Interest on borrowed capital for self occupied property

The maximum amount of interest permissible in cases of self-occupied property is ` 1,50,000 (in respect of funds borrowed on or after 01.04.1999). Interest upto ` 1,50,000 is deductible if the following conditions are satisfied:

• Capital is borrowed on or after April 1, 1999 for acquiring or constructing a property;
• The acquisition/construction should be completed within 3 years from the end of the financial year in which capital was borrowed; and
• The person extending the loan certifies that such interest is payable in respect of the amount advanced for acquisition or construction of the house or as refinance of the principal amount outstanding under an earlier loan taken for such acquisition or construction.

In the above context the following further aspects have to be kept in view:

1. If capital is borrowed for any other purpose (e.g. if capital is borrowed for reconstruction, repairs or renewals of a house property), then the maximum deduction on account of interest is ` 30,000 (and not ` 1,50,000).
2. There is no stipulation regarding the date of commencement of construction. Consequently, the construction of the residential unit could have commenced before April 1, 1999 but, as long as its construction/acquisition is completed within 3 years, the higher deduction of ` 1,50,000 would be available. Also, there is no stipulation regarding the construction/acquisition of the residential unit being entirely financed by the loan taken on or after April 1, 1999. It may be so in part. However, the higher deduction upto ` 1,50,000 can be taken for the loan which has been taken and utilized for construction/acquisition after April 1, 1999. The loan taken prior to April 1, 1999 will carry deduction of interest upto ` 30,000 only (CBDT’s circular No. 779, dated September 14, 1999).

` 1,50,000 maximum deduction will not be available in the following situations:

1. If capital is borrowed before April 1, 1999 for purchase, construction, reconstruction, repairs or renewals of a house property;
2. If capital is borrowed on or after April 1, 1999 for reconstruction, repairs or renewals of a house property; and
3. If capital is borrowed on or after April 1, 1999 but construction is not completed within 3 years from the end of the year in which capital was borrowed.

In the above situations only deduction upto ` 30,000 can be claimed.

source: www.taxguru.in

Premature PF withdrawal attracts tax

The provident fund (PF) is one of the most popular retirement benefit schemes in India. It is also considered as a tax-saving investment for contributions (employer up to 12% of basic salary and employee up to overall deduction of ` 1 lakh) made towards an approved/recognised PF, the year-on-year accruals and the amount received on maturity from such funds is tax exempt.

In most cases, the accumulated PF balance is withdrawn at the time of retirement, and therefore, not taxable in the hands of the individual. However, in certain cases like change in employment, an individual may even withdraw the PF balance earlier. The point one needs to remember is that the amount received from such PF is not exempt from tax in all cases. Only under the circumstances listed below will the amount withdrawn from PF be eligible for such exemption from tax.

If the employee has rendered continuous service with the employer for five years or more. Again, if the balance includes amount transferred from the individual’s PF account maintained by previous employer(s), then the years of continuous service rendered to the former employer(s) would be included for the purpose of computing the five-year period.

If the employee has not rendered continuous service of five years, but the service is terminated by reason of the employee’s ill health or discontinuance of the employer’s business or reasons beyond the control of the employee, the amount will be tax-exempt.

Another tax-exempt case is when, on the cessation of the employment, the employee finds another job and the the accumulated PF balance is transferred to his individual PF account maintained by the new employer.

In short, where the PF amount is withdrawn before five years of continuous service, it may be taxable in the hands of the individual as if the fund was not recognised from the start of the contributions. In such a case, payment received by the individual in respect of the employer’s contribution along with the interest accrual thereon is taxed as “salary”. Interest on the employee’s contribution is taxable as “other income”. Payment received in respect of the employee’s own contribution is exempt from tax (to the extent not claimed as a deduction earlier).

I-T provisions provide that the trustees of a recognised PF or any person authorised by the regulations of the fund to make the payment of the accumulated balance to the employee should deduct tax at source while paying the amount. Further, the person liable to deduct tax has to issue the certificate of tax deducted at source (Form 16) within the specified time frame to the employee depicting the details of taxes withheld from the accumulated PF balance and also comply with other salary-related compliance necessities. So the next time you think of withdrawing your PF, you must as an individual also assess whether the same is taxable or exempt.

source: www.indianexpress.com

How to repay personal loan quickly

More often than not many of us consider a personal loan as the best option to meet contingencies. Opting for a personal loan without studying its terms and conditions and services could cost you more than what you intended!

If you are stuck in a personal loan debt, here are some ways to free yourself:

Asset monetization

If you have one or more of these assets such as car, home, life insurance policies, tax saving certificates, shares, bonds and debentures, or gold jewelry, bank fixed deposits, or mutual funds, you could monetise them to pay off your debt. In fact, some banks offer loan against assets that carry a lower rate of interest which could be used to settle your personal loan.

Debt consolidation

Another effective way of dealing with your debts is through what is called debt consolidation. In this method, you could pay a relatively lower installment every month over a longer tenure to the lender who will combine all the components of your debt portfolio into one. Debt consolidation is an effective option if you have too many loans to take care of and not enough monetary capacity for astute financing as this method will give you a built-in view of your credit worthiness. Though beware that when you calculate the total loan cost in the long run, it might become expensive. However, the idea is to obtain a short term relief under the current circumstances. Once your finances improve aim to close the loan earlier than planned.

Top up or convert to a secured loan

If you had taken a home loan you can move to a lower cost credit by going for a top up on your current loan. Another viable option would be to talk to your bank and if they agree convert the current loan into a secured loan against your vehicles, house, but only if the property is free from debts, liens or mortgages. This way you can restructure the loan for a lower monthly payment after taking into consideration the loan tenure and the interest rate.

Perhaps, the only drawback in converting a personal loan into other loans having collateral is that you stand to lose the collateral at risk in case of default on your loan amount, which could mean a lot when there is a contingency in the future. Hence, it is advisable to convert your current debt into a secured loan only after analyzing your capacity to repay the secured loan so that you don’t stand to lose the collateral at risk.

Remember that even a single default on your personal loan could trigger unexpected after effects in the repayment of your current loan and getting a future loan. In cases of the first default, it is ideal for you to talk to your lender and find a way out. Under normal circumstances the lender could impose a penalty of roughly around 2% on the default amount, which will only add to your current burden! So strive to discuss any problems you face with the lender to seek advice on possible solutions.

Remember, a personal loan is always a risky alternative finance with a higher rate of interest and it is better to close the loan as early as possible.

Evaluate other options before you take up a personal loan

In a case of any eventuality you could try the other time tested avenues of finding emergency funds. Monetizing your assets, or selling off your shares, bonds or debentures or premature closing of your fixed deposit could help! If you are a salaried individual the best way to get funds to meet a contingency is to approach the bank where your salary credit is done. Having known your track record and your exact income and withdrawal transactions, the banks are the best option available for you to secure a loan. The rate of interest could be relatively lower for you, as you bank with them. The same option holds good for any businessman having a current/savings account with a bank.

You should opt for a personal loan only if you do not have any assets to monetize or other options don't work for you as interest rates are the highest next to only credit cards! 

source: www.indianexpress.com

Smart Investment Tips for Mothers

A mother handles myriad responsibilities in a household. It not only includes running the household, but also, as with many working mothers, planning and aspiring for the future needs for their children like their education, health and marriage.

While all mothers concentrate on executing these responsibilities with utmost diligence, they may not necessarily be aware of the most optimal way of reaching their own financial goals to ensure a good education and life for their children and hence the importance of financial planning.

The foremost step to financial planning for mothers is to identify and set their financial goals. Most working mothers contribute a certain amount of money every month towards their household expenses and child care, because of which their families are used to a particular standard of living. It, therefore, becomes important for working mothers to take care that they are not underinsured. Working mothers should also take care to have sufficient health insurance to protect themselves against accidents or sudden critical illnesses.

Similarly, while stay-at-home mothers may not be contributing financially towards the household expenditure, they are the glue of the whole family in every other way. It becomes essential therefore that they are not only insured but more important also covered against any critical illnesses and accidents.

The next key financial goal for any parent including mothers is saving for child’s education and marriage. While it may not be a financial burden for mothers in the initial years, the cost of education can become serious a matter of concern once the child goes to college. To reduce the burden of the exorbitant cost of education, mothers should start saving and investing for it as early as possible. There are various investment options available in the market to address this need such as child education plans in the market offered by insurance companies and some mutual funds as well as other form of savings.

Similarly for marriages, while gold has always an attractive investment option for most women, it is not a very highly recommended one, given the rising prices. Mothers can even explore investing in fixed deposits and balanced funds offered by mutual fund companies and insurance companies for medium to long term horizon. They can even look at investing in equities if they would require money in the time frame of 5-8 years.

For women who can afford the cost of equated monthly installment (EMIs), investing in real estate is also an excellent option if you would like to leave your children with a home. Working mothers can also avail tax benefits on home loan EMIs paid. In addition to these, roughly 6 months of the family monthly expenditure should be kept in liquid cash for any emergency or sudden expenditure arising in the family.

Lastly, apart from covering their life and saving for their children’s education and marriage, it is essential for all mothers to plan for their retirement. Women, especially working mothers, need to plan their retirement so that they are able to maintain their own standard of living without being dependent on children or anyone else. Apart from the provident fund for working mothers, which will give them a lump sum of money on retirement, they should also invest in retirement plans offered by life insurers and mutual funds.

Hence, the key to a good and efficient financial planning is to start investing as early as possible. Mothers, given the many members of their family they take care of, even starting early with small amounts will help them build a big corpus with the power of compounding.

source: www.indianexpress.com