Make the most of your Festival Sale

It is festival time and all our newspapers, emails are filled with all kind of attractive discounts and buy back schemes enticing us to buy the most of things on display. Now with the eCommerce sites vying for the maximum buy around the festival times, the discount wars have shifted its gears from offline to online markets. With the GOSF, spreading its reach even tier 2 and tier 3 city are now shopping online.

The banks are also an active participant in this bandwagon giving impetus to festival buying and increase use of credit money.Some of the popular ways you can make the most of your purchases are:

a)Buy back schemes – It has been one of the most successful method to entice the customer especially for consumer durable even in olden times, where buying an electronic good was a big event for any family. The scheme would attract customers to replace their old appliances with a new model and get a good amount of reduction in the purchase price. Although its a popular new purchase method even today, but now the value of replacement is limited and makes hardly any reduction in the purchase cost. There is a minimal reduction due to ever changing technology and cut throat competition. To make the maximum of this deal always compare two- three big vendors beyond your local seller.

b)Cash back schemes – These schemes are mostly an offering of banks with their specific tie – ups with exclusive stores or brands. It is a successful method to make the consumer use his credit/ debit card and also to make expensive shopping. Generally the cash back is around 5% of the value credited in your account in 60 days time frame . If it a bank offer it gets credited around your bill cycle. They are more or less like our old days cash discounts.

c) Free Shipping – This is an easy way to attract customers especially in an online shopping spree. Usually shopping beyond a certain money value is given free shipping. The cost of paying for transportation acts a deterrent to revisit the website.So, to make the value of shopping more the free shipping acts a good attraction. Websites like Ferns N Petals charge a premium to deliver their goods at specific hours or midnight making it an additional cost. So, if you have not planned your purchase well in advance, it is better to route your purchase from one single website to waive these charges.

d)Supplementary gifts – A small additional gift received along with the purchase of your expensive good always make you attracted to this format. It is mostly found that if make a purchase Rs 1 lakh you are given a gift of Rs.5,000 or so. So, its wise to make your purchase only if you find the attached gift worth your utilization. Sometimes, in jewellery, the making charges are waived off.

e)Privilege Points – The most interesting and attractive way to make your purchases is to earn privilege points. These points are easy way to make a future purchase. Some times, an airline adds to points on your credit/debit card and redeemed to buy tickets.

So go ahead and splurge this festive season ahead. Just be sure that whatever you spend is worth the value. Don't be attracted towards the attached strings but the actual worth of purchase made.

Which loan do we Repay first -Home or Personal?

Although in all our previous post we have been advocating the fact that loans should be utilized only when extremely necessary, taking loan has become the way of life. Many might deny the fact that we don't have any sort of loan or EMI payment on ourselves, but what they ignore is that using their credit card indiscriminately is also kind of a loan. So, to lead a loan free life it is essential that we schedule repayment of our loans at regular time intervals. It boosts our monthly surplus as well as give a peaceful mind.

We have been discussing few asset based loans in previous few posts(refer to our November 2015 posts for more information at www.saarthifp.blogspot.in). Considering the above and the traditional other loans, we should prioritize the loan repayments in the following order:

Priority 1: Personal loans

Target your repayment with this short term but high on interest Personal loans. The loan is given based on the credit history of borrower and his repayment capacity i.e. Income. The end use of the loan is not defined and is usually preferred for splurging on more of wants rather than wants of individuals. It is an unsecured loan thus , they are often offered at a higher interest rate with higher EMI payments. Similarly is the credit card repayment which needs to be equally prioritised.

 

ROI	13.00%
Period of loan	4 years
Amount of loan	6,00,000
EMI	16,096
Total repayment made in 4 years	7,72,632

Priority 2: Asset based loans

The asset based loans like gold loans, loan against property, loan against fixed deposits and insurance policies are usually borrowed for some unplanned requirements. Such loans should be looked to be repaid as they are just have an additional interest burden. Although, the amount of loan in gold and property is determined on basis of asset value and it is just acts like an overdraft facility for actual funds used. (Read more about the features at our previous blogs at www.saarthifp.blogspot.in ). In all the earning capacity of these assets is not more then the charged interest rates, hence they should be repaid after any Personal loan.

Priority 3: Home loan

Although ,Home loan is one of the commonly availed loans, we recommend to get rid of it at every possible opportunity. For years people have been harping the tax benefits associated with it but the truth is that the tax benefit is a very short term benefit versus a lost opportunity to invest the EMI savings elsewhere. The exit strategy for home loan also differs based on the tenure and type of house. in the housing loans, in the initial few years, most of the EMI payments are towards the interest payments and its only during the last few years of loan tenure that they account for principal repayments. Look to repay the loan in first ten years tenure of loan as the deduction for principal repayment is under usually crowded 80C whereas there is no limit for second home (for self occupied home limit is Rs 200000). So, as and when you get huge amounts or windfalls, plan to route it for home loan repayment.

ROI	9.55%
Period of loan	20 years
Amount of loan	25,03,000
EMI	23,413
Total repayment made in 10 years	28,09,563
Total repayment made in 20 years	56,19,127

Conclusion

It is very necessary that you analyze the pros and cons of whether to opt for an investment or to use the funds to repay the existing loan. It is necessary to decide your exit point for any loan and not make any emotional attachment to it.

Tax Return for a Deceased Person

It is not unusual if somebody files tax return on behalf of himself or his family member. However, we have come across situations where people are misguided regarding the fact that tax returns for a deceased member are not required to be filed.Families are usually under emotional distress for sometime following the death of a near one and can hardly think of anything else but to revive their lifestyle.

So,on inquiry by few of our friends and clients, we would like to share that a deceased person might stop existing physically but his investments earnings and income for the last financial year is still tagged to his name till the attached will/ estate distribution takes place. So, as per the rules under IT act, tax returns for a deceased person needs to be filed like any other ordinary man. Today, we will discuss in short about the basic outline of this process.

How is the income calculated for deceased person?

For the previous year the total income is divided in two sections:

a) beginning of previous year (i.e. From 1^st April) till the date of death.

b) from the date of death till the end of previous year (up to 31^st Mar).

Who is liable to file tax return for deceased person?

As per section 159 of IT Act 1961, a legal representative of the deceased is responsible for filing tax return. Usually, the spouse or any close relative of the deceased takes charge as the legal representative. In case of will, of the taxpayer who has passed away, the executor or any one mentioned in the will is held responsible. In case of multiple legal heir (in case of more than 1 child) it is always preferred to get a written agreement between all regarding the tax return filing.The IT act mentions the list of documents to be filed for legal heir is as follows:

https://incometaxindiaefiling.gov.in/eFiling/Portal/StaticPDF/Register_Legal_Heir.pdf

Who is liable for tax liability of deceased person?

Although, the legal representative / heir makes the required return payment, he is not responsible for liability clearance from his own funds until the assets are actually distributed. He can claim the amount in case of penalties or any other advance tax payments made from the estate of the deceased. If the executor is responsible for making the required tax return, he can claim the amount from the estate income. 

Accordingly, in case of any refund cheque received, it is to be deposited in joint account held with the deceased person. If there is no such account, then the registered bank account's nominee needs to present Succession certificate, death certificate etc to court.

In case of further queries, we would request you to contact us at saarthifp@gmail.com to get a personalized response to your particular situation.

All about Hindu Undivided Family

For long time,we have been getting request to discuss the concept of Hindu Undivided Family. The concept which has for years been linked to our joint family system is often misunderstood just as another separate entity created to save taxes. However, the structure and norms of an HUF are very complex and with proper guidance be a preferred way to create a pool of family assets.

A HUF is a entity created by family members up to four generations i.e. lineal ascendants or descendants of Hindus, Buddhists, Jains and Sikhs. There is no mention of any formal definition of HUF in the IT laws. The HUF follows the Mitakshara School of Law.

To start an HUF, an married individual with a child can start a HUF. The HUF needs to be formed by a male member.Some of common terms associated with HUF:

a)Co-parcerners – Members of a family who acquire right in the property of HUF by birth i.e. Father,son and daughters. The wife of the person forming the HUF is not a co-parcerner but a simple member.

b)Non Co-parcerners- Members of family who are part of HUF but cannot ask for partition or break down of HUF property. They can only claim maintenance expenses. A smaller HUF can also form a part of the bigger HUF.

c)Karta- The elder most male member of the family is declared as the Karta of the family. In case of his death, the responsibilities of a Karta needs to be fulfilled by next elder male son or if there is no son , the eldest daughter becomes the Karta.

d) Property under HUF – Any property which is received from ancestors by way of partition or way of gift through Will, additions to the existing properties, blended or properties thrown in common pool of HUF property. An individual can add his individual properties in the HUF. It then looses the individual ownership character. Any co-parcerner can add property to the HUF pool. Any member can also receive any gift for its co-parcerners ,members or any outsiders.

e) Partition – It is process of severance of the status of HUF under tax laws. As per tax requirements, the partition needs to be physical and not just notional. It can be partial or complete. In case of complete partition, the entire HUF ceases to exist. It can be partial where some members or properties go out with partition. Even on death of a co-parcener can only distribute the assets of his share and not the entire property.

f) Taxation -Since the HUF leads to creation of additional tax entity, there is a separate PAN card allocated for HUF. This gives the benefit to push the income slab lower to the level of individual incomes. For example, if in a family , husband has annual income of Rs 12 lakhs, wife of Rs 8 lakhs and a rental income of Rs 6 lakhs from a family home, then there are 3 possibilities: 

 

a) Rental Income gets added to husband's name and is taxed @30% tax slab.

b) Rental Income gets added to wife's name and is taxed @20% tax slab.

c) Create a HUF for family, add the ancestral property to it and the income is taxed on a separate entity for Rs.5.5 lakhs (after exemption limit of Rs 2.5 lakhs).

Thus HUF has much more benefit then just the tax angle associated with it. We would recommend that if required, you too can avail of it. For more information email us at saarthifp@gmail.com for a personalized advise.

Employee Provident Fund withdrawal v/s transfer

With every change or move in career, follows a long list of essential paper work formalities to clear previous dues. It takes a lot of effort from both sides – i.e. Company as well as the employee to work hard towards this clearance. Many times, the excitement of a new job role or a city change is so huge and overwhelming that you leave many things undone with the previous job.

One of the severance formalities mostly left attended is clarity on Employee Provident Fund. On leaving a job, it is in the interest of employee to either transfer his provident fund account to his new job or withdraw the collected amounts. The decision has to be made at the time of leaving the last job. 

 

What is a better option – To withdraw or Transfer EPF?

Previously, with the numerous and delayed paper work, employee usually preferred to get their PF funds withdrawn over transferring it to new jobs. However, now with the Universal Account Number (UAN) facility, it has become a much more simpler process to handle the transfer. However, on a numerical front also it has its own calculations when you make your decision.

a) No of years in last service- In case of your service of short span say less than 3 years, withdrawing your PF would not accumulate to a huge sum plus the amount received on withdrawal would be taxable. Also, if continue with the same PF number for more than 10 years you can easily be eligible for pension (after 58 years of age). The pensionable salary depends on your last drawn basic salary.

b) Number of years left to retire – If a person is nearing his retirement age and making a job change, it is best advised to let the PF grow on its own and transfer it to new job rather than withdrawing it.

c) Purpose of withdrawal – If the person is in need of funds for an important cause like building his home, sponsoring on his children's education expenses or to fund a medical emergency, it is advised to withdraw the amount if no other alternative is available. Although, if he intends he can even avail a n advance on the same. But this should be for an identified 'Need' and not a 'Undesirable Want'

d) Taxability - The amount of PF withdrawn before five years of continuous service is eligible for taxation. So, be wise to understand if you want to withdraw the money or get it transferred to your new job.

Year of Service	PF eligible monthly Basic Assumed	Annual Employee Contribution (12%)	Annual Employer Provident Contribution (3.67%)	Annual Employer Pension Contribution (8.33%)	Interest earned on assumed PF rate =8.5%	Amount at end of tenure
1	6500	9360	2863	6497	1039	13262
2	6500	9360	2863	6497	2166	27650
3	6500	9360	2863	6497	3389	43262
4	6500	9360	2863	6497	4716	60201
5	6500	9360	2863	6497	6156	78579
6	15000	21600	6606	14994	9077	115862
7	15000	21600	6606	14994	12246	156314
8	15000	21600	6606	14994	15684	200204
9	15000	21600	6606	14994	19415	247825
10	15000	21600	6606	14994	23463	299494
11	15000	21600	6606	14994	27854	355554
12	15000	21600	6606	14994	32620	416380
13	15000	21600	6606	14994	37790	482376
14	15000	21600	6606	14994	43399	553981
15	15000	21600	6606	14994	49486	631673
16	15000	21600	6606	14994	56090	715969
17	15000	21600	6606	14994	63255	807430
18	15000	21600	6606	14994	71029	906665
19	15000	21600	6606	14994	79464	1014335
20	15000	21600	6606	14994	88616	1131156

The amount received at end of 20 years is Rs 11,31,156/- completely tax free

Monthly pension after age of 58 is Rs.4286/-

For more information related to your provident fund contribution, transfer or even on advance eligibility , please contact us at saarthifp@gmail.com or visit www.vijayshahandassociates.in

Gold Schemes launched this Diwali

This Diwali ,Government has launched two schemes like Gold Monetization Scheme and Sovereign Gold Bond. The main purpose of these schemes is to offer the benefit of Gold price volatility and hedge against inflation to investors. It has dual benefits of earning power i.e. interest yield (interest on the invested amount equivalent to the value of Gold deposited), that does not exist in the traditional way of investing in gold like physical gold or Exchange Traded Funds. Moreover, this will save vault charges which are currently being borne by individuals for safeguarding gold.

GOLD MONETIZATION SCHEME: This scheme works like an gold savings account which earns interest for the gold that is deposited and will also save recurring cost. Gold can be deposited in any physical form like jewellery, coins or bars subject to a minimum of 30 grams. These accounts can be opened for three different tenures - short term(1-3 years) , medium term (5-7 years) and long term (12-15 years). The interest is calculated on basis of gold weight and also the change (appreciation) in the value. On maturity,the depositor can buyback gold equivalent to its value or take away the amount as per his preference on application. In case, if the depositor wants to redeem the Gold Saving account interim, it is also possible

SOVEREIGN GOLD BOND: The bond can be subscribed by by resident of India which includes individuals, HUFs, trusts, charitable institutions, etc. The minimum investment required is of 2 grams to maximum 500 grams . Although, the maximum period is of 8 years an easy exit from 5th, 6th and 7th years onward. The interest to be earned is at 2.75 percent interest per annum on the amount initially invested. The bonds would be listed on the exchanges which will provide easy entry/exit route to the investor. The pricing of this bonds is dependent on weekly average price of gold by the India Bullion and Jewellers Association Ltd. The price would also be made available on RBI website. These loans can be used as collateral for loans and other purposes.

The main purpose of these schemes is to encourage participation in tradeable gold and to reduce the our dependability on the imported gold.It will also help to reduce the current account deficit. Also, the idle gold lying in our households can also get more earning value attached to it.

More information can be made available at the government links as below:

https://mygov.in/sites/default/files/master_image/Draft_Gold_Monetization_Scheme.pdf

https://mygov.in/sites/default/files/master_image/GoldBond_Draft.pdf

Loan Against Gold

Gold has for years been one of the favorite assets to be passed on as a heritage value to next generation or otherwise for self consumption. Hardly have we ever considered it as an investment asset i.e. To be redeemed for goal achievement. Hence, we always have maintained that use gold as an diversification tool but never invest all your savings in to it. Since, if any investment is never sold or used for our goal fulfillment, it has no place in our net worth. It is just a personal asset for gratification. So, if this asset can be now used for meeting your short term funding requirement without actually parting with it , it should be considered as a useful end purpose of gold. So, we today learn about loan against gold or gold loan.

What is Loan Against Gold?

A loan which is availed by pledging your gold ornaments ( around 18 – 24 karat) with the lending institution is known as gold loan. The loan cannot be availed against gold coins or bars. The loan is sanctioned based on purity of gold and verification of supporting gold documents. The value is decided on basis of gold and all stone weight is deducted from the same.Beyond this basic identification papers and residential of borrower is verified. The maximum lendable limit of Loan to value of ornaments is 75% but the lending banks can themselves decide their individual limits for lending. This rule is only applicable for non agricultural end usage.

What is tenure of gold Loan?

The tenure for gold loan differs for different lending authorities. It varies from 12 months to 48 months.

What is the interest rate charged?

 

The average interest rates floats from 12% -13% depending upon the bank average floating rates. Also, special lending rates are made available for women lenders or for end use in agricultural sector.

How does the repayment of this loan happen?

Barring the interest repayment on monthly basis, the borrower can repay the entire loan at the end of tenure. The loan can be repaid at any of the branches or online as per the bank features but the pledged gold can be released only at the branch where is it physically stored.

Word of caution

For years gold has been used to be pawned with unorganised segment of lenders for very high interest rates but now when we have the opportunity to gain access to more lower rates of interest we should use it wisely. Please don't get attracted to extreme low rates offered by some novice lender since the security of your gold hedged could be compromised. Also, it is to be considered that the loan is taken to be repaid and not to be used as a never ending cycle for easy money.

In the coming week , we will discuss the recently launched schemes by government for monetization of gold.

Loan against Securities

Moving ahead with our series of assets utilization for short term goals, we now move across to discuss the next set of bigger chunk of our net worth. i.e. Our Investment Assets. 

 

What is loan against Securities?

Loan against securities is basically an overdraft facility made available against pledging of your securities with a financial institution for a certain amount against the market value of the security. The various instruments that are generally included under this are:

• Demat shares
• Mutual Fund units
• Fixed Maturity plans (FMP)
• Exchange Traded Funds (ETF)
• Insurance Policies
• Savings Bonds

Who is eligible for this loan?

As per the individual products, the eligibility is determined. Generally, an individual between the age of 21 to 70 is given this loan. It may differ as per different bank wise. Also, there are sub conditions for eligibility in the products discussed above. However, there is an approved list of securities published by every lender to determine to certify the loan. Also, in certain cases HUF, or companies, patnerships or sole proprietorship are not allowed to secure these loans.

How much can one borrow against securities?

Usually almost 50% of the total market value is made available as an overdraft against securities. This amount is also reviewed from time to time (sometimes as frequent as weekly) to match the fluctuating market value. The overdraft facility is an annual contract renewable every year in line with change in approved list of securities.

What are charges or how do I repay the loan?

Beyond the processing charges, the bank charges you interest on amount withdrawn by you and for the period for which it is utilized.It is usually charged on monthly basis in your account. This makes it flexible to ensure that you don't have a fixed cost attached every month and our paying only for your expenses.

So, Loan against security is helpful in case of some short term fund requirement although, it is not recommended to be utilized for some unrequired expenditure but used for asset building.

Know more about Loan against Property

One of the recent popular modes to acquire additional funds is to secure a Loan Against Property. It is preferred mode over the other competitive loans like a Personal Loan or a Home Loan. The main deciding factor to select any particular kind of loan is the interest rate or the formalities involved in acquiring one.

What is Loan Against Property (LAP)?

The term ‘loan against property’ is in which the borrower takes a loan from a bank or financial institution against the security of a property owned by the borrower. The nature of the property will determine the amount of the loan that is possible.

Being a secured loan, the interest charged on it are lower than any other alternatives of loan. The average range of interest rate is from 12%-16% pa for a tenure of 15 years.The only deciding criteria is the condition of the property that helps the lender decide the market value of the property. The loan is given on certain percentage basis (around 40-60% of the value) of the market value of the property.

What kind of properties are used for LAP?

• Self occupied residential Property or any other self owned property
• Commercial Property owned by borrower

The only criteria being that the property should be free from any mortgage or any other lending.

What is the main purpose for LAP?

Although, LAP has the following applications, as a Financial Planner, we advise to go for these options only if you have secured well for your primary financial goals and have a huge property asset lying unutilised at your end.

• Business expansion
• Son/Daughter marriage
• Son/Daughter Higher education abroad
• Dream vacation

Who is eligible to get a LAP?

Any individual including the salaried,professionals or even self employed individuals are eligible to take a loan. The main criteria in addition to financial stability is the age factor of availing the loan.( generally the minimum age to acquire a LAP is 24 years). 

Compare the LAP services

A visible comparison of the existing LAP services made available by financial institutions. Please note that the detailed information can be made available on their respective websites.

	SBI	HDFC Bank	Bajaj Finance
Interest rates	2.50% Above base rate. Currently at 12.50% pa	11.35% to 13.35% pa	Not available
Margin for Loan	60% of Market Value	60% of Market Value	Not available
Tenure	5 -10 years – term loan in equated monthly income	Upto 15 years.EMI /Overdraft facility available	15 years
Eligibility	24 times of net monthly salary or 2 times net annual income	Varies from case to case	Varies from case to case
More details	Special product called rent plus for commercial /residential rental earnings	Overdraft facility , rent receivables	Lease Rental discounting
Website	https://www.sbi.co.in/portal/web/personal-banking/loans-against-property	http://www.hdfcbank.com/personal/products/loans/loan-against-property	https://www.bajajfinserv.in/finance/loan-against-property