for reducing your tax liability.

2. Taking the wrong approach to insurance

The primary purpose of a life insurance policy is to provide financial protection to dependents in case of the untimely demise of the insured person. Simply opting for a policy because it offers a tax deduction under Section 80C of the Income Tax Act, 1961 is an imprudent approach.

There is a possibility that you may end up investing in investment cum insurance policies such as endowment policies, money back plans, or ULIPs that provide tax-saving components along with life cover in a bid to meet tax-saving requirements. However, you must know that these products will neither provide adequate cover nor generate optimal returns. A simple-term plan is enough to take care of your life insurance requirement at a very reasonable premium. Read this article to compute how much cover should you have

3. Not aligning your Investments as per your goals and investment objective

Ensure that you are not investing in 80C investment options only for tax savings purposes. Check how it fits into your debt - equity allocation which is determined based on your risk profile. Further, these investments should be made to achieve your goals not just for the purpose of tax savings. Align them to your requirements. Do not just invest in 80C investment options, if you have already exhausted this limit, you can explore options beyond Section 80C. Besides, certain payments that are eligible for deductions such as payment of house rent, expenses towards children's school tuition fee, interest payment on the home loan.

Read these articles to  know more about your tax planning before March 2021
1. How to save taxes before you invest your money.  
2. Ways to save taxes under various sections of the Income-tax Act.
3. Mutual Fund taxation
4. How to save taxes on health insurance

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.



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Should You Buy A House Using EPF?

Buying a house is one of the biggest/most expensive purchases for most of us. 
In very rare situations do home buyers purchase a flat by paying the entire amount upfront? Many lack the funds required to make a purchase even as property prices remain stable or fall.
The need for capital to fund their home makes the home buyers opt for home loans for which lenders seek a 20 percent down payment. Arranging this money can be a tough ask for many. Some even consider withdrawing money from their employee provident fund (EPF) accounts for this downpayment.

Is funding your house using EPF a good idea? Let's discuss it


Basics of EPF and withdrawal rules

For beginners, an employee who has been associated with EPF for at least three years and has at least Rs 20,000 account balance is eligible for this. One can withdraw up to 90% of the balance to buy a home subject to other conditions laid out by authorities.

Since the EPFO is going to pay the society or the developer of the property, such withdrawal of money can be used to pay for the entire house — down payment or home loan EMI. You can also avail the interest payment subsidy on Pradhan Mantri Awas Yojana (PMAY) on the payments made through EPF for home buying. Looking at the benefits, this becomes a ‘go to’ option for many salaried individuals when they want to buy their dream home. 


Does this make sense from your entire financial planning perspective?

EPF helps salaried individuals to accumulate funds while they are working. The corpus is meant for the period when one retires and there is no regular income. Hence, it is not supposed to be withdrawn before its maturity as this could jeopardize your retirement. By spending your money meant for your retirement today on your home you are exposing yourself to the risk of leaving no funds for your retired life. Remember, no one will give you a loan for your retirement. 

EPF is an opportunity to accumulate money for the post-retirement period. You keep contributing a small fraction of your salary to the EPF and your employer matches your contribution. As the salary increases, the contributions do go up. That makes a large corpus in your hand when you retire, provided you do not withdraw it for any other purpose. You let the magic of compounding work for you by investing regularly and consistently in your EPF corpus.

House is a necessity and in the Indian context ‘owned house’ is a social and psychological need for many of us. But short-term thinking’ focussed on immediate gratification must be avoided at any cost. 


How to arrange for the downpayment of your house?

It is better to make a plan for home buying. Start saving money to accumulate the down payment amount over three to five years. If the home prices go up or your investments yield less than expected, you may want to delay the home buying by a year or two. Avail of the home loan after you make the down payment but do not touch your EPF money.


Compare the returns

It is better to compare the cost of funds (rate of a home loan) and the rate of return offered on the EPF before taking the funding decision. The repayment of home loan principal and interest both attract tax benefits. Depending on the tax slab of the individual the cost of a home loan stands reduced to the extent of the tax exemption availed. In most cases, the cost of a home loan is lower than the rate of return receivable on the EPF, which makes the home loan better means to pay for your home.

Wealth Cafe  Advice- Do not break your one goal to achieve another. Especially when it is the retirement goal. Do not break your EPF for home buying, unless you have other means to secure your retirement.

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.



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Leave Travel Concession Cash Voucher – new ways to claim your LTA

Hello fellow investors,

It is that time of the year where we all start planning to submit your tax proofs to claim tax deductions. One such claim is the Leave travel allowance. Given that, none of us are really venturing into travel, a new component of leave travel concession - a cash voucher was introduced for salaried individuals.
 
This leave travel allowance (cash voucher) scheme initially announced for central government employees has now been extended to all other employees with riders to boost consumption during the festive season and also help you get tax deduction. The government has announced that all non-central government employees will be eligible for income tax exemption for the entire leave travel concession amount up to Rs 36,000 per person without producing travel bills. However, such employees will have to spend three times the amount for purchasing goods or services on which GST of 12% or higher is levied, said a press release from the Central Board of Direct Taxes.
 
Employees will have to make purchases through digital payment mode and submit the invoices to avail of the benefit.
 
What’s LTC For Private Sector? 
 
Unlike government employees, their private-sector peers have a part of their salary or cost to the company, structured as leave travel concession. This is done to save tax on the total income of the employee. By showing travel expenses, the employee can avail of the income tax exemption on the travel amount. Those who haven’t availed of this benefit during 2018-21 would be eligible for the tax exemption.
 
Points to Note:
  • The employee exercises an option for the deemed LTC fare in lieu of the applicable LTC in the current block (the year 2018-21); 
  •  The employee spends a sum equal to three times the value of the deemed LTC fare on purchase of goods/services which carry a Goods and Services Tax (GST) rate of at least 12% from GST registered vendors/service providers through digital mode; 
  • The expense is made between 12 October 2020 and 31 March 2021; and 
  • The employee obtains the voucher indicating the GST number and the amount of GST paid.  
 
What Government Is Offering An employee?
 

An Employee who has not availed LTC during 2018-21 would be eligible to avail of the tax exemption subject to the condition that the person spends three times that amount on goods or services with GST of 12% and above.

 

Those who spend less than three times the fare amount will get proportionate income tax exemption. For example, if the LTC fare is Rs 20,000, and is claimed for a family of four, then the employee would get Rs 80,000 (20,000 x 4). The amount that the employee will have to spend would be Rs 2,40,000 (Rs 80,000 x 3). However, if the employee ends up spending only Rs 1,80,000, the person would get  tax exemption of Rs 60,000 (75% of 80,000 or 1/3 of 1,80,000).
 
Thus, this income tax benefit may actually be considered as a discount on expenditure, which the employee has already planned to incur, instead of a reason to incur expenditure. On the other hand, income tax foregone by the Government may be offset by the additional GST revenue on expenditure incurred by the employees.
 
It is advisable to check with your HR department and your employer to see if the policy is modified to include the leave travel concession component and how you can claim this benefit for yourself. It was initiated to encourage people to shop more and take tax benefits on the same, so don't rush to buy new items but if you are buying anything, ensure you have GST documents of the same to claim tax benefits under LTC.  



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Income-Tax Relief For Home Buyers

Hello fellow investors
 
As a part of various relief measures taken by the Government in response to the economic slowdown post-COVID-19, the Finance Minister (FM) has announced a very attractive income tax relief for home buyers (new residential properties of value up to Rs 2 crore). Here is what you need to know.  
 
Income Tax relief for home buyers 

In case the declared purchase consideration of the land/building is less than the stamp value (circle rate) by up to 20%, there will be no additional tax outgo for both the seller and the purchaser for the period 12th November 2020 to 30th June 2021. Earlier, the acceptable difference was 5% which was to be enhanced to 10% with effect from 01 st April 2021.

This move will also help developers in selling off their unsold inventory at up to 20% below the circle rate and the buyers in getting cheaper homes without any additional tax burden on either party. Let’s look at the relevant provisions of the Income Tax Act to understand the applicable tax relief.

Section 43CA of the Income-tax Act - for the seller

This section provided for deeming of the stamp duty value (circle rate) as sale consideration for the transfer of real estate inventory in the case the circle rate exceeded the declared consideration. The circle rate is the minimum rate per unit area fixed by the state governments for the sale of land or property and is
aimed at reducing stamp duty evasion by declaring lower sale values in the sale-purchase deeds.

Thus, even if the real estate was sold at a price below the circle rate, the circle rate was considered as the sale value for the calculation of the business profits of the seller. For example, if a house is sold by a developer for Rs 80 lakh but its value as per the circle rate is Rs 96 lakh, the developer is supposed to take Rs 96 lakh as the sale value for
calculating his profit.

Through Finance Act 2018, a difference of 5% between the two rates was declared to be acceptable. This was increased to 10% through Finance Act 2020. Now, the FM has raised this acceptable difference to 20%. Thus, in the above case, the difference is exactly 20% as seen below and the developer can consider Rs 80 lakh for calculating his profits from the sale. 

Section 56(2)(x) of the Income-tax Act for the buyer

This section is applicable to the buyer and provides for stamp duty value to be deemed as purchase consideration even if the purchase was made at a lower price. As per the above example, the buyer is deemed to have received Rs 16 lakh (the difference between the stamp value and the sale consideration) and was supposed to declare this amount as ‘Income from other sources and pay tax on the same. Now, he will not have to pay any tax if the difference is up to 20% as is the case in the above example.

 

In summary, this announcement by the FM comes as a major relief to real estate developers who were struggling to offload their inventory due to lower demand in the market. The benefit is applicable, however, only for the primary sale of residential properties and not for commercial and secondary sales.





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