The Govt of India has announced demonetisation scheme for Rs 500 and Rs 1000 rupee notes from the mid night of 8th Nov 2016.There are long queues before the bank branches and ATMs. We have addressed apprehensions about the taxation issues in an earlier blog. Recently the Parliament has amended Income Tax Rules pertaining to deposit of cash in the accounts. The tax treatment will be as follows:

Deposited with disclosures in Tax return

1. Tax @30% plus surcharge @33% and penalty of @10% of the deposit amount which makes it almost 50% of the deposit(In the earlier voluntary disclosure which ended on 30th September 2016,the      total amount was 45%)

2. 25% of the deposit will be kept with the bank for a period of 4 years at nil rate of interest.

3. The balance 25% can be withdrawn by the depositor

Deposited without disclosures in Tax return

 If the amount is not declared in Tax return then the tax rate will be 60% with surcharge of 25% and penalty of 7.5% which makes it a total of 82.5%

Withdrawal in Jan Dhan accounts

The maximum withdrawal per month is Rs10,000/- in case of KYC compliant accounts and Rs. 5,000/- in case of non KYC compliant accounts.

The maximum withdrawal per month is Rs10,000/- in case of KYC compliant accounts and Rs. 5,000/- in case of non KYC compliant accounts.

Can you become cashless?

Yesterday we went to buy vegetables from Vishnu, our local vendor. With limited cash in hand we were wondering how to pay him? We were surprised to see a board with paytm sign in front of the shop. After completing our shopping, I took out my Smartphone and made the payment through Paytm. The transaction was successful and the vendor got an SMS alert. It was so smooth and a big relief!!

If you want relief from the queues in front of the ATMs and Bank branches, it is not difficult. You can become less dependent on cash by making online payments. As may be observed below, if a family has a monthly expenses of Rs 50,000/-, they need not keep more than Rs 2,500/- of cash with them. A big relief from the long queues!!

Frauds in Online transactions

Today our office cleaning lady was very worried .On enquiry we were told that her son got his first salary which was credited to his Bank of India account. But when he went to withdraw the amount, there was no balance; it has already been withdrawn. On further enquiry he revealed that someone asked him his debit card number for reissuing a new card and after some time also asked to share the  OTP which was just sent. Ignorant of the risk, he shared the details.

The long queues before ATMs and Bank branches for exchange, deposit and withdrawal of cash has made everyone realize that electronic transactions are much convenient. But it has its own risks of frauds . We describe herewith the various frauds in online transactions and precautions to be taken. Card frauds basically involve theft of identity or information on your card.

The Govt of India has announced demonetisation scheme for Rs 500 and Rs 1000 rupee notes from the mid night of 8th Nov 2016.There are long queues before the bank branches and ATMs. We try to address apprehensions about the taxation issues.

Some people are posting the unverified computation chart of tax and penalty on cash deposit. It is a perception by some that the penalty of 200% is on the amount deposited. It is not correct.The facts are as follows:

1. You have time   till 30th December 2016 to deposit the same in banks (extended till 31 March 2017 with additional documentation)

2. As soon as one deposits, one needs to have an explanation ready for the source of this cash. Note here the explanation needs to be ready, neither the banks nor the Income Tax will ask for it as of now.The explanation will be on case to case basis;

3. (a) The cash may be  entirely “white”, on which one has already paid tax i.e. this is cash which has been declared in his books of accounts or he has withdrawn this from the bank. or (b)The cash may be entirely “black”, so to speak, which means he has never paid any taxes on the same. or (C) it may be combination of both.

4. So when one deposits such “white” cash, he has no problems what so ever since he has already paid taxes on the same. He just has to collect evidence of the source and keep it ready.

5. If the cash is “black” though, it becomes “white” as soon as he deposits it into the bank. Thus, now one will have to include this in his annual income, and think of a source for it. Since one has added it to his annual taxable income, he has to pay taxes on that (assumed to be 30% for simplicity).

e -Term insurance policy

e-Term insurance plan is a form of term life cover, it provides coverage for defined period of time. If the insured expires during the term of the policy then sum assured is payable to nominee. Term plans are specifically designed to secure the financial needs of the family or liquidation of liability in case of death of the bread earner of the family.

Low Premiums 

The premiums for Term insurance policies are the lowest among all the types of life insurance policies. The premiums are low since there is no investment component and the entire premium goes for covering the risk. eTerm insurance is cheaper by 25-35% to the regular term insurance since there is no element of commission in e term insurance.The comparative chart of some eTerm Insurance Policies are provided at the end.

Factors to be considered are;

  •  How good is the claim settlement ratio? ( Click here)
  •  Compare the premium!  
  •  Decide the cover you need (At least 10 times the annual salary)

What to do if you get an income tax notice?

If you get an Income Tax notice don’t panic. Read the notice carefully. If you don’t know what to do, go through the following;

Notice Under section 143(1)

Mostly a good news! The most common form of intimation is under section 143(1). But at this stage it may be just an intimation, and you don’t need to take any action. Sometimes it states that your return has been successfully processed. The income tax department validates each tax return with its own record and this notice usually only points out apparent mistakes found out by the system. This intimation has two columns ‘As provided by taxpayer in the Return of Income’ and ‘As computed under section 143(1)’. You can run through each of these amounts and find out where the discrepancy is. It could be that a certain TDS has been disallowed or there is a mismatch in self-assessment tax payments, a rounding off error. A final tax due or refundable is computed.

Notice Under section 143(2)

A notice can also be issued if you fail to file your return within the prescribed time.

General notice for verification

A general notice for verification is issued to check transactions. For example, a taxpayer may receive a notice of cash deposit or initial public offer (IPO) subscription. Such notices typically require you to only confirm whether you have filed your return and if this transaction was included. This notice should not be construed as a scrutiny notice.

Notice is about assessment or reassessment

If the notice is about assessment or reassessment, it indicates that the taxpayer’s case has been selected for detailed scrutiny. It will generally be accompanied by a questionnaire seeking information.

A Credit Report is an integral part of every individual's financial life and can be the fine line between getting credit and being denied the same. The credit score is a representation of one's creditworthiness, i.e.  the individual's willingness and ability to repay any outstanding debt. Of course, a score is never considered in isolation; a lender factors in other parameters as well when scrutinising an application for a loan or credit card.

A 'good' score can be the key to unlocking your dreams - say for example you want to avail of a loan to purchase a house or a car. The parameter of what is considered to be a good score differs from lender to lender.

The Committee constituted by RBI has recommended that each customer of a credit institution should be provided one base level consumer Credit Information Report (CIR) free of cost every year by each Credit Information Company. Now each individual can get free annual credit report upon request shortly.

What is Credit Score

A credit score is a summary of the credit report, which captures in depth an individual's credit history, both past as well as current. This information includes the length of credit history, number of accounts held and the type of accounts as well.

There are four credit rating bureau now i.e CIBIL, Equifax, Experian and CRIF High Mark.The most popular is CIBIL.

Sovereign Gold Bond Scheme 2016

(Open between 1st Sept to 9th Sept 2016)

It is a government securities denominated in grams of gold. They are substitutes for holding physical gold. Investors have to pay the issue price in cash and the bonds will be redeemed in cash on maturity. The Bond is issued by Reserve Bank on behalf of Government of India. The bonds are held in the books of the RBI  or in demat form eliminating risk of loss of scrip. The application form will be provided by the issuing banks/designated Post Offices. It can also be downloaded from the RBI’s website. Banks may also provide online application facility.

Process

KYC will be completed by the issuing banks/Post Offices. Any Individual, HUF, Trust and Company can subscribe to these bonds. The maximum holding period is 8 years with lock in period of 5 years. It carries interest rate of  2.75% pa. On maturity one can get the equivalent amount of market price of gold. Loan Facility is available against gold Bonds. One can possess gold on paper and need not  take risks of physical safekeeping.

Important points to note while Buying SGB:

  1. Issue Period: Issue open date : 1st Sept 2016 Issue Close date – 9th Sept 2016
  2. Price : Rs 3150 Per gram of Gold
  3. Interest : 2.75% p.a. payable semi-annually on the initial value of investment
  4. Investment : Min - 1Grm Max – 500 Grms gold per person in a Fiscal year (April – March)
  5. Tenor : 8years with Exit option from 5th year to be exercised on interest payment dates
  6. Tradability :  Tradable on exchanges from date to be notified by RBI

Women need Financial Planning

Traditionally women are better at managing family’s budget and are more concerned about children’s education and marriage. We find women groups take to streets when prices of vegetables and other essential items increase beyond tolerable levels. Nowadays increasing number of women are opting for career in regular jobs. It provides them opportunity for financial independence. It is high time for women to take control of their finance for the following reasons; 

 (1)   Increasing divorce rates – India is witnessing a surge in divorce rates and therefore entrusting the spouse with financial matters can create money crunch. It is prudent to keep a tab on your monthly investments and determine holdings in your name, so as to avoid financial complications later.

(2)   Time off for raising children – Many expectant mothers wish to take a time off over and above their maternity leave in order to raise their children, but can’t do so due to financial commitments. Hence, a proper planning on creating a ‘time-off’ corpus can help them to do this.

(3)   Daughter as a son – Today, more of the daughters are evolving as sons to their families and thus contribute to the family finances. Women, by participating in financial decisions, can become trendsetters by continuing to be an asset to their own family even after marriage

(4) More life to live- In old age; women largely depend financially on their spouses. But, with life expectancy of women being higher than men, it is advisable to put in place a separate retirement planning for themselves. 

Today, women have more power and earning potential than ever before. They have the ability to sharpen their skills in building wealth and undertake financial planning to achieve their financial goals in life.

Simplify your Investments

Asset Classes

There are four major asset classes; Real Estate & Gold under physical assets and Equity & Debt under financial assets. The trend of physical assets providing higher return is now reversing. 

Real Estate: Real estate investment is indivisible and illiquid. It carries liquidity risk. It may take longer time to find a buyer for selling the property and hence one must invest in real estate only if one wants to remain invested for longer period. Further real estate prices are correcting and may not provide the higher return it has generated in the past.

Gold: Investing in physical gold and ornaments depresses return due to making charges. It is advisable to invest in Gold ETF of the Mutual Funds. But over last two/three years, gold has not provided return to beat inflation. Sovereign gold Bonds are the flavor of the season. It provides interest of 2.75% besides benefit of capital gain tax. Gold should not be more than 5-10% of your portfolio.

 Equity (Shares and Mutual Funds): It carries volatility risk due to fluctuations of prices in share market. But the volatility gets normalized over a longer period. Hence it is advisable to invest in equity for longer period and not to invest for short term goals. 

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