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 But when he went to withdraw the amount, there was no balance; it has already been withdrawn.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;

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.

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.

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.

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.

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. 

Tax Deduction at Source (TDS) on interest on Fixed Deposits and Recurring Deposits of banks have caught many savers with surprises. While buying Life Insurance, we are advised that premium payment upto Rs1.50 lakhs are tax deductible under section 80C and maturity proceeds are tax free under 10(10D). But it is not so always! Many insurance products do not qualify for full tax deduction and maturity not fully tax-free. The current low return on Insurance is further impacted by incidence of tax.

 TDS on Life Insurance Proceeds

Insurance products tend to give you a deduction of up to Rs1.5 lakhs from your taxable income under Section 80C. Effective April 2012, the sum assured should be at least 10 times the annualized premiums for life insurance policies to enjoy this tax benefits under Section 80C and on maturity proceeds under Section 10 (10D). Numerous life insurance products are available in the market that do not qualify for full tax savings on entry and will have no tax exemption on maturity. The new section 194DA of the Income Tax Act, 1961, that took effect on 1 October 2014, envisages TDS on life insurance policy payouts which are not exempt under Section 10(10D) and total amount paid to a policyholder towards non-exempt policies that exceeds Rs1 lakh in a financial year, would attract a 2% TDS (tax deduction at source) on the maturity, surrender or partial withdrawal amount of life insurance policy. If you are buying a life insurance product, which does not qualify tax-free returns, this may be an absolute disaster for your investment.

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