Concessions

UPDATED ON 10th JULY 2010

Topics Covered

NEW REVISED DRAFT of Direct Taxes Code.

Retirement Investment

GENERAL BUDGET

National Pension Scheme

What is Section 80C of IT Act (NEW)

Quoting of PAN

Reverse Mortgaging (Updated)

Special Concessions for Senior Citizens

LONG TERM CAPITAL GAINS ON PROPERTY SALE

 

The revised discussion paper on the Direct Tax Code

SUMMARY: The revised draft proposes complete tax exemption for Govt PF, Public PF and recognized PF as well as Pension scheme administered by Pension Regulatory Auth.
Retirement benefits will not be taxed irrespective of where it is invested. Taxable salary would be reduced to the extent of enhancement in monetary limits for medical facilities /reimbursements.
Rent from House property would be actual collection and up to Rs 1,50,000 would deductible but within the overall limit of Rs 3.00,000
Capital Gain from equity market whether short term or long term would be taxed at applicable.
for interest on housing loan.

The revised discussion paper on the Direct Tax Code (DTC) released by the CBDT has both good as well as bad news for the taxpayer.
First the good news; Public Provident Fund (PPF), other employee provident funds, New Pension Scheme and pure life insurance products and annuity schemes will not be subjected to the much dreaded EET system of taxation. Basically what this means is that your PPF and company provident fund will continue to remain tax-free as they are now. Also, EET would be applicable only prospectively i.e., the maturity proceeds of any investment made under the current EEE regime would remain tax-free.
In the case of house property, the original DTC bill had proposed to discontinue the Rs. 1.50 lakh interest deduction on housing loans for self occupied property. Also, rented properties were to be taxed on actual rent or a presumptive rent of 6% of ratable value whichever was higher. Where no ratable value was available, 6% was to be calculated on cost of acquisition. In a move that will bring cheer to all taxpayers, both these provisions are proposed to be dropped. In the case of house property, the original DTC bill had proposed to discontinue the Rs. 1.50 lakh interest deduction on housing loans for self occupied property. Also, rented properties were to be taxed on actual rent or a presumptive rent of 6% of ratable value whichever was higher. Where no ratable value was available, 6% was to be calculated on cost of acquisition. In a move that will bring cheer to all taxpayers, both these provisions are proposed to be dropped.
Now for the flip side. And the flip side is largely to do with tax on capital gains.
The revised discussion paper contains an innocuous but very significant modification in the way a capital asset is determined to be long-term or short-term. Currently, under the Income Tax Act (ITA), a long-term asset is one which is held for over three years. This period is reduced to one year in the case of financial assets such as equity shares and mutual funds.
The DTC proposes two major changes. Firstly, there is no distinction made between financial assets and other assets. Therefore, the period of holding would be uniform regardless of whether the asset is immovable property or gold or even equity shares. Secondly, for the asset to qualify to be long-term, it has to be necessarily sold anytime after one year from the end of the financial year (FY) in which it is acquired. For example, for an equity share purchased in say May 2011, for booking long-term capital gains, it needs to be sold after March 2013 and not May 2012.
This also means that the advantage of double indexation where mutual fund schemes were launched such that the actual holding period was marginally over one year but overlapped two financial years will be history. Secondly, currently, the holding period for all investors is uniform. Under the DTC, however, each case would be different. Someone who buys an equity share in say April would have to hold the share for approximately two years for it to qualify as a long-term asset. On the other hand, if the share is bought in say March, it would qualify as long-term upon the investor holding it for slightly over one year only.
the original DTC bill had proposed to impose extremely liberal tax slabs. For income between Rs. 1.6 lakh and as much as Rs. 10 lakh, the tax rate was just 10%. The 20% rate was applicable for the Rs. 10 lakh to Rs. 25 lakh slab and only those earning above Rs. 25 lakh were to pay 30%. This had indeed come as a pleasant surprise and exceeded, I am sure, every taxpayer’s expectation. But sadly, when something seems too good to be true, in all probability it is not. The revised Discussion Paper cryptically states that the indicative tax slabs and rates (as well as monetary limits for exemptions and deductions) proposed in the DTC will be decided while finalizing the legislation. Translated, this means that the liberal limits proposed originally are going to be significantly toned dow

 

 

 

RETIREMENT INVESTMENT


For any retirement portfolio, these are the first qualities to look for - compact, stable, inflation-shielded and easy to manage.
Safety and Regular Income
One of the safest avenues for regular income for those above 60 years is senior citizens savings scheme that offers 9 per cent per annum. You and your wife can, individually, invest a maximum of Rs 15 lakhs in your accounts, totaling to Rs 30 lakhs. On retirment, make this the primary source of fixed income.
The rest of the portfolio should be spread between mutual funds, emergency funds and other risk-free investments such as bank deposits. We suggest that you also keep a sufficient portion in savings bank account as emergency fund.
Shielding against Inflation
Inflation will mean that the net returns on your investments will come down. Going high on debt can put you in trouble. Your equity investments will earn more returns to help you fight the risk of negative net returns. Also, since the withdrawals from equity investments will be spread over many years, it will reduce the risk of cyclicality of equity returns.
Withdrawals from this investment can be used to fulfill the need for additional income and increased cost of living.
The total debt investments (bank deposits, provident funds, income fund and debt component of balanced funds) account for about two thirds of your total investments. This is not too high, but can still be reduced without compromising on stability. While bank deposits are secure investments, their returns and liquidity might be an area of concern. In your remaining working years, focus on reducing allocation to bank deposits and rebuilding your mutual funds portfolio.
Consolidating Mutual Funds Portfolio

Balanced Funds as Core
A breakup of balanced funds portfolio reveals about 70 per cent allocation to equities and the rest to fixed income, which is typically how a balanced fund behaves. The investment in fixed income cushions the fund from extreme market movements - their rise and fall will be less than an average pure equity fund.
Apart from stability, they offer you a peculiar tax advantage as well. All these funds are treated as equity funds and taxed accordingly. In effect, the 30 per cent fixed income component too becomes tax-free after one year, which otherwise a fixed income fund is not. As a result, the allocation to a fixed income fund in your portfolio will also come down.
Let's see how this can be done.
You can choose any 3 from those giving good return (see in moneycontrol.com). This will make the portfolio compact enough with adequate diversification.
When choosing the funds to retain, ensure that the consolidation exercise is tax-efficient as well. Firstly, you need to take care that the movement of the funds is the minimum so that securities transaction tax (STT) liability is minimum and secondly, redeem only from those funds that have completed one year as they will not attract any capital gains tax liability.
Income Fund
Some Income funds are also a good cushion in a falling market. A small part of the mutual funds portfolio, about 10 per cent should stay here as this will come handy in regular rebalancing.
Sector Funds and Stocks
Although your portfolio will still be complete without any sector fund, you may invest a part if you have a privileged understanding of a particular sector. Similarly, hold on to your stocks only if you have the time and understanding to research the companies. Ensure that your sector funds or stocks holdings do not cause an skewed allocation to a single stock or sector. It is also important to avoid acting on tips and flowing with the market momentum.
GENERAL BUDGET
BUDGET 2010, A MIXED BAG
The Union General Budget presented by Shri Pranav Mukherjee on 26 February 2010, while indicating a clear roadmap for all-inclusive growth in the future, was a mixed bag of concessions and price escalation of items generally used by the citizens. He announced substantial increases in allotments for Defence, Home, Education, Social Welfare, Health and Agriculture related activities. However he also conceded that the real success would only be possible with better governance and accountability.
Introduction of the new Direct Tax Code, GST and Company regulation by 2011 was also his aim. Another major objective was to extend the Rights of Information, Work and Education to Food Security. The listing of some of the PSUs had resulted in their market cap to grow over three times. He indicated an increased revenue through disinvestments in the coming year. Many concessions for the Farm and Infrastructure sectors were announced.
On the direct and indirect Tax front, he provided pleasant surprise in increasing the No tax limit to Rs 1,60,000 and only 10% tax there after up to 5 Lakhs. The next slab of 20% saw made applicable up to 8 Lakhs. Introduction of Saral 2 form for IT returns for salaried class was also announced. In the Indirect Tax portion the aim seemed to increase the burden on higher middle class and above. However the excise increase on Petrol and Diesel, even though by a small amount, is bound to impact the cost of all common user items. This naturally upset the opposition parties who, for the first time in the history of our Parliament, walked out during the Budget.
As regard the corporate sector, the increase in MAT is a sore point but maintaining the service tax at 10% is a positive factor. The stock market, after many years, gave a positive signal with Sensex rising by almost 400 points before settling down to a reasonable hike of about 170 points. The reduction in IT, deficit control and lower borrowing by government during the next year were the contributing reasons.
Overall it was a mixed bag of giving by one hand and taking back, probably much more, by the other. If growth of 8-9 % is achieved during the year, the money reaches in the hand of those for whom it is meant and not in the hands of middle men and corrupt officials, the agriculture production improves, the monsoon is normal, terrorism and Naxal attacks are controlled and global atmosphere remains generally conducive to growth, then this budget could turn out to be a success story.
NO NEW ANNOUNCEMENTS FOR SENIOR CITZENS.
IT exempt remains upto 2,40,000. Medical Insurance limit remains 20,000. Indirect benefits from general provisions would accrue.

 

Measure: New tax slab for senior citizens for Fin Yr 2010-11 ( Ass Yr 2011-12)
Taxable income (in Rs) Rate (%)
Up to 240,000 Nil
240,001 - 500,000 10
500,001 - 800,000 20
800,001 upwards 30

Measures and imapcts
Measure: Uniform, concessional 5% duty on all medical appliances
Impact: Cheers to good health

NATIONAL PENSION SCHEME

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.

 

RAILWAY BUDGET 2010

A summary of the proposals included in this year's Rail Budget are given below. (Also repeated on concessions and News page)
§ Special coaches to be designed for senior citizens and physically handicapped.
§ Ex-servicemen to be recruited in RPF. Also women RPF in women specific compartments.
· Special Bharat Tirtha trains. Those starting from Bhopal are 1) Bhopal-Dwarka-Somnath-Udaipur-Ajmer-Jodhpur-Jaipur-Mathura-Vrindavan-Amritsar-Jammu Tawi-Bhopal and 2) Bhopal-Tirupati-Kanchipuram-Rameshwaram-Madurai-Kanyakumari-Trivandrum-Cochin-Bhopal
· Extension of trains : MP relevant are 2187/2188 Mumbai CST-Jabalpur Express to Allahabad (Bi-weekly), 8425/8426 Puri-Raipur Express to Durg, 1704 Chirmiri-Damoh Passenger to Sagour and 1703A Damoh-Katni Passenger to Sagour
· Duronto trains : Indore-Mumbai AC (Bi-weekly)

· Taking note of inflationary trend in food prices, the Minister of Railways, Kumari Mamata Banerjee announced a reduction of Rs. 100 per wagon in freight charges for food-grains for domestic use and kerosene.

· As a mark of respect to the contribution of the Armed forces personnel in defending the borders of our country the Indian Railways will run special trains titled as 'Janmabhoomi' between Ahmadabad and Udhampur every week linking Jodhpur, Phalodi, Lalgarh, Biradhwal, Pilibanga, Mahajan, Suratgarh, Hanumangarh, Bhatinda, Faridkot, Firozpur, Jalandher, Chakki bank, Samba, Bari Brahman, Jammu-Tawi and Udhampur.
· Following gauge conversions works are proposed to be taken up: Chhindwara - Nainpur - Mandla Fort, Gwalior - Sheopurkalan with extension to Kota and Dholpur - Sirmutra with extension to Gangapur City,

· New line surveys: Guna-Aron-Sironj-Vasoda-Vidisha and Sagar-Chatarpur-Khajuraho-Bhopal

· New Trains : Ajmer-Indore Link Express (Daily), Habibganj-Jabalpur Intercity Express (Daily), Kolkata-Ajmer Express via Singrauli-Katni-Bhopal-Nagda-Ratlam (Weekly), Gwalior-Chhindwara Express (Bi-weekly), Puri-Valsad Express (Weekly) via Katni-Bhopal-Vadodara

· The railway proposed to enhance the concession to cancer patients upto 100% in 3 AC and Sleeper Class. Presenting the Railway Budget 2010-11 in Parliament, the Minister said at present Railways grant a concession of 75% in 3 AC and Sleeper Class to cancer patients going for treatment, together with an escort. Press Correspondents are currently given a concession of 50% for their travel along with spouse, once a year. It is now proposed to extend this concession to companion of those correspondents who do not have a spouse, and dependent children up to 18 years, once a year.

· To provide basic facility of clean drinking water, six new bottling plants at Ambala, Amethi, Mal, Nasik, Farakka and Trivandrum through the PPP route will be started with the mandate that bottled fresh water will be provided at stations at much cheaper rates.

· To introduce modern trolleys at all important railway stations that will be handled by uniformed attendants to assist senior citizens and women passengers in boarding and alighting from coaches, along with their luggage comfortably.

· E-ticket based mobile vans will be inducted for issuing reservation tickets in Government medical college hospitals, High Courts, District Courts, University campuses, IT hubs, IITs and IIMs. She said to give more facilities to the common people, Railways also propose to open ticket centres at district headquarters and village panchayats with infrastructure support from local Government/semi-Government authorities and private organizations.

· There will be no increase in the passenger fares of any class or category of trains. Freight tariffs will also remain the same for 2010-11. Service charges for e-tickets and freight charges for food-grains will be reduced.

 

 

 

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.

Financial Planning

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 MORTGAGING

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.

Life Long Reverse Mortgage Scheme:

Now, Central Bank of India & Star Union Dai-ichi Life Insurance Co. Ltd. have launched an Annuity Product called Cent Swabhiman Plus on 10-12-09, a Reverse Mortgage Loan Annuity (RMLA)- a unique & tailor-made product facilitating Senior Citizens to avail regular payments throughout life till both die, as against 15/20 years by other Schemes and that too with substantially higher payments than other Schemes. Rate of interest charged is 9.5(to be reset every 2 years) in place of 10.25 to 12% in other Schemes.60 to 75% of property value(to be revalued every 3 years) is considered for giving annuity, which can be taken at 25% as lump sum and remaining or full amount in monthly, quarterly, annually etc, as desired by borrower. The borrower should be of 60 & above and spouse 55 & above. Payment will be made by Insurance Company & not Central Bank. Keeping in view 2 schemes of repurchase of the mortgaged property by heirs, monthly payment per lakh works out to Rs. 396 or Rs 288 p.m. for property value of Rs 1 lakh. On death of the borrower, little higher payment is made to the surviving spouse. Payments made under this Annuity Scheme is taxable.

Submitted By (M.V.Ruparelia)
Ph:28123691 M:9821732855.

 

 

 

 

SPECIAL PROVISIONS FOR SENIOR CITIZENS:

 

For the benefit of senior citizens it has been proposed that-
  • The National Housing Bank will introduce a 'reverse mortgage' scheme under which a senior citizen who owns a house can avail of a monthly stream of income against mortgage of the house. The senior citizen remains the owner and occupies the house throughout his or her lifetime, without repayment or servicing of the loan. Regulations are to be put in place to allow creation of mortgage guarantee companies.
  • An exclusive health insurance scheme for senior citizens is to be offered by the National Insurance Company. Three other public sector insurance companies as mentioned in the Medical Insurance section, are to offer a similar product to senior citizens.
  • The Maintenance of Parents and Senior Citizens Bill (1.3 MB) (PDF file that opens in a new window) of 2007 - This bill has been recently introduced in Parliament. It provides for the maintenance of parents, establishment of old homes, provision of medical care and protection of life and property of senior citizens.

These new developments for senior citizens are meant to get them on the path to a better, peaceful and financially sound life



The Government has also provided certain concessions to senior citizens who have worked in the Armed Forces. Retired Defence Personnel enjoy special cost benefits in sectors such as travel, health, housing, reemployment and pension. Listed below are the various schemes applicable to them in the related field.

Travel Concessions

Travel concessions are available for road, rail as well as air travel. Indian Railways allows free travel in air conditioned (AC) II tier coaches of mail or express trains and AC III tier in Rajdhani trains for winners of gallantry awards such as Param Vir Chakra, Mahavir Chakra and Vir Chakra.

As far as war widows of defence personnel are concerned, they are allowed a concession of 75 per cent on the fare for travelling in second class. In planes, 75 per cent concession is available to retired defence personnel who are Level I or Level II gallantry award winners. The Indian provides a 50 per cent discount to retired defence officials who are gallantry awardees on airline tickets, as on March 31, 2007.

Medical Amenities

Benefits to retired defence personnel also include a range of medical facilities. Ex-servicemen and their families are allowed to go for in-patient and outpatient treatment at military hospitals at any time. The Ex-servicemen Contributory Health Scheme has helped them to a great extent. Non-pensioner ex-servicemen are provided financial assistance to meet medical expenses.

If military personnel are unable to avail medical treatment at military hospitals, they are provided around 75-90 per cent financial assistance from the Kendriya Sainik Board for the cost of treatment incurred at other hospitals as on March 31, 2007. This helps them to take care of their medical needs quite conveniently.

Tax Benefits

Income tax is a portion of your annual income that is paid to the government at the end of every financial year. This tax money is used to fund various developmental activities, build infrastructure and for defence purposes. The government provides various tax benefits and tax exemptions to certain categories of people such as sportspersons, women and senior citizens. This is done to encourage them to continue earning, investing and providing for themselves.

The government assigns special priority towards senior citizens by providing them tax benefits higher than that of general taxpayers.

Tax Exemption on Interest

Senior citizens enjoy additional benefits in terms of saving schemes and interest earned on them. Interest is levied on the amount of money deposited for a particular time period. The rate of interest varies for different durations and is liable to change from year to year. Most banks provide a higher rate of interest to senior citizens than the rate available to the general public. They usually ask for proof of age before opening up such an account.

Apart from these benefits, senior citizens also enjoy an annual interest rate of 9 per cent on deposits made by them in Senior Citizens Saving Scheme through Banks and post offices. For information about opening an Account contact the nearest branch in your area.

The Reserve Bank of India has permitted higher rates of interest on saving schemes of senior citizens. Accordingly, banks have allowed an added interest on fixed deposits for every term as on . Tax is deducted at source for interest on fixed deposits. This makes this form of investment a useful tax free form of income for older people.

Other than higher interest rates on deposits, senior citizens also enjoy exemptions on penalty rates for premature withdrawal of term deposits. Fixed deposits are sometimes withdrawn to tide over emergencies like sudden medical expenses and hospitalization. In this case, senior citizens are either exempted completely or charged a meagre percentage rate of their deposits.

For information about current interest rates and other details, one may like to visit the local bank in your vicinity.

Saving Instruments



This SCSS provides an interest rate of 9 per cent on their deposits. The Government has also been introducing other financial schemes and programmes for the benefit of retired defence personnel and their dependants.

SCSS are available through any post office that does savings bank work. There are also 24 nationalised banks and one private sector bank (ICICI Bank) through which senior citizens Saving Schemes are available.

New DA rates
Jul 06 2%
Jan 07 6%
Jul 07 9%
Jan 08 12%
Jul 08 16%
Jan 09 22%
Jul 09 27%
Jan 10 33%
Concessional Health Treatment for Senior Citizens
The Forum has arranged for providing free consultation and concessional treatment for senior citizens by making available the services of eminent specialists on specified days. Details can be seen on the Forum notice board. The following have graciously agrred to give their services.

Dr Yasikar - Diabetese specialist

Dr H H Trivedi - Physician and Cardialogy specialist

Dr Shankar Patidar - Orthoepaedic Specialist

Dr Nidhi Patel - Gynechologist

Dr Gurdeep Singh - Eye Surgeon
JOB PORTAL FOR SENIOR CITIZENS

CHENNAI: The old and the aspiring have reason to cheer. Dignity Foundation in partnership with ICICI Prudential Life Insurance has launched www.dignitysecondcareers.org, the first job portal in India meant exclusively for senior citizens.
The portal is a unique platform for the estimated 80 million senior citizens of India to find suitable opportunities. Speaking at the launch of the job portal in the city on Saturday, founder-president of the Foundation Sheilu Sreenivasan said, “All retirees in any part of India can access this portal for job opportunities.” She said the Foundation had already written to the CEOs and HR managers of several companies asking them to register with the job portal.
For senior citizens, a second career is usually meant for being meaningfully occupied rather than just making money. So, the job portal provides old persons with opportunities to volunteer for various social causes, Ms. Sheilu said.
Managing Director and Chief Executive Officer of ICICI Prudential Life Insurance Shikha Sharma said, “There are some jobs where experience and patience count. Who else can be a better candidate for these but senior citizens?”
At the launch, former Chairman of Murugappa Group M.V.Subbiah urged senior citizens to be active. “If you don’t use it, you lose it,” he said.


Special Concessions by Shops to Senior Citizens
The Bhopal centre of ECHS, the contributory health scheme of defence pensioners, has started operating from its newly constructed POLYCLINIC with all essential facilities, includine Dental surgery.
Government has announced that the TDS on Senior Citizens Saving Scheme would not be cut up to Rs 10, 000 (instead of Rs 5,000 now).


Important current financial clarifications

Are you involved in Trading of Shares?
10 don'ts for smart stock market investing

  1. Don't be arrogant
  2. Don't wait until you feel comfortable to buy when a sector reverses up
  3. Don't be afraid to buy strong stocks
  4. Don't sell a stock simply because it has gone up. Consider trimming the position and leave part on the table to continue in the uptrend. Let profits run.
  5. Don't buy stocks in extended sectors because 'it's different this time'
  6. Don't try to bottom fish a stock in a downtrend
  7. Don't buy a stock simply because it is a 'good value'
  8. Don't hold on to losing stocks and hope they come back
  9. Don't pursue perfection
  10. Don't do anything based on a magazine cover

(Taken from newsletters received)

CODE OF BANKS
Commitment to Customers
(Details in www.rbi.org.in)
  1. Code is prescribed to promote good and fair banking practices. It is applicable to all customer related financial transactions
  2. It calls for standard, basic minimum facilities, legally correct, ethical and secure and reliable service.
  3. It requires providing appropriate updates, quick response for information requests and complaints.
  4. Key features of all products and services are to be unambiguously defined.
  5. Changes in fee, charges and terms and conditions should be notified well before their application.
  6. This includes minimum balance, rates of interests, term deposits rules, accounts for minors, when the account becomes dormant or inoperative, closing of account, cheque clearance time and charges, standing instructions, stop payment facilities, settlement of dues of deceased accounts, Foreign Exchange services, loans, internet banking, credit card, ATM cards etc.
  7. All additional facilities to be offered only if the customer desires.
  8. Procedure for making a complaint are to be clearly informed, including period of response and name of authorities to be approached if the response is unsatisfactory.
INCOME TAX RULES
U/s 80C, 80CCE :

Introduced a new section 80C providing for income based deduction of an amount upto Rs.1,00,000/-. Under this section an individual or HUF will be allowed a deduction from income of an amount not exceeding one lakh rupees with respect to sums paid or deposited in the previous year out of income chargeable to tax in specified schemes. The eligible investments under the section include LIP, contribution to PF, schemes for deferred annuities, purchase of infrastructure bonds, payment of tuition fees, repayment of housing loan etc.
The assessee is free to invest in any one or more of the eligible instruments within the overall ceiling.

The new section 80CCE provides that aggregate amount of deductions u/s 80C, 80CCC and 80CCD shall not exceed Rs.1,00,000/-.

SENIOR CITIZENS SAVINGS SCHEME

Applicability: Persons above the age of 60 years. Persons between the AGE OF 55 AND 60 who have taken VRS or have retired from Government or PSUs.

Deposit Office: Any post office doing savings bank work. Banks that handle PPF deposits have also started providing this facility in their branches.

Amount: Multiple deposits can be made upto a total upper limit of 15 Lakhs. One deposit a month in the same PO is permitted. Deposits can be made in different POs provided the total of all deposits is below 15 Lakhs. Each deposit would be treated as a seperate deposit a/c. The deposits can be transfered from one PO to another, with some charge for deposits above 1 Lakh.

Mode of Deposit: Can be in cash upto 1 Lakh and cheques of any amount upto 15 Lakhs.

Holding and Nomination: This facility is available at the time of opening as well as later. The name can be changed. In the case of deposit in the sole name the nominee has to be the Spouse, if alive. In the case of joint deposit in the name of the holder and his/her spouse, the nominee has lien only after the death of both the holders. In the case of death of one of the holders, the surviving holder has the choice of continuing with the scheme.

Interest: The rate of interest is 9% pa. It would be paid quarterly on 31st March and so on. The first interest payment would be on the next available quarterly date. The interest has to be either taken in cash or automatically deposited in a PO savings a/c in the same names. No additional interest is payable on the interest amount if not encashed.

Travel Benefits By Train

When it comes to commuting by trains, the Indian Railways provides a flat 30 per cent rebate on fares in all classes of coaches of all trains. This includes Sleeper Class, First Class, Air Conditioned (AC) Chair and First Class AC in all trains including Shatabdi and Rajdhani Expresses. The minimum age defined for senior citizens for this particular rebate is 60 years.

The government has also created special booking counters for senior citizens to prevent extreme discomfort and health problems caused by standing in long queues. The line here is quite short and allows them to book a ticket in relative comfort. Senior citizens also have the option of booking tickets through the online reservation system (External website that opens in a new window) of Indian Railways. After a few days, the tickets are home delivered.

Apart from this, special coaches have been introduced for senior citizens who use a wheel chair. These coaches have provisions such as space for wheel chairs, handrails and a specially designed toilet. Special ramps for wheel-chaired seniors have been constructed at numerous railway stations, so that they don't have to face the discomfort of crossing the rail tracks or climbing up stairs. Wheel Chairs for the use of older persons are available at all junctions, District Headquarters and other important stations.

Travel Benefits By Air

Today, air travel is more common, easier and affordable than ever before. The Indian provides a rebate on normal economy class fare airline tickets for senior citizens (External website that opens in a new window) who have attained the age of 65. Other airline companies also offer similar rebates to senior citizens. These rebates allow the elderly to afford to travel the same way as they did while they were working.

Booking tickets is done through the particular airline’s website. Flight staff checks that first time flyers are aware of boarding procedures and have a comfortable flight. Senior citizens in wheelchairs are allowed to board the plane first. Moreover, blind senior citizens are escorted throughout their journey so that they don’t face any problem.

Air India (External website that opens in a new window) also provides discounts to senior citizens who are 60 years of age and over on all domestic flights and international flights to the United States and Europe (External website that opens in a new window). In order to avail these discounts and rebates, senior citizens have to show proof of their age at the time of booking.

Old Age Homes

Old age homes are meant for senior citizens who are unable to stay with their families or are destitute. States in India such as Delhi, Kerala, Maharashtra and West Bengal have developed good quality old age homes. These old age homes have special medical facilities for senior citizens such as mobile health care systems, ambulances, nurses and provision of well-balanced meals.

There are more than a thousand old age homes in India. Most of them offer free accommodation. Some homes work on a payment basis depending on the type and quality of services offered. Apart from food, shelter and medical amenities, old age homes also provide yoga classes to senior citizens. Old age homes also provide access to telephones and other forms of communication so that residents may keep in touch with their loved ones. Some old age homes have day care centres. These centres only take care of senior citizens during the day.

For older people who have nowhere to go and no one to support them, old age homes provide a safe haven. These homes also create a family like atmosphere among the residents. Senior citizens experience a sense of security and friendship when they share their joys and sorrows with each other. Here is a list of a few old age homes in India.

Policies/Schemes

Over the years, the government has launched various schemes and policies for older persons. These schemes and policies are meant to promote the health, well-being and independence of senior citizens around the country. Some of these programmes have been enumerated below.

The central government came out with the National Policy for Older Persons in 1999 to promote the health and welfare of senior citizens in India. This policy aims to encourage individuals to make provision for their own as well as their spouse’s old age. It also strives to encourage families to take care of their older family members. The policy enables and supports voluntary and non-governmental organizations to supplement the care provided by the family and provide care and protection to vulnerable elderly people. Health care, research, creation of awareness and training facilities to geriatric caregivers have also been enumerated under this policy. The main objective of this policy is to make older people fully independent citizens.

This policy has resulted in the launch of new schemes such as-

  1. Strengthening of primary health care system to enable it to meet the health care needs of older persons
  2. Training and orientation to medical and paramedical personnel in health care of the elderly.
  3. Promotion of the concept of healthy ageing.
  4. Assistance to societies for production and distribution of material on geriatric care.
  5. Provision of separate queues and reservation of beds for elderly patients in hospitals.
  6. Extended coverage under the Antyodaya Scheme with emphasis on provision of food at subsidized rates for the benefit of older persons especially the destitute and marginalized sections.

The Integrated Programme for Older Persons (External website that opens in a new window) is a scheme that provides financial assistance up to 90 per cent of the project cost to non-governmental organizations or NGOs as on March 31, 2007. This money is used to establish and maintain old age homes, day care centres, mobile Medicare units and to provide non-institutional services to older persons. The scheme also works towards other needs of older persons such as reinforcing and strengthening the family, generation of awareness on related issues and facilitating productive ageing.

Another programme of the government is the Scheme of Assistance to Panchayati Raj Institutions (External website that opens in a new window) voluntary organisations and self help groups for the construction of old age homes and multi service centres for older persons This scheme provides a one time construction grant.

Central Government Health Scheme (External website that opens in a new window) provides pensioners of central government offices the facility to obtain medicines for chronic ailments up to three months at a stretch. More details on Central Government Health Scheme.

The National Mental Health Programme (External website that opens in a new window) focuses on the needs of senior citizens who are affected with Alzheimer’s and other dementias, Parkinson’s disease, depression and psycho geriatric disorders.

New Schemes

Well, the journey towards financial security does not end here. The Central Government is in the process of developing newer plans and schemes to benefit senior citizens. In the 2007-08 Budget (External website that opens in a new window), the Finance Minister has proposed to provide monthly income to seniors and develop new health insurance schemes.

LONG TERM CAPITAL GAINS ON PROPERTY SALE

The Income Tax Act contains exemption provisions from long-term capital gains tax if the taxpayer were to invest in a residential house property. This provision has helped countless taxpayers to first own and thereafter move into bigger and better houses at the cost of the exchequer by saving income tax on their long term capital gains.

There are two sections in the IT Act that deal with the exemption - section 54 and section 54F. The first one deals with capital gain on sale of one house property and reinvestment of the capital gains of that property into another residential house property.

The second section deals with capital gains on any asset other than house property (for example gold) and investment of the net consideration (sale proceeds reduced by the direct expenses on the sale).

In other words, the second section demands investment of a larger amount into the property compared to the first one where only the capital gain is to be invested in the property. Let us understand these two sections with examples.

Mr A who had purchased his flat in 1990 for Rs 10 lakh (Rs 1 million) sold it for Rs 25 lakh (Rs 2.5 million) in 2005. He is required to invest only Rs 15 lakh (Rs 25 lakh less Rs 10 lakh) in another residential property under section 54.

Compare this with Mr B's situation who had purchased jewellery for Rs 10 lakh for his wife in the year 1990 and sold it in 2005 for Rs 25 lakh. Mr B is required to invest Rs 25 lakh under section 54F in another residential property in order to save tax on the identical amount of capital gain of Rs 15 lakh (Rs 1.5 million).

The time limit for investment in the other residential property is identical under both the sections:

For outright purchase of residential property it has to be within a period of one year before the sale or two years after the sale; or within a period of three years after the sale construct the residential house. The rationale behind the different time limits is that an outright purchase takes lesser time compared to building a house.

Needless to state is the fact that the reinvestment must be in a residential house property. By implication commercial property or vacant plot of land are not eligible. Similarly, short term capital gains enjoy no exemption. So if you sell your house within 36 months of purchase, you will not have any tax benefits.

If the long-term capital gain or the net consideration under the above two sections is not invested in the purchase of a new house within one year before the date of sale of the earlier house or other asset; or not utilised for purchase or construction of the new house before the due date of filing the return of income, this capital gain or net consideration is required to be deposited, before filing the return, in a separate deposit account.

The central government has designated nationalised banks like State Bank of India [Get Quote], Bank of India, Bank of Baroda [Get Quote] etc to open such a special deposit account. From these deposits the taxpayer is expected to issue cheques for the purchase or construction of the property. These deposits earn a nominal interest also.

There is one more aspect of section 54, which is a subject matter of some controversy with the Income tax Department. The controversy centres around the use of the word 'a' before residential house while referring to the reinvestment of the gain.

To illustrate: Mr A, having a large house, sells it for Rs 2 crore (Rs 20 million) making a capital gain of Rs 1 crore (Rs 10 million). Out of the capital gain of Rs 1 crore, Mr A purchases two flats each of Rs 50 lakh (Rs 5 million) on the seventh and eighth floors of a building within the time laid down by the law.

Strict interpretation of Section 54 leads to the view that Mr A will be entitled to exemption of only Rs 50 lakh being purchase of 'a' residential property on the seventh floor.

In other words, the purchase of the second residential property on eighth floor will not be eligible. He should have purchased one large flat on either seventh or eighth floor. This view of the Income tax Department has been recently upheld by the Income Tax Appellate Tribunal, Pune Bench. Coming to section 54F, the section permits investment of consideration in maximum two properties and not more

 

TDS would be deducted at Source unless form 15H is given in advance

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