Pension for all, up & running from May 1

Pension for all, up & running from May 1 Gaurav Pai Mumbai Posted On Monday, March 30, 2009 at 12:44:21 PM The New Pension Scheme (NPS) will finally be opened up to the organised and unorganised sector from May 1 this year. The launch plan for the scheme, scheduled originally for April 1, had been put on hold as the pensions regulator — the Pension Fund Regulatory and Development Authority (PFRDA) — waited for a clarification from the Election Commission as to whether it could go ahead, considering the initiative will start right in the middle of the polling process. The EC has informed PFRDA that it can go ahead with the launch of the scheme —which has so far been open only to government employees — a senior official with knowledge of the development said. The move has been welcomed by pension sector experts, who said PFRDA was finding it tough to complete the information campaign necessary before its roll-out. The campaign will now be launched in April through television, radio and print advertisements. Experts feel the NPS — which aims to provide retirement benefits to even the neighbourhood grocer and plumber — will not take off unless massive awareness is generated through the media

New pension scheme from May 1

Published on Sat, Apr 11, 2009 at 11:26 , Updated at Sat, Apr 11, 2009 at 17:16 Source : CNBC-TV18 The much awaited new pension scheme (NPS) will kick off from May 1. It promises to change the face of the pension market in India. The new pension scheme has something to offer for all investors. If an investor wishes, he can choose even his investment strategy and fund manager. So how does it work? A new pension scheme - Bank branches and post offices to collect contributions - 6 pension fund managers appointed - Central record keeping agency appointed - Scheme is portable across jobs and locations Existing bank branches and post offices will be used to collect contributions. Six pension fund managers will devise schemes and manage funds. A central record keeping agency has also been appointed. All these institutions will be regulated by an independent regulator, the Pension Fund Regulatory and Development Authority (PFRDA). The biggest advantage is the scheme's portability across jobs and locations. D Swarup, Chairman, PFRDA, said, "There is a lot of flexibility. Whenever you wish to make a contribution you are allowed to do so. If you skip a month it doesn’t matter. If you skip two months it doesn’t matter. As long as there is a minimum, which we will put as annual contribution. Lastly, the costs are low." Charges The charges for the new pension scheme are likely to be 15 to 20 paise per Rs 100 which is much lower, compared to pension schemes by mutual funds or insurance companies. Investment Strategy - Three asset classes likely - E category: Equity (high risk, high returns) - G category: G-Secs (low risk growth option) - C category: Corporate bonds (medium risk conservative option) The investment norms are yet to be clearly defined. However, it is likely that there will be three asset classes. E, G and C categories. The disadvantage - the tax effect - EET (exempt-exempt-taxed) Category: Taxable on withdrawal - Funds like PPF and EPF are tax free The NPS falls under the exempt-exempt-taxed or EET category. This means that the corpus is taxable during withdrawals. This makes the scheme less attractive because other schemes like the PPF and EPF are tax free on maturity. Sources say there is an effort being made by PFRDA to make the NPS completely tax free on par with other schemes. Returns are not guaranteed. But experts say that one could expect equity returns to be about 15 to 17% annually over a period of 7 to 10 years and 6 to 8% from the growth option.

New pension scheme

The Pension Fund Regulatory and Development Authority (PFRDA) will issue investment guidelines, as recommended by the Deepak Parekh Committee, for its mega new pension scheme (NPS) by the middle of this month. “Investment guidelines will be finalised by the middle of the month (April)... May 1 is the date it (pension scheme for all citizens) will be launched,” PFRDA Chairman D Swarup said. The authority is set to launch the pension scheme for all citizens from May 1 after it receives approval from the Election Commission. The committee had suggested to subscribers to invest in the shares of the 50-stock National Stock Exchange’s Nifty, government bonds, liquid assets of mutual funds, state government bonds, rated bonds of public financial institutions and public sector companies, among other things. PFRDA has invited public comments on the recommendations, as well as certain modifications proposed by it to these suggestions. In August 2008, the government advised PFRDA to extend the scheme, currently subscribed to by government employees, to all citizens. Central government employees who joined service on or after January 1, 2004, are covered under the NPS. Unlike the old pension scheme, in the NPS both the employees and the employer (in this case, Government) contribute an equal amount to the pension fund. Twenty-one states have also joined the scheme. However, the NPS for all citizens will not have any mandatory obligation for employers to give matching contributions to the pension fund. When asked about the corpus expected from citizens, Swarup said unlike in respect of the central and state governments, this scheme is voluntary and it would be difficult to predict the growth of the corpus. He, however, pointed out that a survey conducted by an independent organisation, Invest India Micro Pension Services (IIMPS), said that in the next five to seven years, eight crore people will join the scheme.

EMI - Wise Earning and Spending

It's an interesting article by Yogesh Chhabria. " LATELY, I have been thinking a lot about the Lehman crisis. Spending money that they didn't have and going beyond their means is one of the main reasons for their situation today. In fact that is the cause for the current economic crisis in the US. When I see all this happening, I can only remember the good old days. Then, karz was bad. People looked down upon those who took loans. Parents would not give their daughter's hand in marriage to a man with loans. But of course, the times have changed now. Everyone I know has a loan. The buzz word is EMI (equated monthly installment). Today, you can buy everything on EMI - a house, a television, an i-Pod. In fact I know of someone who just bought a fancy BMW 3 series on EMI, instead of buying a cheaper car outright with cash. I mostly prefer to take public transport, but then I am an old man with old thoughts! Anyway, coming back to what caused the crisis. Imagine having Rs 2 lakh in your bank account, no regular income, yet buying a house worth Rs 65 lakh, in the hope of selling it for a higher price. Even if the price of the house fell by just 5 per cent (that is Rs 3 lakh), you will go bankrupt. This is what Lehman Brothers did; with around USD 20 billion they went and bought assets worth over USD 600 billion. Isn't it suicidal and simply foolish? I am sure things would have been different, had I been the head of Lehman brothers. But who wants an old conservative man like me to head a complex financial institution. But there are a few lessons that we can learn: 1. Live a balanced life and avoid overspending. 2. Don't buy things we don't need. 3. Don't buy Branded good's. 4. Don't buy excess Food, Clothes, Cosmetics, Footwear, electronics and Fashion accuracies just think before you buy. Tip: World still has a lot of growth ahead and the future holds immense opportunities for us. Let us make the most of it and save and invest it wisely instead of wasting our precious little on things we don't need. 5.Try to balance life with work (No one is happy to work in their profession). 6. Don't stress out your self, after work try to do some extra activities like swimming, yoga, walking, running where you can divert your mind from stress. A thumb rule: Health is more important than money. 7.Try to understand each other (Wife and Husband) in financial matter's and help each other. Tip: As soon as you get your monthly salary, set aside a fixed amount, usually 35 per cent, for insurance, savings and investments. You can then spend the rest. 8. Not all loans are bad. Loans that are 'need based' (home loans, education loans) can always find a place in your finances against those that are largely 'want based' (Credit cards, personal loans, car loans). 9. Borrow only if repayment is financially comfortable. A thumb rule: Keep EMIs within 35 to 45 per cent of your monthly income In that respect, there is one American who I really respect - WARREN BUFFET. He has lived in the same ordinary house for over three decades, drives his own medium sized car and leads an extremely regular 'middle class' life. If that's all it takes for the richest person on earth to be happy, why do all of us need to take extra stress just so that we can get things which aren't even essential? "

" So you think you dont need an insurance?"...... "Think again"

General argument of an individual who thinks he has ample wealth stashed away for his family after he is gone: "I don't have to worry about life insurance"

Seems right. But the logic is pretty flawed.

This reminds me of an Insurance ad on TV some time back which starts with: " So you think you dont need an insurance?"...... and ends with "Think again"

"What do I need Insurance for?" - if this is the question lingering in your mind...then read on to get the answer:

Let's say you have worked out that your spouse and two children will need a kitty of Rs 10 million to maintain their current lifestyle and pay for huge one-time expenses like marriage and education. You total your assets and you are pleased: your home, bank deposits, stocks, gold are worth more than that.

Dont stop here, assume the worst.

Agreed you are in a great health today, but catastrophes do happen!

You fall really ill and have to undergo the treatment (that cannot be done in India) somewhere abroad. Now the treatment there costs a hell lot of a money.

Now you are neither a NETA nor a corporate chieftain, neither the government nor the company will pick up the tab.

But you dont have to worry - you have the assets - encash and get yourself treated....

By the time you recover, the kitty has substantially reduced in value.

Granted, these are extreme scenarios. Let's hope neither happens to you. But do you see the point?

As long as you are around, the possibility of spending a substantial portion of your wealth on health-related reasons also exists. You cannot wish it away. In such cases, you will have to tap into your wealth. Which means, when you are no longer around, your family does not have the kind of financial security you planned for them.

Lesson to be learnt: You might be rich, but you still need to be protected against calamities and catastrophes.

Assume you do have enough wealth to take care of any eventuality, including an expensive medical treatment abroad. Even if a sizeable chunk of the money is taken away, there will still be enough for the family. The crucial question is: what is your wealth made of?

Most wealthy families have no dearth of assets for the survivors. But it takes a long time to unlock the wealth out of the assets. For example, if real estate property, like a mansion or an apartment at a prime location, constitutes most of the wealth, it might take months (if not years) to sell it and collect the cash. If you live in an expensive apartment or house, it may not be possible for your family to sell it and relocate. Ever. What if a huge portion is locked up in the share market and the market is totally bearish (which means the price of the shares have fallen) when your family needs the money? If they sell, they incur a huge loss. They are stuck. What if you have included your jewellery under your assets? Would your family be eager to sell? Don't confuse wealth with high income. The two are different. You could be a high earner but you could be spending just as much and, as a result, your savings could be quite low. This might also mean your family demands a lot of money which makes it all the more necessary that you have life insurance. Lesson to be learnt: If your wealth is in the form of assets, your family may not be able translate it into cash when they need it. Remember, the only people who can ignore life insurance are the super rich. And if you need a monthly income, howsoever high, you cannot be classified as super rich. Remember the saying, 'If you can count what you own, you are not wealthy'. Only if you are in the same league as Bill Gates, Azim Premji or Tiger Woods, can you afford to ignore life insurance.

" So you think you dont need an insurance?".................."Think again"

Rules of tax rebate on home loans

Tax benefits are available on home loans. They can be claimed on bsoth the principal and interest components of a home loan as per the Income Tax Act These deductions are available to assessees who have taken a loan to either buy or build a house, under Section 24(b).

Interest on borrowed capital is deductible as:

If these conditions are satisfied, interest on borrowed capital is deductible up to Rs 1.5 lakhs:

l. Capital is borrowed on or after April 1, 1999 for acquiring or constructing a property

2. The acquisition / construction should be completed within three years from the end of the financial year in which capital was borrowed

3. The lender certifies interest payable on amount advanced for acquisition or construction of the house, or as refinance for the principle amount outstanding under an earlier loan taken for such acquisition or construction

If the conditions stated above are not satisfied, the interest on borrowed capital is deductible up to Rs 30,000. However, for that, these conditions have to be fulfilled:

4. Capital should be borrowed before April 1, 1999 for purchase, construction, reconstruction, or repairs of a house

5. The capital is borrowed on or after April 1, 1999, and construction is not completed within three years from the end of the year in which capital is borrowed.

In addition to the above, principal repayment of the loan/capital borrowed is eligible for a deduction of up to Rs 1 lakh under Section 80C from assessment year 2006-07.

The maximum deduction permissible in a financial year for the original loan (if any) plus for any additional loans taken is Rs 1.5 lakhs. Hence, if a borrower's deductions on an existing loan are less than Rs 1.5 lakhs, he can claim further benefits from the additional loan taken, subject to an upper limit of Rs 1.5 lakhs for a financial year.

It is to be noted that the tax benefits under Section 24 and deduction under Section 80C of the Income Tax Act can be claimed only when the payment is made. If a person fails to make EMI payments, he cannot claim tax benefits for them.

Who is eligible for rebate?

According to the Income Tax Act, only the person who has taken the loan can claim tax rebates. A husband and wife, both of whom are taxpayers with independent income sources, can get tax deduction benefits, with respect to the same housing loan. In this case, the tax benefits can be shared to the extent of the amount of loan taken in their respective names. If it is proved that the home loan is simply an arrangement between the loan-seeker and the builder or with a third party for the purpose of claiming tax benefits, they will not be allowed and benefits previously claimed will be clubbed to the income and taxed accordingly.

Capital gains tax-

If a person buys a house and sells it within the same year/after three years, and if any profit is made, then a capital gains tax liability arises. For example, if X purchases a house for Rs 25 lakhs by taking a loan and he sells it in the same year for Rs 35 lakhs, he makes a profit of Rs 10 lakhs. On this profit, he will be liable to pay short-term capital gains tax since the sale took place in the same year.

But, if the sale had taken place after three years, a long-term capital gains tax liability would have arisen. The long-term capital gains will be exempt from tax if the profit amount (after factoring in the indexation benefits) is invested in capital gains tax saving bonds or in a house as specified under Section 54.

How to calculate HRA for Tax Exemption?

Most of us pay more tax by neglecting to know about House Rent Allowance(HRA) component in our payslip.

What is HRA?

HRA is house rent allowance offered by employers to all its employees. HRA is exempted from taxable income and hence reduces the tax paid by an employee.

How HRA is calculated?

The HRA calculated by the employer is the minimum of the following three amount.

1. Actual HRA given by the employer as mentioned in the payslip.

2. Acutal rent paid by employee minus(-) 10% of his/her basic salary

3. 50% of basic salary in metro cities(delhi,mumbai,chennai,calcutta) or 40% of basic salary in other cities.

Lets take an example.Ram lives in a house in Bangalore and pays a rent of 7,000. The HRA offered by his employee is 6000/month and his basic salary is 20,000/month. Let us calculate the three amount stated above

1. HRA offered = 6,000

2. Rent - 10% of basic = 7,000 - 10% of 20,000 = 5,000

3. 40% of basic salary = 40% of 20,000 = 8,000

Hence minimum of the three , 5,000 is taken as HRA and 12*5,000 = 60,000 is exempted from tax for the current financial year.

Note : You have to pay monthly rent receipts to your employer and you can not have short routes in stating wrong rents paid by you.