Finance Gyan : Finance, Investment, Banking and Retirement Guides

Closing Credit card? Here is how to cancel without impacting your credit score

2020-06-17T21:48:00.003+05:30

Thinking about closing your credit card? Here is everything you need to know about the right way to do it.

A credit card can be a useful tool for someone who wants to spend freely, earn rewards, build credit history and a host of other benefits. But at some time, having too many credit cards can make it difficult to keep track of payments due, due dates and annual maintenance fees.

Does closing an old credit card impact your credit health? Well, it depends on your financial situation, but like most things in life, closing a credit card comes with its pros and cons. While closing a credit card can hurt your credit utilization ratio rate and the average age of your accounts, however in some cases, canceling a card might make sense.

Another Reading: How To Use Credit Cards Wisely?

For example, abandoning a card could be a good idea if you’re trying to maintain your spending to a minimum however if this is the only credit card you have, think twice as a credit card allows flexibility especially during travel and emergencies. Before you rush off to cancel your credit card, here’s what you need to know:

1. Consider the impact on credit scores

It is essential to consider whether closing that credit card will impact your credit score. If this was the only credit card you had and have also not taken any other loan yet, then closing this credit card will mean the credit bureau doesn’t get updated credit history on you. Gradually, this will lead to you not having any credit score.

Your repayment history, a major factor for your credit score, shows whether you’ve paid on time. If you have a consistent payment history, keeping your account active can retain your account’s good standing. Getting rid of a credit card doesn’t remove it from your credit report, nor does it remove any associated payment history from your credit report. So, if you were hoping you could close your credit card to make the credit bureaus forget that you were late, then you’re out of luck here.

Another key factor in your credit score is your credit utilization ratio, which compares the amount of credit you’re using with how much you have available. When you close a card, you reduce your overall available credit. Unless you also cut back on your spending, this can increase your credit utilization ratio. In general, lenders look for a ratio of 30 percent or less as an indicator that you can manage your debt.

Lastly, it is equally important to consider the age of the credit card because if you close a card that’s been opened for many years and keep cards that you’ve had for only a year or so, a dip in your credit score is likely to happen. Lenders prefer seeing a consistent track record of maintaining a good relationship with creditors.

2. Cancel all auto-payments

Before you cancel your credit card, log onto your bank’s website and cancel any automatic bill payments (utility bills) or transfers you have set up to go toward the credit card. If you miss canceling all auto-payments, the utility company will continue to try to charge your “closed” credit card, which will fail, and therefore you may miss out paying your utility bills on time. The utility company may levy a fee for delayed payment too.

3. Pay Off the Remaining Balance Before Closing

Before deciding to close the credit card, you need to clear the outstanding dues on the card. Without doing this, you cannot raise a request to close the credit card. You can do this the old-fashioned way, which is the best way: pay off the balance in full and calling the card’s customer service department to get specific, detailed instructions about your next steps. If you can’t afford to pay the card off, you also have the option to transfer the balance to another credit card, preferably one with a lower interest rate. You can also take a small personal loan to pay off the card dues, generally, a personal loan will be at a much lower interest rate than revolving money on the card.

4. Redeem any benefits

Credit cards come with plenty of rewards on travel, shopping or restaurants and much more. When you close your credit card, you are closing the rewards you have earned after keeping your credit records on point. You should always check your rewards balance to see if you can redeem it as a statement credit which reduces your outstanding balance. If you have already paid off the balance, then redeem your rewards before closing the account and have a good time because you have been consistent with your credit behavior.

5. Contact your bank to inform

You should always contact your bank once your balance is updated as zero and let them know that you want to close your credit card. They might convince you to not close it by offering rewards programs and lower interest rates but if you have already decided then make sure you have a steady mind about it. Also, after closing your account double-check with the bank to avoid any kind of miscommunication. Don’t just destroy or throw away old cards and expect your accounts to close automatically. In case, you miss doing this, you might end up paying the annual fees associated with the card if the bank had not registered your cancellation request.

6. Follow-up in writing

Make sure you send a letter in writing to the credit card issuer or bank, requesting that you want to close the credit card to keep a record of the request. The letter must have every detail of the cardholder and the request. Name, address, credit card number, date of issue, date of request and mode of the request are mandatory facts that should be listed down in the letter. Your bank might close the account without you sending the letter, but it is always better to be prepared with written proof when it comes to finances. Once you receive confirmation of the cancellation, you must cut your plastic card into small pieces to avoid any potential fraudulent use.

7. Check credit report to ensure

It may take 4-6 weeks for changes to appear on your credit report. But be sure to check your credit report with any of RBI licensed credit bureaus to ensure that the credit card is completely closed and is reported closed. It might not affect the credit score, but it is better to have the status of your credit account reflect on your report accurately to avoid any future discrepancies. Contact your credit card lender or file a dispute with the credit bureau if your credit card account isn’t reported as closed.

Another Reading: Credit Score | What These 3 Digits, Says About You

Closing a credit card is not a risky step to take, it just must be taken with caution to avoid a negative effect on your credibility.

(By Kalpana Pandey, MD and CEO, CRIF Highmark)

Lessons on managing credit cards during COVID-19 pandemic

2020-06-17T21:22:00.002+05:30

The pandemic has brought to light financial anxieties of individuals which are caused by low levels of financial literacy.

Years of social conditioning on the risks of obtaining and using credit cards has made individuals wary of these tools. In fact, existing discourse on credit cards and how it leads to individuals being pummeled by high-interest charges and landing in a perpetual cycle of debt has contributed to unfounded fears around its use. Add to this the context of a global pandemic and a volatile economy and people are ready to determine the use of credit cards as anathema. However, are these fears rational? Sure, credit cards come with a series of essential cautions about its use, but do they deserve to be treated with disdain? Or should they be analysed objectively for what they are? Safe and useful financial management tools when used responsibly.

The pandemic has brought to light financial anxieties of individuals which are caused by low levels of financial literacy. Now, more than ever there is a need for a focus on credit literacy and provision of tools that encourage its responsible use. To begin with, it’s important to maintain perspective when it comes to the use of credit. The first main concern people have is with how credit cards have the potential to rack up debt and burden individuals with exorbitant interests which in turn leads to an unending cycle of inability to pay one’s bills, leaving them trapped in debt. This is a misconception, and your real concern should instead be on whether you are over-relying on credit. Do NOT treat your credit cards as a supplemental source of income, especially so during the pandemic. Yes, you can use cards to finance specific purchases that might not be possible through the immediate use of income, but make sure those payments are still within your means. If your income is insufficient to fund your lifestyle, using credit isn’t the solution. Instead, you should consider either earning more or spending less.

Another Reading: How To Use Credit Cards Wisely?

Now that the concerns around credit and constant fear-mongering about its use have been dispelled, it's time to understand how these tools are of value to us. Credit cards, in particular, can offer three main advantages to its users at any point in time -- it helps us uncover the time value of our money, in building our credit scores and in optimising spending through the use of rewards earned as an incentive to use them.

Here is some advice you should keep in mind for the responsible use of credit, especially during this time.

Tips on responsible use of credit cards

1) Monitor credit card statements regularly to understand spending patterns and uncover hidden credit card charges that may be imposed. This will empower you to take stock of your finances, helping you identify places where you can manage your money better.

2) Manage multiple credit cards wisely by setting up autopay and preferably use one platform for this function. This would help you keep track of your repayments and provide reminders about due dates which would help ensure you never miss them.

3) While paying off minimum dues can help avoid penalties, it is advisable to pay off your credit card bill in full or as much as possible every month to avoid incurring high-interest rates, which allows you to cut costs like these around this time.

4) If you aren’t considering the use of credit cards during this time, you can temporarily discontinue its use, but don’t opt to cancel them as this will hurt your credit score.

5) Remember that the six-month moratorium on the payment of credit card dues is essentially a deferment, which means that interest rates would continue to accrue during this time on the outstanding principal. It is advisable to pay off your credit card bills and not opt for the moratorium if possible, to avoid incurring high-interest rates.

Tips on efficient use of credit cards

1) Opt for using cards with a higher credit limit. Low use on a card with a higher spending limit indicates that you aren’t credit hungry, which would help improve your credit score.

2) Understand and optimise the use of rewards offered by your credit card. Consider taking time out to research all the benefits your card can offer you, and analyse which pre-existing spends could be cut down by using these rewards.

3) If you’re facing an acute liquidity crunch, you could opt to make big-ticket spends like rent payments through your credit card bills. This will help you with additional time to manage your liquidity shortage while allowing you to avail an interest-free period and also benefit from the rewards offered through the use of your card. However, be conscious about these spends by prioritising repayment of your bills and do not opt to revolve this debt. If you are facing money troubles, view this as a last resort measure to be used in times of emergency.

Another Reading: A Detailed Guide of your Credit card billing cycle

The pandemic has us concerned about our investments, dilution of savings and various other financial concerns that might seem beyond our control. These are stressful times for everyone, but what is under our control is the capability to learn about our finances and empower ourselves with facts, despite how daunting this seems initially. This will allow us to evaluate things objectively, keeping our anxieties concerning finances from clouding our judgment and making us susceptible to making mistakes that are easily preventable.

By Kunal Shah (Founder and CEO of CRED)

Factors that may hurt your credit score despite the loan moratorium

2020-06-17T21:08:00.001+05:30

The RBI announced a six-month loan moratorium for borrowers whose financials were stressed. The loan moratorium scheme is just a deferment of your monthly instalments and would add to your interest costs, apart from increasing the tenure of the loan.

The important aspect to look at is how the COVID-19 pandemic could impact your repayment ability and your credit score.

Applied for loan moratorium? Inform credit bureaus

Every time you miss an equated monthly installment (EMI) or a credit card payment or even if you pay the minimum balance, your credit score gets impacted adversely. But if you’ve opted for a loan moratorium, ideally, your credit score should not get affected. But check for errors here.

When you apply for a loan moratorium, your bank reports it to the credit bureau. That doesn’t mean you can relax. “If you opt for a loan moratorium, it’s your responsibility to apply for a credit report and verify whether credit scores are intact or impacted,” says Sathya Kalyanasundaram, Country Head and Managing Director, Experian India. There may be errors in the data received by credit bureaus from banks. In such a situation, you need to rectify any inaccuracy in the credit report by taking it up with your bank.

Another Reading: How To Use Credit Cards Wisely?

What happens if you have two loans running with your lender and you’ve opted for a moratorium on only one? Check if your bank has enrolled you for the correct loan. Any mistake here can impact your credit score.

Says Kalyanasundaram, “It’s the responsibility of the consumer to ensure that the loan moratorium is implemented correctly according to guidelines and is in agreement with the bank.”

Don’t just stop paying EMIs without taking the moratorium

A loan moratorium is not automatically given to you. You have to opt for it. Credit experts say that some borrowers have stopped paying EMIs assuming that the moratorium was automatic. A few others have also moved savings from one bank account to another as the electronic clearing service (ECS) mandate may automatically debit the amount. “In this set-up, loan repayment has failed from the linked bank account and impacted the credit score of the borrowers,” says Parijat Garg, a credit scoring consultant.

After a couple of months, your loan account will become a non-performing asset for the lender and it will start reflecting on your credit score, making it difficult for you to take loans elsewhere.

Since the moratorium is extended till August, you can apply even now.

Unpaid credit card bills, multiple past defaults and a bad credit score may make you ineligible for the moratorium. Don’t take anything for granted. If you still wish to apply for a moratorium, check. If the bank refuses, you will need to continue paying your bills.

Beware of digital frauds

Be careful of mobile apps that appear to promise you easy cash. A survey by YouGov and ACI Worldwide reveals that around 31 percent of the 1000-plus respondents have been victims of card or digital payments fraud in April. For 52 percent of the respondents, fake apps and websites were the biggest threats while making digital payments.

Kaushik Roy, Vice president and country leader (South Asia) of ACI Worldwide says, “The disruption caused by the COVID-19 pandemic provides another opportunity for fraudsters to dupe unsuspecting consumers.”

“Many of these apps require bank account details, card details and pin to validate users. With this confidential information, fraudsters can access your personal banking details and trick you,” says Kalyanasundaram. As a result, your credit score can be compromised.

Generally, it is not advisable to share any personal confidential details on unregulated websites or apps.

Another Reading: A Detailed Guide of your Credit card billing cycle

Check your credit report at regular intervals and make sure that all the credit lines are reported correctly. In case of any discrepancy in fraudulent activity raise a complaint with your bank immediately and register a first information report (FIR) with the cyber-crime branch of the police.

Do not rely too heavily on credit

Many customers may have multiple credit cards. In this pandemic, they are tempted to use the credit available as they may be cash-strapped due to job-losses or salary cuts. Navin Chandani, MD and CEO, CRIF High Mark says, “In swiping your credit card for regular purchases and not repaying the due amount, you will incur interest charges.”. They will perceive you as being credit hungry. This can have a negative impact on your credit score. Rely on your savings/emergency corpus.

Says Chandani, “Also, should not apply for new credit cards, auto and personal loans at the same time at all.” This will be a red flag for creditors.

You need to space out your applications when your financials improve, to limit an impact on your credit score.

By Hiral Thanawala on Moneycontrol

Simple ways to save money

2020-06-12T16:55:00.003+05:30

Sometimes the hardest thing about saving money is just getting started. This step-by-step guide for how to save money can help you develop a simple and realistic strategy, so you can save for all your short and long-term savings goals.

1. Record your expenses

The first step to start saving money is to figure out how much you spend. Keep track of all your expenses that means every coffee, household item and cash tip.

Once you have your data, organize the numbers by categories, such as gas, groceries and mortgage, and total each amount. Use your credit card and bank statements to make sure you’re accurate and don’t forget any.

Tip: Look for a free-spending tracker to help you get started. Choosing a digital program or app can help automate some of this work.

2. Budget for savings

Once you have an idea of what you spend in a month, you can begin to organize your recorded expenses into a workable budget. Your budget should outline how your expenses measure up to your income so you can plan your spending and limit overspending. Be sure to factor in expenses that occur regularly but not every month, such as car maintenance.

Tip: Include a savings category aim to save 10 to 15 percent of your income.

3. Find ways you can cut your spending

If your expenses are so high that you can’t save as much as you’d like, it might be time to cut back. Identify nonessentials that you can spend less on, such as entertainment and dining out. Look for ways to save on your fixed monthly expenses like television and your cell phone, too.

Here are some ideas for trimming everyday expenses:

Use resources such as community event listings to find free or low-cost events to reduce entertainment spending.
Cancel subscriptions and memberships you don’t use especially if they renew automatically.
Commit to eating out only once a month and trying places that fall into the “cheap eats” category.
Give yourself a “cooling off period”: When tempted by a nonessential purchase, wait a few days. You may be glad you passed or ready to save up for it.

4. Set savings goals

One of the best ways to save money is to set a goal. Start by thinking of what you might want to save for perhaps you’re getting married, planning a vacation or saving for retirement. Then figure out how much money you’ll need and how long it might take you to save it.

Here are some examples of short- and long-term goals:

Short-term (1–3 years)

Emergency fund (3–9 months of living expenses, just in case)
Vacation
Down payment for a car

Long-term (4+ years)

Down payment on a home or a remodeling project
Your child’s education
Retirement

If you’re saving for retirement or your child’s education, consider putting that money into an investment account. While investments come with risks and can lose money, they also create the opportunity for growth when the market grows, and could be appropriate if you plan for an event far in advance. See step No. 6 for more details.

Another Reading: National Pension Scheme Retirement Scheme for all (NPS)

Tip: Set a small, achievable short-term goal for something fun and big enough that you aren’t likely to have the cash on hand to pay for it, such as a new smartphone or holiday gifts. Reaching smaller goals and enjoying the fun reward you’ve saved for can give you a psychological boost that makes the payoff of saving more immediate and reinforces the habit.

5. Decide on your priorities

After your expenses and income, your goals are likely to have the biggest impact on how you allocate your savings. Be sure to remember long-term goals it’s important that planning for retirement doesn’t take a back seat to shorter-term needs.

Tip: Learn how to prioritize your savings goals so you have a clear idea of where to start saving. For example, if you know you’re going to need to replace your car in the near future, you could start putting money away for one now.

6. Pick the right tools

If you’re saving for short-term goals:

Savings account
Fixed Deposit
Recurring Deposit

In all the above method risk is low hence return is also low.

For long-term goals consider:

Securities, such as stocks or mutual funds. These investment products are available through investment accounts with a broker-dealer. Remember that securities are not insured and are not guaranteed by a bank. They are subject to investment risks, including the possible loss of your principal.

In all the above method risk is high hence return is also high but not guaranteed.

Another Reading: 7 Government of India Schemes to Invest for Social Security

Tip: You don’t have to pick just one account. Look carefully at all of your options and consider things like balance minimums, fees, and interest rates so you can choose the mix that will help you best save for your goals.

7. Make saving automatic

Almost all banks offer automated transfers between your checking and savings accounts. You can choose when, how much, and where to transfer money or even split your direct deposit so a portion of every paycheck goes directly into your savings account.

Tip: Splitting your direct deposit and setting up automated transfers are simple ways to save money since you don’t have to think about it, and it generally reduces the temptation to spend the money instead. With Mobile & Online Banking, an individual can easily set up automatic transfers between accounts.

8. Watch your savings grow

Review your budget and check your progress every month. Not only will this help you stick to your personal savings plan, but it also helps you identify and fix problems quickly. Understanding how to save money may even inspire you to find more ways to save and hit your goals faster.

Note: All the above mention points are the personal view of The Finance Gyan. Please check with your financial advisor before investing.

Budget 2020: How much income tax you will pay Old vs New Regime

2020-02-02T11:13:00.000+05:30

Budget 2020 announced a new income tax regime in which taxpayers get charged lower income tax rates.

But there's a condition: you have to forgo several tax deductions and exemptions. This would include the most popular one; section 80C deduction limit of Rs 1.5 lakh.

Other popular tax deduction benefits such as health insurance premium (Section 80D), home loan interest paid (Section 24), house rent allowance (Section 10) and National Pension Scheme (Section 80CCD-1B).

The question is: is the new tax regime so beneficial that it is worth forgoing tax deduction benefits?

Our tax partner Deloitte ran the numbers for Moneycontrol and found out that tax deduction benefits actually help lower your taxes more than just lower tax rates.

The benefit that lower tax plus no deduction benefits may help reduce your paperwork (for instance, no need now to submit your investment proofs), the actual benefits don’t make it worth your while. Especially, if you are claiming multiple deductions.

Below is how much you will pay if you claim only Rs 1.5 lakh deduction, which is the standard exemption typically provided under Section 80C.

Below is how much tax you will pay at various salaries when you avail exemption of Rs 3 lakh.

Below is the same calculation as above but for senior citizens (above 60 years of age).

Finally, below is a tax calculation for very senior citizens (above 80 years of age).

Source : Moneycontrol.com

Paying a home loan EMI or staying on rent? Know the tax benefits

2020-02-01T18:31:00.001+05:30

Just as you can claim deduction on principal repaid under section 80C, section 24(b) gives tax relief on interest paid during the year

our residence – whether owned, rented or leased out – can give you to a range of tax benefits. Be it interest paid and principal repaid on a housing loan or rent paid to your landlord, the Income Tax Act allows deductions and breaks under various sections. In the last few years, several tax incentives have been announced – and some withdrawn. Here’s your guide to the tax breaks on offer currently.

Home loan principal repaid

The most widely-known section, section 80C, allows tax-payers to claim deductions on a host of avenues, including on investments made in equity-linked saving schemes (ELSS), public provident fund (PPF), and also on life insurance premium paid among others. The overall limit is Rs 1.5 lakh. If you are in the process of repaying your home loan – taken to fund the construction or purchase of a house occupied by you – the principal repaid during the year is entitled for deduction.

In the initial years, the principal component is not sizeable and, hence, cannot help in completely exhausting the limit. It is possible that even after factoring in ongoing commitments including provident fund contribution, you will need to make additional investments to maximise the tax breaks.

Another Reading: Budget 2020: FM announces new income tax slabs and rates

Interest paid on housing loan

Just as you can claim deduction on principal repaid under section 80C, section 24(b) gives tax relief on interest paid during the year. This section allows deduction of up to Rs 2 lakh a year on interest paid on housing loan taken to finance a self-occupied house property. If you own two house properties and none of them are let out, both can qualify as self-occupied properties. This clause was brought about by an amendment announced in the interim Budget of 2019-20.

Source : Moneycontrol

Now, the second house will not be subject to tax on deemed or notional basis if it is used as a family residence or remains vacant for the entire year due to, say, your employment at another location. However, if both have been financed by home loans, the total deduction under this section will be restricted to Rs 2 lakh a year. “Until this amendment was made, tax-payers were allowed to consider one property as self-occupied and the interest paid on the other property’s loan could be claimed as deduction separately,” explains Kuldip Kumar, Partner and Leader PwC India Global Mobility Practice.

The loss (tax relief) under such provision was limited to Rs 2 lakh a year, but the balance amount – to be set off against house property – could be carried forward for eight assessment years. “Now, this tax benefit can be claimed only if you actually let out the other house property. There is no option to treat the second house as ‘deemed to be let out,” he adds.

Another Reading: Know your tax exemptions to invest wisely

If your loan pertains to an under-construction property, you can take the tax relief on interest payment over five years, starting from the year in which the construction was completed. “If you have been paying pre-construction interest, it can also be claimed in five equal installments on a yearly basis,” says Archit Gupta, CEO and Founder, ClearTax. However, the maximum deduction is capped at Rs 2 lakh.

First-time home-buyer’s interest outgo

Union Budget 2016-17 allowed an additional deduction of up to Rs 50,000 to first-time home buyers whose loan was sanctioned between April 1, 2016 and March 31, 2017. The tax break, allowed under section 80EE, is applicable to houses whose value does not exceed Rs 50 lakh and the loan amount is under Rs 35 lakh. Union Budget 2019 introduced a section 80EEA that covers interest on housing loan taken between April 1, 2019 and March 31, 2020. This, too, pertains only to first-time home-buyers. The deduction limit under this section stands enhanced at Rs 1.5 lakh, while the value of the property is capped at Rs 45 lakh.

The perks of HRA

If you are entitled to house rent allowance (HRA) as part of your compensation, the amount is eligible for exemption under section 10(13A). The exemption will be the lower of the actual HRA received, 50 per cent of your basic salary and dearness allowance (DA) if you stay in a metropolitan city (else, it is 40 per cent), or actual rent paid minus 10 per cent of your salary (basic and DA). Even if your employer does not provide this allowance or you are self-employed, you can claim deduction on rent paid after making a declaration under Form 10BA. It will be restricted to Rs 5,000 a month, 25 per cent of income or excess of actual rent paid over 10 per cent of the total income, whichever is lower.

Budget 2020: FM announces new income tax slabs and rates

2020-02-01T18:22:00.002+05:30

Finance Minister Nirmala Sitharaman today slashed the personal income tax rate for individuals for fiscal year 2020-21.

Budget 2020 has proposed a new tax regime slashing income tax rates and rejigging income tax slabs to reduce total tax payable by individuals. As per the new regime, 70 tax exemptions will be removed but the income between Rs 5 lakh and Rs 7.5 lakh will be taxed at 10% down from current 20%, income between Rs 7.5 lakh and Rs 10 lakh will be taxed at 15% down from current 20%, and income between Rs 10 lakh and Rs 12.5 lakh will be taxed at 20% down from current 30%. Income between Rs 12.5 llakh and Rs 15 lakh will be taxed at 25% down from current 30%. Incomes above Rs 15 lakh will continue to be taxed at 30%.

Budget 2020 has offered tax payers the option to choose between the existing income tax regime and a new regime with slashed income tax rates and new income tax slabs but no tax exemptions. The new tax regime offers lower tax rates and new tax slabs and simultaneously removes tax exemptions and will result in lower tax outgo for the tax payer, according to the finance minister.

Which tax regime -old or new--would be beneficial i.e. result in lower tax payable for each individual is likely to depend on his/her income composition and investments done. Each individual will have to do his/her own calculations to figure out which tax regime is more beneficial to him/her. For example, a person who has bought a long term life insurance policy may have to continue paying the premium and claiming the tax benefit on it.

As dividends become taxable in your hands, your taxable income will increase.

This will add to the uncertainty about how much tax relief an individual will get from all the budget proposals together.

Dividend income becomes taxable in receiver's hands, DDT abolished

Once these proposals are passed by the Parliament, these changes will become effective from the financial year 2020-21.

Tax slabs under new, optional regime

Currently, income up to Rs 2.5 lakh for resident individuals (age below 60 years) is exempt from tax. Similarly, for senior citizens aged 60 years and above but below 80 years, income up to Rs 3 lakh is exempt from tax. Income up to Rs 5 lakh is exempt from tax for super senior citizens (age 80 years and above).

It must be noted that the then finance minister, Piyush Goyal, during the interim Budget in February 2019, announced a tax rebate of up to Rs 12,500 if net taxable income does not cross Rs 5 lakh. Thereby, making zero tax payable by an individual if his/her taxable income does not exceed Rs 5 lakh.

The noise for a reduction in personal income tax rates/increase in tax exemption limits grew louder after the government slashed corporate tax rates in September 2019. It is expected that this can give a fillip to consumption in the economy.

The new Direct Tax Code report submitted to the Finance Ministry in August last year, too, recommended sweeping reforms for personal taxation. The report is yet to be released to the public for discussion.

Income tax slabs and rates for individuals below 60 years of age

Income tax slabs and rates for senior citizens (Age between 60 years and 80 years)

Income tax slabs and rates for super senior citizens (Age 80 years and above)

Income tax rates for individuals below 60 years are as follows: No tax on income up to Rs 2.5 lakh, 5 per cent tax on income between Rs 250,001 to Rs 5 lakh; 20 per cent tax on income between Rs 500,001 and Rs 10 lakh; and 30 per cent tax on income above Rs 10 lakh.

For senior citizens (aged 60 years or above but less than 80 years), income up to Rs 3 lakh is exempt from tax. Income from Rs 300,001 to Rs 5 lakh is taxed at 5 per cent, from Rs 500,001 to Rs 10 lakh at 20 per cent and above Rs 10 lakh at 30 per cent.

For super senior citizens, aged 80 years and above, income up to Rs 5 lakh is exempt from tax. Income from Rs 500,001 to Rs 10 lakh is taxed at 20 per cent and above Rs 10 lakh is taxed at 30 per cent.

However, if an individual's net taxable income does not exceed Rs 5 lakh (i.e., income after claiming deductions and tax exemptions), then the net tax liability will be zero. This is because an individual can avail tax rebate of up to Rs 12,500 under section 87A.

Health and education cess at the rate of 4 percent is levied on the income tax plus surcharge wherever applicable. Surcharge on income tax will also be added as per the income slab applicable to the individual.

Surcharge will be added to the total income tax payable by the individual as follows: 10% for income between Rs 50 lakh and Rs 1 crore, 15% for income between Rs 1 crore and Rs 2 crore, 25% for income between Rs 2 crore and Rs 5 crore and 37% for income exceeding Rs 5 crore.

However, on short-term capital gains as per section 111A and long-term capital gains as per section 112A, a surcharge of 15% will be applicable instead of 25% or 37% as mentioned above.

Voluntary Provident Fund (VPF) Rules and Guidelines

2020-01-29T21:14:00.000+05:30

Voluntary Provident Fund, also called as Voluntary Retirement Fund is a contribution voluntarily made by the employee. Contributions of up to 100% of the Basic salary and Dearness Allowance can be made to this provident fund. The rate of interest is the same as EPF.

Here are some of the basic VPF Rules & Guidelines:

You cannot discontinue or withdraw out of a VPF scheme in the middle of the year.
VPF scheme can be availed only by salaried professionals enrolled with the EPF.
If the direct tax code comes into effect, the entire maturity amount becomes taxable.
You can contribute 100% of basic plus dearness allowance as investment in VPF.
If the VPF money is withdrawn within five years, you will have to pay tax on the interest amount earned from your contribution towards the VPF.

Rules of VPF

Once you have opted for VPF, you cannot discontinue the investment mid-year.
Before opting for VPF, it’s important to know that if you withdraw money within the first 5 years of service, then the interest becomes taxable.
The responsibility of getting the VPF enrollment falls on the employee who must request their employer.
Most employers would like their employees to start their VPF at the start of the financial year.
VPF is available only to salaried individuals.
The risk of interest rates falling are higher with this investment as the interest rates are subject to change every year.
If Direct Tax Code comes into effect, then the entire maturity value will be taxable.

How to enrol in VPF?

Only salaried employees enrolled in the EPF are eligible to register for the VPF scheme.
If the company offers VPF option, the employee can opt for this during any point in the financial year.
The application form for VPF needs to be duly signed, filled & submitted to the accounts/finance/payroll of your company.
You can also request your employer to increase your contribution towards VPF by writing in request, asking for additional deduction from salary.

Another Reading: EPF vs PPF vs VPF: Which one is better for saving money?

How to invest in VPF

Applying for Voluntary Provident Fund is extremely simple. And an employee can contribute a maximum of 100% of the Basic Salary and Dearness Allowance. The process requires the employee to write to the employer or concerned HR person requesting them to increase the PF contribution by the amount they desire. This option is available at any point of time during the financial year, unless the employer has specified their own requirements. A VPF Form will need to be filled and signed and then submitted to the accounts department or the concerned person in your company. The VPF Form only requires details such as the amount you would like to contribute from your basic salary and your dearness allowance.

Benefits of investing in VPF

You can contribute a maximum of 100% of basic salary and dearness allowance which is more than the conventional PF (Provident Fund) contribution of 12% of one’s basic salary.
VPF Interest rate is equal to that of the PF, and currently is 8.65%.
Withdrawals after the 5-year lock-in period are completely tax-free.
There is income tax exemption at all stages -contribution, investment, accumulation and returns and also at the time of withdrawal.
Employees can access the VPF money for reasons like marriage, house purchase, children’s education, etc.
The contribution to VPF is optional but if the subscriber chooses to make a contribution, he/she will be required to continue the contribution throughout the financial year -just a measure of convenience for one’s employer. There is no mandatory savings limit.

VPF Benefits & Procedures

VPF is an attractive investment option for salaried employees. Over and above the mandatory EPF contribution amounting to 12% of the basic salary, the employee can choose to contribute an amount higher to increase the investment in their EPF account. However, if the employee opts to increase their PF contribution, the employer is under no obligation to increase their contribution. The VPF is available only to salaried employees in India. This option is a smart choice for salaried individuals as the contribution is deducted directly from the salary -saving time and energy on investing it on your own. Furthermore, tax benefits will automatically be calculated in the Form 16 given by the employer.

Comparison between VPF, EPF & PPF

The following table gives an easy to follow comparison between different provident fund schemes.

Know your tax exemptions to invest wisely

2020-01-28T18:55:00.003+05:30

Here are some important exemptions/deductions for reducing your tax outflow

We are in the last quarter of the current financial year and this is when most taxpayers start focusing on their tax-saving investments, as they are required to submit the proof of such investments to their employers to avoid excess withholding of taxes from their pay. While tax saving is not the only consideration for investments, it is an important consideration nonetheless.

Timely investments are also necessary for the improvement of the returns on the investments made. It is also important to select the appropriate mode of investment so that one’s own financial goals are met, and any future monetary requirements are covered. The Income-tax Act, 1961, contains provisions for several tax exemptions and deductions. This article highlights some important exemptions/deductions and how one can make use of them.

If you are a salaried taxpayer, do not forget to submit the proof of your leave travel allowance (LTA) claim to your employer. LTA exemption is allowed twice in a block of four calendar years for travel undertaken within India for self and family, while on leave. The current running block for LTA exemption claims is 2018–2021.

If you are receiving house rent allowance (HRA) from your employer and paying rent, you can claim exemption for the same. If the rent paid is more than Rs 50,000 a month, don’t forget to deduct taxes at 5 per cent on the rent paid during the year. Such deduction should be made from the rent paid in the last month of the financial year or the last month of the tenancy (if the property is vacated during the year). In case the landlord is a non-resident, you will need to calculate the withholding at normal rates (30 per cent plus applicable surcharge [if any] and education cess). Failure to do so will attract penal consequences. In case you are not getting HRA and paying rent, you can still claim deduction under Section 80GG, up to a maximum of Rs 60,000.

Investments under Section 80C

Section 80C of the Income-tax Act is the most commonly understood section by taxpayers, as it allows for deduction of up to Rs 150,000 for the various investments/expenses incurred. Before you make any investments and declare them under Section 80C, first ascertain the expenditure/investments you have already incurred that will get you tax benefits. For example, you may be contributing to the Employees’ Provident Fund (EPF), paying life insurance premiums, paying for the tuition fee for the full-time education of your children, and repaying your housing loan. All these expenses/investments are eligible for tax deduction. But if the limit of Rs 150,000 is still not reached despite all your expenses/investments, you can choose from the other investment options available to make full use of Section 80C. You may invest in the Public Provident Fund (PPF), purchase National Savings Certificates (NSCs), increase your contribution towards your Employees Provident Fund (EPF), begin term deposits of five years with banks or post offices, and invest in schemes such as equity-linked saving schemes and Sukanya Samriddhi Yojana. Your investments must be made in a manner that helps you to reach your financial goals.

Another Reading: 7 Government of India Schemes to Invest for Social Security

National Pension Scheme (NPS)

NPS is an attractive investment option that not only helps in saving taxes, but also ensures a comfortable retirement. Employers can contribute up to 10 per cent of employees’ basic salary towards NPS. The contribution is eligible for deduction under section 80CCD (2). Not only is your own contribution eligible for deduction under section 80C, but there is also additional deduction available of up to Rs 50,000 under section 80CCD (1B).

Another Reading: National Pension Scheme Retirement Scheme for all (NPS)

Health insurance

Employers generally provide health insurance cover for their employees, and occasionally for their families as well. But in case your family or parents are not covered, taking a top-up option will help you insure your family and get you tax benefits. Under Section 80D, tax deduction of up to Rs 25,000 can be claimed for the health insurance of self, spouse and dependent children. An additional deduction of up to Rs 25,000 (Rs 50,000, in the case of senior citizens) can be claimed for parents as well. If you have incurred any medical expenditure for your senior citizen parents and they are not covered under any health insurance scheme, you can claim a deduction of up to Rs 50,000.

Tax break on interest paid on educational loans

If you have taken an educational loan to pursue higher studies (a full-time graduate or postgraduate course) for self, spouse or children, you can claim tax deduction on the interest paid on such loans under Section 80E. The deduction is available for a maximum of eight years, beginning with the first year of payment of interest and seven subsequent years or till the last year the interest is paid – whichever is earlier.

Deduction on interest paid on housing loans

In case you have taken a loan to purchase or construct a house, tax deduction can be availed on the interest paid (of up to Rs 200,000) during the repayment of such a loan, in case the house is self-occupied. If the house is let out, the entire interest on the home loan can be considered as a deduction. If after such deduction, the net income results in a loss, the same can be adjusted against the income from other sources, including salary. However, such set-off is restricted to Rs 200,000 only and the remaining loss can be carried forward for eight years, to be adjusted against future income from the house. First-time home buyers can avail additional deduction of up to Rs 1.5 lakh in a year, under Section 80EEA. This deduction is applicable for housing loans taken for acquisition of residential house property between April 1, 2019 and March 31, 2020, provided the stamp duty value of the residential house property does not exceed Rs 45 lakh.

Donation to charitable organisations

If you have donated to any charitable organisation during the financial year, don’t forget to obtain the receipt for the same. You can claim tax deduction under Section 80G for up to 100 per cent/50 per cent of the amount donated, depending on the approved institution/authority.

Tax deduction on purchase of electrical vehicles

If you bought your first electric vehicle (EV) by taking a loan from a financial institution, the interest to be paid on such a loan is tax-deductible under Section 80EEB up to Rs 150,000, and is subject to fulfilment of certain conditions.

The importance of timing

Taxpayers should plan their investments at the beginning of the financial year, rather than investing during the last few months of the year. The interest earned on many investments such as EPF, PPF or the return from NPS is exempt from tax. If you make early investments, your invested amount starts to earn tax-free returns and also get you tax benefits for the investment made in a particular financial year.

(Kumar is Partner & Leader and Talreja is Executive Director – Personal Tax, PwC India. The views expressed in this article are personal)

ELSS versus PPF for tax saving: Why the comparison isn’t right

2020-01-27T19:32:00.000+05:30

Depending on your goals and risk appetite, make a suitable investment choice

It is that time of the year when tax-saving discussions happen frequently among people. And those that haven’t integrated tax-saving with their overall goal-based financial plan, are the main participants in such discussions.

One such discussion among savers is whether they should invest in PPF (public provident fund) or do so in ELSS (equity linked saving schemes) for tax saving.

But, is it right to compare medicines just based on their side effects? Absolutely not! Right?

You would first be concerned about the intended effects of the medicine and then about its side effect.
The same is the case with the ELSS versus PPF discussion as well.

Similar benefits, but different products

Both are savings/investment products with the common benefit of tax saving. But we can’t just compare the two plainly because they offer a common secondary benefit (of saving on tax).

ELSS and PPF are two completely different products.

So, when two things are fundamentally different, there is actually no point comparing them. But people still do so and, therefore, we need to address this aspect.

The PPF is a government-backed, pure debt product that offers assured returns. And as you would agree, these returns are limited (around 8 per cent) due to the very nature of such debt products. ELSS, on the other hand, is an equity-linked product that aims to earn more than the risk-free rate of returns (such as the PPF’s 8 per cent). So, due to higher risks, ELSS’ returns can be higher, even though they aren’t assured or guaranteed and fluctuate between highs and lows (even negative) based on market movements.

Quality ELSS funds deliver better average returns (of around 12-15 per cent).
So should you simply ignore PPF and invest only in ELSS? Such an approach isn’t advisable.

Another Reading: EPF vs PPF vs VPF: Which one is better for saving money?

How and where you invest should be driven by your goals and investment horizon. If you are investing for your long-term goals, then the portfolio should have a larger equity component. And for short-term goals, it should be a debt-heavy portfolio. Different financial goals require different asset allocation. Also, there is a need to understand your risk profile (appetite, tolerance and capacity) and then chose a suitable asset allocation between equity and debt instruments so that sufficient returns can be generated without taking unnecessarily heavy risks.

Blend with financial planning

So what should you do?

First you need to integrate your tax saving with your goal planning exercise. Since you will need to keep saving on taxes for many years to come, align your Section 80C tax saving needs (of which ELSS and PPF are a part) with your retirement savings goal.
If your 80C limit of Rs 1.5 lakh is already exhausted by home loan principal repayment, EPF contributions, insurance premiums, then you don’t need ELSS. You can simply invest in non-ELSS funds for equity exposure towards your retirement goal.
If the limit isn’t exhausted and you are making up your mind between investing in the PPF or in ELSS for retirement, first find out the right asset allocation for your retirement saving goal. If the debt component is taken care of by the EPF, then you can invest in ELSS for the remaining requirement. Else, if you need to invest more in debt due to asset allocation requirement, you can consider using VPF (instead of PPF). If VPF isn’t available, then invest in the PPF and the remaining equity allocation requirement in ELSS.

But there are two more important aspects of choosing between the PPF and ELSS choice.

ELSS has a lock-in of three years. But being an equity product, it is ideally suited for the long term (5-7 years or more). So, even after three years, you shouldn’t withdraw from ELSS and must try to remain invested for longer. Also, since equity returns in the short term can be unexpectedly low, you should be ready to stay on for much longer than the lock-in period of three years, if need be.
PPF has a lock-in of 15 years. This is a pure long term product. But, we know that equity gives better return over the long term. So, if you are investing for retirement, don’t just stick to PPF. You should also introduce equity into your retirement savings (via ELSS, equity funds, NPS Aggressive option, etc.) to ensure that your retirement savings beat inflation in the long run.

When it comes to generating potentially higher returns over the long term, ELSS does score over PPF. Depending on your goals and risk appetite, make a suitable investment choice.

Mutual Fund Taxation : How mutual funds are taxed?

2020-01-24T14:14:00.000+05:30

There is a whole lot of jargon that surrounds investing in mutual funds. Potential investors grapple with complex names and types and struggle to differentiate one type of mutual fund from another. Having a clear understanding of these terms can help you take the first step towards investing comfortably.

As a basic rule, there are three main categories of mutual funds – equity, debt and hybrid or balanced. Mutual funds are broadly classified based on the investments made by the schemes or the asset allocation in their portfolio.

Equity mutual funds are those schemes that have invested more than 65 per cent of their assets in equity shares. At any point in time, at least 65 per cent of their investments are in equity. The remaining investments may be in debt instruments.

Taxation of equity mutual funds

You may have income from equity funds in two forms – dividends and capital gains.

Dividends are made tax-free in the hands of investors. But the fund house pays a dividend distribution tax (DDT) to the government before paying out dividends to the investors. Therefore, you are paid dividend net of DDT and it is not taxable in your hands.

Capital gains from sale of mutual funds are taxable in the hands of investors. The taxation of capital gains depends on how long you have held the mutual fund.

If an investor holds units of equity funds for less than one year, then his or her gains are termed as ‘short-term'. The short-term capital gains (STCG) are taxed at a flat rate of 15 per cent (an additional cess and a surcharge would be applicable). Investors make long-term capital gains (LTCG) if their holding period exceeds one year, and are taxed at the rate of 10 per cent if capital gains exceed Rs 1 lakh in the financial year.

Taxation of debt mutual funds

Mutual funds that invest more than 65 per cent of their assets in debt instruments such as treasury bills, government and corporate bonds are called debt mutual funds.

Like equity funds, dividends earned from debt funds too are not taxed in the hands of investors as the fund house pays a dividend distribution tax before paying out dividends.

Another Reading: When Should you Redeem your Mutual Fund Investment?

The tax on capital gains depends on the holding period. Capital gains earned on sale of units within three years is termed ‘short-term' and are taxed as per the income tax slab of investors.

However, capital gains made after a holding period of three years are termed ‘long-term,' and are taxed at the rate of 20 per cent after allowing indexation of cost. Remember that indexation is mandatory and no choice is allowed.

Types of equity mutual funds

Equity funds are further classified based on the market capitalization and sector and theme. Irrespective of the further classification of equity mutual funds, all equity funds are taxed similarly, as mentioned above.

Large-cap funds

Large-cap equity funds allocate most of their assets towards equity shares of companies that are ranked 1-100 in market capitalization, in the list that will be periodically released by the Association of Mutual Funds in India (AMFI).

Mid-cap funds

Mid-cap equity funds invest mostly in equity shares of companies that are ranked between 101 and 250 in market capitalization.

Small-cap funds

Small-cap equity funds invest predominantly in equity shares of companies that are ranked 250 and below in market capitalization.

Multi-cap funds

Multi-cap equity funds invest in shares of companies across all market capitalization.

Sectoral funds

Sectoral equity funds invest in stocks of companies operating in a particular sector, for example, banking and pharmaceuticals.

Thematic funds

Thematic equity funds invest in equity shares of companies working around a common theme, for example, realty and travel.

Tax-saving funds

ELSS (equity-linked savings scheme) mutual funds are the only class of mutual funds that are covered under Section 80C of the Income Tax Act, 1961. ELSS investors can avail tax deductions of up to Rs 1,50,000 a year under this section.

Types of debt mutual funds

Another Reading: Starting a SIP for Investment? Choose the right amount to reach your goal

Income funds

These funds mostly invest in government-issued securities and money market instruments such as certificates of deposit.

Dynamic bond funds

These funds invest in debt instruments (predominantly in bonds) that have different maturities. The fund manager will change the asset allocation of the portfolio as per market movements.

Liquid funds

The main objective of these funds is to offer liquidity, and they invest in high-rated securities that mature within 91 days.

Credit opportunities funds

Credit opportunities funds invest in low-rated corporate bonds (AA or below) that are expected to deliver higher yields.

Gilt funds

These funds invest only in the securities that are issued by the Central and State Governments.

Fixed maturity plans

These funds are closed-ended and come with a fixed maturity period. One can invest in a fixed maturity plan only when it is available for subscription.

Short-term and ultra short-term funds

These funds invest in instruments having short maturities.

What are Hybrid Funds?

Hybrid funds invest across both debt and equity instruments to offer the benefit of portfolio diversification.

Equity-oriented hybrid funds

If a hybrid fund invests more than 65 per cent of its assets in equities, then it is considered as an equity fund for taxation.

Debt-oriented hybrid funds

If a hybrid fund allocates more than 65 per cent of its assets towards debt instruments, then it is considered as a debt fund for taxation.

Arbitrage funds

Arbitrage funds try to optimize returns by buying securities in one market and selling the same in another at a higher price. These funds are treated as equity funds for taxation.

Conclusion

Tax planning should be an integral part of an investor's finances. Investors must be aware of how their investments are taxable on redemption.

Budget 2020 expectations : Lower tax rates and higher exemption limit

2020-01-24T13:57:00.000+05:30

Everyone is looking forward to the prospect of saving more taxes

With Budget 2020 round the corner, expectations are running high among individual taxpayers, especially after media reports that the Finance Minister has hinted at a personal tax rate cut. The rise in the cost of living has compelled everyone to streamline their finances and curb expenses and, hence, everyone is looking forward to the prospect of saving more taxes. Some tax benefits that individuals could expect from the upcoming Budget from a personal taxation standpoint, are as follows.

Reduction in personal taxes

The basic exemption limit was last enhanced way back in Budget 2014. Hence, there is a strong expectation amongst taxpayers that the finance minister will provide relief by extending the basic exemption limit to at least Rs 5 lakh. Further, the taxes for individuals could be brought down by way of a reduction in rates and extension of the slabs. The slabs and the rates could be revised to be 10 percent for taxable income between Rs 5-10 lakh, 20 percent for income between Rs 10-20 lakh and 30 percent for income above Rs 20 lakh.

Another Reading: Budget 2020: FM Nirmala Sitharaman may propose 5% tax on income up to Rs 7 lakh

Enhanced housing loan interest deduction

Prior to April 1, 2019, where an individual owned more than one residential property, she could claim only one property as self-occupied and the other house property even though not let out, had to be offered to tax on notional rental value. There was a welcome amendment last year, whereby an individual was allowed to claim two properties as self-occupied instead of one. However, there was no corresponding increase in the limit for deduction of interest on housing loan, which remained at Rs 2 Lakh for both properties put together.

There is therefore a need to amend the provision to provide for deduction of interest on housing loan in case of each self-occupied house property. Further, currently, the limit for loss on house property, which can be set-off against other income, is Rs 2 lakhs, and the remaining can be carried forward for eight years. This house property loss set-off limit should scrapped.

Increase in period for deduction for interest on education loan

As per section 80E of the Income Tax Act, 1961 (Act), tax deduction can be claimed for the interest paid on education loan obtained for purpose of pursuing higher education. Though there is no monetary limit to avail a deduction under section 80E, such deduction can be claimed only for a total period of 8 years, starting from the first year in which the individual starts repaying the loan. Since the loan tenure offered by most financial institutions is 10-15 years, the period of eight years needs to be revisited in order to encourage students to acquire the best of education.

Increase in limit under section 80C

Deduction under section 80C of the Act is most commonly availed by individuals across the country. There are a number of eligible investments and expenses listed in section 80C which qualify for deduction; for e.g., contribution to a recognised provident fund, contribution to public provident fund, life insurance premium, payment towards tuition fees for children, etc. However, the amount of deduction under this section is restricted to Rs 150,000. This limit has not been enhanced for the last 5 years. The limit under section 80C should be enhanced to Rs 3,00,000 per financial year, to encourage taxpayers to invest and at the same time, save tax.

Another Reading: Mandatory hallmarking of gold : Should you be worried about your uncertified jewellery?

Reintroduce infrastructure bonds

The government had provided a deduction of up to Rs 20,000 in respect of subscription to notified long-term infrastructure bonds in the year 2011 for a couple of years. In order to boost the infrastructure sector, the government could consider re-introducing infrastructure bonds with a higher cap of Rs 50,000 for the deduction.

Increase in standard deduction

Currently, the law provides for a deduction of up to Rs 50,000 for salaried individuals as standard deduction. This amount is not adequate and needs to be revised upwards to at least Rs 1 lakh.

Contribution to the National Pension System

Last year, the Finance Minister increased the cap on exemption in respect of employer's contribution to the NPS for central government employees from 10 to 14 percent. This enhanced limit should be extended to all employees to encourage further investments in the NPS. Currently, the law provides for an additional deduction of Rs 50,000 for individual contributions. Such additional deduction should also be enhanced to Rs 1 lakh.

(The writer is a Partner with Deloitte India. Mousami Nagarsenkar, Prachi Phansikar and Richa Udaipuri from Deloitte Haskins & Sells LLP contributed to the article)

Mandatory hallmarking of gold : Should you be worried about your uncertified jewellery?

2020-01-24T10:30:00.000+05:30

The government has made it mandatory for jewellers to sell hallmarked gold. However, to ensure a smooth transition to the new regime, jewellers are allowed to sell their old stock till January 14, 2021 and register with the Bureau of Indian Standards (BIS). After the deadline, gold jewellery or artefacts without hallmarking cannot be sold in India. The new regime intends to ensure quality. Here we address some common queries related to the process.

What is hallmarking and what are its benefits?

According to BIS portal, hallmarking is the accurate determination and official recording of the proportionate content of precious metal in precious metal articles. Put simply, it is an official stamp or certificate of purity or fineness of precious metal artefacts or jewellery. Hallmarking will be done in three segments: 14, 18 and 22 carat gold.

It is a certificate of purity of the metal used in the jewellery. Hallmarking specifies the exact quality of the precious metal – gold – used. It protects the consumer from counterfeiting or buying gold of inferior quality compared to what is claimed by the jeweller. It safeguards your interest as a consumer.

A hallmark has the following components: the BIS Mark, purity in carats and fineness, assaying/hallmarking centre's identification mark/number and jeweller's identification mark/number.

Are some items excluded from hallmarking?

Bullion gold such as bars and coins are excluded from the requirement of mandatory hallmarking. Gold jewellery weighing below two grams is also excluded.

Will it inflate the cost of gold jewellery?

Cost of hallmarking is Rs 35 (excluding service tax and other levies) per article according to BIS' website. The levy will be passed on to the consumer and so the cost of the jewellery will go up marginally.

There are many jewellers selling jewellery with hallmarking even now. For them, their existing costs or making charges are inclusive of hallmarking charges. Hence, their costs may not go up after the introduction of mandatory hallmarking.

Is there any penalty for not complying with mandatory hallmarking?

There are penal provisions in place if they continue to sell jewellery without hallmarking from January 15, 2021. There is a provision for one-year imprisonment or a fine of not less than Rs 1 lakh or both for the jeweller. The fine may extend up to five times of the value of ornaments.

What if I want to buy 23 carat gold jewellery or of any other purity?

Experts stand divided on this front. “A consumer is permitted to convert old jewellery or bullion in to any caratage. Restrictions apply only to jewellers for selling 14, 18 and 22 carat jewellery,” says Surendra Mehta, national secretary of Indian Bullion & Jewellers Association. “You can buy bullion gold and approach a jeweller and get the jewellery manufactured as per your preference other than 14, 18 and 22 carats. Though the gold jewellery hallmarking is done in three segments, the rules do not prohibit the manufacture of jewellery of other carats, say 23 carat,” says Mehta.

Another Reading: Gold vs FD: The better investment option

However Harshad Ajmera, ex-President of Indian Association of Hallmarking Centre thinks otherwise. “We will see a standardisation of gold ornaments based on purity. Jewellers can offer gold ornaments only in these three variants with hallmarking – 14, 18 and 22 carat.” He further pointed out that 90 per cent of the hallmarked jewellery was made in 22 carat gold.

What will happen to my existing gold ornaments and artefacts?

Mandatory hallmarking is applicable to jewellers. The jewellery which you have bought earlier would not get affected in any way. There is no penalty on users for storing and/or using jewellery without hallmarking.

What if I gift or sell my gold jewellery without hallmarking to a friend or relative?

There are no implications. The recipient, however, will not get an assurance of purity of gold. If your jewellery has no hallmarking and you want to sell it to a retailer, then the jeweller will ascertain the purity and buy it – as is the case now.

Will my old ornaments without hallmarking be accepted as a collateral for gold loans?

Yes. Lenders offering gold loans have been using gold as a collateral. They do look at hallmarking as an additional assurance of quality. While lending against the gold, the lenders assess the quality and quantity of gold.

Budget 2020: FM Nirmala Sitharaman may propose 5% tax on income up to Rs 7 lakh

2020-01-23T14:20:00.001+05:30

Budget 2020 may ring in massive income tax relief.

With expectations of a significant income relief for the middle class rising, it appears Finance Minister Nirmala Sitharaman could meet them when she presents Union Budget 2020.

Sources have told CNBC Awaaz's Manish Desai that the 5 percent income tax slab may be relaxed from Rs 2.5 lakh-Rs 5 lakh currently to Rs 2.5 lakh to Rs 7 lakh.

For income bracket of Rs 7 lakh to Rs 10 lakh, the tax proposed is 10 percent. For Rs 10 lakh to Rs 20 lakh bracket, 20 percent is proposed.

For Rs 20 lakh to Rs 10 crore, the bracket may attract see 30 percent tax and for income of Rs 10 crore and above, the rate is likely to be 35 percent.

If the above announcement comes through, it could result in large savings for the salaried.

For instance, for individuals earning Rs 10 lakh, Rs 15 lakh and Rs 20 lakh, respectively, it could result in savings of Rs 60,000, Rs 1.1 lakh and Rs 1.6 lakh, respectively.

The above calculation does not take into account the impact of cess.

Experts feel that personal income tax cuts can put additional money in the hands of the middle and lower middle classes that will drive consumption and investment spending.

They also feel that the income tax cuts could further boost market sentiment.

Others have strongly argued against personal tax cuts on the grounds that income tax cuts would benefit only a small percentage of the population, which may not be the best option to stimulate growth. They feel that the government should use the money it has to invest and stimulate demand.

EPFO transfer, claim process gets simpler

2020-01-23T10:42:00.000+05:30

EPFO launches a new online feature wherein employees can update the date of exit for the previous organizations they have worked with

Earlier only the employer could update the data of exit on the EPFO platform

Over the past few years, the Employees’ Provident Fund Organisation (EPFO) has been striving to make the PF transfer and the claim process smoother. Recently, it took another step in that direction.

EPFO transfer, claim process gets simpler

The EPFO has launched a new online feature wherein employees can update the date of exit for the previous organizations they have worked with. The date of exit needs to be updated on the EPFO portal for employees to transfer the funds online in case they are changing jobs or to make claims in case they are unemployed for more than two months. Earlier, only employers could update the date of exit on the EPFO platform.

“A lot of EPFO services were dependent on the employers. For example, in case an employee changed jobs, employers needed to do two things—the old employer needed to update the exit date on the EPFO portal and the new employer the date of joining. At times, employers don’t update the portal on time, causing problems for employees. The new feature is meant to empower employees," said an EPFO official, on the condition of anonymity.

Another Reading: Steps To Activate Universal Account Number (UAN)

The EPFO is easing out the management of PF by subscribers by bringing everything online, said Jitendra P.S. Solanki, a Sebi-registered investment adviser. “Earlier, an employee was dependent on the employer for updating the exit date. At times, the employee doesn’t leave an organization on a happy note or may not have the contact number of the previous employer. In such cases, it becomes difficult for employees to get the exit date updated," he said.

However, there are a few things you should keep in mind when using this feature. The date of exit can only be updated after two months of leaving a job. Also, the date of exit can be any date in the month in which the last contribution was made by the previous employer.

The new facility is based on Aadhaar-based one-time password (OTP). “It can only be utilized by those who have linked their EPF account with a verified Aadhaar number. The accounts should be linked to the Universal Account number (UAN). Also, the mobile number should be linked to the Aadhaar number on which the OTP will be sent for verification," said the EPFO official.

How to update the exit date

Step 1: Go to the EPFO portal and login using your UAN and password.

Step 2: Go to “manage" and click “mark exit". Under the “select employment" dropdown, select the previous PF account number linked to your UAN.

Step3: Enter the date and reason of exit.

Another Reading: How to change Mobile number in EPF account online

Step 4: Then request for an OTP which will be sent to your Aadhaar-linked mobile number.

Step 5: After you enter the OTP, submit the request.

Remember that once updated, the exit date can’t be changed, so be careful about how you do it.

ICICI Bank introduces new way of ATM cash withdrawal

2020-01-22T12:23:00.000+05:30

ICICI Bank's cardless cash withdrawal facility is safe and secure
The bank customers can now withdraw cash from any ICICI Bank ATM without a debit card 24X7.

The private lender ICICI Bank today announced the launch of a ‘cardless cash withdrawal’ facility from its ATMs. This service allows the bank customers to withdraw cash from any ICICI Bank ATM without a debit card 24X7. Speaking at the launch, Anup Bagchi, Executive Director, ICICI Bank said, “The offering of ‘cardless cash withdrawal’ from iMobile enables our customers to withdraw cash securely and conveniently for everyday usage and purchases, all from the convenience of their mobile phone. We believe that this proposition of cash withdrawal from an ICICI Bank ATM without using a debit card offers a speedy and unique experience to our customers."

Here are the simple steps to avail the ‘cardless cash withdrawal’ using the ICICI Bank mobile app:

Log into ICICI mobile app - ‘iMobile’.
Select ‘Services’ and ‘Cash Withdrawal at ICICI Bank ATM’
Now, enter the amount, select account number, create a 4 digit temporary PIN and submit
You will receive a reference OTP (One Time Password)
Visit any ICICI Bank ATM. Select cardless cash withdrawal
Enter your mobile number
Now enter reference OTP.
Enter the temporary PIN
Now enter the amount to be withdrawn
The cash withdrawal request and OTP are valid upto next day midnight.

Advantages of using ICICI Bank's cardless cash withdrawal facility

There is no requirement to carry and use a debit card or ATM PIN to withdraw cash for daily usage.
ICICI Bank cardless cash withdrawal facility through ATM is available across all over 15,000 ICICI Bank ATMs.
The daily transaction limit as well as per transaction limit is set at ₹20000.
ICICI Bank's cardless cash withdrawal facility is a safe and secure mode of cash withdrawal using the ICICI mobile app.

How to withdraw PF and EPS money after leaving your job

2020-01-18T19:50:00.002+05:30

Withdrawing the provident fund (PF) balance after leaving a job has become a necessity now. After resigning from a job many individuals do not get their PF balance transferred from the previous employer to the new employer or do not withdraw the balance.

People do this mainly because the funds are safe with the Employees' Provident Fund Organisation (EPFO) and it keeps earning tax-free returns.

Things, however, will not be the same from now on. In November 2017, the Bengaluru bench of the Income-Tax Appellate Tribunal (ITAT) ruled out tax-exemption on the interest earned on the EPF account after an employee has quit. So, to avoid getting taxed, you will have to either transfer the PF balance to the new employer or withdraw the amount at the earliest after the exit.

Another Reading: How to Merge two or more EPF accounts into one with UAN online?

After an exit from a job, even though no fresh contributions are made, such PF accounts remain 'operative' with the balance earning interest every year. The PF balance as on the date of exit from an organisation continues to be tax-exempt, but the interest earned on the balance thereafter will be taxable in the year of withdrawal, i.e., it's only the amount of interest earned during the out-of-job period which comes into the tax net. So, to avoid tax, one should get the PF balance transferred to the new employer.

If such a case pertains to you, you have two options: continue earning taxable interest or withdraw the PF balance. Let's see how you can withdraw the PF balance.

When can an employee withdraw PF balance?

According to the EPF Act, to claim final PF settlement, one has to retire from service after attaining 58 years of age. The total PF balance includes the employee's contribution and that of the employer, along with the accrued interest. In addition, he will be eligible to get the Employees' Pension Scheme (EPS) amount as well depending on the years of service

But what if someone decides to quit his job before reaching 58? Under the existing rule, employees who resign from a job before they turn 58 years of age can withdraw the full PF balance (and the EPS amount depending on the years of service), if he is out of employment for 60 straight days (two months) or more after leaving a job and then withdraw. However, in a decision taken at the 222nd central board of trustees meeting of EPFO in June 2018, it was decided that subscribers of Employees Provident Fund Organisation (EPFO) who resign from their service can now withdraw 75% of their total provident fund kitty after one month from the date of cessation of service to meet their monthly financial commitments.

Along with the PF, one is also allowed to withdraw the EPS amount if the service period has been less than 10 years and not later on. Once this milestone is crossed, the employee compulsorily gets pension benefits after retirement.

To withdraw the PF balance and the EPS amount, the EPFO has launched a 'composite form' to take care of withdrawals, transfer, advances, and other related payments.

Another Reading: EPF Missed Call Service To Check Your PF Balance Immediately

Before you start the withdrawal process make sure all your previous PF accounts are merged into one. The total service in the present establishment as well as previous organisations will be taken into account and therefore, it is advisable to merge your accounts.

The withdrawal process

The withdrawal process becomes simpler and less time-consuming if you have your Aadhaar number with you. Here is how you can initiate the withdrawal for both, with and without Aadhaar.

Withdrawing without using Aadhaar card number: If you don't have an Aadhaar, but have the PF number, use this form - Composite Claim Form (Non-Aadhaar).

You will have to furnish Permanent Account Number (PAN) if the total service period is less than five years and also attach two copies of Form 15G/15H, if applicable. In case the Universal Account Number (UAN) is not available, you can mention only the PF account number.

Withdrawing using Aadhaar card number: You can submit a Composite Claim Form (Aadhaar) directly to the concerned EPFO office without attestation of claim form by the employers. The payment of the PF balance will be sent to your bank account, so attach a cancelled cheque along with the form.

Before proceeding, ensure these things: You have submitted complete details in Form11 (New) to your employer, Aadhaar card number and bank account details are available on the UAN portal, and the UAN has been activated.

The withdrawal process will entail these conditions. See which one caters to you and choose the form accordingly.

1. Withdrawing PF balance plus the EPS amount (for below 10 years of service)
2. Withdrawing PF balance plus the EPS amount (over 10 years of service)
3. Withdrawing PF balance only and reduced pension (age 50-58; over 10 years of service)
4. Withdrawing PF balance only and full pension (After 58).

1. Withdrawing PF balance plus the EPS amount (for below ten years of service)

If service period has been less than 10 years, both PF balance and the EPS amount will be paid. To get EPS amount, in the Composite Claim Form (Aadhaar or Non-Aadhaar), along with choosing 'Final PF balance', also choose the 'pension withdrawal' option.

If you plan on re-joining the workforce, you may opt to get the 'scheme certificate' by furnishing Form 10C.

2. Withdrawing PF balance plus the EPS amount (over ten years of service)

If you have already completed 10 years of service, the EPS amount cannot be withdrawn and only the scheme certificate is to be issued by filling Form 10C along with the Composite Claim Form (Aadhaar or Non-Aadhaar). The pension is to be paid from age 58 while a reduced pension can be paid from age 50. One may opt for early pension (reduced proportionately) after 50 years, provided one has completed 10 years of service.

3. Withdrawing PF balance and reduced pension (age 50-58) (over ten years of service)

You can only get pension after turning 50 years of age and have rendered at least 10 years of service. If your service period has been more than 10 years and you are between the age of 50 and 58, you may opt for reduced pension. For this, For this, Form 10D has to be submitted along with the Composite Claim Form (Aadhaar or Non-Aadhaar).

Another Reading: Withdrawing, transferring your PF balance: These three mistakes can stop you

4. Withdrawing PF balance and full pension (After 58)

After 58, you have to submit the same Form 10D to claim the full pension.

What you should do

It is advisable to transfer your PF balance when you change jobs as it is a form of forced savings. For those who are still in service and have not started their own business, it is better to transfer the PF balance to the new employer. The transfer process has been made automatic. And if you have quit to start your own business, the entire balance in your EPF account can be transferred to the National Pension Scheme.

Hope this article from The Finance Gyan helps!!!

NPS vs EPF: Which one is better ?

2020-01-18T14:48:00.000+05:30

After a lot of noise and protests, the proposal to levy income tax on 60 per cent of EPF withdrawal amount has been withdrawn and rightly so. This was a proposal drafted in haste in a bid to equate EPF with NPS.

Let's remember that EPF has been a popular choice of saving tax and retirement planning for over 60 years and currently close to 4 Crore members are depending upon their EPF balances for comfortable post retirement life. On the other hand, NPS was launched in 2004 for new Government employees and subsequently it was offered to the general public in 2009. NPS is still to gain popularity among masses.

The basic difference between EPF and NPS is that whereas EPF gives assured tax-free returns in the shape of annual interest, the NPS, on the other hand, gives market linked returns where the maximum of 50 per cent of contributions can be allocated to equity markets. Thus, the potential of earning higher returns is clearly with NPS in comparison to EPF, provided the investment is made for a long-term horizon of 10 years or above.

EPF is easy to maintain and track and annual returns being earned by all subscribers, irrespective of the amount of the contribution or age of the member. However, the same is not true for NPS where the performance of fund managers will differ and also the allocation between equity and debt will not be same for all subscribers.

The important point to note is that tax saving provision for both EPF and NPS are mutually exclusive as EPF gives a deduction up to Rs 1.5 lakh U/S 80C and NPS gives an additional deduction up to Rs 50,000 U/S 80CCD.
In conclusion NPS and EPF are not alternative to each other. Rather, they are complimentary to each other and both schemes are recommended to be included in everyone's portfolio. These two are just like apples and oranges. These two fruits cannot be compared and yet both are essential for good health.

Comparison between EPF & NPS

1. Eligibility

EPF is open only for salaried employees of private sector organizations. It is compulsory for each employee of organizations with 20 employees or more. NPS is compulsory for Government employees who have joined service after April 2004. However, NPS is also open to general public including businessmen, self-employed, housewives and persons working with organized/un-organized sector.

Also Read: National Pension Scheme Retirement Scheme for all (NPS)

Thus, a private sector employee can do his retirement planning by using both the options, i.e. EPF as well as NPS but a businessman or a self-employed person can do his retirement planning only through NPS or in a limited manner through PPF.

2. Mode of investment

In EPF, it is a disciplined approach and employee does not have to do anything as 12 percent of her/his basic salary is deducted towards contribution to EPF and a similar amount is added by the employer. However, in NPS, it is completely voluntary and investors may invest either lump sum or in any kind of instalments.

3. Minimum/Maximum amount of investment

In NPS minimum investment in one financial year is Rs 6,000 and there is no upper limit. On the other hand, in EPF employer contribution is restricted to 12 per cent of monthly basic salary and employee can also opt for extra voluntary contribution. Hence, there is a restriction on the amount which an employee can contribute towards his EPF.

4. Asset allocation

In EPF, 100 percent allocation is towards debt instruments. Recently, EPFO has been allowed to invest 5 per cent of the incremental corpus in equity markets with a maximum cap of 15 per cent of fresh annual contribution.
In case of NPS, the investor is offered two choices – either to decide his own asset allocation between equity and debt or she/he can also opt for default options. Under default option, allocation to equity continues to decrease with every passing year up to retirement, whereas in another option, the maximum allocation to equity can be only 50 per cent.
Also, there is a choice of six pension fund managers to choose from.

5. Expected returns

In EPF return is assured and is same for all subscribers. For last financial year, the interest rate applicable for EPF members was 8.7 per cent per annum and in future it is expected to be similar or slightly lower as the interest rates go down in our economy.

Also Read: Details about EPF Scheme

On the other hand, investors in NPS may expect a slightly higher return due to allocation to equity. After a long tenure of 10 years or over, returns generated by NPS may be 2 to 3 percent higher than those generated by EPF.

6. Tax benefits

As per current provisions, contributions to EPF qualify for deduction U/S 80C up to a maximum limit of Rs 1.5 lakh but U/S 80C there are other alternatives also like PPF, ELSS, insurance plans, tuition fees, 5-year bank deposits, etc.
For NPS investors, there is an exclusive deduction up to a maximum limit of Rs 50,000 U/S 80CCD (1B) over and above Section 80C and there is no other alternative for this.
On maturity, the total amount in EPF will be tax-free and the entire amount can be withdrawn at the time of retirement. However, in case of NPS, up to 40 per cent of the corpus can be withdrawn without paying any tax.
Balance 60 per cent may be invested in buying an annuity i.e. an immediate pension plan.

Please remember that in case of NPS, under no circumstances 100 per cent of the corpus can be withdrawn at retirement. Minimum 40 per cent of the corpus has to be invested in the purchase of an annuity plan. However, one can also buy an annuity plan by investing 100 percent of the corpus.

Hope this article from The Finance Gyan helps!!!

National Pension Scheme (NPS) Tier 1: Contribution, Returns & Withdrawal

2020-01-18T14:47:00.002+05:30

NPS Tier 1 is a retirement account. It is the primary NPS account and you can only open a Tier 2 account after opening a Tier 1 account. The account can be opened under the NPS (Central Govt), NPS (State Govt), NPS (Corporate) and NPS (All Citizens Models). Different rules apply to each, but the general rules stated below apply to all types of NPS Tier 1 accounts.

You need to deposit at least Rs 1,000 per annum to keep the account active. The NPS Tier 1 account matures at the age of 60 and you can extend it till the age of 70.

NPS Tier 1 is eligible for tax deduction on contributions up to Rs 1.5 lakh under Section 80 C and an additional Rs 50,000 under Section 80 CCD (1B) of the Income Tax Act, 1961. On withdrawal, 40% of the NPS Tier 1 account balance can be withdrawn tax-free. Another 40% must be compulsorily used to buy an annuity (monthly pension). The remaining 20% can either be used to buy an annuity or can be withdrawn after paying tax (at your slab rate).

Eligibility:

You have to be a citizen of India. NRIs can also open it as long as they are Indian citizens.

You have to be between 18 and 65 years of age. Special rules apply if you open an NPS Tier 1 account from the age of 60 – 65.

Minimum Investment: Rs 1,000 per annum

Maximum Investment: No upper limit

Lock-in: Till you attain the age of 60

Returns: Depend on the asset allocation and pension funds chosen by you.

How to open an NPS Tier 1 account

If you have an Aadhar Card, PAN Card and bank account, you can open an NPS account online at enps.nsdl.com or enps.karvy.com. These are the portals of the Central Recordkeeping Agencies (CRAs) in the NPS.

If you prefer to do this offline (in person) you can go to your nearest NPS Point-of-Presence (PoP) which is typically a designated branch of your bank. You can get a full list of NPS PoPs here.
In either case (online or offline account opening), you can make contributions, change key details, change fund managers and initiate withdrawals online at enps.nsdl.com or enps.karvy.com.

NPS Tier 1 Contribution

The minimum NPS Tier 1 contribution is Rs 1,000 per annum. There is no maximum limit on your NPS Tier 1 contribution. The minimum initial contribution to the NPS Tier 1 Account is Rs 500.

You can contribute online to NPS Tier 1 at enps.nsdl.com

Another Reading: National Pension Scheme Retirement Scheme for all (NPS)

NPS Tier 1 withdrawal rules

You can make up to 3 partial withdrawals from NPS Tier 1 during the lifetime of your NPS account. Such withdrawals can be made 3 years after opening the account.

They can be made on specific grounds such as medical treatment, higher education of children, marriage of children, home purchase etc.
These withdrawals cannot in the aggregate exceed 25% of your contributions and are tax-free.

You can download the form for NPS partial withdrawals here.

The NPS account matures at the age of 60 and you can withdraw up to 60% of your NPS corpus tax-free. The balance 40% has to be used to buy an annuity (regular pension). The annuity will be taxable each year.

You can also opt for premature exit before the age of 60, provided you have completed 3 years in the NPS. In such a scenario, you can withdraw a maximum of 20% of your corpus which will be a taxable withdrawal. The balance 80% has to be converted to an annuity.

NPS Tier 1 Lock-in Period

The NPS Tier 1 account has a lock-in till the age of 60. However, as mentioned above, you can exit the system prematurely before 60 subject to the terms and conditions mentioned above.

NPS Tier 1 Tax Benefits

You get a tax deduction under Section 80CCD(1) and 80CCD(2) on contributions to the NPS up to Rs 1.5 lakh per annum.

For employees the maximum contribution eligible for tax deduction under these sections is limited to 20% of salary.
For self-employed, the maximum contribution eligible for tax deduction under these sections is limited to 20% of income.
In addition, you can get a tax deduction on contributions up to Rs 50,000 under Section 80CCD(1B). Hence the total tax benefit on contributions to the NPS is Rs 2 lakh per annum.
In addition, the returns on NPS are tax exempt while the money is retained in the NPS account.
On maturity, up to 60% of the accumulated NPS corpus can be withdrawn free of tax. Another 40% must be used to buy an annuity (regular pension).

How to withdraw money from NPS Tier 1

You can log in to your NPS Tier 1 account from enps.nsdl.com. You need to provide your PRAN number and date of birth in order to login. You can make withdrawals online after logging into your account.

Alternatively, you can go to the nearest branch of your NPS point-of-presence (PoP), usually your bank and submit a withdrawal request there.

How to close an NPS Tier 1 Account

You can submit a request you close your NPS Tier 1 account by logging into your account online at enps.nsdl.com.

Alternatively, you can go to the nearest branch of your NPS point-of-presence (PoP), usually your bank and submit a closure request there.

Tier 1 Returns

NPS Tier 1 returns are derived by investing in equities, corporate bonds, government bonds and alternative assets – the four NPS asset classes. You can decide the split between these assets as per your convenience subject to a limit of 75% on equity investment and 5% on alternative assets*. You can decide You can also select 1 of 8 NPS pension fund manager. They are SBI, UTI, LIC, Aditya Birla, HDFC, Kotak, ICICI Prudential and Reliance Capital. NPS returns are thus akin to mutual fund returns rather than the fixed returns offered by savings schemes like PPF. You can view the historic returns of NPS Pension Funds below:

*Different limits apply to government employees

Another Reading: 7 Government of India Schemes to Invest for Social Security

Offer contactless card payments only if opted for: RBI to banks

2020-01-16T15:52:00.001+05:30

At the time of issue or reissue, all physical and virtual cards shall be enabled for use only at contact-based points of usage, that is, ATMs and point of sale (PoS) devices within India.

In a notification on its website, the central bank said the directive is aimed at improving user convenience and increasing the security of card transactions.

The Reserve Bank of India (RBI) on Wednesday directed banks to offer the facility to carry out contactless card transactions only to those users who specifically choose to avail it. In a notification on its website, the central bank said the directive is aimed at improving user convenience and increasing the security of card transactions.

At the time of issue or reissue, all physical and virtual cards shall be enabled for use only at contact-based points of usage, that is, ATMs and point of sale (PoS) devices within India. Issuers shall provide cardholders a facility for enabling card-not-present domestic and international transactions, card-present international transactions and contactless transactions, as per a process detailed by the RBI.

The banks must provide to all cardholders a facility to switch on or off, set and modify transaction limits within the overall card limit for all types of transactions. This facility must be made available on a 24×7 basis through multiple channels, including mobile applications, internet banking, ATMs and interactive voice response (IVR). It may also be offered at branches or offices of the issuer.

Another Reading: Cards not used for online payments to be disabled of service, says RBI

Further, the issuer must send alerts to the user through SMS and e-mail, as and when there is any change in the status of the card. Banks will be entitled to take a call on whether to disable the additional features for existing cards that allow contactless and card-not-present transactions as well as international transactions.

“For existing cards, issuers may take a decision, based on their risk perception, whether to disable the card not present (domestic and international) transactions, card present (international) transactions and contactless transaction rights. Existing cards which have never been used for online (card not present) / international / contactless transactions shall be mandatorily disabled for this purpose,” RBI said in the notification.

Cards not used for online payments to be disabled of service, says RBI

2020-01-16T15:44:00.000+05:30

The Reserve Bank of India (RBI) has asked banks and card issuers across the country to disable online payment services of all those credit and debit cards that have never been used for online/contactless transactions, in a bid to enhance the security of cardholders.

The new rules will come into effect from March 16, 2020 -- two months from now. Representative image: Pixabay

"Existing cards that have never been used for online/international/contactless transactions shall be mandatorily disabled for this purpose," said the central bank, in a notification on Wednesday.

For existing cards, which have seen the online or 'card-not-present transactions', the banks have been directed to carry out a risk assessment and take a call on disabling them based on the risk perception.

Card transactions are usually divided in two categories — card-present transactions and card not present transactions. In the case of the former, the customer physically interacts with payment machinery using his or her card and in case of the latter, the cardholder does not or cannot physically present the card for a merchant's visual examination.

Contactless payment is a secure method for consumers to purchase products or services using a debit, credit, or smartcard — also known as a chip card — by using RFID technology or Near-Field Communication.

The new rules will come into effect from March 16, 2020 — two months from now. Once disabled, the card users will have to reapply for the services.

Banking industry sources suggest that the cards are susceptible to frauds and there is no uniformity in practices across banks. The rule has been devised with the aim of protecting the interest of rural folks — who is seen more gullible to digital frauds.

Another Reading: Offer contactless card payments only if opted for: RBI to banks

India has more than 800 million debit cards in circulation, while there are about 50 million credit cards adding on the government's attempts to digitize the economy.

The central bank has directed card issuers to further activate cards only at contact-based points of usage.

"At the time of issue/re-issue, all cards (physical and virtual) shall be enabled for use only at contact-based points of usage (via ATMs and point of sale devices) within India. Issuers shall provide cardholders a facility for enabling card not present (domestic and international) transactions, card-present (international) transactions and contactless transactions," the circular said.

Pradhan Mantri Suraksha Bima Yojana (PMSBY)

2020-01-12T15:46:00.000+05:30

Insurance is not a new topic in India, but still, its reach is limited to a few people.

Though there are so many insurance companies operating in India, still there is a large number of people, especially in rural areas who are not covered under any kind of insurance.

This section of the society is mostly below the poverty line and insurance service is not affordable for them.

Hence, our government has introduced “Pradhan Mantri Suraksha Bima Yojana” after the successful performance of Jan Dhan Yojana, keeping in mind the poor masses.

What is Pradhan Mantri Suraksha Bima Yojana (PMSBY)?

Pradhan Mantri Suraksha Bima Yojana (PMSBY) is a government-backed accident insurance scheme in India.

It was launched by our honorable Prime Minister Narendra Modi on 9 May 2015 in Kolkata.

The scheme was launched with the intent to increase the insurance coverage amongst the masses.

Any individual between 18 and 70 years of age with a bank account can open Pradhan Mantri Suraksha Bima Yojana account.

The scheme will be covered for one year and is renewable from year to year.

Features of Pradhan Mantri Suraksha Bima Yojana

1. Premium

The key highlight of this scheme is its low premium which stands at Rs 12 p.a. (I.e. Rs 1 every month).

2. Risk Coverage

The coverage of Rs 2,00,000 will be provided in case of full disability or accidental death and Rs 1,00,000 in case of partial disability.

3. Payment mode

The premium will be auto-debited directly from the account of the subscriber and this is the only mode available.

4. Eligibility

An account holder between 18 and 70 years of age, who have given their approval to join the PMBSY scheme or enable the auto debit feature, can enroll in this scheme.

Another Reading: 7 Government of India Schemes to Invest for Social Security

5. Terms of Risk Coverage

A person needs to renew this scheme every year. Moreover, he/she can also choose the long-term option where his account will be debited every year by the bank

Pradhan Mantri Suraksha Bima Yojana (PMSBY) Benefits

a. Tax benefits

The proceeds received under this scheme will get tax-exemption u/s 10 (10D).

But in case the proceeds from the policy is over Rs 1,00,000, TDS will be applied @ 2% of the overall proceeds, if no Form 15G or Form 15H is submitted to the insurer.

Moreover, the premium paid will also be tax-free under section 80C of the Income Tax Act.

b. Low premium

The main attraction of this scheme is its low premium of Rs 12 p.a. Which makes it possible for the even the poorest of the poor to avail the scheme.

How to apply for this scheme?

You are required to link your Aadhar card to your bank account.

Then fill up the application form and submit the same to your bank.

However, the individuals have to submit the application every year to be covered under this scheme. Whenever you fill the form, you need to mention the name of the nominee along with the relationship.

Click to download the application form for PMSBY.

Exclusion

The major exclusions include suicide or suicidal attempt under the influence of drugs or liquor, intentional self-injury or loss arising from an act due to a breach of law with or without criminal intent.

Termination of Cover

The individual will not be entitled to any benefit and the accident cover will get terminated in case of any of the following events-

1. In case the individual attains 70 years of age.

2. The account has been closed as there is insufficient fund in the account to keep the insurance active.

3. When a person is covered by more than one account. Insurance cover will be limited to only one account and the premium on other accounts will be forfeited.

Another Reading: Pradhan Mantri Jeevan Jyoti Bima Yojana (PMBJJY)

4. When the insurance cover is ceased due to any technical reasons like insufficiency of funds on the due date or any administrative issues, the same can be reinstated on receipt of the full annual premium (subject to conditions that may be laid down).

The risk cover will be suspended during this period and reinstatement of risk cover will be at the sole discretion of Insurance Companies.

Conclusion

Pradhan Mantri Suraksha Bima Yojana is one of the most important social security programs initiated by our government to help, especially the poor and the underprivileged people and to cover them with the basic social security benefit.

As of January 2018, over 13.28 Crore enrollments have already been made under this scheme (source).

So what are you waiting for? Go to the nearest bank and apply for this scheme today.

Take care and keep learning!!

Pradhan Mantri Jeevan Jyoti Bima Yojana (PMBJJY)

2020-01-12T15:41:00.002+05:30

A number of schemes like Pradhan Mantri Jeevan Jyoti, Pradhan Mantri Suraksha Bima Yojana, and Atal Pension Yojana, were launched by our honorable Prime Minister, Narendra Modi in May 2015 for the welfare of the needy people.

Today, we’ll discuss Pradhan Mantri Jeevan Jyoti Bima Yojana.

Pradhan Mantri Jeevan Jyoti Bima Yojana

Pradhan Mantri Jeevan Jyoti Bima Yojana is a government-backed life insurance scheme in India.

Pradhan Mantri Jeevan Jyoti Bima Yojana is a pure life insurance policy which offers coverage for death for one whole year. This scheme is renewable from year to year.

The benefit of this cover will be available only to the nominee only because this cover is only for mortality with no investment component and has a life cover of Rs.2 Lakhs.

It’s a great initiative taken by our government since as of May 2015, as only 20% of India’s population has any kind of insurance.

This scheme will provide the benefit of Rs 2,00,000, which will be payable to the member’s family in case of his/her death due to any reason

Objectives of Pradhan Mantri Jeevan Jyoti Yojana

Some of the basic objectives of this scheme are as follows-

1. To secure financial future

This scheme also helps in securing the financial future of the individual’s family.

2. Increase penetration of life insurance

As we know in India, the penetration of life insurance is not much more widely spread. Therefore, one of the reasons for launching PMBJJY could be to increase life insurance penetration.

3. Increase Awareness

In India, people are unaware of the benefits of a life insurance and even if they know, there are very few people who actually take up a life insurance cover. So to make people aware and encourage them to take up life insurance schemes, a basic cover of Rs.2 Lakhs is being provided through this Yojana.

Features of Pradhan Mantri Jeevan Jyoti Bima Yojana

Some of the key features under Pradhan Mantri Jeevan Jyoti Bima Yojana are stated below-

1. Premium Paid

It’s important to maintain a required balance as the payment of the premium will be deducted from the bank account of the subscriber.

2. Renewal

The policyholder needs to renew the policy every year in order to continue with the plan.

3. Risk coverage

In case of the death of the individual, risk coverage of Rs 2,00,000 is to be provided.

Another Reading: 7 Government of India Schemes to Invest for Social Security

The life is covered irrespective of the reason of the death.

4. Nominee details

The subscriber has to provide the nominee name and also the relationship with the nominee.

5. Government contribution

The contribution made by the government towards this scheme is decided every year and it comes from the unclaimed money that has been lying idle in different public welfare funds.

Eligibility for Pradhan Mantri Jeevan Jyoti Bima Yojana

1. Any individual aged between 18 years and 50 years and having a savings account in a bank can opt for this scheme.

2. Individuals who join the scheme post initial enrollment period extended up to 31-08-2015 or 30-11-2015 will have to submit a self-certification of good health that the concerned person doesn’t suffer from any of the critical illness as specified in the consent cum declaration form.

Benefits of Pradhan Mantri Jeevan Jyoti Bima Yojana

The PMJJBY offers the following benefits to the insured-

Death benefit

In case of death of the insured person, the amount of Rs.2 Lakhs provided under the scheme is given to the beneficiary of the policy.

Tax benefit

The premium paid under the scheme is eligible for tax deduction under section 80C of the Income Tax Act.

Another Reading: National Savings Certificate (NSC)

Also, the insurance holder needs to submit form 15G/15H for preventing TDS. If he does not do so, then any life insurance proceeds exceeding Rs.1 Lakh will be taxable by 2%.

Risk Coverage

Although the scheme provides coverage only for a year, one can easily renew it at the end as it is a renewable policy. One can also opt for auto renewal in which the amount will be automatically debited from your savings bank account.

How to apply?

1. Download the application form and fill the necessary details.

Source: http://www.sbilife.co.in/sbilife/content/10_8843

2. Take a print out of the form and submit it to the nearest branch.

3. Remember that you have an adequate balance in your bank account.

Exclusions

Some of the key exclusions under this scheme involve :-

1. Intentional self-injury

2. Suicide

3. Any loss made due to the breach of law with or without criminal intent

Premium

The amount of premium to be paid per member is Rs 330 per annum excluding the service tax.

It will be automatically deducted from the account holder’s savings account in one installment through an auto-debit feature on or before 31st May of the annual coverage period under this scheme in case the person opts for long-term options.

However, if he/she does not choose the long-term option, the individual has to opt every year.

Termination of Assurance

The account will get terminated in the following scenarios-

1. The account holder who has attained 55 years of age

2. In case the account has been closed with the bank or there is an insufficient fund for debiting premium.

3. If you have made multiple coverage under this scheme, the insurance cover will be restricted to Rs 2,00,000 and any other covers will be terminated and the premium may be forfeited.

Criticisms

The banks have complained about the low revenue receipt and some of the bankers have said that the amount received on it is insufficient to cover the service cost.

Another Reading: Public Provident Fund Scheme (PPF)

Moreover, the insurers have also stated that information about pre-existing disease or health certificate is needed for joining.

Conclusion

Pradhan-Mantri-Jeevan-Jyoti-Bima-Yojana is one of the important social security programs initiated by our government to help especially the poor people.

As of May 2018; nearly 5.35 Crore people have already registered for the scheme.

I would highly request everybody to opt for this scheme in case you have not taken any life insurance.

Keep learning!!

Pradhan Mantri Jan Dhan Yojana (PMDJY) : A Scheme For All

2020-01-12T15:36:00.000+05:30

The number of social security schemes introduced by Government of India seemed to be a big success. These schemes are gaining big popularity and hold huge significance for the masses as it not only takes care of the future but also provide a sense of security.

However, today we’ll talk about “Pradhan Mantri Jan Dhan Yojana”, a revolutionary scheme launched by our honorable Prime Minister, Narendra Modi in August 2014, in order to boost the life of its citizens.

Pradhan Mantri Jan Dhan Yojana

Pradhan Mantri Jan Dhan Yojana more popularly known as PMJDY is a nationwide scheme introduced by the Government of India for financial inclusion.

As per the data issued by the finance ministry, the scheme had opened 31.45 Crore accounts with over Rs 80,000 crores in deposits as of April 2018.

This scheme aims to revolutionize the traditional banking system in India and it is suitable for everyone, especially for the economically weaker section of the society, who does not even have a basic bank account.

It offers basic financial services like savings account, insurance, deposit account, pension, remittance etc.

Anyone who is an Indian citizen (above 10 years of age) and does not have a basic bank account, can open the account with zero balance under this scheme.

It also provides accidental insurance facility to cover up to one lakh rupees and that too without any charge.

Another Reading: 7 Government of India Schemes to Invest for Social Security

The account holder will also get a Rupay debit card, which can be used for cash withdrawal or for making any purchases

Key features

Some of the key features of this scheme are discussed below-

1. Minimum age criteria

Any individual above 10 years of age can open this account.

2. Joint account

There is a provision of opening a joint account under this scheme.

3. Documents required

You will not require any other document if just have Aadhar card.

Otherwise, you can carry any of the following documents- Passport, PAN card, Voter ID Card and Driving license.

If these documents contain your address also, it serves both as an address and identity proof.

4. Cheque book facility

The accounts opened under this scheme are zero balance account and if the account holder wishes to get the chequebook, the person has to fulfill the minimum balance criteria (if any) of the bank.

5. Transfer of account to another city

All banks under this scheme are on Core Banking Solution (CBS) platform and thus on the request of the account holder, the account can easily be transferred to any branch of the bank located in any city.

Another Reading: Atal Pension Yojana (APY) : Pension for all

6. Interest charged on overdraft facility

The interest rate charged on the overdraft value will be lower of (base rate+2%) or 12%.

Benefits

Any person opening the account under Pradhan Mantri Jan Dhan Yojana is entitled to a number of benefits which are stated below-

1. Zero balance

This account can be simply opened with zero balance, which is one of the main highlights of this scheme.

2. Loan

The account holder is entitled to take a loan up to Rs 5000 after six months from opening the account. The loan amount might seem insignificant, but let me tell you that this scheme is mostly meant for people below the poverty line, who’s struggling hard to meet the bare basic need.

3. Net banking

It allows the account holder to enjoy the mobile banking services to check their account balance and transfer funds using their cell phone.

4. Accidental insurance

This scheme entitles the account holder with an accidental insurance cover upto Rs 1,00,000 without even paying a single premium.

5. Debit card facility

The account holder will receive a RuPay debit card which is accepted at all ATMs and most PoS machines in the country.

You must use your debit card at least once in 45 days to get the benefit of Accidental Insurance cover.

Conclusion

Pradhan Mantri Jan Dhan Yojana is a prosperous venture which has already transformed the life of many individuals and will continue to do so in the near future.

So if you still do not have a basic bank account, please go ahead and open it today since it not only provides a number of additional benefits but also a bare minimum need in today’s era. Click

Download the form required to open PM Jan Dhan Yojana account.

Take care and keep learning!!

Atal Pension Yojana (APY) : Pension for all

2020-01-12T15:30:00.003+05:30

Financial inclusion, low-cost benefit, and social security for the Indian citizens have been the top priority of the Modi government and the launch of various schemes like Jan Dhan Yojana, Pradhan Mantri Jeevan Jyoti Bima and Suraksha Yojana, Atal Pension Yojana, etc. Proves the same. Today in this article, we will discuss in detail about Atal Pension Yojana.

Atal Pension Yojana (APY)

Atal Pension Yojana is also known as APY is a government-backed pension scheme and is administered by the Pension Fund Regulatory and Development Authority (PFRDA).

It was launched in accordance with Jan Dhan Yojana, to bring the masses employed in the unorganized and rural sector under the purview of the Pension Scheme.

This scheme aims to provide a definite pension to all Indian citizens.

However, you need to contribute accordingly, in order to get the pension during your old age.

Under this scheme, for every contribution made to the pension fund, the government also contributes 50% of the total contribution or Rs 1000 p.a. (Whichever is lower) for each individual account for a 5 year period.

Features

1. Guaranteed monthly pension

It offers a guaranteed monthly pension between Rs 1000-5000 to the subscriber post-retirement, depending upon the contribution you made.

2. Eligibility

This scheme is open to all Indian citizens with a savings bank account.

Any individual between 18-40 years can join the plan and the benefit would start post-retirement.

Another Reading: 7 Government of India Schemes to Invest for Social Security

Hence, the minimum period of contribution under this scheme is 20 years or more.

3. Government’s contribution

The central government will also contribute 50% of the subscriber’s contribution or Rs 1000 p.a. (Whichever is lower).

However, the contribution made by the government is restricted to those who are not an income taxpayer and are not covered by any Statutory Social Security Scheme.

Benefits

This program aims to provide security to the retirees and also instills a habit of savings and investments among the poor masses of our country.

The government’s decision to contribute 50% of the contribution or Rs 1000 (whichever is higher) for a period of five years; will benefit the poorest section of the society in a great way.

Enrollment process

You have to fill an authorization form and submit to the bank.

The form will require details like your account number, nominee details, and approval for auto-debit of the contribution amount.

You can download the form here.

The forms are available in various languages, including Hindi, English, Bangla, Kannada, Marathi, Gujarati, Tamil, Odiaa and Telugu.

However, make sure that there is sufficient balance in the account every month, otherwise, you will be imposed with a monthly fine.

Recent developments

The government has planned to expand the benefit of the scheme through Post Offices, selected Payment Banks (11 as of now) and Small Finance Banks (10 as of now) in order to bring more people under its coverage.

Another Reading: National Savings Certificate (NSC)

This decision is expected to benefit the people, especially in the rural areas.

How to exit the scheme?

An account holder under normal circumstances cannot exit the scheme before 60 years.

The exit is only possible under special circumstances in the case of death of the beneficiary.

Conclusion

The government through this scheme wishes to make the unorganized labor force (which is about 85% of the total labor force) to join the scheme and avail the benefits.

However, already around 1.10 Crore people have registered for the scheme as of May 2018.

So anyone who has attained the desired age, having an Aadhaar card along with a bank account can apply for the scheme.

Happy Reading!!!