The National Pension Scheme has not been able to take off the ground in spite of its obvious advantage. While the government employees may have been covered, only in May 2009 the unorganized sectors was also included. The publicity has been virtually Nil to propagate it.

The finance minister has, in his budget, announced a truly innovative way of attracting lower-income unorganized workers into the NPS. Instead of spending money on something like an ad campaign that will not reach the intended audience, the government has decided to give what amounts to a joining gift to this category of potential savers. The government will basically give a gift of Rs 1,000 per year for three years. This scheme is open only to those who deposit less than Rs 12,000 per year and start their account in 2010-11.

This is an example of how to encourage people to save, an instance of paying direct subsidy. Since this is a pension system, the money is not available till it's usable as a pension on attaining retirement age. For a young person, this Rs 3,000 welcoming gift from the NPS would grow manifold till the time retirement comes. This can definitely act as an impetus for the NPS to succeed.

The Finance minister expects to pull in 10 lakh members into the NPS. That's an expense for the government of Rs 100 crore a year. It promises a good attraction for the unorganized sector people to join the NPS and would be money well spent. Of course, it may still turn out that the only people who will join the NPS voluntarily will be those who are part of this scheme. It really may not be possible to get people into a financial scheme without either intense marketing or a mandatory framework. NGOs could help the government by making the people aware of its advantage.

Senior citizens would do a great service by enouraging their servants and other members of poor unorganised sector to open an NPS account.

 

 

 

What is Section 80C

In order to encourage savings, the government gives tax breaks on certain financial products under Section 80C of the Income Tax Act. Investments made under such schemes are referred to as 80C investments. Under this section, you can invest a maximum of Rs l lakh and if you are in the highest tax bracket of 30%, you save a tax of Rs 30,000. The various investment options under this section include:

Provident Fund & Voluntary Provident Fund: Provident Fund is deducted directly from your salary by your employer. The deducted amount goes into a retirement account along with your employer's contribution. While employer's contribution is exempt from tax, your contribution (i.e., employee's contribution) is counted towards section 80C investments. You can also contribute additional amount through voluntary contributions (VPF). The current rate of interest is 8.5% per annum and interest earned is tax-free .

Public Provident Fund

An account can be opened with a nationalised bank or Post office. The current rate of interest is 8%, which is tax-free and the maturity period is 15 years. The minimum amount of contribution is Rs 500 and the maximum is Rs 70,000.

National Savings Certificate

These are 6-year small-savings instrument, where the rate of interest is 8% and is compounded half-yearly . The interest accrued every year is liable to tax but the interest is also deemed to be reinvested and thus eligible for section 80C deduction.

Equity-Linked Savings Scheme

Mutual funds offer you specially-created tax saving funds called ELSS. These schemes invest your money in equities and hence, return is not guaranteed. Money invested here is locked for a period of three years.

Life Insurance Premiums

Any amount that you pay towards life insurance premium for yourself, your spouse or your children can be included in section 80C deduction. If you are paying premium for more than one insurance policy, all the premiums can be included. Besides this, investments in unit-linked insurance plans (ULIPs) that offer life insurance with benefits of equity investments are also eligible for deduction under Section 80C.

Home Loan Principal Repayment

Your EMI consists of two components, namely principal and interest. The principal component of the EMI qualifies for deduction under Section 80C.

Stamp Duty and Registration Charges For Home

The amount you pay as stamp duty when you buy a house, and the amount you pay for the registration of the documents of the house can be claimed as deduction under section 80C. However, this can be done only in the year in the year of purchase of the house.

Five-Year Bank Dixed deposits

Tax-saving fixed deposits (FDs) of scheduled banks with a tenure of five years are also entitled for section 80C deduction.

Others

Apart from the above, things like children's education expenses that can be claimed as deductions under Section 80C. However, you need receipts to claim the same.
(Taken from Economic Times Spotlight 10 Feb 2010)

 

 

Quote PAN in TDS transactions or pay higher tax
21 Jan 2010, 0558 hrs IST, ET Bureau

NEW DELHI: Get ready to cough up higher tax upfront from the next fiscal in case you do not quote the Permanent Account Number (PAN) in transactions
subject to tax deduction at source.

“Tax at the higher prescribed rate or 20% will be deducted on all transactions liable to TDS where the PAN of the deductee is not available,” the finance ministry said in a statement on Wednesday.

The provision will have major implications for small contractors, small businesses, professionals and investors who earn interest from fixed deposits. The rate of TDS in these cases ranges from 1% to 10%.

The new provision related to tax deduction at source (TDS) under the Income Tax Act 1961 will become applicable with effect from April 1, 2010, it said. All assesses will have to quote their PAN in their correspondences, bills, vouchers and other documents sent to each other.

“All deductors are, therefore, advised to intimate their deductees to obtain and furnish their PAN so as to avoid TDS at a higher rate,” the statement said. The law will also apply to all non-residents in respect of payments or remittances liable to TDS.

“All deductees, including non-residents having transactions in India liable to TDS, are advised to obtain PAN by March 31, 2010 and communicate the same to their deductors before tax is actually deducted on transactions after that date,” the Ministry said.

Assesses who do not have PAN will also not get certificate from assessing officer about lower or no tax liability, the statement said.

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Judicious planning of assets not only secures the future, but also provides a good return on investment. Senior citizens should plan and select financial schemes way in advance to receive monetary benefits. These financial schemes and plans are offered by banks, fund houses and financial institutions. Proper planning of available income options leads to better management of expenses.

Financial planning allows you to achieve various goals such as buying a new car, paying for health expenses, going on foreign vacations and living a financially secure life after retirement. The process and various steps that lead to the proper management of finances are called financial planning.

You may have received money from your voluntary retirement scheme or saved up money over the years from salary and pension. There are many avenues where you can invest this money. This includes stocks, bonds, gold, real estate, Unit Trust of India, mutual funds, fixed deposits and post office schemes.

Apart from this, senior citizens may also go for tax-free bonds offered by the Reserve Bank of India. This scheme provides financial security to their lifelong savings. What’s more, the interest earned on these tax-free bonds provides a regular source of income.

However, selecting the right mix of schemes according to your needs for profit, liquidity and safety can be a daunting task. You may spend time reading up on different schemes available for information before choosing the most suitable one. This can take a lot of time and prove to be quite a hassle. You also have the option of hiring a financial planner.

A financial planner is someone who takes an overall view of your financial situation, your commitments and your family responsibilities and evolves the appropriate financial recommendations for you. These planners have exhaustive knowledge about the various financial instruments and tools available. They help you select a portfolio that is just right for you.

Financial planners are available at certain financial companies, banks, mutual fund offices and share brokers. Some planners receive commissions from third parties for selling you products that may be unsuitable to your needs. Always hire a reputed financial planner and read the fine print of recommended schemes carefully before signing on the dotted line.

Source: National Portal Content Management Team,

But before you opt for retirement, think twice. See if you have really planned to ensure that golden years would remain golden. How good is the idea of spending 50 years of retired life? Are you prepared, both financially and mentally? Instead, explore alternate careers at no fresh capital commitments. A busy bee always leads a healthy life.

Reverse mortgage is a financial option that senior citizen homeowners aged 60 and above can explore. Once all mortgages on their property have been paid off, they may borrow against the equity (or appreciation in value) of their home.

By availing of it, he would receive payment without getting displaced from his current residence. The option of selling his existing flat and moving to a different place is quite traumatic for most people - and especially for older people.

Unlike ordinary home loans (mortgages), a reverse mortgage does not require repayment as long as the borrower lives in the home. Lenders recover their principal, plus interest, when the home is sold. The remaining value of the home goes to the homeowner or to his or her survivors.

Payments may be received in a lump sum, on a monthly basis (for a fixed term or for as long as they live in the home), or on an occasional basis as a line of credit. Currently at least, this is a product that is ideal for a consumer who is asset-rich but liquidity-poor. In fact, there is no competing product in the market.

The reverse mortgage can be used by senior homeowners (say age 65) and older to convert the equity in their home into monthly streams of income and/or a line of credit to be repaid when they no longer occupy the home.

Against the security of their self-acquired, self-occupied houses, senior citizens can avail of a loan that will be released in monthly or quarterly installments or as a lump sum payment at the beginning based on their need.

The loan will be given jointly if the spouse is alive, provided he/she is above 58 years of age. The loan need not be repaid by the borrowers during their lifetime. They will also continue to stay in their houses during their lifetime.

Thereafter, an option is available to the legal heirs to repay the Bank loan and redeem the house property. If this option is not exercised, the bank will sell the property and liquidates the loan. Surplus, if any, will be passed on to the legal heirs.

Reverse mortgage loan will be launched on October 12 and will be available at all branches of SBI. The loan carries a fixed interest rate of 10.75 per cent per annum subject to reset at the end of every 5 years along with revaluation of security and re-adjustment of loan installments, if necessary.

For a loan of one lakh, the monthly payment to the borrower on a 10 year loan is Rs 468 and on a 15 year loan it would be Rs 225. Similarly for a loan of one lakh, the quarterly payment to the borrower on a 10 year loan is Rs 1,423/- and on a 15 year loan it would be Rs 687.

So far Deewan Housing Finance is the only company that offers reverse mortgage loans.

Tenure: Equal monthly payments as long as at least one borrower lives and continues to occupy the property as a principal residence.

Term: EMIs for a fixed period of months selected.

Line of credit: Unscheduled payments or instalments at times, and in amount of borrower's choosing until the line of credit is exhausted.

Modified tenure: Combination of line of credit with monthly payments for as long as the borrower remains in the home.

Modified term: Combination of line of credit with monthly payments for a fixed period of months selected by the borrower.

DHFL was the first to launch the Saksham scheme on reverse mortgage in September 2006.

The scheme is currently targeted towards urban customers. All bankers (including a couple of foreign banks) agree that it is a very difficult product to take to the Indian market. The main worry is the social stigma attached to borrowing ? an especially big issue in case of individuals aged 60 years and above.

Also, a chat with a senior citizen reveals that he would use the monies from reverse mortgage for a medical emergency, but would not be comfortable using it for say a luxury like a holiday.

Currently there are two types of schemes available - the monthly/quarterly payment scheme and the lumpsum scheme. Monthly scheme is the standard option. Lumpsum payment is conditional and is offered for medical treatment, loan prepayment etc.

Eligibility and requirements:

Individual:

Must be 60 years of age or older
Must own your property
Must occupy your property as primary residence
Property:

Single family home occupied by the borrower
Not more than say, 17 year old building
Clear, free title, NOC from society
The mortgage amount is based on:

Age of the youngest borrower.
Current interest rate.
Lesser of appraised value or the internal upper limit.
Financial:

No income or credit qualifications are required of the borrower.
No repayment as long as the property is the primary residence.
Closing costs may be financed in the mortgage.
What you need to know
Reverse mortgage is ideal for someone who is 70 years and above, living in a property worth at least Rs 30 lakh (Rs 3 million) and above. For senior citizens less than 70 years of age, the loan amount will not be attractive enough to justify mortgaging their property. The older a borrower, the larger the percentage of the home's value that can be borrowed.

The hallmarks of a good reverse mortgage product are flexibility, availability and simplicity of use. It should also give an easy exit clause and be subject to the banking Ombudsman's jurisdiction.

As a consumer you should be aware of the eligibility -- the property should not be more than 20 years old for availing reverse mortgage. It is better to avail of a joint liability scheme, though the amounts will be lower. Valuation for the property is done by the lending institution and is the basis for payment. This may differ from the perceived value of the property.

What should you be aware of as a consumer? You ought to look at the systems of the bank and its capability to handle this product, which will be a little complex to start with.

There are no asset or income limitations on borrowers receiving reverse mortgages. The only condition is that this money should not be invested in a business.

The company assesses the value of the property and lends about 30 per cent of the value to a customer in the age group of 60 years and about 60 per cent to those of 80 years and above.

Other Options
One option that some senior citizens could consider is going to quality retirement homes, and selling/ renting their property asset. However this also involves going to a new place and creating a new infrastructure for yourself - from a grocer, a maid, a cook, a doctor, a bank, a CA to filing your IT returns. Many people find this intimidating.