Is a home saver loan an option for existing borrowers? (Yahoo Finance 10 Dec 2012)

Victor has taken a home loan of around 25 lakhs. He is regularly paying the EMI. Despite interest rate increases and rising inflation, Victor never defaulted. His savings reduced drastically because of increase in EMI. On top of that he had paid off a lump sum amount of Rs.5L as part of his prepayment to help him ease off the strain on his monthly budget with the consecutive hikes that happened the previous year. However, it was all going well till Victor had to spend 3 lakhs for an emergency. He had to run from pillar to post, ask friends & families, and talk to banks. Finally he was able to arrange for funds but it was a very stressful time for him!

This is not a very uncommon situation. Many of the borrowers can easily identify with such situations where pre-payment of loan puts extra burden on them because it took all their savings leaving them exposed to any emergency situation. Pre-payment of your home loan is a double edged sword. It reduces the future obligation but incurs opportunity cost and more risk in case of emergency situations.

Home Saver Loans

What if there is option where loan borrowers can pay more (just like in case of pre-payment) when they have surplus fund and withdraw from the same fund when they face emergency situations like what Victor faced. What if there is an option where loan borrowers are saved from further ignominy of running pillar to post to arrange emergency expenses.

Home saver loan is one such option that not only allows home loan borrowers to pay more from their surplus money but also lets them withdraw from the same pool if they need it in emergency cases.

How it works

The concept, though simple, is very powerful. The idea is to make use of your deposit in current or savings account to offset some part of the principal. Once a part of the principal is offset, your interest obligation comes down. Let's understand this with the same example.

Suppose Victor, instead of paying 5 lakhs as prepayment, would have deposited 5 lakhs in his current or savings account which was linked to his home saver account and left it. His interest obligation would have been calculated not on the loan outstanding but on the loan outstanding minus 5 lakhs. What's more? Victor can withdraw this money or a part of it whenever he wants it. Let's see how this works by an example.

Example of savings using Home Savers option	Case 1	Case 2
Amount outstanding	2,000,000.00	2,000,000.00
Interest rate charged	8%	8%
EMI	16,728.00	16,728.00
Deposit in current account linked to home savers account	-	500,000.00
Interest to be calculated on	2,000,000.00	1,500,000.00
Interest obligation	13,333.33	10,000.00
Principal paid	3,394.67	6,728.00
Remaining principal to be paid	1,996,605.33	1,993,272.00

It can be clearly seen that the borrower has saved more than Rs 3,000 in the first month itself. This saving can be humongous if you consider the fact that you have to pay the EMI for next several years.

What if you do not have Rs 5 lakhs in your current/savings account? In that case, even when you deposit a recurring amount in your account, this deposit will be subtracted from principal outstanding to calculate the EMI. The savings would be less in initial months but will compound in the later part of the tenure.

Home savers accounts will not only help borrowers save on payment but will also reduce the tenure of EMI as principal will reduce with every passing month.

Caution points

This is certainly a good innovative loan product but it has its own pitfalls. First, keeping money in saving or current account is not profitable. Investors would rather start SIP in mutual funds, which can give better returns. While liquidity is an issue in case of mutual funds relative to savings or current account, this is manageable as redemption of mutual funds can happen in few days.

Second, home saver loan are given at a higher rate than normal home loan. Banks typically charge anywhere between 0.5% to 1% higher rates than normal home loan. For example, for loan amount up to 25 lakhs, IDBI charges 10.5% floating rate of interest on normal home loan while the same is 11.5% on home saver home loan. Despite the higher rate, the overall savings is tremendous.

Finally, this option is relatively better only when you have enough money to park in the linked account. Moreover, home saver loan is not offered by all the banks as of now. Few banks that offer are Citibank, standard chartered, IDBI, HSBC, ICICI, and SBI. The rates vary with banks. Borrowers should also look at the criteria for eligibility as this is different from normal home loan where banks have similar criteria. Hence, if you do not get home saver loan from one bank, you should try in another.

Exotic investment options for HNIs (Business Standard 3rd Dec 2012)

NEHA PANDEY DEORAS & TANIA KISHORE JALEEL For three years, the going has been tough for stock market investors. While gold has provided some solace by giving over 20 per cent returns during the period, it is not wise to put all eggs in the same basket. It is little wonder that investors, especially high net worth ones, are seeking alternative investments. An alternative asset class is something beyond the traditional ones ( stocks and bonds) and includes structured products such as private equity ( PE), investing in unlisted firms and start- ups, and real estate funds. Alternative investments got a bad name in the 2008- 09 crisis, when a number of exotic products such as derivative combinations were hit badly. Even art funds were hit badly. Experts recall that until the late 1990s, the Indian art market was not that big. By 2008, the market had grown 500 per cent. Art started to figure prominently in portfolios and valuations skyrocketed. Then came the economic crisis and wiped everything out. “Investors in art had presumed it would appreciate by up to 25 per cent yearly. And, art works could shield against the decline in stock markets. But none of that happened,” says a fund manager. Growing affluence in India helped individuals easily afford ticket- sizes of between ₹ 20 lakh and 25 lakh. But things are changing. In May, stock market regulator Securities and Exchange Board of India ( Sebi) notified the Alternative Investment Funds (AIF) Regulations, 2012. According to this, the minimum ticket size for investment should be ₹ 1 crore. Therefore, the first thing to understand is that alternative asset classes are not meant for a retail investor. Rajesh Saluja, CEO and managing partner at ASK Wealth Advisors, says, “ At the moment, the most popular alternative assets are real estate and PE funds. They form around 80 per cent of the alternative asset class portfolios. Structured products are also common.” Real estate funds: A number of builders raise money through this route. Some big ones take the direct route by talking to HNIs themselves. Other approach investment banks, wealth managers and private equity players to raise the money. Typically, the fund manager approaches an HNI and asks you to invest in such schemes. Returns can be as high as over 20 per cent. Investments are made in tranches, if it is for a upcoming project. Realty funds’ portfolio takes two to three years to appreciate. Realty funds typically have investment tenures of five to eight years. Some funds are meant for last- stage funding. The tenure of such funds is shorter than that of the development- based funds. Rentalbased funds have a shorter tenure. The issue here is that these funds may not always disclose their valuations and returns they generate, making it difficult to take informed decisions. The returns from realty funds depend on the performance of the broader real estate market. After the AIF guidelines increased the ticket size, angel investing route (many investors putting money together) is being taken to invest. Private equity: For real estate and PE, fund managers will charge you around two per cent as management fees a year. And, then, a performance share, too. This means that once a certain hurdle is crossed ( it is mostly 9- 10 per cent returns), the investor will have to give the fund manager 20 per cent of the profits made. PE funds typically return 20- 25 per cent annually, says Saluja of ASK Wealth Advisors. PE investors put money in companies that are not publicly traded or invested as part of buyouts, hedge funds or new ventures. These companies add value to organisations with the objective of making these profitable. They deal in real estate, nano technology, renewable energy and biotech, among others. It comes with its own set of risks. Therefore, you should not look at over 10 per cent of your portfolio. PE requires an investment horizon of fiveseven years. You may not get your money back. Only if you have Rs 100 crore, can you afford to invest Rs 1 crore. PE experts consider those with less than ₹ 1 crore investible money as retail investors. However, these funds could be a good portfolio diversifier. Unlisted firms: This is yet another kind of PE investment, where you put money or buy stake in unlisted firms, largely start- ups. This is done in two ways – individually and in groups. Investors can pocket 15- 20 per cent on an average and investment horizon is advised to be a minimum of five years. Rohit Bhuta, CEO of Religare Macquarie Private Wealth, says, “ Many clients are looking at investing in startups. They are looking at picking up 510 per cent through PE players. A lot of investors invest through the angel investing route. The companies invested into are those that are looking to raise $ 5- 10 million.” Structured products: A structured product, also known as a market- linked product, is a pre- packaged investment based on derivatives such as a single security, an index, debt issuances, or even foreign currencies. Most structured products in India come with ‘principal protection’ function as the key, which means that the investor gets back his principal. For example, suppose you invest ₹ 100 for 40 months in a Nifty- linked capital protection structure. Of this, ₹ 80 is invested in debt securities, yielding areturn of six- seven per cent per annum. Thus, over a period of 40 months, you could get ₹ 20 as interest on these debt securities. This ensures that your capital of ₹ 100 is protected. The interest of ₹ 20 is invested in the Nifty. If the Nifty doubles in 40 months, ₹ 20 will become ₹ 40, thus the value of your ₹ 100 will be ₹ 140 at the end of the period, giving you an absolute return of 40 per cent. On the other hand, if the Nifty were to fall by, say, 50 per cent, then the ₹ 20 invested would become ₹ 10, thereby giving you back ₹ 110. This strategy ensures that at any given time, your capital is protected and you will get ₹ 100 back at the end of 40 months. There are many equity and equitydebt structured products on offer currently. Structured products are issued in the form of non convertible debentures (NCDs), whose returns are linked to an underlying stock index such as the Nifty or a basket of stocks. NCDs are better suited for retail investors. Sophisticated structured products, depending upon the market conditions, can be specially created for a set of clients and privately placed. The ticket size generally is ₹ 10 lakh upwards. Art film funds: “ About five years ago, people did look at art or films funds as an alternative investment option. But it turned out to be too exotic for most. Not many are looking at these as investment options now,” says Bhuta of Religare Macquarie Private Wealth. Experts say that since art prices do not depend on other components of a portfolio, art investment acts like a shock absorber when other asset classes are not doing well. An art work, it is said, does not depreciate in value and hence is called aless risky investment. But, not everyone can invest in it. Art prices largely depend on public tastes, making them a fairly speculative investment. Also, art cannot be resold quickly for a profit. Moreover, it needs high level of maintenance, storage, security, and it doesn’t give dividends, bonuses or income. Similarly, there are funds investing in films. Or you invest individually or by way of crowd funding, like in the critically acclaimed “ I Am”. But, this is still in its nascent stage. Wine: Fine wine is a popular means of investment. Wine for investment is typically obtained from a reputable wine broker as wine houses do not generally sell directly to the public. Wine is not affected by the stock market, company bankruptcies or fraudulent activities. Wine investment provides exemption from capital gains tax, value added tax, and import and export duties. The quality of fine wine improves with time, hence its value increases. However, the wine market is difficult to understand and analyse. Wine value is not always price- based, but on demand. Storing and preserving wines comes at a sizeable expense. As there are no Indian wines, wineries or wine funds one can invest in, one needs to look at international wine funds. More underlying assets might come into the Indian market such as co- investing in coal mines or dairy farms. Alternative investments are catching up, though they need high risk appetite

FD Rates (ET Wealth 3rd Dec 12)

Documents to check before buying a house (ET Wealth 3rd Dec 12)

If you do not conduct due diligence, you could end up losing the property and face a financial disaster.

SAKINA BABWANI 

Buying your own home may be a cherished dream, but it doesn’t take much for it to turn into a nightmare. 

Given that real estate is among our most expensive purchases, landing a lemon can prove to be a financial disaster. The only way to avoid such a situation is to take time out to conduct due diligence before finalising any property deal. Of course, a reliable shortcut is to buy into a project that is backed by financial intermediaries like banks. “Seldom would they hand out loans to projects where due diligence throws up pending mandatory clearances,” explains Shveta Jain, executive director, residential services, Cushman & Wakefield, India. 
You can also engage a lawyer to carry out due diligence, but as a smart buyer, it’s best to pore through the documents yourself. Here is a checklist of documents that you should peruse before signing on the dotted line. 
Projects under construction The first thing one should do in the case of projects that are still under construction is to make sure that the builder has all the necessary approvals in place, without which it would be considered illegal. “We have often come across cases where projects have been stalled midway due to lack of proper approvals. Even finished projects have been razed for the same reason. Hence, I would never advise to go for a booking unless you have taken a close look at the key documents,” says Ramesh Vaidyanathan, partner, Advaya Legal, a Mumbai-based commercial law firm. 
The first of these is the permission to develop land into a residential complex. Builders need to get government approval to convert agricultural land or even land specially designated for industrial purposes into a residential area. If the builder has gone ahead without securing this approval, the entire project is illegal. In addition, there are environmental and municipal clearances to factor in. For instance, the builder has to ensure that his project does not interfere with the urban and town planning, and that it has unrestricted road access. 
Next, you need to find out if the builder has the authority to transfer the undivided share of land to each flat owner and the entire plot to the society, on completion of the project. A Knight Frank research report on ‘Parameters for Buying a Home’ mentions that you should also ensure the builder does not reserve any right on your portion of the apartment, such as balconies or terraces. 
Lastly, never forget that there’s many a slip between the blueprint and the final product. The developers tend to charge a premium for additional features, such as a swimming pool or designer furniture. However, unless you ask the builder to incorporate all the promised features in the agreement and make provisions for penalty in case of non-fulfilment, you stand on shaky ground. Any sample flat that was shown to you would be demolished long before you obtain the possession of your house, leaving you with little evidence if you decide to drag the developer to court. Also, watch out for the fine print: builders may slip in a clause in the agreement, stating that they reserve the right to alter any of the promised features. To be safe, take a look at the approved construction plans and ensure if they match what has been promised to you. Ask the builder to show you the requisite permits from the concerned authorities. While the approved construction plans have to be mandatorily displayed at the construction site at all times, all the important approvals should be available at the builder’s office. Under the Transfer of Property Act and Maharashtra Ownership Flats Act, a seller is required to disclose all facts relating to the property, which includes the various permissions secured by him. In case a builder refuses to do so, a prospective buyer has recourse under the same Acts. “However, if any of these documents is missing or the builder refuses to show them to you, it is best to stay away from the project,” warns Vaidyanathan. In addition to these documents, you should also take a look at the Commencement Certificate for projects in Mumbai. As the name suggests, this certificate is given to the builder to begin construction only after he has obtained all the requisite clearances. 

Independent home owner “As a primary rule, check and verify if the seller owns the property and has a right to dispose it of,” says Jain. In case he is a joint owner, he cannot sell the property without the consent of the other owner(s). 
One way to be sure of ownership is to go through the house agreement. If you are purchasing a flat in a housing society, ask for the original share certificates. To double check, you can peruse the telephone and electricity bills as they are always issued in the name of the legal owner. Alternatively, you can check the housing society maintenance bill, which contains the owner’s name and property tax details. This will also highlight any pending charges that are due for the flat you want to buy. This is crucial because if the owner sells a flat without paying his dues, the society mayrecover it from the new owner. To avoid such hassles, ask the society to issue a no-due certificate as well as a no-objection certificate. Though this is not mandatory, you should insist on it, advises Vaidyanathan. 
Any pending litigation on the property should also be a signal to hightail it. This is because you are bound by the result of the suit, and if the court establishes that the seller was not the rightful owner, you will have to hand over the property to the winning litigant. To check for pending litigation, go through the lis pendens registry at the sub-registrar’s office, as it will contain the owner’s name if there is pending suit. 
Mortgaged properties are the other lemons you need to watch out for. In such cases, the original documents are sure to be with the lending institution. So, if the seller fails to show you the originals, it’s reason enough to be on an alert. If the seller claims he has cleared all debts, ask him to show you the bank’s original discharge letter. 
Some experts are of the view that a clear title is not assurance enough and one should consider contacting past owners to rule out fraud. As a safety measure, publish an advertisement in the newspaper stating that you wish to buy the property and inviting objections. 

After the deal... 1 After the agreement is drawn, have it whetted by a lawyer to spot loopholes. 
2 Do not delay registration of the sale deed after signing it. 
3 Ask for the issuance of share certificates after a society is formed. 
4 If you are paying an advance without getting possession, document it in the form of an agreement or a memorandum of understanding. 
5 Contact a tax consultant to explain your tax liabilities to you.

Check Your Cheque Status, only Those in New Format will be Honoured from Jan 1

Preeti Kulkarni describes the features of new cheques and explains what you need to do before the year ends

Add one more item — get a new cheque book — to your list of ‘things to do’ before the New Year. You may not be able to use your old cheques from next year with the implementation of the new Cheque Truncation System (CTS-2010), which will eliminate physical movement of cheques for clearing. Instead, only their electronic images, along with key information, will be captured and transmitted. It will make the clearing process more efficient, secure and quicker; but for that, you must switch to new cheques with prescribed standard features before December 31. 
“Customers need not worry about the impending CTS implementation. I am sure they will not be inconvenienced due to the migration process. Some transitory period, from January 1 to March 31, could be given during which both types of cheques will be accepted. Banks are sending messages to customers now so that they comprehend the urgency and act upon it,” says AC Mahajan, chairman, Banking Codes and Standards Board of India (BCSBI).

CHECK YOUR CHEQUE’S STATUS If you have ordered your cheque books recently, say, a month ago, you may already have the new cheque leaves with you. Since most banks have already migrated to the new system, chances are that your bank would have sent you CTScompliant cheque leaves. However, if you have received the cheque book more than two or three months ago, you need to run a status check. For instance, the compliant ones will have the new rupee symbol (. ) inscribed near the numerical ‘amount’ field. 
“Visibly, there will only be the following difference: “Please sign above” is mentioned on the cheque leaf on right had side bottom; and, void pantograph (wave-like design) is embossed on 
left hand side of the CTS cheque leaf,” explains Anindya Mitra, senior vice-president, retail liabilities group, HDFC Bank. 

GET YOUR OLD CHEQUE BOOKS REPLACED If you haven’t received the new form of cheque books already, speak to your bank as early as you can. “Banks could adopt two methods to replace the old cheques. One is to send new cheque books by registered post and ask users to cancel the old ones. Customers may be asked to show proof of the same to the bank. They may also ask customers to surrender the older ones. Or, the customers can visit the bank branch themselves to surrender the old cheques and receive the CTS-compliant ones,” says Mahajan. Banks will not charge any fee for replacing the old cheque leaves. 

ISSUE NEW POST-DATED CHEQUES FOR EMIS If you have issued post-dated cheques (PDCs) for your home or auto loan EMIs, you will have to issue fresh cheques. “RBI’s guidelines to NBFCs state that if they have accepted post-dated cheques from their customers for future EMI payments, they should get them replaced with CTS-2010 standard compliant cheques before December 31, 2012. This will be applicable to banks as well,” explains VN Kulkarni, chief credit counsellor with the Bank of India-backed Abhay Credit Counselling Centre. “Most of our customers have opted for the ECS (electronic clearing system) mode for their EMI payments. So, the new system will not impact them. Only a small percentage of borrowers pay their EMIs through post-dated cheques. We are asking them to give us new cheques and accept their older cheques back,” says Abhijeet Bose, head, retail assets and strategic alliances, Development Credit Bank. Not all banks will return your older cheques, though. You needn’t be concerned about it as these cheques will be non-compliant with CTS standards and hence not be valid. To avoid these hassles, you can simply switch to the ECS mode, where the EMI amount is debited from your account every month. It will also save you the trouble of altering the amount on PDCs in case of any change in EMIs. 

ENCASH ANY OLD CHEQUES NOW This tip is mainly for procrastinators. For instance, if you have received a cheque on December 1 that does not conform to CTS 2010, you should not delay its encashment. 
“As per RBI mandate, the same (old format cheques) are to be accepted till December 31, 2012. RBI instructions on whether the same will be permitted after December 31 are awaited,” says Mitra. It is better to present it for payment immediately rather than risking its dishonour after December 31. 

EXERCISE CAUTION WHILE WRITING CTS CHEQUES You have to be careful while writing the new cheques. For instance, cheques with alterations in crucial fields like payee’s name and amount in figures or words will not be processed under the new system. 
“In case of any corrections, a new cheque will have to be issued. The ones with alterations will not be accepted even if the drawer puts his full signature authenticating the changes. 
Such cheques will be returned,” adds Kulkarni. “Also, it is important to use image-friendlycoloured-inks while writing the cheques.” As per RBI guidelines, you should use dark-coloured inks for the purpose.

How to get an online EPF Pass book (Yahoo Finance 20th Nov 2012)

Employees Provident Fund (EPF), generally known as PF is a retirement benefit scheme available to the salaried class in India, wherein both the employer and employee contribute an equal amount towards the fund. This year, the EPFO (Employees Provident Fund Organization) has introduced an e-passbook facility for members, which enables them to check their PF account online.

What is an EPF e-passbook?

The EPF e-passbook is an online version of the employee’s provident fund account. Transactions are recorded date-wise and these can be tracked easily by the member. You can check your EPF balance online anytime you wish to.

How to register online?

Registration on the EPFO website is necessary to avail the e-passbook facility. The following steps need to be followed to register online -

1.      Visit the EPFO members site - http://members.epfoservices.in/

2.      Click on the “Register” at the bottom of the page or “Click here to Register” button under the Login area.

3.      You will reach the registration page, where you will have to enter your mobile number mandatorily. You will also need to enter your date of birth, email id and select one of the eight documents (PAN number, Aadhar (UID), NPR (National Population Register), bank account number, voter ID card, driving license, passport number or ration card number) along with its unique number and your name as it is in the document. On entering a six digit unique text character, you will have to click “GET PIN” to get a four digit authorization PIN on your mobile.

4.      Once you receive the PIN on your mobile, you will have to enter this PIN in the box provided at the bottom of the page. Check the “I agree” box and click on “Submit” button.

5.      After clicking on “Submit”, your registration will be complete and you will get a confirmation message on your mobile.
This completes the registration process on the EPFO member website.

How to generate e-passbook?     

After successful registration, you will need to login to your account in the member login area to generate the e-passbook. The following steps need to be followed.

1.      Log in to your account by selecting your document, entering the document number and your mobile number that you entered on the Registration page and click on the “Sign In” button.

2.      When you successfully login, you will see your name on the right hand side of the page. This is the page on which you can edit your personal details and also download your EPF e-passbook.

3.      When you click on “Download E Passbook” link, you will be prompted to select the state under which your establishment is covered.

4.      On selecting the state, you will be asked to choose the EPFO office. If you are unaware about the EPFO to which you belong, you can use the establishment search facility to get these details.

5.      When you have selected the EPFO office, you should now enter your EPF account number. The next step is to enter your name, which should exactly match EPF records.

6.      Click on “Get PIN” to receive the PIN on your mobile and email. Do not close this page till you receive the PIN on your mobile/email.

7.      When you receive the authorization PIN, you will need to enter this in the “Enter Authorization PIN” box, check the “I Agree” button and then click on “Get Detail”.

8.      You will then be able to download the PDF.

Points to remember while using EPFO’s e-passbook facility:

1.      Only one mobile number can be used for one registration. However, your mobile number details can be edited subsequently.

2.      You can view details of only one EPF account under one establishment. If you wish to view details of all your EPF accounts under a single establishment, then you will have to first transfer one EPF to another.

3.      You can view a total of 10 EPF accounts under different establishments. You can view your accounts any number of times and transfer old EPF accounts to existing ones too.

4.      You will not be able to view details of inoperative accounts and also EPF accounts which have been settled.

5.      If you have left your job before March 2012, then you will not be able to see details online. However, you can place a request for the same on the website and it will be uploaded in a few days.

6.      For logging into your account you just need your mobile number, document name and document number.

7.      You can use multiple ids to register by using different document types.

The EPFO’s e-Passbook facility is a welcome move which will enable employees in managing their EPF accounts in a better manner. The success of this facility depends on the efficiency of the EPFO in managing the website and handling requests from the members.

Did you know | You can use your short-term capital loss to your advantage (Mint Dec 19 2011)

This has been a disappointing year for domestic equity markets with the Nifty declining at least 20% year-to-date. Investors are likely to have both unrealized and realized loss in their portfolios. Realized capital loss arises when you sell a stock or mutual fund (MF) at a price lower than your purchase price; hence, you book loss. While this isn’t anything you can rejoice about, you can set off or deduct capital loss from capital gain in the same year. This, in turn, means your tax liability stands reduced as the net capital gain reduces.

What is a capital asset?

Capital asset means property of any kind (the Income-tax Act clearly identifies exceptions). The Act doesn’t define “property” as such. Judicially, property is a bundle of rights which the owner can lawfully exercise to the exclusion of all others and is entitled to use and enjoy as he pleases, provided he does not infringe any law. Once something is identified as property, it is a capital asset unless specifically exempted under the Act or if it figures in the exceptions mentioned in the Act.

What is short-term and long-term capital asset?

A short-term capital asset is that which is held for 36 months or less and long-term capital asset is one held for more than 36 months. In case of shares, any specified MF unit or units of Unit Trust of India or any security listed on a recognized stock exchange, short-term capital assets are those held for less than a year and long-term capital assets are those held for more than a year.

How can the loss be set off?

Realized short-term capital loss (asset held for less than a year in case of MF units and shares and less than 36 months for other capital assets) can be set off against gain from transfer of any other long-or short-term capital asset. Additionally, loss from transfer of a long-term capital asset (held for more than a year in case of MF units and shares and more than 36 months for other capital assets) can be set off against gains from transfer of long-term capital asset in the same year. This means if you have booked a loss of Rs 100 in a short-term capital asset and you have booked a gain of Rs 200 in a long-term capital asset, your net long-term capital gain on which you will be taxed is Rs 100. Similarly, if you booked a loss of Rs 200 in a long-term capital asset and booked a gain of Rs 100 in a short-term capital asset and Rs 200 in a long-term capital asset, your capital gains tax will be calculated for the gain of Rs 100 in the short-term capital asset. Note that long-term capital loss can only be set off against long-term capital gain from any capital asset and not against short-term capital gain.

Capital loss computed in an assessment year (AY) can be carried forward for eight AYs if it isn’t utilized fully in a given year. So if you booked a capital loss in the AY 2010-11 but didn’t earn any capital gains in that year, the loss can be set off against any other capital gain in the same AY or carried forward till AY 2018-19. Also, capital loss can’t be set off against any other income.

My Add-on:

Investors can also use Section 94 (8) on the Income Tax Act to their advantage, this sections states the treatment of Tax regarding Dividend and Bonus. For the purpose of explanation section 94 is mentioned below:

--- ITA - Income Tax Act ---

SECTION 94: Avoidance of tax by certain transactions in securities

Avoidance of tax by certain transactions in securities.
3 94. (1) Where the owner of any securities (in this sub-section and in sub-section (2) referred to as "the owner") sells or transfers those securities, and buys back or reacquires the securities, then, if the result of the transaction is that any interest becoming payable in respect of the securities is receivable otherwise than by the owner, the interest payable as aforesaid shall, whether it would or would not have been chargeable to income-tax apart from the provisions of this sub-section, be deemed, for all the purposes of this Act, to be the income of the owner and not to be the income of any other person.
Explanation.—The references in this sub-section to buying back or reacquiring the securities shall be deemed to include references to buying or acquiring similar securities, so, however, that where similar securities are bought or acquired, the owner shall be under no greater liability to income-tax than he would have been under if the original securities had been bought back or reacquired.
(2) Where any person has had at any time during any previous year any beneficial interest in any securities, and the result of any transaction relating to such securities or the income thereof is that, in respect of such securities within such year, either no income is received by him or the income received by him is less than the sum to which the income would have amounted if the income from such securities had accrued from day to day and been apportioned accordingly, then the income from such securities for such year shall be deemed to be the income of such person.
(3) The provisions of sub-section (1) or sub-section (2) shall not apply if the owner, or the person who has had a beneficial interest in the securities, as the case may be, proves to the satisfaction of the 4 [Assessing] Officer—
(a ) that there has been no avoidance of income-tax, or
(b ) that the avoidance of income-tax was exceptional and not systematic and that there was not in his case in any of the three preceding years any avoidance of income-tax by a transaction of the nature referred to in sub-section (1) or sub-section (2).
(4) Where any person carrying on a business which consists wholly or partly in dealing in securities, buys or acquires any securities and sells back or retransfers the securities, then, if the result of the transaction is that interest becoming payable in respect of the securities is receivable by him but is not deemed to be his income by reason of the provisions contained in sub-section (1), no account shall be taken of the transaction in computing for any of the purposes of this Act the profits arising from or loss sustained in the business.
(5) Sub-section (4) shall have effect, subject to any necessary modifications, as if references to selling back or retransferring the securities included references to selling or transferring similar securities.
(6) The 5[Assessing] Officer may, by notice in writing, require any person to furnish him within such time as he may direct (not being less than twenty-eight days), in respect of all securities of which such person was the owner or in which he had a beneficial interest at any time during the period specified in the notice, such particulars as he considers necessary for the purposes of this section and for the purpose of discovering whether income-tax has been borne in respect of the interest on all those securities.
6 [(7) Where—
( a) any person buys or acquires any securities or unit within a period of three months prior to the record date;
7[( b) such person sells or transfers—
(i) such securities within a period of three months after such date; or
(ii) such unit within a period of nine months after such date;]
(c ) the dividend or income on such securities or unit received or receivable by such person is exempt,
then, the loss, if any, arising to him on account of such purchase and sale of securities or unit, to the extent such loss does not exceed the amount of dividend or income received or receivable on such securities or unit, shall be ignored for the purposes of computing his income chargeable to tax.]
8 [(8) Where—
(a ) any person buys or acquires any units within a period of three months prior to the record date;
(b ) such person is allotted additional units without any payment on the basis of holding of such units on such date;
(c ) such person sells or transfers all or any of the units referred to in clause (a) within a period of nine months after such date, while continuing to hold all or any of the additional units referred to in clause (b),
then, the loss, if any, arising to him on account of such purchase and sale of all or any of such units shall be ignored for the purposes of computing his income chargeable to tax and notwithstanding anything contained in any other provision of this Act, the amount of loss so ignored shall be deemed to be the cost of purchase or acquisition of such additional units referred to in clause (b) as are held by him on the date of such sale or transfer.]
Explanation.—For the purposes of this section,—
(a ) "interest" includes a dividend ;
9[( aa) "record date" means such date as may be fixed by—
(i) a company for the purposes of entitlement of the holder of the securities to receive dividend; or
(ii) a Mutual Fund or the Administrator of the specified undertaking or the specified company as referred to in the Explanation to clause (35) of section 10 , for the purposes of entitlement of the holder of the units to receive income, or additional unit without any consideration, as the case may be;]
(b ) "securities" includes stocks and shares ;
(c ) securities shall be deemed to be similar if they entitle their holders to the same rights against the same persons as to capital and interest and the same remedies for the enforcement of those rights, notwithstanding any difference in the total nominal amounts of the respective securities or in the form in which they are held or in the manner in which they can be transferred;
10[( d) "unit" shall have the meaning assigned to it in clause (b) of the Explanation to section 115AB .]

3. For relevant case laws, see Google.com.
4. Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.
5. Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.
6. Inserted by the Finance Act, 2001, w.e.f. 1-4-2002.
7. Substituted by the Finance (No. 2) Act, 2004, w.e.f. 1-4-2005. Prior to its substitution, clause (b ) read as under :
"(b) such person sells or transfers such securities or unit within a period of three months after such date;"
8. Inserted by the Finance (No. 2) Act, 2004, w.e.f. 1-4-2005.
9. Substituted by the Finance (No. 2) Act, 2004, w.e.f. 1-4-2005. Prior to its substitution, clause (aa ), as inserted by the Finance Act, 2001, w.e.f. 1-4-2002, read as under :
‘(aa) "record date" means such date as may be fixed by a company or a Mutual Fund or the Unit Trust of India for the purposes of entitlement of the holder of the securities or the unit-holder, to receive dividend or income, as the case may be;’
10. Inserted by the Finance Act, 2001, w.e.f. 1-4-2002.

Location in ITA: CPC\Chapter X\Section 94
Location in App: ITA\Chapter X\Section 94

-Shared from 'ITA - Income Tax Act'

Are NRE FDs better than FMPs for NRIs? (www.onemint.com 7th Oct 2012)

In a prior post I compared FMPs (Fixed Maturity Plans) with bank fixed deposits, and said that if you are in the higher tax bracket, the tax advantage of FMPs tilt the balance in their favor somewhat (if you can live with the uncertainty).

That’s true for domestic investors but what about NRIs?

Allwyn left the following comment on the Suggest a Topic page a few days ago:

allwyn September 4, 2012 at 12:59 am [edit]

Hi,
Could you pls. explain the advantages/disadvantages of FDs(presently int. rates of over 9% tax free) over FMP/Debt funds for NRI’s

Thanks in advance

Allwyn

This is an interesting question, and in my mind since it’s only the tax advantage that makes you think of FMPs over fixed deposits for domestic investors, you need to look at the tax angle to answer this question for NRIs as well.

For close to a year now, NRE fixed deposits are tax free, and this was one step by RBI to arrest the Rupee slide. This means that NRE fixed deposits are currently better than NRO fixed deposits, and they are an obvious competitor to NRI investments in FMPs.

I didn’t know how FMPs are taxed for NRIs but this DSP BLACKROCK page on NRI taxation states that NRIs will be taxed at their applicable assessee rate in case of short term capital gains, and will be taxed at 10% without indexation or 20% with indexation for long term capital gains on non – equity mutual funds.

Since most FMPs are slightly over a year to make them count under long term capital gains, this means that most of the time your NRI FMPs will taxed at 10% whereas the returns from your NRE fixed deposits are tax free.

I think in general it is easier to open a NRE fixed deposit than it is to buy a FMP for NRIs, so that’s another thing in their favor along with the fact that you know before hand how much your fixed deposit will earn.

If the tax situation for NRIs change as far as FMPs are concerned then this might be worth a re-look but until then I can’t think of a good reason to favor FMPs instead of FDs for NRIs.

Tips to ensure your child becomes a financially savvy adult (ET 22 Oct 2012)

Here's how to hold your child's hand through the various monetary milestones in his life in order to ensure that he grows up into a financially savvy adult:

1) 5-6 years:

Kid's milestone: > Understand the concept of money.

> Know that money buys things, services.

Parent's role: > Help the child identify various denominations, sort coins by sizes, play money-based games.

> Take him shopping, make him pay for small things.

Pitfall: The child has a very small attention span. So if money learning is not made fun, he will switch off instantly.

2) 7-9 years

Kid's milestone: > Start the saving habit.

> Shoulder fiscal responsibility and make spending decisions.

> Set short-term goals.

Parent's role: > Buy him a piggy bank to collect change. Open a bank account for depositing monetary gifts.

> Start a weekly allowance. Fix the things you will not buy for him like candy, ice cream, etc. Give him the freedom to decide what he wants to buy.

> Explain how he can buy an expensive toy by saving as opposed to spending it on snacks on the first day.

Pitfall: If the kid finishes his allowance before the stipulated time, do not offer him an advance or pay for things he needs. He will never learn fiscal discipline.

3) 10-12 years

Kid's milestone: > Carry out financial transactions.

> Learn the value of money.

> Set medium-term goals.

Parent's role: > Open a bank account that allows your child actual transactions like signing a cheque or making deposits.

> Pay the child for minor errands such as washing a car or taking care of a younger sibling.

> Ask the child to buy shoes or gizmos fro savings.

Pitfall: The child is likely to lend money to his friends. Stress the importance of getting it back.

How earnest money impacts your tax (ET Wealth 8th Oct 2012)

You don’t have to pay income tax on earnest money received from a failed deal, but there are other tax implications you should be familiar with says M K Agarwal

When you buy or sell a tangible asset, there is usually some earnest money given by the buyer before he arranges for the full payment. This can range from 5,000-10,000 for a used car to a couple of lakhs of rupees for a real estate transaction. The payment is meant to seal the deal and the rules of arrangement are simple. If the buyer backs out, the earnest money given to the seller is forfeited. If the seller changes his mind, he gives back double the amount to the buyer. To ensure that both the parties play fair, there is typically an intermediary who is known to both. 
In normal circumstances, any amount received as advance for the purchase of an asset is a revenue receipt and is taxed in the year that it is received. What happens if the money is received from a buyer who fails to keep his commitment and the deal falls through? Will the forfeited amount become the income of the seller and will he have to pay tax on it? Under which income head will the amount have to be declared in the tax return form? 
As per Section 51 of the Income Tax Act, 1961, if the owner of an asset has received money by forfeiting any advance money for the asset, this amount will be deducted from the purchase price of the asset. This is the cost for which the asset was acquired or its fair market value (if the property was purchased before 1 April 1981). Suppose you bought a property for 10 lakh about 15 years ago, and two years ago, you decided to sell it for 40 lakh. The deal was struck and the buyer gave you earnest money of 2 lakh, but later backed out. The 2 lakh will be treated as capital receipt and you will not be taxed in that year, but the amount will be deducted from the purchase price of your property when you sell it in the future. In this case, the purchase price will be taken as 8 lakh ( 10 lakh— 2 lakh). 
In some cases, the deduction of earnest money from the cost price of the asset pushes up the capital gains tax of the owner substantially. In the example (How much tax...), the owner would not have had to pay any tax had he not forfeited the earnest money. The indexed cost of acquisition without deducting 50,000 from the cost price would have been 8.3 lakh. One would be better off including the earnest money in one’s income from other sources and paying tax on it. Is this possible? The law is silent on this because the earnest money is a capital receipt, not income. 
Also, the seller must know that this is a one-way street. If you backed out of the deal and paid the buyer 2 lakh compensation, it would be treated as a capital loss and not added to the purchase price of the property. You can claim tax benefit on this only if you were in the business of sale and purchase of the property. In such a case, the loss due to forfeiture would be treated as a revenue loss. 
Earnest money is usually a very small percentage of the total value of the transaction, but sometimes it can be higher than the cost price of the asset. Under Section 48 (read with Section 51), if the amount forfeited is greater than or equal to the cost of acquisition, the cost of the asset will be taken as nil. In one such case involving Sunita N Shah (2005) 94 ITD 492 (Mumbai), the forfeited amount was higher than the cost of acquisition. In such cases, the excess amount is considered capital receipt and is not chargeable to tax. The same ruling was given in the case of Travancore Rubber & Tea Co. Ltd (2000) 243 ITR 158, wherein the Supreme Court ruled in favour of the assessee. 
Tax impact on buyer In case the buyer defaults and the earnest money is forfeited, he will not be allowed to show it as a capital loss. This was the verdict in the case of CIT vs Sterling Investment Corporation Ltd (1980) 123 ITR 441. However, if the seller fails to honour the deal and pays the buyer double the compensation, this will be treated as capital gain because it amounts to relinquishment of a right by the buyer. In the case of CIT vs Vijay Flexible Container (1990) 186 ITR 693, it was held that giving up the right to obtain conveyance of immovable property amounts to transfer of a capital asset. 
What happens if the advance money was for the purchase of a commercial property? Can the loss be treated as business expenditure incurred by the purchaser? The amount cannot be claimed as revenue expenditure. In CIT vs Jaipur Mineral Develop Syndicate (1995) 216 ITR 469 (Raj), it was held that if the payment is made for the pupose of acquiring a capital asset, the amount lost upon forfeiture will not be considered as revenue loss though the amount may not have the same consequence or character in the hands of the recipient or beneficiary. 
How much tax does a seller pay? Mr X bought land in January 1987 for 2 lakh. He agreed to sell it to Mr Y in January 1998 and received 50,000 as earnest money. However, Mr Y backed out and his 50,000 was forfeited. Mr X sold the land on 1 January 2009 for 8 lakh to Mr Z. Here’s how his gains will be taxed: 
Purchase price: 2 lakh 
Earnest money received: 50,000 
Deemed purchase price: 1.5 lakh 
Indexed cost (in 2008-9): 6.23 lakh 
Selling price: 8 lakh 
Capital gain: 1.77 lakh 
Tax payable: 35,400 (20%)

The author is a chartered accountant and senior partner at Mahesh K Agarwal & Co and can be reached at mkcacs@gmail.com.

Fidelity Unitholders Get 30 Days to Redeem Holdings without a Fee (ET 10 Oct 2012)

SHAILESH MENON, MUMBAI 

Fidelity Mutual Fund, which sold its Indian assets under management to L&T Mutual Fund in March, will open a 30-day window from October 15 to allow unitholders to redeem their holdings without a fee. The Securities and Exchange Board of India (Sebi) mandates that mutual funds which have been acquired should give unitholders uncomfortable with a new fund management team the option to pull out without an exit load.

L&T Mutual Fund, part of the engineering-to-construction conglomerate Larsen & Toubro, had acquired Fidelity’s assets under management but did not rope in the fund management team. Now, a big worry for L&T Mutual Fund is that unitholders, who are clients of large foreign banks — big distributors of mutual fund products — may pull out money from Fidelity schemes during the 30-day period. 

Top officials of two leading foreign banks said L&T Mutual Fund is yet to garner support from foreign distributors. “We’ve not taken the mandate to sell L&T Mutual Funds as yet. Our audit offices are reviewing the fund house, their processes and performance track record,” said the distribution head of a foreign bank on condition of anonymity. 

Foreign banks sell only funds that are approved by their global audit committees, which usually prefer mutual fund schemes with a good track record or those belonging to Indian arms of international mutual funds. While Fidelity Funds appear on the distribution list of most foreign banks, L&T Mutual is a relatively new and ‘undertracked’ fund house. 

L&T Mutual officials, however, brushed aside these concerns. Speaking about distribution tie-ups with foreign banks, N Sivaraman, president & wholetime director, L&T Finance Holdings, said, “Revised empanelment process is on. I don’t see why foreign distributors would not want to sell L&T funds.” 

The fund management team and risk management of L&T MF have been beefed up to handle large investment inflows, he said. L&T Mutual recently hired Soumendra Nath Lahiri and Shriram Ramanathan as heads of equities and fixed income, respectively. “We’ve a good equities team now... Fixed income vertical has also been structured well,” Sivaraman said. “Critical segments like risk management and processes will be manned by the Fidelity team. There’s no need for investors to worry. Their money is in good hands.” 

Some distributors looking to make a quick buck could push clients to redeem during ‘no-load period’ and shift the proceeds to schemes of other fund houses. Rival fund houses are also looking at the ‘no-load’ window closely as fishing out Fidelity’s assets could be a cheaper way for them to acquire some assets. 

Fidelity Funds have returned well over the past 10 months and better still after the announcement of asset sale to L&T Mutual Fund. Equity funds like Fidelity Equity, Fidelity India Growth, Fidelity India Special Situations and Fidelity India Value have returned 20-30% since January, Value Research data show.

SEBI gives MFs time till October 31st for discontinuing SIPs, STPs under single plan structure (Cafe Mutual 3rd Oct 2012)

Ravi Samalad

AMCs get time till October 31^st to inform all their investors who will get affected due to SEBI regulation on implementing single plan structure. 

SEBI has acceded to AMFI’s request to allow fund houses to implement discontinuance of existing SIPs, STPs and dividend reinvestments under schemes which run separate plans for retail and institutional clients from November 01, 2012 instead of 01 October, 2012.

As per SEBI’s September 16, 2012 circular, AMCs are supposed to accept subscriptions only in one plan – either retail or institutional from 01 October 2012. The AMC has a choice to choose which plan they wish to continue. Take for instance, an AMC wants to accept subscriptions only under institutional plan. Thus, the retail plan needs to stop accepting fresh money or add units from 1^st October. However, the retail plan could have existing SIPs, STPs and dividend reinvestment mandates from investors. In this case, AMCs need to discontinue such SIPs, STPs and dividend reinvestments which would add units. However, implementing this rule was a tall order for AMCs in such a short span of time.

Institutional plans usually have a higher minimum application size. Thus, retail investors are not be able to invest in such schemes. In case an AMC wants to discontinue retail plan, they may lower the minimum investment size of institutional plan in a bid to attract retail investors.

From today onwards, AMCs have stopped accepting fresh subscriptions under the plans which they want to discontinue. These plans will never accept fresh inflows till the last investor redeems. These schemes would cease to exist thereafter. Now AMCs have one month’s time to inform all their investors about the new rule.

My Comments : It seems that our regulator has no other work other than increasing work of the Investors, Distributors and AMCs. After major changes in the KYC process, this step will lead to substantial increase in unproductive paperwork for all the entities involved in the process.

Explore loan against collateral like gold, shares to raise money at softer interest rates (ET 2nd Oct 2012)

Many of us opt for personal loans — when we can't (or don't want to) turn to friends or relatives for a soft loan — to tide over unseen shortfall in funds.

Sadly, most of us don't even consider other options available like loan against assets, shares, gold, property and so on. It is strange considering goldfinance companies have been on an overdrive in the last few years. Even moneywise, it makes perfect sense to take a close look at asset-backed loans.

Compared to the interest rate of 16% to 24% on personal loans, loans against assets come much cheaper at 12% to 14.5%. But the problem is you can't club all these asset-backed loans in one bracket. "Each one of these asset-backed loan has its own advantages and disadvantages.

You have to choose one of them only after analysing your needs in detail," says Satish Mehta, co-founder and director, Credexpert, a credit counselling entity. And the needs could be — the purpose of the loan, documentation requirement, time you have and how much money you want to raise.

PURPOSE OF THE LOAN

Loan against gold and securities work for relatively smaller amounts that you would like to pay off within a short timeframe. For example, if you are keen on a loan to fund your holiday, you may be better off borrowing against gold or securities.

But for larger expenditures, like a marriage, loan against property works better. Typically, repayment tenure is longer for a loan against property compared to a loan against gold, which helps fund larger expenditures.

For an average individual, market value of movable assets such as gold and securities is generally lower than the market value of the property. Hence in most cases large expenses are funded using loans against property. You can choose to take an overdraft facility against your house, where the bank approves the borrowing limit against a house.

If you plan it well, you can use this facility to meet any contingency, too. This works for those who do not have much of free cash flow each month and cannot maintain emergency funds. Though you may not use the overdraft, still you may have to pay the processing fee of around 1% of the overdraft limit.



DOCUMENTATION REQUIRED

Bankers differentiate between loans against movable and easily realisable assets, such as gold and securities, and loans against immovable and illiquid assets, like property. "In case of gold loans, lenders will be keen on 'know your customer' requirements than documentation pertaining to loan repayment ability," says Harsh Roongta, CEO, apanapaisa.com.