PUBLIC PROVIDENT FUND - PPF

The key to wealth creation lies in the practice of saving regularly and systematically. The Public Provident Fund (or the PPF) is one such long-term investment option that would suit investors of all types. Scoring high on safety, by virtue of it being government backed, this wonderful option comes with tax benefits, loan options and a low maintenance cost.

Scheme Availability

A PPF account can be opened at anytime during the year. It is open all through the year.

Who can open a PPF account?

A PPF account can be opened by an individual on his own behalf or on behalf of a minor of whom he is the guardian or on behalf of an association of persons or a body of individuals. An individual can open only one account for himself.

Mode of Operation

• Single
• Minor with parent/guardian

Returns

Interest 8.6% p.a. (earlier 8.0% p.a.) (Compounded annually) is credited to the PPF account at the end of each financial year.

The interest rate in your PPF account is calculated on the lowest balance between the fifth and the last day of the month. So to maximize your earnings, try making deposits between the 1^st and the 5^th of the month. Interest is compounded annually and credited on 31^st of March each year.

Investment Limitation

Min Amount: ` 500/- and additional investment in multiples of ` 5/-

Max Amount: ` 1,00,000/- (earlier ` 70,000)

You could vary the amount and the number of installments, as per your convenience, provided you do not exceed 12 installments in one financial year.

Tax Benefits

Deposits in a PPF account qualify for a deduction under section 80C. Furthermore, the entire maturity amount including the interest is non-taxable. Not only is the interest earned tax free, PPF deposits are exempt from wealth tax too.

Tenure of Investment

15 years from the date of initial investment with a block of 5 years there-after up to a max of 30 years incl. 15 years.

Maturity

The PPF account matures after 15 years. One can then exercises on option of continuing the account for an additional block of 5 years or close it.

Continuing PPF after the 15 year period

PPF account holders have an option of extending their accounts after the 15 year tenure with or without further subscription, for any period in a block of 5 years. The balance in the account will continue to earn interest at normal rate as admissible on PPF account till the account is closed. In case the account is extended without contribution, any amount can be withdrawn without restrictions. However, only one withdrawal is allowed per year. If you continue the account after 15 years, with continued deposit, withdrawal up to 60 per cent of the balance at the beginning of each extended period (block of five years) is permitted

Withdrawal

The entire amount in your account could be withdrawn only on maturity. However, in times of financial crises partial withdrawals are permitted subject to certain ceiling limits. You could withdraw once a year, from the 7^th year onwards. Such withdrawals, must not exceed, 50% of the balance at the end of the fourth year, or 50% of the balance at the end of the immediate preceding year, whichever is lower, less the amount of loan if any.

Loans

You could take a loan on your PPF deposit, subject to certain terms and conditions. The first loan could be taken from the third year onwards till the sixth year. Up to a maximum of 25% of the balance at the end of 2nd immediately preceding year would be allowed as loan. Such withdrawals are to be repaid within 24 months. Rate of interest charged on the loan would be 2% more than the PPF interest rate prevailing then. A second loan could be availed as long as you are within the 3rd and the 6th year, and only if the first one is fully repaid. Also note that once you become eligible for withdrawals, no loans would be permitted. Inactive accounts or discontinued accounts are not eligible for loan.

Transfer

The account can be transferred at the request of the subscriber from one office to another, including from Bank to Post Office and vice- versa all over the country.

Nomination

Nomination can be done at the time of opening the account or during the tenor of the account.

A subscriber may nominate one or more persons to receive the amount standing to his credit in the event of his death. No nomination can, however, be made in respect of an account opened on behalf of a minor.

In the event of the death of the subscriber, the amount standing to his credit can be repaid to his nominee or legal heir, as the case may be, even before the expiry of fifteen years. Legal hairs can claim the amount up to Rupees One Lakh without production of succession certificate after observing certain formalities.

Payment Default

If the PPF account-holder fails to deposit the minimum ` 500 in a given financial year, the account is considered as discontinued but the interest will continue to accrue and be paid at the end of the term. Loans and withdrawals are not allowed. This account can be revived on payment of a fee of ` 50 for each year of default, along with the arrears of subscription of ` 500 for each such year

Termination of an Account

No PPF account can be terminated before its completion. However, if requests for premature closure of PPF accounts and refund of deposits from the subscribers are genuine in nature, such cases can be dealt with under Rule 13 of the scheme.

Since no withdrawal is permissible before the expiry of four years from the end of the year in which the account was opened vide para 9 (withdrawal) of the scheme, the request for termination or closure of accounts can be considered only after the expiry of the said period. For example, the request for premature closure of accounts opened in 2010-11 can be considered only after 1.4.2016. Such requests may, therefore, be forwarded to the Ministry of Finance along with the following information -

• Name and address of the account holder
• Account number
• Date on which the account was opened
• Loans availed of if any from the account with dates and position regarding repayment
• Satisfactory reasons given for the request and evidence in support thereof
• Designation and address of the income tax authority under whose jurisdiction the subscriber falls
• Any other information relevant to the request.

Free from any Attachment

A PPF account is free from any attachment under any order or decree of a court in respect of any debt or other liability incurred by him.

PPF for NRIs

Non Resident Indians may also open a PPF account out of the funds in the applicant's non-resident account in India in banks subject to the following conditions -

• The account is marked as non-resident account.
• All credits therein or debits thereto are made subject to the same regulations as are applicable to non-resident account.

TIPS FOR INVESTING

• Best for long term investment.
• Apart from a Post Office, a PPF account can also be opened in SBI and its associates and other select nationalized banks.
• The most popular tax saving instrument where deposits in a PPF account qualify for a deduction under section 80C. Furthermore, the entire maturity amount including the interest is non-taxable. Not only is the interest earned tax free, PPF deposits are exempt from wealth tax too.
• A PPF account cannot be attached by the Govt. or any court of law or through any decree.
• To maximize your interest earnings, try making deposits between the 1^st and the 5^th of the month.

Do you need to pay tax on receiving a gift?

If the value of the gifts received by you during a year is above 50,000, you will have to pay tax on it. However, there are a few exceptions to this rule.

According to the Income Tax Act (as well as the Direct Taxes Code, which is likely to come into effect from 1 April 2012), if you receive a gift whose value exceeds 50,000, it will be clubbed with your income and you will have to pay tax on it. This rule is also applicable if the combined value of all the gifts received by you during a financial year exceeds the limit. If the total value of your gifts exceeds 50,000, you have to pay tax on the entire amount, not simply on the difference.

This rule applies even in cases where you have bought a product from someone at a much lower price than its fair value. For instance, if the depreciated value of a car is 4.5 lakh, but you buy it for 3 lakh, the balance 1.5 lakh will be considered as a gift and clubbed with your income. However, if you pay 4.1 lakh, you will not have to pay tax as the value of the gift (or the balance amount) is less than 50,000. The fair market value of a gift is the price that it would fetch if it is sold in the open market on that particular date as determined by a registered valuer. For real estate, the stamp duty value will be considered as the market value.

Gifts given by specified relatives are exempt from tax, regardless of their value. Such relatives include spouse, siblings, brothers or sisters of spouse/parents, grandparents and grandchildren as well as their spouses. Also, if a property is bequeathed to you under a Will, given on the occasion of your marriage or gifted by a local institution/authority, you won’t be taxed. A gift given in contemplation of death by the donor will also be exempt. If a person knows that he is going to die in a few days and gifts his assets to a person, the recipient is exempt from paying tax. However, if you receive an expensive gift during an engagement, anniversary or birthday party, it will be taxed.

Under Section 56 of the Income Tax act, the value of the gift is clubbed with your total income and taxed according to your tax slab. For example, if you receive a gift worth 10 lakh in a financial year, it will be clubbed with your income. As this amount will put you in the highest income bracket, you will have to pay a 30% tax, plus surcharge, on your total income.

In case you earn an income from the gift, it will be taxable under the heading ‘Income from other sources’. For instance, if you get rental income from a house that has been gifted to you, this will be taxed. A gift given to your minor child or income from that gift will be clubbed with your income. Suppose, you have gifted a house or shares to your minor child (or spouse), it will be tax-exempt. However, the rental income or dividend earned will be clubbed with your income and taxed accordingly. But if you give such assets to your parents, who have no source of income, the income earned from it will be considered as their income. This can help you reduce your tax liability.

If you have received real estate as a gift, it is advisable to get a gift deed signed by the donor or get the property registered with the registrar. This will help you avoid legal hassles in the future. However, you should be careful as a gift deed, once signed, cannot be revoked. In case you are gifting real estate, you can add a condition/clause stating that if the recipient dies within your lifetime and does not have any descendants, the property should return to you. Property cannot be gifted to a foreign national though you can gift residential or commercial property to an NRI. However, you cannot give him agricultural/plantation land.

You need to be careful about assessing the gifts you have received in a year while filing your income-tax return. If you fail to do so, not only will you have to pay the interest liability on your outstanding payments, but could also end up paying a fine that is one to three times the amount of tax you were supposed to pay.

What can be gifted?

1. Real estate, which includes residential and commercial structures, as well as land.

2. Paintings and sculptures.

3. Archaeological artefacts.

4. Jewellery, as well as gold and silver bars and coins.

5. Stocks and bonds of companies.

When is it exempt from tax?

1. If the total value of the gifts received in a financial year is less than 50,000.

2. If the asset has been gifted by specified relatives, regardless of its value.

3. If you have received the gift on your marriage.

4. If the asset has been bequeathed to you through a Will.

source:economictimes.com

Consequences of Late Filing of Income Tax Return !!!

Season of filing income tax return has just started. 31st July is the due date for filing tax return for individuals and others who are not required to get his accounts audited u/s 44AB of the I T Act. So, here is a quick update on four penal provisions related to late filing of return of income.

1. Pay interest u/s 234A

If you file return after due date , and after processing u/s 143(1) or after assessment u/s 143(3) or 144 of the I T Act, the tax arises, interest u/s 234A shall be charged for late filing of return which is imposed for period starting from the month after the due date (in case of individual 1st August  as the due date generally falls on 1st July)

2. No carry forward of business or capital loss

Section 80 of the I T Act provides that following loss cannot be carried forward if the return is not filed within due date

a. Business Loss ( including speculative loss)

b. Capital loss (short term or long term loss)

c. Loss in race horse maintenance

3. No revised return facility

Income tax Act, u/s 139(5) provides facility to revise the return within one year from the end of the month in which the return was filed or assessment order passed , which ever happened earlier. This facility of revising return is available to tax payer only if

a. Return is filed u/s 139(1) i.e. within due date. or

b. Return is filed in pursuance of notice u/s 142(1) of the I T Act.

4. Eight kinds of exemption /deduction not allowed

Exemption u/s 10A or 10B or deduction u/s 80IA,80IB,80IC,80ID & 80IE are not allowed if the tax return is not filed within due dates.

Trusts may have to park funds with EPFO

More than 2,000 establishments that manage their employees provident fund accounts may soon have to handover the entire corpus to the Employees' Provident Fund Organisation, or EPFO. The top policy-making body of EPFO, the Central Board of Trustees, has endorsed a proposal, which seeks to take away the trusts' right to manage the funds. The move is aimed at securing the retirement savings of nearly five million subscribers who have contributed an estimated Rs 1 lakh crore to the corpus of these trusts. Hundreds of organisations turn sick every year and fail to pay the provident fund dues to their workers, Labour Secretary PC Chaturvedi said. "The new provision would ensure that workers' money is safe in such cases," he said. The EPFO has submitted its proposal to the labour ministry, which is now preparing a Cabinet note to amend the Employees Provident Fund and Miscellaneous Provisions Act of 1952.

source:economictimes.com

Tax gifts to spiritual gurus as income

The common view is that gifts received in individual capacities – not as trustees of public trusts – should be liable to tax. Issues have arisen before courts regarding the taxability of gifts received by the heads of religious and spiritual bodies under the Income-Tax Act, 1961 (Act). The majority view seems to be that such gifts received in individual capacities – not as trustees of public trusts for them – should be liable to tax. However, the Madras High Court in its recent decision in the case of CIT v. Gopala Naicker Bangaru, (2010 236 CTR (Mad) 82, has held that such receipts are not taxable. The assessee in the case before the High Court (HC) is the head of a religious cult. Devotees ‘make their offerings for contribution voluntarily to him at the time of his birthday and the same has been accounted for as capital receipts'. During the previous year relevant to A.Y. 2004-05, he received Rs1.75 crore as gifts on his birthday. The A.O. ‘treated the gifts as having nexus to his profession as a religious head' and taxed the same. The CIT(A) allowed the appeal of the assessee on the ground that the ‘gifts are not consideration for profession/vocation' following the decision in CIT v. Vanamamalai Ramanuja Jeer Swamigal, (1998) 231 ITR 632 (Mad). The Tribunal upheld the CIT(A)'s decision on the ground that the gifts received have no direct nexus with any of his activities.

source:thehindubusinessline.com

Salaried Individuals with Total Income up to Rs 5 Lakh Exempted from Filing IT Return

Salaried individuals with total income up to Rs 5 lakh will be exempted from filing income tax return for the assessment year 2011-12.

The finance ministry notified the scheme on Thursday, which will allow only those individuals not to file an income tax return who are getting salary from a single employer with total income of Rs 5 lakh after allowable deductions, and interest income from deposits in a saving bank account up to Rs 10,000.

In his budget speech for 2011-12, Finance Minister Pranab Mukherjee had proposed to exempt salaried employees from filing tax returns in order to reduce the compliance burden on small taxpayers. According to the Memorandum to the Finance Bill 2011, the government was to be issue a notification exempting 'classes of persons' from the requirement of furnishing income tax returns.

The Central Board of Direct Taxes has notified the scheme, under which such individuals (with income up to Rs 5 lakh) must report their Permanent Account Number (PAN) and the entire income from bank interest to their employer, pay the entire tax by way of deduction of tax at source, and obtain a certificate of tax deduction in Form No 16.

Individuals receiving salary from more than one employer, having income from sources other than salary and interest income from a savings bank account, or having refund claims shall not be covered under the scheme.

The finance ministry also stated that the scheme shall also not be applicable in cases wherein notices are issued for filing the income tax return under section 142(1) or section 148 or section 153A or section 153C of the Income Tax Act 1961.

How to operate a Joint Bank Account

Banks have several deposit schemes that can be customized for people with varying needs. Deposit accounts can be opened by an individual in his own name (single account) or by two or more individuals jointly (joint account).

Banks offer different types of joint account relationships. Here are a few.

EITHER OR SURVIVOR

This is the most common type of joint account and is applicable between any two individuals. For example, if a husband and wife have a joint account with ‘either or survivor’ clause, either of them can operate the account and in the case of the death of one of the depositors, the other can continue or the final balance in the account along with all interests (as applicable at the time of closure) will be paid to the survivor.

If there is a nominee for the account, the conditions will be the same and the nominee gets access to the funds on the death of both the account holders.

ANYONE OR SURVIVOR

This type of account is normally held when more than two individuals start an account jointly. Here, any of the depositors can operate the account at a time and in case if any of the depositors expire, the others can continue the account and if required, the final balance along with interest will be paid to any of the survivor/s as requested.

FORMER OR SURVIVOR

In this type of joint account, only the first account holder can operate the account. The second depositor gets the right only on the death of the first after undergoing some basic formalities like submission of proof of death etc.

LATTER OR SURVIVOR

This is similar to the former or survivor, but the difference is that, in this type of account, only the second account holder (latter) can operate the account. The survivor or the former account holder gets access to the fund only on death of the latter and on producing the proof for the same.

MINOR’S ACCOUNT

A savings bank account can also be opened in the name of a minor jointly with a guardian. Here, only the guardian is supposed to operate the account on behalf of the minor. The guardian should be parents or in special cases, a legal guardian, as appointed by court. Some banks allow minors above the age of 12 to open and operate accounts independently.

THINGS TO REMEMBER

• Any mandate / power of attorney for operating a joint account or authorizing another person on behalf of the depositors, is to be given by all account holders or with the consent of all account holders.

• All operational instructions and information in connection with the relationships formed is to be given by all the joint account holders irrespective of the mode of operation.

• If there is a nominee to a joint account, the nominee gets access to the account only when all the account holders cease to exist. In case if both the account holder and nominee is no more, the legal heirs of depositor/s will get the funds.

• Individuals jointly running a business can open only a current account for business transactions. In case of current accounts, only the person authorized by the company / management will have the authority to operate the account.

• In case of a joint account, all the depositors are singly and jointly liable for overdraft if any, even if the application / demand promissory note is signed by one of them.

• Financial transactions through net banking, will be available if the mode of operation is indicated as 'either or survivor' or 'anyone or survivor'. The user of net banking in that case should either be the sole signatory or the authorised to act independently. User-ID and password for net banking will be issued to all account holders on request.

• Those who enter a joint account should be aware that all partners are liable for all the dealings in an account as a single or joint entity. So joint accounts should be opened only with someone you can trust.

Individual accounts may meet court restrictions and delays on the death of the account holder, in the absence of a nominee. This is not the case in a joint account where the survivor of the account is entitled to the balance, without any legal restrictions.

source:in.reuters.com

Changes in Schedule VI – Old vs New (Revised)

Ministry of Corporate Affairs (MCA) had revised Schedule VI of Companies Act, 1956 and notified the same on 1^st March 2011.  The refreshed Schedule VI shall apply to all companies from 1^st April 2011 onwards.

The revised Schedule VI introduces many new concepts and disclosure requirements and does away with several statutory disclosure requirements of the existing Schedule VI. The New Schedule VI is as per the currently in use non-converged accounting standards as under Companies (Accounting Standards) Rules, 2006.

Changes in Revised Sch VI

The changes brought in revised format have been segregated in the following manner: -

1. Balance Sheet
2. Profit & Loss A/c

General Changes

1. While both Vertical and horizontal forms of presentation were allowed under old schedule VI, only vertical form is allowed under revised Schedule VI.

2. Once a unit measurement is used, it should be used uniformly in the Financial Statements.

Changes in Balance Sheet

Liabilities

1. Change in nomenclature – “Sources of Funds” has been replaced with “Equity & Liabilities”

2. Share Capital – Company would need to show in sub-head à Shares held more than 5% in company along with number of shares

3. Debit Balance of P&L A/c shall now be shown as negative figure under head Surplus

4. Liabilities will now broadly be classified as

• Current Liabilities &
• Non Current Liabilities

5. Deferred payment liabilities and loans & advances from related parties to be shown separately under head “Long term Borrowings”.

6. Provisions to be classified as Short Term Provisions & Long Term Provisions

Assets

1. Change in nomenclature – “Application Of Funds” has been replaced with “Assets”

2. Fixed Assets to be further classified as

• Tangible
• Non-Tangible

4. Current Assets are to be shown under separate head.

5. “Sundry Debtors” have now been named “Trade Receivables”

6. “Cash and Bank Balances” have now been termed as “Cash and Cash Equivalents”. Classification under this head has been completely revamped.

7. Inventories – Goods in transit shall be disclosed under the relevant sub-head of inventories

8. Misc expenditure (to the extent not written off or adjusted) shall now not be shown separately under head “Other Current Assets”

9. The amount of dividend proposed to be distributed to shareholders (equity and preference) for the period and amount per share to be disclosed separately

Changes in Profit & Loss A/c

1. Under head “Other Income” - Net gain/loss on foreign currency translation and transaction (other than finance cost) shall be disclosed separately.

2. Employee benefit expense shall disclose additionally expense on account of Employee stock option scheme (ESOP)

3. Following shall now be disclosed separately –

• Provision for loss of Subsidiary companies

• Net loss on sale of Investments

• Details of exceptional and extraordinary items

• Prior Period items

• Adjustment to carrying amount of investments

4. A new format has been issued for face reporting of Profit & Loss A/c.

Impact of Revision in Schedule VI

1. The revised schedule VI intends to familiarize companies with Ind-AS/IFRS by using certain concepts such as current/non-current classification.

2. The revised Schedule VI has eliminated the concept of schedules and such information will now be provided in the notes to accounts. This is as done when applying IFRS.

3. From now on, the compliance requirements of Act and/or Accounting standards will prevail over schedule VI.

4. Better presentation, disclosure is intended to facilitate better organised data for users of financial statement.

Post Office Deposits to attract Income Tax from this year

In an attempt to monitor all deposits made under post office schemes and bring them at par with bank interest earnings, the Central Board of Direct Taxes (CBDT) has notified that income from post office savings schemes will be taxed from the current financial year.

By making it mandatory for individuals to declare investments in their tax returns, Income Tax Department has brought all such deposits under its scanner.

A CBDT notification said a declaration to this effect has to be made in the income tax returns filed by an individual. Any income earned beyond Rs 3,500 annually in case of individuals and Rs 7,000 in case of joint accounts will be taxable, the notification said.

By setting a minimum limit of Rs 3,500 on interest earnings, the Income Tax Department has exempted small depositors who get 3.5% interest. Thus, a small depositor with a maximum saving of Rs 1 lakh, and Rs 2 lakh in case of joint account holders, won’t have to pay any tax.

Small and marginal farmers who generally invest in post office schemes would thus be exempt from the new levy. Tax will be applicable for only those who invest in post office instruments more than the prescribed limit.

“This is done to minimize and phase out tax deductions and exemptions,” CBDT spokesperson Shishir Jha said. The government is slowly moving towards the Direct Tax Code which seeks to phase out tax deductions.

Interest earnings from bank savings account are taxed by the government. This will also bring post office earnings at par with earnings from banks. Post office deposits had swelled over the years both from small and large investors. All such deposits were going under the radar of the tax investigators. There was no mechanism to keep a check.