Ravi is 38 years old, married and a father of two kids. Over the years, he has got life insurance, invested in PPF and purchased a few equity shares. He has also inherited some gold and a house. He has taken a home improvement loan and a personal loan for doing up his house. The residual intervals of the loans are 15 years and 14 months respectively. His financial advisor desires him to make a Will and set up a plan for his property, but he wonders if it is too early for all that.
Estate planning is generally related to death. Therefore, when and how that occurs is something that no one is in control of. All it may take is a deadly automobile twist of fate, a devastating fire, a shootout, a terrorist assault or a critical contamination together with cancer or coronary heart assault to kill a person. Despite the fact that one takes all the feasible precautions, there may be no manner to guarantee that one will now not lose his life to an unfortunate coincidence. Therefore, in this particular case, Ravi should begin property making plans now, regardless of his age and net worth.
It is a misconception that only the high net worth individuals requires estate planning. Generally, the lesser the wealth is, the more it is important for a family to make sure of how to access it. Ravi also has to make sure that his circle of relatives inherits all that he has left behind for them, instead of getting involved in any legacy issues in the courts.
Estate planning is very essential if one wants his survivors to get the finances properly after his death, even if that means to manage outstanding liabilities. In Ravi’s case, he may not require a will but can start with the listing of assets, completion of nominations and ensuring that his wife is a joint and co-owner of his asset and liabilities.
Most of the banks now offer e-wallets that allow their customers to make payments in just one click by using their mobile phones. It is a safe and comfortable mode of making payments to service providers and also for transferring money to people.
To begin, you require downloading the e-wallet application from the Google Play for the Android-based phones or Apple App Store for the IOS-based phones. Different banks have different e-wallet applications.
Once the application has been downloaded on the phone, it has to be opened and some general details, like name, email address, mobile number and date of birth are required to be entered. Some banks require the users to create a user ID and password for accessing the application, while others allow Internet banking user ID and password to be used for the same.
Set a PIN
The registration process is the final step which is the setting of a numeric PIN by the user. Once the PIN is set, a one-time verification code is sent to the registered mobile number which has to be entered by the user to complete the registration process.
Once you have registered, now you can link your debit and credit cards to the e wallet by entering the necessary card details or by simply scanning the card with your mobile phone. You can also link your existing online banking account and load cash directly into the wallet.
After the cards have been linked or cash loaded into the e-wallet then you can make the payments to the third parties by accessing the e-wallet application and entering your PIN.
Points to note
Generally, there are no charges extracted on the use of e-wallet applications.
Some banks allow only their existing account holders to use their e-wallet application, while others allow the non-account holders to do so as well.
Additionally, the mobile number which is registered for using the e-wallet should be only the one which is in regular use. If there is a change in the mobile number then the e-wallet application will not work unless you register that new number.
Prime Minister Narendra Modi said that 8% plus the growth over the next 30 years will bring the best of the world to India, even as he regretted being questioned for every “wrong” right from the Panchayat level.
He said that advocating accountability at every level to make sure good governance, everyone is responsible for being answerable and held accountable.
In a democracy, he said that people give the elected government a 5 year contract and if they do not perform as per the requirement then in the next election the authority is given to some other political party.
He said our country has always believed that good governance is bad politics. After winning one election, the government keeps thinking how to win the next election. They main focus is on how to increase the political base and the ways to get more votes and thus going forward it collapses.
Addressing his first townhall, Modi stressed upon the requirement for providing grievance redressal system that not only listens to the complaints of citizens, but also redresses them in a time-bound manner.
Modi said in an event to mark two years of the government’s citizen partnership app MyGov that with the rapid and continued the economic growth of over 8% over the next 30 years, we can have whatever best we see in the world.
Modi said with the growth rate of 7.5%, India has become the fastest growing large economy in the world which is credible despite global slowdown and two consecutive years of drought.
The Prime Minister also said that without good governance, the common man will not benefit the government-run schemes.
To bring about a change in the country, last mile delivery of government benefits are as important as rules and regulations,” he said, adding government will lose its goodwill if the benefits of a scheme does not reach the intended beneficiary.
Today if something happens at the Panchayat level, I am asked questions; if something happens at Nagar Panchayat level, I am asked questions; if something happens at zilla parishad, I am asked questions; if something happens at nagar palika, I am asked questions; if something happens at Mahanagar Palika, I am asked questions; if something happens in states, then also reply is sought from the Prime Minister.
Politically it is fine, for TRP also it might be fine, but it creates problem for the Prime Minister as per Modi.
Prime Minister Narendra Modi said that his government has some plans to develop 300 villages across the country by creating city as growth centres in the area like infrastructure, from education and healthcare to digital connectivity.
The main aim of the National Urban Mission is to provide better quality of life and employment in the villages as he said at the town hall which was organised to mark the second anniversary of myGov app.
There is no absence of smart cities and why not to change the scenario of the villages. With the facilities available in the cities should be made available for the villages as well as per his words.
He said that 300 villages have been identified to become a Smart City Plus, which will be developed as the growth centre for the area.
He said that the entire infrastructure identical to the cities like digital and physical connectivity as well as quality healthcare and education will be provided. The main idea behind it is the soul of a village is retained while amenities of cities are provided.
These villages are the place where the rural people can visit for healthcare, education or attending to any other needs like repairing, recharging mobiles, etc.
Villages can become the growth centre of the rural economy as he said.
Modi recommended 125 crore Indians to use khadi and handloom for 5 % of their clothing needs on the eve of Handloom Day.
This would boost the textile sector, which is the second biggest employment provider in the country, he said. This will help the poor.
He even said that if the sector provides holistic support, e-platform for global marketing and facilities to the weavers then the rural economy will change.
A person named Raj Kumar has returned back to India but he has some money in his 401k account in the US. What should he do? This is a very common question these days, considering the number of Non Resident Indians (NRIs) who are returning back home after a long stay in the US.
Let us first take a quick glimpse at how a 401k plan functions:
A 401k plan is anticipated to be a retirement plan wherein you contribute money every year into a plan selected by the company. The company may choose to match your contribution up to a certain limit that is, they may put in the money equal to your contribution into your plan. Your contribution is made out of the pre-tax dollars, that is, the amount of contribution is deducted from your taxable income in the year that you have made the contribution. The funds are locked until you complete the age of 59 and a half. Withdrawals that you make will be taxed after that according to your tax bracket. If you want to make a premature withdrawal before you turn 59 and half then in addition to pay taxes, you will have to pay a penalty that can go up to 10% of the withdrawal.
The lock-in is what hits most of the NRIs. So, what is the best thing to do?
Ethan Schneid, Partner at the New Jersey based financial advisory firm K A Enterprises advices, “What you choose to do with your 401k plan will depend on your goals. For example, if you require the money that is lying in your 401k account then you have no choice but to withdraw it and bear the taxes and penalties. But, if you do not require the money then this can be a good way to modify your portfolio. Since the investments of a 401k plan will be primarily in the US stocks and the bonds market and that too dollar entitled then you can get the opportunity to protection against the country risk and currency risk.
So, what are the opportunities if you decide to keep your investments in the US?
Option 1: Leave the plan alone
The first option is to just leave the 401k plan as it is. When you reach the exiting age of 59 and a half then you can choose to withdraw the money.
Should you choose this option? Dhiraj Singh, also the Partner at K A Enterprises said that there are two issues here. The "Well, there are k plan is prohibitive in the way it is structured. The plan itself is selected by your company and it is within that selection that you can allocate your funds among various classes depending on the risk of the profile. Secondly, suddenly if your company decides to terminate the 401k plan, that is, they decides that they will no longer offer the plan to their staff then you will anyway have to mandatorily either withdraw or rollover to an IRA (Individual Retirement Account).
Option 2: Rollover to a traditional IRA
Schneid said that that the traditional IRA works in literally the same fashion as the 401k, except that it is an individual account as against an employer sponsored account. In an IRA, the investor has more compliance in choosing the fund options and managing his fund. Moreover, there is no tax importance on moving your money, which is called rollover from a 401k to a traditional IRA.
Generally, all the companies do not allow you to open an IRA with an international address, whereas there are many who do allow. So please do have a check.
Option 3: Rollover to a Roth IRA
A Roth IRA is also a retirement plan but the contributions that are made are out of post tax dollars in it, that is, there is no deduction available at the time of making the contribution from the taxable income. Alternatively, the withdrawals from it are tax free to the extent of contributions made. Only the earnings, such as the dividends and the interest are taxed.
Schneid said that at the time of moving to India, if you are in a lower tax bracket then you may want to acknowledge the rolling over to a Roth IRA. At the time of rolling over, you will require to pay tax on the amount that you roll over. Consequently, your withdrawal becomes tax free, only the earnings get taxed on the withdrawal. Another point to remember is that in a traditional IRA, when you reach the age of 70 and a half then you will require to make important withdrawals called RMD (Required Minimum Distributions). There is no such requirement exist in a Roth IRA. So, if you want to save the Roth IRA for your children’s higher education and you expect to be past 70 then this can be a good option. Of course you will require to take into account your current tax slab.
If the stakes are high then it can be a good idea to consult an independent advisor to make your choice. He will look at your risk profile, your financial goals, your tax profile and your cash flow position and then help you make an informed choice. Even after you have made the rollovers, it is important to continue to monitor your IRA account and actively manage it to suit your risk profile. Your advisor will help you do it.
Tax on withdrawal
A 401k plan and a traditional IRA will draw tax in the US on the entire withdrawal proceeds. In the case of a Roth IRA, the earnings portion will draw tax. So what happens if you are in India at the age of 59 and half? Let us have a look.
Situation 1: You make a lump sum withdrawal
According to the US IRS Tax Code, any income that comes from a source in the US is liable to taxes in the US, irrespective of whether the receiver of that income is a resident of the US or not. Now according to the Indian Income Tax Act, if you are a resident of India then you will be taxed in India on your global income. By the account of these two rules, it has become clear that the withdrawal will fall under the concept of taxation in the US as well as in India.
In such cases, you will require to refer to the India US Double Taxation Avoidance Agreement. There is no special section in the DTAA that deals with the retirement funds. If a person resident in India earns income that is arising in the US, that income will be taxed first in the US. So the payer of the withdrawal proceeds will withhold the tax on the amount at the rate of 30% for non resident aliens of the US. The resident Indian will then have to file his income tax returns in India and declare his 401k withdrawal proceeds. He can claim for the taxes paid in the US.
Dev Kini, a New York based CPA said that you will require to file your income tax returns in the US even though the tax has been withheld at source. If you have a refund due then you can claim it in the income tax return. Consequently, you will have to file your income tax returns in India and you will be able to claim a credit on the tax withheld in the US in your Indian income tax return.
Situation 2: You make withdrawal as monthly pension
With an IRA, instead of making a huge amount of withdrawal, you can choose to draw a monthly pension of a certain amount. Any private pensions and annuities do not include the social security benefits or the public pensions received will be taxed only in the country in which the taxpayer is a resident. So, if you are in India at the time of receiving the pension then you will be taxed only in India. You will then have to submit the important documents to the payer in the US so that he will not withhold any taxes there.
Having said that, you will require to speak to your financial advisor and tax consultant to check if this option can suit your profile. For example, Kini gives an example, "As a US citizen you will require to file your income tax returns in the US, irrespective of where you live and what is your income source. So let us say that you are a US citizen and having lived in the US for a very long time and you have decided to move back to India, at the age of 60. If you have no other income in India, it can be a good idea to consider withdrawing a pension and set the amount in such a way that it falls below the minimum taxable amount in the US. You will have no tax obligations in the US. As a resident of India, you will require to report your global income in India. You will require report this income in your India income tax returns only.
Finally, what you choose to do with your 401k plan is a function of many things: your cash flow, your tax bracket, your risk appetite and above all, your financial goals. Before making any kinds of decision make sure to take all the above mentioned factors into account.
Bonus refers to a further issue of stocks made by an organisation that has proportion capital to its present shareholders in potential to their holdings with no consideration. It is also referred to us as the capitalization of the reserves of the enterprise.
For an example, if company A issues bonus stocks within the ratio 2.1, for each percentage an individual holds, the company affords 2 stocks for free. When you have 100 stocks at the date of report then you may get 200 shares for free; so the overall percentage retaining will now be 300. The bonus stock is essentially no longer unfastened but really the conversion of the enterprise’s undistributed earnings into capital via extra shares, in advance which were no longer disbursed and preserved within the company within the shape of reserves. Bonus stock encompasses each equity stock and desire stock.
Underneath Section 63 of the companies Act, 2013 study with the rule 14 of the agencies (proportion Capital and Debentures) policies, 2014 have arranged the turf to classify such issuance. The provisions are applicable to all of the lessons of groups, indexed or unlisted corporations. Besides, Chapter IX of the SEBI (trouble of Capital and Disclosure requirements) regulations, 2009 (‘ICDR rules’) comprising of policies 92 to 95 additionally classify issuance of bonus shares in listing companies.
From the factor of view of the company/ organisation:-
1. It permits the corporation to preserve money needed for its business undertaking.
2. A percentage of the organisation turns more saleable which results in stability in the charge and increases the volumes of stocks traded in the market place.
3. It is essentially taken as a sign of the best fitness of the enterprise.
4. The agency is interrupted from paying the dividend distribution tax.
5. It will increase the liquidity of the agency’s shares in the inventory market place.
From the point of view of the buyers:-
1.The growth inside the value of the investor’s wealth.
2.The investors earn more dividends.
3.Bonus shares may be offered in the market place as quickly because the shareholder gets it.
1. In the articles, there may be a provision that allows the issue of bonus stocks by way of capitalization of reserves and so forth.
2.Gift legal capital has appropriate un-issued fairness capital to acquire the proposed difficulty of the bonus stock.
3.Unique decision is permitted with the aid of the contributors of the organization for the bonus difficulty because even the contributors oppose to skip the decision for the bonus problem than the board of directors who have to finish the formalities related to the Bonus issue.
4.No inadequately paid up shares are lying before making absolutely paid up bonus share issue. If there is any inadequately paid up equity shares then they should be made absolutely paid up equity shares.
5.There is no defect in respect of the payment of statutory dues of the employees.
6.Company has enough free reserves which are built out of genuine profits or share premium collected only in cash or capital retrieval reserve created at the time of retrieval of preference shares and not from the capitalized reserves created from revaluation of the fixed assets.
7.The permission obtained from the Reserve Bank of India for allotting the shares to Non-resident shareholders, if such allotment does not come into consideration of the automatic route.
8.The company had made reservation of equity shares of the identical magnificence in the want of the holders of such great exchangeable debt units in proportion to the exchangeable element.
9.Bonus shares are not issued in substitute of the dividend.
10.The rate of dividend to be declared after bonus proportion is mentioned in the resolution.
11.Where the approval of shareholders is not required, the bonus issue have to be carried out within 15 days from the date of board meeting announcing bonus problem.
12.The complete of the shareholding of the company is inside the demat form, because the indexed company is authorized to the problem shares in demat form only.
13.The resolution of the Bonus problem cannot be withdrawn on the later stage.
14. Bonus shares are not issued in a manner which could confer on any individual superior rights as to voting or dividend vis-a-vis the rights on fairness stocks which can be already listed.
15. Where any instrument of transfer of shares has been delivered to any organisation for the registration and the transfer of such shares has not been registered by the company till the book closure date, the company should hold in abeyance the offer of absolutely paid-up bonus stocks.
STEP –I Call the Board meeting by providing a notice at least 7 days for calling meeting of Board of directors.
STEP –II Inform the inventory exchange at least prior 2 working days to the date of Board meeting to consider of the bonus issues.
STEP –III –Hold the Board meeting and pass the Board resolution for the issue of stocks and the growth in the authorised share Capital (if there is any). Also, determine the Ratio of stocks which are being offered to the shareholders.
Finally, solving the date, time, and venue of the general meeting for the approval of the mentioned problem through the contributors of the organisation and authorizing a director or any other person to distribute the awareness for the same to the members.
STEP –IV –Inform the inventory exchange with 30 minutes of the conclusion of the meeting to declare the bonus.
STEP –V –Prouble notice of the general meeting agreeable to the provisions of the Section 101 of the corporations Act 2013 which provides for issue of the notice of EGM in writing which is mentioned below as a minimum 21 days before the real date of the EGM:
• All the administrators.
• Auditors of organization
The awareness shall specify the place, date, day and time of the meeting and incorporate a declaration on the commercial enterprise to be transacted on the EGM. The awareness to EGM shall additionally incorporate the amended copy of the MOA.
STEP –VI- Filling of e-shape MGT-14:
File e-shape- MGT-14 within 30 days of Passing of the Board decision for the problem of stocks (securities) with the authorised board resolution for issue of stocks.
STEP –VII –Convene a general meeting and pass ordinary/unique decision for difficulty of bonus stocks. Please observe that the business enterprise is not required to necessarily conduct trendy meeting, passing of resolution for the problem of bonus stocks which can be performed via postal poll.
STEP –VIIA- Submitting of e-shape SH-7 and MGT-14 after passing of the normal decision within the general assembly. The stamp responsibility is required to be paid for the boom in such legal percentage capital on the time of filling e-shape SH-7.
STEP –VIII – Publish a notice of the record date for the reason of figuring out the eligibility of contributors for bonus stocks.
STEP –IX –Deliver word to the inventory exchange in the advance of 7 minimum working days approximately to inform about the closure of share transfer books and the recording date.
STEP–X –Name and preserve the Board assembly for the allotment of stocks:
STEP–XI –Filling of e-shape PAS-3;
Record e-shape PAS-3 inside 30 days of passing of the Board decision for the allotment of stocks together with the following attachments:
• Everyday decision for the problem of bonus stocks.
• Board decision for the allotment of shares.
• Listing of allottees citing call, address, career if any and wide variety of securities allotted to each of the allottees and the list shall be certified by way of the signatory of the form pas-3.
STEP–XII –If the stocks are issued in physical shape, the company will issue the certificate to the shareholders within 2 month from the date of allotment of stocks.
STEP -XIII-Apply to the inventory change for obtaining in the precept approval for the list of bonus shares collectively with the provisional documents concerning thereto.
P.S:- Please word that any disclosures and compliance stated in the above article almost about inventory alternate are relevant most effective for indexed organisation.
Stamp duty on issue of Bonus stocks:-
The stamp duty is to be paid on the percentage certificate no matter what the truth is whether or not; it is an advantage issue/ rights trouble /public difficulty. There is no distinction on the stamp duty on the shares of a listed enterprise or the shares of an unlisted corporation. The price of the stamp obligation differs from the nation to the kingdom. Stamp duty is calculated on the cost of the stock i.e. face fee and protection top rate.
Tax treatment in the hands of the shareholders:-
There may be no tax implication while the bonus shares are offered. But while they may be sold, they will be taxable, relying on the time for which they may be held. The tax man considers the value of these bonus shares as nil. The original stocks received in the beginning will continue to be valued at the fee paid on the time of acquisition.
However, Indian corporations paying such dividends must pay a dividend distribution tax (DDT) 15% plus surcharge and schooling cess. Further, the dividend and DDT are not tax deductible inside the agency’s fingers main to the adouble taxation of income.
Effect of bonus problem on company:-
1.Share capital gets accelerated according to the bonus difficulty ratio.
2.It will increase the liquidity of the stock in the capital market place.
3.Effective income in keeping with the percentage, e-book price and other consistent with the share values stand reduced.
4.This additionally perks up the market place photograph of the business enterprise and the markets take the action commonly as a favourable act.
5.Collected profits get reduced.
6.An advantage issue is taken as a sign of the coolest fitness of the corporation.
Terminologies associated with bonus issue:-
1. Record date
The document date on which the bonus takes effect and shareholders on that date are entitled to the bonus.
2. Ex-bonus date
After the record date, when the bonus has been given effect then the shares turn out to be ex-bonus. Thereby, the holders of the stocks grow to be ineligible for the bonus stocks.
3. Cum-bonus date
After the statement of the bonus however before the report date, the shares are referred to as cum-bonus.
Bonus issue special from a inventory cut up:-
An advantage is an unfastened additional percentage. A stock split is the same share broken into two.
Typically the organization accumulates its profits in the reserve budget in the preference of paying it to the share-holders in the shape of dividend. These gather the reserve fund and then convert them into share-capital and allocate them to the proportion-holders as bonus stock in the share to their present preservance. So, share-capital of the business enterprise increases with a concomitant lower in its reserve earnings. The proportion-holders get the bonus shares in the compensation of the dividend.
While a share is splited, say, from Rs 10 denomination to Re 1 denomination, there may be an increase in the percentage of neither the capital nor a collateral lower inside the reserve of the organisation. This is due to the fact that while a person having 1% of Rs 10 face price may get some other proportion of the identical face value , should the organization move for a 1:1 bonus what would appear in an inventory break up is his one Rs 10 proportion might now be converted into 10 Re 1 stocks. Tax implication within the case of the stock breaks up in nil.
However, both the inventory split and the bonus issue aim to achieve a common point objective of offering the additional liquidity into the shares by way of making them more low cost.
Bonus share, a now not so bonus but a bonus for common shareholders. As mentioned above, the bonus shares are in fact a part of unfastened reserves which were not distributed to the shareholder for the future boom of the company. Reserves are disbursed in the form of either fairness or desire shares in maintaining equilibrium among proportion capital and reserves inside the balance sheet. Informally, Bonus difficulty is also made to growth the liquidity of stocks within the capital marketplace.
It is understood, in commonplace parlance that the market fee of share remains equal after bonus issue, however the truth is that marketplace price remains adjusted inside the ratio of bonus shares issued inside the marketplace which thereby makes no distinction in the wealth of shareholders in short term. However in long time, with the sturdy basics of the agency, the share fee of the corporation moves up and it increases the wealth of the shareholders.
From the regulatory factor of view, regulators are apparently attempting hard to make the compliances to be less bulky and easy to observe. In view of these regulators have saved diverse exams and balances at suitable places to make sure that issuers or any individual doesn’t misuse the provisions for their personal gain and in interim making process unambiguous and easy to follow. Regulators have given a sigh of comfort by now not making any amendments in organizations (modification) bill, 2016 with appreciate to issue of bonus proportion.
The Employee Provident Fund Tax was announced in the Union Budget of 2016-17 which has everyone hurrying to withdraw their deposits. Under the Budget proposal, the government is planning to tax 60 % of Employees Provident Fund corpus on the contributions made after the 1st April, 2016. The move by the government has sent confusing signals and has put a spotlight on the retirement products which is available in the country.
After the announcement of the EPF tax in the Budget, the government came under huge pressure to withdraw the entire provision. While speaking at a post-Budget conference with the industry chambers, Union Finance Minister, Arun Jaitley desired to satisfy people’s concerns and said that he will spell out the final decision on taxing withdrawals from the Employees’ Provident Fund (EPF) at the time of replying to a debate in the Parliament.
The PF withdrawal is not aimed at raising revenues but the main emphasis is to make India a pensioned and insured society. Tax will not be levied if the corpus at the time of withdrawal is invested in the pension-based annuities as per Arun Jaitley.
Meanwhile, we have a look at the three major retirement schemes i.e., EPF, Public Provident Fund and National Pension Scheme, and what offer they have for you.
The EPF is run by the Employees’ Provident Fund Organisation (EPFO), while the old-age income security scheme is run by the Public Provident Fund (PPF) which is sponsored by the government. The National Pension Scheme is sponsored by the Pension Fund Regulatory and Development Authority (PFRDA).
Aside from the EPF and the PPF, the National Pension System (NPS) is a recent participant in this space. Arun Jaitley has desired to make the NPS more tax-friendly. The 40% of the corpus that an investor can withdraw after the maturity is proposed to be made tax-free. The aim of the long-term is to bring it on an equal footing with the EPF on the taxation front.
The Public Provident Fund remains totally exempted throughout. For PPF, with an 8.7% annual rate of the interest, the Economic Survey 2016 clearly mentioned that after the factor in the tax rate on the deposit and the interest, the effective interest rate comes to a high of 16%.
The NPS, on the other hand, offers the market-linked returns with a maximum equity investment of 50% from the subscriber money permitted under the scheme. In essence, it provides a window to beat the returns from the PPF and the EPF in the long term.
EMPLOYEES PROVIDENT FUND SCHEME (EPF)
Eligibility: Employees drawing the basic salary of Rs 15,000 have to compulsory contribute to the Provident fund and the employees drawing above Rs 15,000 have an opportunity to become the member of the Provident Fund.
Where to open: Scheme is provided by the Employees’ Provident Fund Organisation (EPFO) through organisation enrolled with it. Your office will open the account for you, if they employ 20 persons or more.
Investment limit: Employee contributes 12% of the basic salary and the equivalent amount is contributed by the Employer.
Returns: EPF funds will earn 8.8% for 2015-16, hardly up from the previous 8.75%.
Duration/maturity: Till the retirement of the employee or the employee opting out of maturity.
Loans/Withdrawals: You can withdraw from the EPF account for the children’s education, marriage of self, children and siblings, purchase/construction of a house or any medical emergencies. Therefore, withdrawal is liable to certain conditions:
•A minimum service of 7 years;
•A maximum of 3 withdrawals during which you hold the EPFs Account;
•A maximum aggregate withdrawal will be 50% of the total contributions made by you.
For medical emergencies, there is no minimum service period. Therefore, the maximum amount one can withdraw is 6 times from the basic salary and proof is required for hospitalisation.
Therefore, the withdrawal for purchase/construction of house is available only once in an individual’s working life. The minimum service period is 5 years and the maximum withdraw able amount is 36 times from your total salary for construction of property and 24 times for the purchase of property.
Tax Benefits: Currently enjoys the Exempt, Exempt, Exempt (EEE) status. Therefore, Budget 2016-17 has stoked a massive controversy by proposing that has proposed that only 40 per cent of the contributions made to EPF after April 1, 2016, will be tax-free on withdrawal. With widespread opposition to the move, the government is likely to reconsider its decision and a final word is awaited.
Nomination: Subscriber can nominate one or more person belonging to his family. If he has no family then he can nominate any person or persons of his choice but if he consequently collects family, such nomination becomes invalid and he will have to make a fresh nomination of one or more persons belonging to his family. You cannot make your brother the nominee as per the Acts.
Transfer of Account: Account is transferable with the change of change of the job of the subscriber
PUBLIC PROVIDENT FUND (PPF)
Eligibility: Individuals can open the account in their name; also open another account on the behalf of a minor. Joint/NRI/HUF accounts cannot be opened for PPF.
Where to open: Post offices, public sector banks and few private banks which offers the government-run scheme.
Investment Limit: The minimum Rs 500 with a cap of Rs 1.5 lakhs per annum. Deposits can be made in one lump-sum or in 12 instalments per year.
Interest Rate/Returns: 8.7 per annum with the effect from 1st April, 2015. Interest is paid on the 31st March every year. Interest calculated on the monthly basis on the minimum balance between the 5th and the last day of the month.
Scheme Duration: 15 years with the provision to extend in one or more blocks of 5 years each. The premature closure is not allowed before 15 years.
Loans/withdrawals: Available from the third financial year. Part withdrawal is permitted from the 7th Financial Year
Taxation: PPF comes under the Exempt, Exempt and Exempt (EEE) category which makes it tax exempt from the investment till the maturity. Subscription qualifies for the tax benefits under 80C of the Income Tax Act.
Nomination: One or more persons can be nominated.
Transfer of Account: The PPF account can be transferred from free of charge to another branch, another bank or post office.
NATIONAL PENSION SCHEME (NPS)
Eligibility: All citizens between 18 and 60 years as on the date of submission of the application.
Where to open: Authorised Points of Presence (POP) and almost all the private and the public sector banks apart from several other financial institutions offers the scheme.
Investment limit: For Tier-1 non-withdraw able, the minimum contributions is Rs 500 with a total minimum contribution per year at Rs 6,000. For Tier-II withdraw able, the minimum contributions Rs 250 with the minimum balance of Rs 2000. No cap on the maximum investment.
Returns: NPS offers market-linked returns. Being a defined contribution scheme where the subscribers contribute to his account, there is no defined benefit that will be available at the time of maturity. The accrued wealth depends on the contributions made and the income generated from the investment of such wealth.
Duration/maturity: The maturity of the scheme is at the age of 60.
Loans/Withdrawals: On the retirement, a subscriber can opt out of the NPS. Therefore, the subscriber will require to invest a minimum 40% of the accrued savings to purchase a life annuity, while the remaining can be taken out a lump-sum.
Tax Benefits: Tier-I account is exempt, exempt, taxed (EET). The amount contributed is entitled for the deduction from the gross total income up to Rs 1 lakh along with the other prescribed investments as per the section 80C of the Income Tax Act.
The Union Budget 2016-17 has proposed that 40% of retirement corpus of a subscriber of the National Pension Scheme (NPS) at the time of retirement will be tax exempt. Further, the annuity payment to the legal heir after the death of the pensioner has been made exempt from the tax.
Nomination: In the event of death of the subscriber, the nominee can receive 100% of the NPS pension wealth in the lump sum.
Transfer of Account: Provides full flexibility within the geographies and between POPs
Ram Gupta, an IT professional aged 40 years having been fascinated by the touchy-feel of the advertisement of the new launch of various kinds of pension plans. The pension product, which was meant to make his retirement easy, has played the devil’s role in his life. Let us see that how Mr Gupta, got in the trap of pension as well as tax trap which could lead to confusion later? His pension plan became like chewing gum, which he can neither swallow, nor throw out, he has to just chewy.
Mr. Gupta had bought ICICI Pru Life Stage pension plan, a unit-linked the pension product (ULPP) in March 2007 at an annual premium of Rs 50,000 for a policy term of 15 years. He has been claiming for the deduction under the section 80CCC which has been, later clubbed with the Section 80C limit of Rs 1 lakh. He had paid five premiums and being the conservative investor, chose the debt fund for his corpus to be invested in and had given 3% return per annum. The maximum of his contribution and the returns on the balance had been sapped by the insurance company as charges. It meant that his corpus has accrued only Rs 2,73,000 after investing Rs 2,50,000. On seeing miserable performance of his fund and is now puzzled up, either to take a hit on the surrender value or to opt for the ‘cover continuance’. He wrote to the pursuing the advice on it.
Let us look at the surrender value and the tax aspect, if he discontinues the plan then he will get back only Rs2,62,483 after the deduction, a surrender charges of 4% of the fund value. Before clicking that, he needs to learn about the tax implications of the surrender.
Believe it or not, the surrender will cost Mr. Gupta Rs 78,745 in taxes. You may feel that it is absolutely incredible that someone who has invested Rs 2.50 lakh for five years and is getting back a miserable sum of Rs 2,62,483 at the end of the period and has to pay tax of Rs 78,745 on it. It’s a double whammy situation for anyone who has surrendered a pension product, but here are the facts.
If you surrender a pension product at any time before the maturity, it will mean that you will have to give back a tax deduction you had claimed in the previous years under the section 80C. The surrender value has to be added to your income and then taxed as per your slab in the year of surrender. If it were a regular unit-linked insurance plan (ULIP) or a traditional product i.e., endowment or the money back policies, the taxation on surrender the value will not have an issue, considering that Mr Gupta had paid five premiums. Therefore, this opportunity is apparently unviable.
Mr Gupta can opt for the ‘cover continuance’. That way, he will not have had to pay the future premiums till the maturity while the policy administration charges and the fund management charges will still apply. Unfortunately, the cover continuance feature was discontinued in September 2009.
Now, last option is left for Mr Gupta that he has to continue the policy till the time of maturity. On the maturity of the policy, in this case after the completing 15 years, a third of the corpus will be tax-free; the remaining can be invested in an annuity product sold by any insurance company. An annuity policy will give an average of 7% pa returns for the lifetime and on the death of the policyholder, the purchase price is returned to the legal heir or nominee. There is an annuity option to get higher returns without the return of purchase price to a nominee. If Mr. Gupta does not want to invest in the annuity, then the two-thirds of his pension corpus will be taxable which is not a good option.
Mr. Gupta’s story has double edge sword: lacklustre performance of the pension products that will leave many people high and dry after the retirement and the tax implications on surrender of the policy which may come as a big blow. It implies that getting 3% pa for five years was not the only pain, on the maturity he will be forced to buy an annuity, to avoid getting taxed. The annuity product will generate the interest income every year; but unfortunately, that will also be taxable. Mr. Gupta is seriously worried about his retired life.
Since, Mr. Gupta has an old ULPP which is allowed flexibility of the investment in the equity and the debt in various combinations. The new guidelines force the insurers to offer protection against the inflation. The retirement corpus will turn out to be too small.
To make matters worse, IRDA has imposed the changes in making the annuity compulsory. Mr. Gupta has left only option to pay the tax on two-thirds of his corpus on the maturity and not go for an annuity product. The change enforces the annuity for 2/3 corpus not just on the maturity but even on the surrender at any time before the maturity. For immediate annuity products, the service tax available on the gross premiums has been increased from 1.545% to 3.09% effective on the 1st April, 2012. It means that if your pension corpus after accumulation phase is Rs 30 lakh and you require to put 2/3 in the annuity i.e .Rs 20 lakh, the amount available to purchase the annuity is Rs 19,38,200; after the deduction of Rs 61,800 which went towards the service tax.
Why would a lay man even fall prey to a pension trap? It is possible only if the financial literacy is low and a saver is lured by the attractive ads and the marketing hype. Whilst encountered with these products, the pension customers have to deal with the taxation angle at every stage of the product, apart from getting low returns. Life insurance pension products cannot give decent returns, thanks to diverse charges. Note that the taxation, charges and restrictions in the Indian pension products only help the government and the insurers but not the pensioner. There is the hanging sword of taxation under the section 80C and Section 10(10)D. A financially literate person will find far better opportunities outside the misleading retirement planning propaganda of the life insurance companies. S/he has diverse other options for his/her retirement planning including the PPF (public provident fund), EPF (employee provident fund), VPF (voluntary provident fund), mutual funds and tax-free bonds available for 10 and 15 years.
It is not just the Goods & Services Tax (GST) that will be rolled out in April 2017, but State Bank of India, the country's largest lender BSE 1.31 % have started the process of incorporating all its subsidiaries with itself nearly 3 months back to form a single entity by next April, indicating the speed at which the administration is moving to which started the process of merging all its subsidiaries with itself about three months back, would become a single entity by April next, indicating the speed at which the administration is moving to restore the banking system.
An SBI official said that they will submit the proposal to the government in September and expect to start migrate these banks by October. By the end of the financial year, the whole process will be completed.
State Bank will incorporate with all its 5 subsidiaries with itself like State Bank of Bikaner and Jaipur BSE 1.37 %, State Bank of Travancore BSE 0.73 %, State Bank of Patiala, State Bank of Mysore BSE 0.77 % and State Bank of Hyderabad after the government gives its final approval to the incorporation in October this year.
The official asserted SBI servers have been arranged to host the associate banks and, when it happens, is likely to be the fastest incorporation ever. During the incorporation process the bank will be adding one third of its current customer base of 300 million.
The official said that even after he gets these associates on his core banking platform till then his servers will remain underutilized.
When incorporated, it will be a huge banking entity with an asset base of Rs 37 lakh crore, a branch network of nearly 25,000 and 58,000 ATMs; it may be more than 5 times the country’s second lender ICICI Bank. The government gave the go-ahead to the incorporation of State Bank of India (SBI) with its five associate lenders and Bharatiya Mahila Bank in the early June.
According to Bloomberg, this will also enhance the SBI's global ranking, which was at 52 globally in terms of assets in 2015. Incorporation will help the lender to find a place in the top 50 banks worldwide.
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