COURT JUDGEMENTS TO QUOTE - Delays by builders

Courts and consumer commissions have ruled in favour of the buyer in many disputes with developers.Go through the list to figure out where your case fits in.It is easier to convince a court or commission if you can cite a precedence.

SUPREME COURT



1.Housing construction is a service under the Consumer Protection Act.

In 1993,the Supreme Court ruled in favour of MK Gupta in his case against the Lucknow Development Authority for not delivering his flat on time.This landmark judgement brought housing construction under the purview of the Consumer Protection Act,1986.The court observed: When a statutory authority develops land or allots a site,or constructs a house for the benefit of a common man,it is service by a builder or contractor... When possession of the property is not delivered within the stipulated period,the delay so caused is denial of service.Such disputes or claims are not with respect to the immovable property but deficiency in rendering of service of a particular standard,quality or grade A person who applies for allotment of a building site or for a flat constructed by the Development Authority or enters into an agreement with a builder or a contractor,is a potential user and the nature of construction is covered under the expression service of any description.

2.Interest has to be paid for delay.

In the Ghaziabad Development Authority vs Balbir Singh,2005 CTJ 124,the apex court,observed: Normally,a case of delivery of possession,though belatedly,stands on a different footing from non-delivery of possession because in case of delivery of possession,though belatedly,the allottee also enjoys the benefit of a plot/flat.Generally,in such a situation,the rate of interest should not exceed 12%.However,no hard and fast rules can be laid down.In a specific case,where it is found that the delay was culpable and there is no contributory negligence by the allottee resulting in harassment/injury,both mental and physical,the forum would not be precluded from making an award in excess of 12% interest per annum.

NATIONAL CONSUMER COMMISSION



1.Buyer is entitled to opt out of a project if there is a delay in delivery.

A buyer is entitled to opt out of a housing project if there is delay in delivery of possession of the house by the real estate developers,the commission has held.It has also said that the buyer is entitled to a refund of the entire money with reasonable interest and any deduction on the said amount is unjustified.The commission passed the order on a petition of an Agra resident,Indira Gupta,seeking the quashing of UP State Commissions direction to deduct 20% from the amount to be refunded to the complainant.

2.Buyer is entitled to withhold payment if the construction does not proceed with payment.

In the Ansal Housing vs Renu Mahendr case (revision petition 1218 of 2006),the commission has held: If company has not apprised the respondent about the status of the project,which was associated with payments,the respondent withholding the payment was not at fault.The company,while making these communications,had been insisting on the respondent to release the payment,and did not adhere to the terms of the allotment letter,letting the respondent know about the progress of the construction.

3.A buyer is not constrained by the agreement for a court of his choice.

In the Neha Singhal vs Unitech case (first appeal no.426 of 2010),the commission has held: To emphasise,the clause relating to jurisdiction of courts in the agreement between the parties cannot by itself over-ride the statutory right of the appellant / complainant conferred by the abovementioned provision of the Act.That would defeat the purpose and object of the Act.This view is also in accordance with the provisions of Section 28 of the Indian Contract Act,1872 (as amended with effect from 8th January 1997).

4.Bank should call for original papers before sanctioning the loan.

In the revision petition 753 of 2006: Jagmohan Lal Mohan vs ICICI Home Finance,NCDRC observed: The bank should have called the original papers before sanctioning the loan,but once the loan had been sanctioned,the queries raised by the respondent bank have become irrelevant.In the present case,we find that the petitioner has been unduly harassed.The loan,after having been sanctioned,was not disbursed,which forced the petitioner to approach another bank to get the loan and incur additional expenses.Accordingly,in order to compensate the petitioner,we direct the respondents to pay,in addition to what has been awarded,a sum of 30,000 by way of compensation for mental agony and harassment caused to him.

5.It is the banks job to satisfy itself about the borrower before taking over the loan from another bank.

In the HSBC Limited vs Sridhar Gajula case (revision petition no.1383 of 2009),the NCDRC observed: When the petitionerbank had got the loan sanctioned by another bank transferred in its favour,it must have satisfied itself that all the requisite documents and securities were intact.Therefore,to ask for any further document was only an excuse not to release the sanctioned loan amount.

How project delays can hurt taxpayers

The cancelled projects in Noida highlight the risks in real estate,but even delayed projects can lead to losses for taxpayers.

When Rajeev Bansal sold a house four years ago,he made huge capital gains of over 40 lakh.However,the 38-year-old Pune-based manager in an MNC claimed tax exemption under Section 54F by booking an apartment in a newly launched project on the outskirts of Pune.Under this Section of the Income Tax Act,there is no tax liability if the entire proceeds from the sale of a house are used to buy another residential property.
The new property can be bought up to one year before or two years after the sale of the house.In case the house is being constructed,there is a three-year window.The taxman is lenient because real estate is not something you can purchase over the counter.It takes time to identify a suitable property,arrange the funds and get the paperwork done.
In Bansals case,the property was to be handed over to him in June 2009,a year-and-a-half after the sale.I thought it was a comfortable margin of close to six months, he says.He was wrong.Buffetted by the slowdown of 2008 and the severe cash crunch that followed,the builder was not able to complete the project on schedule.The possession was handed over only this year.
The delay has landed Bansal in a quandary.He got a notice from the Income Tax Department,demanding a tax of 8.25 lakh for the 41.25 lakh capital gains he had made on the sale of the house.The department contends that merely booking a flat has not made Bansal 100% owner of the property and,therefore,he cannot claim exemption under Section 54F.I have been slapped with a huge tax liability because the builder was not able to finish the construction on time, he says.
There have been several such cases in the past where delays have led to tax notices.However,in most cases,the taxpayer has been allowed the exemption.If substantial construction work has been done and the entire proceeds from the sale have been invested in the new property,the assessee is deemed to have complied with the provisions of Section 54F, says Minal Agarwal,partner in Delhi-based firm Mahesh K Agarwal and Co.She points out that the taxpayer cannot be denied the exemption merely because the builder failed to hand over possession within the stipulated period.
Bansal has appealed against the tax demand and hopes that the tribunal will rule in his favour.However,he could have avoided this mess by investing in a ready-to-move-in property.If you are looking for the Section 54F exemption,buy a property that is ready for possession.Dont buy in a project that has just been launched and could take more than the window of 36 months to complete, advises Sudhir Kaushik,co-founder and CFO of Taxspanner.com.
It is always best to buy property from a reputed builder.If you buy in a project that gets scrapped after a legal row,you can be in serious tax trouble.At least Bansal can argue his case that the capital gains have been reinvested in residential property.
The other option is to invest in the capital gains bonds issued by government agencies.You can invest a minimum of 10,000 and a maximum of 50 lakh in these bonds in a financial year to save the capital gains tax under Section 54EC.However,this has to be done within six months of selling the property.

Before signing a contract with the developer...

... make sure to scan it for all costs,charges and penalties you are likely to incur and the final product you will receive.

When you buy property,you will be required to sign a legal contract with the real estate developer.This forms the basis of the agreement between you and the developer and outlines the rights and obligations of both the parties.
Given that most of these contracts are skewed in favour of the developer and you have very little bargaining power to change it,make sure that you read the contract carefully.Ask the developer for a sample contract much before you make the booking and check for the following:

PAYMENT:

Ensure that the contract you sign is with the same entity in whose name you are writing the cheques and giving the follow-on instalments.If not,then get a clear documentation trail to establish the relationship between these two entities.

EARNEST MONEY:

If the project is cancelled or the developer backs out due to some financial difficulty,find out how much of your earnest money will be refunded.Also check whether you will be entitled to any interest payment on the money that you have paid the developer.

ESCALATION COST:

Confirm that the cost of the apartment is escalation-free.This ensures that any increase in the cost of raw materials does not impact you and the costs are absorbed by the developer.

TRANSFER CHARGES:

Find out about the charges that will be levied if you transfer the property in someone elses name.Note that any change in name under which the booking is made,even if the transfer is to a family member,is treated as a transfer.

COMPENSATION AND PENALTY:

If there is a delay in construction,are you entitled to some compensation In case of delay in payment of instalments by you,what will be the rate of interest charged by the developer This can be as high as 18% per annum.Understand whether this penal interest will be on the outstanding amount or full instalment.

AMENITIES:

Check the amenities that are included in the project (club house,swimming pool,common rooms,tennis courts,etc).These should be clearly mentioned in the contract.

SUPER AREA:

The total area of the unit being bought should be clearly mentioned in the contract.Also understand whether this is super area or carpet area.Usually,its the super area that is mentioned in the contract.

CHANGES IN PLAN:

Be clear about the maximum deviation that is allowed in the super area.Sometimes the contractor or the architect make some last-minute changes to the floor plan during construction,which results in an adjustment in the final area you get in your apartment.Its common for contracts to specify a 10% deviation.In case the change is more than 10%,the buyer should have an option to back out of the project and claim a refund of the amount paid so far (with interest,if possible).In case of a reduction in the area,the excess amount paid to the builder should be refunded with interest.

FLOOR PLAN:

Ensure that you sign on the floor plan layout,specification details and payment schedule.The sections should be part of the contract as annexures.If possible,get the site plan layout signed as part of this legal contract.
Finally,it is your responsibility to know what you are signing.In case of a dispute,you will not be able to use the defence that you didnt read the contract and signed where you were asked to.

Did you miss the tax filing deadline? Not to worry

The last-minute rush of filing tax returns is over. Hounded by the 31 July deadline, most people manage to scrape through, filing their returns on time. Yet, there are some who, for one or the other reason, fail to do so. If you are among the latter and worried about breaching the law or facing a heavy penalty, don't press the panic button just yet. You can still file your returns and chances are you won't have to pay a penalty. "About 10% of the people end up filing their returns after the due date," says Mehul Sheth, a Mumbai-based chartered accountant.

Adds Sunil Talati, former president of the Institute of Chartered Accountants of India ( ICAI): "The return for income earned in the financial year ending on 31 March 2011 should ideally be filed by 31 July for non-business taxpayers. But if the taxpayer has missed the deadline in spite of having four months in hand, he can do so till 31 March 2013."

In such a case, the penalty to be levied would depend on the status of the tax to be paid.

 

If tax has been paid

If you have paid your taxes, there's little to worry because you can file the returns before 31 March 2012 without paying a penalty. "But if you push the new deadline and file the return only after 31 March 2012, the assessing officer may impose a penalty of Rs 5,000," says Sheth. This amount may depend on the discretion of the assessing officer.

 

If tax has not been paid

If you have not cleared the taxes, you will have to pay a penalty at the rate of 1% per month for the period after 31 July. If the tax due is more than Rs 10,000, you are supposed to pay an advance tax on your income in three tranches (see table). In such a case, the 1% penalty per month will be applicable from the period you have not paid the tranche.

If Form 16 has an error

 

If your employer has made an error in Form 16 and this has crept into your returns, it will have to be corrected. Says Talati: "In case a rectification is required, you should go ahead and file the return anyway. Subsequently, you can request your employer to correct the mistake, and after you receive the fresh Form 16, you can file the revised return."

Talati cautions against taking an initiative to file the return by using the correct information instead of the wrong one in Form 16. "You should not file the return using details that were missed out by the employer as the computerised system is such that if there is a mismatch, you won't get credit," he informs.

You can file the revised returns after you have convinced your employer and rectified the mistake."Don't delay filing your returns because of rectifications in Form 16 as there is a possibility that the assessing officer may not believe your claims," says Sheth.

 

If you don't have money to pay tax

For those who delayed filing the return because they could not afford to pay the heavy tax, borrowing and paying might be a good idea. "The rate of interest payable to the Income Tax Department is higher compared with the market rate. Besides, you should avoid being blacklisted as a late taxpayer," adds Talati. "Although the IT Department enforces similar norms for those who file their returns on time and those who delay these, it is likely to pick your returns for scrutiny if you are a habitual late filer to find out whether the delay is a bid to conceal income," says Talati.

While you have the option to file your tax returns after the due date, you must avoid doing so. This is because you could lose out on a major benefit. If you have suffered a capital loss in a particular year and want to set it off in another year, it needs to be carried forward. "However, you will not be able to claim this benefit if you have not filed the returns by 31 July," warns Sheth.

Medical Insurance – Premium increased after just one claim

Problem: Medical Insurance – Premium increased after just one claim

Solution: Premium should increase only on recurring claims and not on the possibility of recurring claims. Talk first to the insurer through letters. If no reply, contact insurance ombudsman. Decision of insurance ombudsman is binding

 

Detail

Q: I have a family floater policy since the last 6 years, renewable every 2 years, for 5 Lakh. Three years ago, I made a claim for my wife. At that time the premium was around 1200 per month for our 4 member family including me (52), wife (49) and two kids (15,9). In January 2010, when the renewal was due, the company increased the premium to around 2000 per month. I have not made any claim in the last two years. Will the premium reduce now?

Solution:

It is wrong on the part of the insurance company to load the premium after the first claim. Insurers generally load the premium if there are recurring claims and not if there is a possibility of recurring claims.

 

You should write to the insurer asking it to reduce your premium to the amount mentioned in its charts. In case you do not receive a reply, which I doubt you will, write another letter mentioning that you will take up the matter with the insurance ombudsman if the insurer does not correct the anomaly. Subsequently, you should take up the matter with the insurance ombudsman and lodge a complaint. Send all communication by registered address.

 

I feel the ombudsman will direct the insurer to reduce the premium. The ombudsman's decision is binding on the insurer.

You can exchange your property with another property owner

If you want a bigger house to accommodate your growing family, while your aging neighbours do not need all that space, you can actually exchange your property with your neighbours. In fact, exchange of property need not be in the neighbourhood alone, but in any part of the country.

 

What is exchange of property?

 

As per section 118 of the Transfer of Property Act, 1882, when two people mutually transfer the ownership of one immovable property for the ownership of another, without the involvement of sale through money, it is called an exchange.

 

How is it done?

Before getting into an agreement for exchange, both parties involved in the exchange need to frame a deed of exchange. This deed is very similar to a sale deed. Besides the normal details of a sale deed, an exchange deed also mentions the provisions of penalty against any fraud and the date of exchange. The exchange can be implemented by either one deed/document for both properties or by execution of two separate documents for the properties. However, the former practice of making a single document is more common.

 

How is the difference in price sorted out?

In general, no two properties can have the saame market rate. Therefore, the value of each property is mentioned in the deed of exchange at the time of signing. At the time of exchange, the owner of the property that has lower value pays the difference to the owner of the property with the hgiher market value. This difference is also mentioned in the document. However, there is room for negotiation in such deals too.

 

The final transfer

The deed of exchange is registered under the Indian Registration Act, 1908, after payment of the stamp duty on the transfer, as per the applicable rates. Once the deed is executed, the rights over the property and its title also gets transferred to the respective parties. The rights & liabilities of the parties in an exchange are the same as those of sellers and buyers of immovable properties.

 

Steer clear of frauds

It has been seen in the past that fraudulent deals are common in the exchange deeds. And perhaps that is why there is a provision for cases of fraud in exchange deeds. To safegaurd your interests, section 119 of the Transfer of Property Act, 1882 holds the person involved in the exchange or the person claiming to be the owner responsible for the loss that you may have suffered in the exchange. If you get into a fraudulent exchange deal, you have two remedies – either seek damages for the loss caused, or claim the return of the property transferred.

Do you know you pay these taxes?

Source: ET Wealth: 7 March 2011

 

Gift Tax:

If you receive a gift worth more than 50000 from a friend, you have to pay tax on it. The gift could be shares, jewellery, artifacts or even property. However, gifts received from specified relatives, through inheritance or on marriage, are not taxable.

 

Wealth Tax:

If your net income is more than 30L (covering cash, jewellery, cars, a second property), wealth tax - 1%

 

 

Make Investments DTC Compliant

Source: ET Wealth : 7 Mar 2011

 

Pension Funds

What's changed? - Annuity income to be exempt from tax

Your Strategy: - Invest in low-cost NPS but choose your fund manager carefully

 

Public Providend Fund

What's changed? - Nothing

Your Strategy: - Continue investing in this tax-free haven as per your allocation of debt.

 

Fixed Deposits, Bonds

What's changed? - Nothing. Interest to be taxed at normal rates

Your Strategy: - Build a ladder of fixed deposits of different maturities

 

Real Estate

What's changed? - Deduction for interest to continue but not for principal. No more tax on notional rent.

Your Strategy: - Big EMI payers have to save more. A second house may be a good option now.

 

Equities and Equities-Oriented Funds

What's changed? - No change for long-term gains. Short term gains to be taxed at lower rate.

Your Strategy: - Continue investing as per your asset allocation. Use SIPs to counter volatility.

 

Life Insurance (Including ULIPS)

What's changed? - Deduction lowered to Rs. 50000 a year

Your Strategy: - Buy term plans for life insurance. If buying a ULIP or traditional plan, go for long terms to be eligible for tax breaks.

 

Debt Funds & Other Non-Equity Schemes

What's changed? - Long-term gains to be taxed as income just like income from fixed deposits. Indexation rules also changed

Your Strategy: - Go for arbitrage funds that are treated as equity funds. Buy before the financial year ends to gain from indexation.

 

Get ready for the DTC

Source: ET Wealth - 7 Mar 2011

 

Insurance: Stiff Conditions:

·         Under DTC, a policy should give a life cover of at least 20 times the annual premium to be eligible for tax deduction. If this condition is not met, not only will you not get any tax deduction on the premium but even the income from the policy will be taxable.

·         Right now, income from insurance is tax free. The tax deduction limit for life insurance itself will get reduced from the present 1 lakh a year to only 50,000 a year. Besides, this annual limit of 50,000 would include the amount paid for tuition fees of children as well as medical insurance. So, an insurance policy with a very large premium will get deduction of only up to 50,000.

·         In Ulips, that might mean a higher amount being deducted as mortality charge for providing the life cover, but this is necessary if you want tax deduction. The DTC will also nudge policyholders to take a long-term view of their investments. Premature withdrawals from Ulips will be taxed. Don't believe the agent when he tells you that surrender charges have been capped and you can withdraw after 5 years without paying a penny.

 

Real Estate: Mixed Bag

·         The principal repayment of your home loan will not be eligible for tax deduction under the DTC.

·         There is a removal of tax on notional rent. Right now, people who own more than one house have to pay tax on notional rental income even if the second house is lying vacant. Paying tax on your earnings is bad enough, but having to pay tax on the income you haven't received is worse. The DTC will end this anomaly and make investments in second homes more tax efficient.

·         Another landlord friendly move is that advance rent received from a tenant will be taxed in the year to which it relates, not when it was received. In some cities, landlords take up to 6-12 months rent in advance. Similarly, by retaining the tax benefits on the interest paid on a home loan the DTC has cushioned the impact of high interest rates. The tax benefits reduce the effective cost of the loan.

Break Free from Bad Insurance

Source: ET Wealth: 14 March 2011

 

1. Let the policy lapse.

 

Let the policy lapse Don't pay the premium and the policy ends automatically. It is also the costliest if the policy has not completed three years. The premium paid in the first two years is forfeited and the policy ends. You also stand to lose the tax benefits availed of in the first two years on the premium payment. You get nothing, except freedom from the policy.

The rule is different for Ulips. Even if it is discontinued after the first year, the policyholder is entitled to some amount after paying surrender charges. However, this sum comes to him only after the lock-in period of five years (three years, if bought before 1 September 2010). The fund value, after imposing all charges and penalties, is frozen in the account and earns 3.5% returns till this period.

2. Surrender the policy

 

the policyholder can get some money back. It will, however, be a fraction of what he has paid over three years because of the surrender charges levied by the insurer. In the third year, the surrender value is roughly 30% of the total premium paid, but this figure goes down as the term of the policy progresses. This is `3,000 or 20% of the annual premium in the first year. For plans with a premium of over `25,000, the cap is higher at `6,000 or 6% of the annual premium. The surrender charges come down progressively to zero in the fifth year

 

3. Turn it into a paid up policy

 

Stop paying the premiums, but don't discontinue the policy. A better alternative to surrendering your insurance policy and losing the life cover is to turn it into a paid-up policy. As in the case of surrendering it, you can use this option only if you have paid the premium for three years and the policy has built up a minimum corpus. Instead of returning the money to the investor, the insurance company uses it to offer him a life cover. Every year, it deducts mortality charges from the corpus.

On maturity of the plan, the diminished corpus and the accumulated bonus are given to the investor. This feature has been widely exploited by agents to mis-sell Ulips to gullible investors. Last year, the Irda issued new rules for Ulips. If the premium of a plan bought after 1 September 2010 is stopped, the policy will be discontinued.

This is meant to reduce the incidence of mis-selling. The paid-up option is by far the best way to exit an insurance policy because it gives the policyholder the best of both worlds. He is freed from the burden of paying the premium that are a drag on his finances, but continues to enjoy the life insurance cover that was the primary objective of the plan

 

4. Let it continue

How to know If you have the wrong insurance

Source: ET Wealth: 14 March 2011

 

1. Low Cover

A policy should give you a life cover of at least 40 times the annual premium. If it does not, you are paying too much for the cover

 

2. High Premium

You need a cover of at least 5 times your annual income. The premium for this cover should not account for more than 6-8% of your annual income.

 

3. Tenure

Insurance should cover a person for his entire working life.

 

4. Return Projections:

An endowment policy appears attractive because of the projected corpus on the maturity of the plan. But one must factor inflation into the calculation. In 25 years, a moderate 5% inflation will reduce the value of 20Lakh to a mere 5.5 lakh.

Viewing DP accounts on CDSL & NSDL

It is possible to view your account status (shares / mutual funds) etc on NSDL & CDSL.

 

ICICI (my Depository Participant-DP) has opened a demat account for me in NSDL. So, all my shares come to NDSL

 

Process of trade:

* I have a trading account with ICICIdirect & a demat account with NSDL. ICICI apparently has its demat accounts on NSDL

* I place a trade in icicidirect. The money is taken from the account and cleared by the clearing corporation.

* The shares then come to the broker account.

* ICICI then transfers the shares to my demat account from the broker account.

 

I can see my holding on NSDL through a concept called IDEAS. I have to register with NSDL for that and submit the registration form to the DP. I will then get a user name and password. The flip side is that if that happens, then the DP will not send periodic statements to you the way he does nowadays. One can also trade directly through NSDL through a concept called e-Speed. Here too, a registration form has to be filled in and submitted to the DP to get a username & password

 

Anand Rathi has its DP account with CDSL. This comes into play for my NSEL (National Spot Exchange Ltd) transactions in e-Gold & e-Silver. The procedure of getting user name & password in CDSL is similar. I have to fill up a registration form and submit it to Anand Rathi and then, subsequently I can view my holdings directly on CDSL.

 

 

Not filed last year's tax return?

Source: ET Wealth: 14 Feb 2011If all taxes are paid and there is no penalty for late filing, why is there such a big rush to file tax returns by 31 July? This is because taxpayers who file belated returns forego some of their rights if they wake up late. For instance, you cannot carry forward losses for adjusting against future gains if you file late. This is especially useful if you have incurred short-term capital losses from investments in stocks. These can be carried forward and set off against short-term or long-term capital gains made in subsequent years. Under current laws, such losses can be carried forward for up to eight years. The Direct Taxes Code had originally proposed that losses be allowed to carry forward indefinitely. However, it has now reverted to the 8-year limit.

Monthly Income Plans

Source: ET Wealth: 14Feb2011: Six Smart Things to Know

 

Monthly Income Plans

 

1) MIPs are schemes created by mutual funds that seek to generate regular income. There is no guaranteed rate of return.
2) MIPs invest primarily in debt instruments, but hold a small portion in equity (between 5 and 35%), to enable growth in investments.
3) Investors can choose from growth and dividend options in an MIP, depending on their need and tax status.
4) Investors choosing a growth option can redeem a part of their units regularly using a systematic withdrawal plan to generate regular income.
5) Withdrawals are subject to capital gains tax, but an investor who falls in the tax-free or low-tax category, can use it to reduce his tax outgo.
6) The dividend distributed by an MIP is tax-free in the hands of the investor, but is given after a dividend distribution tax has been paid directly by fund

 

10 investing thumb rules

Source: ET wealth: 14 feb 2011

 

Rule of 72: This tells you in how much time your money will double. Divide 72 by the interest rate you are compounding your money with and you will arrive at the number of years it will take to double in value.
If the interest rate is 9%, then your money will double in:
(72/9=8) 8 years

Rule of 114: Use this to estimate how long it will take to triple your money. It works the same way as the rule of 72.
Divide 114 by the interest rate to know in how many years Rs 10,000 will become Rs 30,000.

Rule of 144: Similarly, this tells you in how much time your investment will quadruple in value.
For instance, if the interest rate is 12%, Rs 10,000 becomes Rs 40,000 in 12 years

Rule of 70: This is a useful rule for predicting your future buying power. Divide 70 by the current inflation to know how fast the value of your investment will get reduced to half its present value.
This is especially useful for retirement planning, as it affects the way you set up your monthly withdrawals. However, do remember that inflation varies from time to time.
Inflation of 7% will reduce the value of your money to half in
(70/7 = 10) 10 years

The 10, 5, 3 Rule: This is a neat little rule that states that you can expect returns of 10% from equities, 5% from bonds and 3% on liquid cash and cash-like accounts.

Pay yourself first rule: Right from your first salary, put away a little for your retirement. Experts say 10% of your income should go into this. It is important to increase the amount as your income rises over the years. If every month you invest Rs 5,000 in a plan that grows 8.5% annually and increase your investment by 10% every year, after 30 years, you will have Rs 2.5 crore.

100 minus your age rule: This rule is used for asset allocation. Subtract your age from 100 to find out how much of your portfolio should be allocated to equities.

The emergency fund rule: Put away at least 3-6 months' worth of expenses in a liquid savings account to ensure it is available at a short notice.

4% withdrawal rule: How much should I withdraw during retirement? We often use the 4% rule to protect the principle and determine how much one can take from the retirement savings.
If every month you withdraw, Rs 50,000, you need a corpus of Rs 1 crore to sustain monthly withdrawals for the next 25 years if the corpus earns 9% and inflation is 6%.

Investment: L& T and infra stocks

Source: ET Wealth: 31Jan2011: Good time to buy infra stocks, not funds

Get the best deal for used wheels

Source: ET-Wealth-24Jan2011: Get the best deal for used wheels

Aakash Salgaonkar owned two hatchbacks, but still longed for a sedan. A budget of Rs 5 lakh was not helping till he stumbled on a steal: A three-year-old black Chevrolet Optra that had run 28,940 km for Rs 3 lakh. A new model would have cost Rs 8 lakh. Salgaonkar bought the car for Rs 2.7 lakh in early 2010. A year later, the finance executive from Mumbai is still smiling. “With second-hand cars, you can get a model in good condition for sometimes half the price,” says Sandeep Kapoor of Relioquick India , which organises automobile shows. Used cars are perennial suspects for performance, mileage and maintenance costs. But these factors pale before cheap prices. Say, you want a sedan. A new Honda City in Mumbai costs more than Rs 10 lakh. You could get a used model for half that price if you can live with its two-year-old tag. A year-old hatchback could be cheaper by up to Rs 1.5 lakh. The prices vary across cities. Used wheels are an answer to people against loans or accumulating finances. Still, buyers are intimidated by the prospect of future costs. Even if a car costs 50% of its original price, there are doubts on fuel and maintenance expenses. This leads to what is called the ‘lemon and cherry’ problem. This theory discovered by economist George Akelorf is characteristic of the second-hand car market. A buyer usually assumes that what is being passed is a lemon (bad car) and refuses the right price. A seller who is refused the right price even for a cherry (good car) will not part with it. So well-maintained used cars are hard to find.

A buying guide

A car that rolls out of a showroom is considered used. The price wanes as kilometers multiply. Used cars are up to 70% cheaper. Experts say owners these days ditch vehicles after 2-3 years. It could be as early as three months. The chances of getting a relatively new car have risen as a result. Age should not be the only decisive factor. “The parameters that determine the price are its condition, features, ownership and demand,” says Jagdish Khattar of Carnation Auto. Bargaining is fine, but look for the not-so-obvious signs. For instance, dealers say if the paint is fresh, it could be an attempt to mask an accident. Enquire about the ownership and history of a car. To check if a vehicle is worthy of purchase, experts advise on a correlation between the distance run and the years a customer plans to retain it. Banwari Lal Sharma of Carwale, an online portal for cars, says a car must not have run beyond 50,000 kms if a customer is looking to own it for 3-5 years. If the expected ownership is 1-2 years, 60,000-70,000 kms is alright, he says. Sharma is against buying a car beyond 1 lakh km unless you are an expert. Test drive a car accompanied by a mechanic. And drive it on all terrains. Check for its history on defects. Before possession, one should obtain the following documents: RC book, insurance copy, tax receipts, warranty documents, service and maintenance records and a set of car sale documents available with RTO agents and signed by the seller

Where to buy?

The usual stop for a used car is the neighbourhood mechanic. Carmakers such as Maruti Suzuki, Tata Motors and General Motors too have launched pre-owned cars. These companies buy back and renovate models. Dealers charge a commission of up to 2% from buyers and sellers. To check prices, turn to portals such as carwale and gaadi. Dealers often name a price, but they do not offer the best price as they eventually look to sell. It is better to sell to an individual through a dealer. Such deals can return up to 25% more. Abdul Majeed of Pricewaterhouse Coopers recommends reputed dealers. “They do the first level screening,” he says. A mechanic’s price could be up to Rs 25,000 cheaper than a dealer but the amount may not cover servicing and repair charges. The advantage with big garages is that the car will be serviced. Company showrooms can be more expensive by nearly 15% but could be value for money. The car is likely to be in good condition. There is warranty and free service of up to 3 times.

The right price

Used cars are cheaper but securing the right price based on performance and age can be tricky. “You should ideally not pay more than 50% of the original value if the car is 3-4 years old. This 50% should include the 5-10% that you may need on renovation,” says Majeed.

Things to look out for in a used car

Bonnet: Check if the vehicle has been painted fresh.

Engine: A well-maintained engine would not produce unusual noise.
Documents: Check if engine no. and chasis number are matching with the numbers in the registration papers.

Odometer: Do the math on the reading and year of manufacture. A 3-5 year old car that has travelled 14,000 to 18,000 km a year is a good buy.

Leaks: After a test-drive, park the car on clean ground and look for oil leaks from engine or gearbox.

Brakes: Apply brakes at the speed of 30-50 km to check that the car stops in a straight line.

Tyre: Look for wear and tear and also the alignment. If tyres are not in good condition, there is a chance of bargaining for up to Rs 1,000.

Exhaust: Blue smoke during start indicates engine trouble. It means the engine consumes too much fuel, a possible problem with fuel injection.

Tax: Long Term Cap Gains: Sale of Plot

Source: ET-Wealth-24Jan2011: Q&A   Q: I want to know the treatment of long-term capital gains on the sale of a residential plot that I sold recently . I intend to reinvest the proceeds in purchasing another residential plot in two years. Should I declare the capital gain in my tax returns for 2011-12 and show the exemption? Can I invest the sale proceeds in any other investment vehicle till I purchase the plot? Yes, you will have to reflect the long-term capital gains arising from the sale of plot in your I-T returns for 2011-12 . There is no tax benefit if the sale proceeds are reinvested in another plot. To claim exemption under section 54F, you have to invest the sale proceeds in a residential house. You can purchase a residential house within two years from the date of sale of the plot or a year before the date of sale of plot. You cannot claim exemption if you own more than one residential house at the time of the sale. In case you could not complete the reinvestment in the new house within the due date for filing of your I-T returns, you should park the sale proceeds in a capital-gain-savings account which can be opened in any nationalised bank

Tax: TDS on interest from bank deposits

Source: ET-Wealth-24Jan2011: Smart Things to Know: TDS on Interest from Bank Deposits   1.    Interest earned on bank deposits is subject to tax deducted at source (TDS) if the total interest amount in a financial year exceeds Rs 10,000. 2.    Interest earned on term deposits is subject to TDS. However, interest earned on savings account balances is not subjected to TDS. 3.    Even if a customer has multiple deposits, the interest earned will be aggregated and subjected to TDS if the threshold level is crossed. 4.    TDS is applicable on the entire interest income if it is more than Rs 10,000 in a financial year, and not on the extent to which the interest income exceeds Rs 10,000  5.    TDS is deducted at a rate of 10% for all categories of depositors except non-resident ordinary accounts where the applicable rate is 30.9% (inclusive of a 3% education cess) 6.    It is compulsory to register the PAN. If a term deposit accrues interest and the PAN is not known, TDS will be deducted by the bank at a higher rate of 20%

Tax: Infra bonds

Source: ET Wealth: 24Jan11: How much tax do infra bonds really save?

By investing in these products, taxpayers can claim a deduction of up to Rs 20,000 under Section 80CCF. This is above the Rs 1 lakh invested under Section 80C. While you save tax, your real returns may not be as high or precise as those being projected by some brokers. So before you rush to invest in the issue, here are a few points to ponder.


Remember buyback dates: Both issues offer a buyback option to investors after the five-year lock in. It is best to exit at the first opportunity and reinvest the proceeds in other, more lucrative options. If you miss the window that opens for a specified period, the company may not buy your bonds. However, you can still sell them. The bonds will be listed on major exchanges and you can sell them like any other security in the secondary debt market. Keep in mind that it is not easy for retail investors to find buyers in the secondary bond market.

Tax: Disabilities can be tax savers

Disabilities can be tax savers There are other signs to suggest that the taxman is not the heartless Scrooge he is often made out to be. If a taxpayer suffers from a disability, he can claim deduction of Rs 75,000 under Sec 80U. If he has a disabled dependent, he can claim the deduction under Sec 80DD. Disability includes blindness, low vision, leprosy, hearing impairment, loco-motor disability, mental retardation and mental illness and deduction is available only if the impairment is at least 40%. If the disability is severe (80% or above), the deduction is Rs 1 lakh a year. The dependant could include the taxpayer's spouse, children, parents and even siblings. Incidentally, the deduction is offered as a lump sum and does not depend on the actual amount that the taxpayer may spend on himself or on the disabled dependent. However, the disabled person should be wholly or mainly dependent on the taxpayer for maintenance, and should not have claimed deduction for the disability under Section 80U separately. How much tax can you save: A deduction of Rs 75,000 can cut tax by Rs 23,175 in the highest tax bracket. In case of severe disability, the tax is lower by Rs 30,900. Proof required: A certificate of disability from a civil surgeon or the chief medical officer of a government hospital.

Tax: Unlimited deduction for your second home loan

Source: ET-Wealth-3Jan2011: 8 Tax Saving Secrets   Take unlimited deduction for your second home loan When it comes to buying a second house, the taxman can be very encouraging. Under Section 24b, one can claim deduction of up to Rs 1.5 lakh a lakh for interest paid on a home loan. But if the taxpayer buys a second house through another home loan and gives it on rent, the entire interest paid on the home loan during a given year can be claimed as a deduction. As Savla says, "If you have more than one house, any one is deemed to be rented out. So the interest income on the home loan for that house can be claimed entirely for deduction, provided the rental income or a deemed income is charged to tax." How much tax can you save: If you have taken a home loan of Rs 50 lakh at 9.5% for 20 years, your interest payment in the first year will be Rs 4.7 lakh and you can save tax up to Rs 1.09 lakh. Proof required: Loan account statement from your lender

Tax: Claim HRA as well as home loan benefits

Source: ET-Wealth-3Jan2011: 8 Tax Saving Secrets   Claim HRA as well as home loan benefits But you can claim both house rent allowance (HRA) exemption as well as the tax benefits on the interest paid on a home loan. Many organizations do not allow employees to claim both benefits. Their logic is that HRA is exempt if you are paying rent and home loan benefits apply only for a self-occupied house. You can't be doing both at the same time. But this is a gray area in the Income Tax Act. "In legal terms, silence signifies approval. In other words, the Act need not expressly allow something. The lack of express disallowance also signifies intention of approval," says Shanbhag. So given this, HRA and interest on home loan are two separate provisions and claiming one of them as a deduction does not influence the other. As Shanbhag puts it, "The taxpayer may own any number of flats, either in the same city that he works in or anywhere else in the whole of India or for that matter abroad, but that in no way influences the HRA deduction that he is entitled to." There are many such examples in the tax laws. Let's take for instance, Section 80C (PPF, NSC, ELSS etc.) and Section 80D (medical insurance premium). "Everyone will agree that both Section 80C and Section 80D can be separately claimed. But does it expressly say so anywhere?" asks Shanbhag. How much tax can you save: In the highest tax bracket, a deduction for Rs 1.5 lakh will bring down your tax by Rs 46,350. Proof required: Loan account statement from your lender

Tax: Cut tax by investing in fiance's name

Source: ET Wealth – Dec 27, 2010 : How to cut tax by investing in spouse's name   If a couple is engaged, and the girl does not have any taxable income or pays tax at a lower rate, her fiancé can transfer money to her. The income from those assets won't be included in his income because the transaction took place before they got married. One can give up to Rs 1.9 lakh (the tax exempt limit for women) without putting any tax liability on the girl.

Tax: Cut tax by investing in child's name

Source: ET Wealth – Dec 27, 2010 : How to cut tax by investing in spouse's name   ·         If investments are made in the name of minor children (below 18 years), the income earned from such investments is clubbed with that of the parent who earns more. ·         Earlier, you could avoid this tax by investing in a long-term deposit which would mature when your child turned 18. But this rule changed a few years ago. Now, the interest earned on fixed deposits and bonds is taxed every year even though the investor gets it on maturity. So, opening fixed deposits in the name of minors makes little sense any more. ·         Open a PPF account in the name of the child because, as mentioned earlier. However, the contribution to your own PPF account and that of the child cannot exceed the overall limit of Rs 70,000 a year.

Tax: Cut tax by investing in spouse’s name

Source: ET Wealth – Dec 27, 2010 : How to cut tax by investing in spouse's name
Spouse:
* Can give gift to spouse. No gift tax.
-> If spouse invests gift and earns income, Section 64 of the Income tax Act says that income derived from money gifted to a spouse will be treated as the income of the giver. It will be clubbed with his (or her) income for the year and taxed accordingly.
-> E.g.: If you buy a house in your wife's name but she has not monetarily contributed in the purchase, then the rental income from that house would be treated as your income and taxed at the applicable rate.
-> E.g: If you give money to your wife as a gift and she puts it in a fixed deposit, the interest would be taxed as your income.
-> E.G: If you gift money to his mother-in-law, a transaction that has no gift tax implications. Then a few days later, the lady gifts the money to her daughter, which again does not have any tax implications. The money can then be invested without attracting clubbing provisions, right? Wrong. The tax man will put two and two together and can still catch you.
* You buy a house in your wife's name.
-> You loan her the money in exchange, for jewellery that she gives you for the same amount. In this case, the rental income from the house would not be taxable to you. E.g: if you transfer a house worth Rs 10 lakh to your wife and she transfers her jewellery for the same amount in your favour,
* Invest in ppf in the name of your spouse.
-> There is no tax on income from the Public Provident Fund
* Invest in shares & mutual funds in spouse’s name
-> There is also no tax on gains from shares and equity mutual funds if held for more than a year. So, if one invests in these options in the name of the spouse, there is no additional tax liability.
* Gift gold jewellery to wife.
-> Gold does not generate any income. Besides, in the past few years the appreciation on gold has been higher than the returns offered by fixed deposits.
* If a wife saves a little out of the money given to her for household expenses, that money is her own. If it is invested, the gains will not be clubbed with the income of the husband.

Tax: Single Premium Several Catches

Source: ET Wealth Dec 27, 2010

Points to note:
* The sub section 3 of Section 80 C of the Income Tax Act 1961 clearly points out that a deduction is available only to so much of the premium, which is not in excess of the 20% of the sum assured [the technical term for the amount of life cover the individual taking the policy opts for] on the policy.
It means: If the sum assured is 3 Lakh, 20% of 3 Lakh = 60000. If any amount greater than 60000 is paid as a single premium, it can’t be considered for 80C tax deduction

* The current regulation makes it mandatory for the minimum cover to be to be 110% of the premium for people less than 45 years old.
This means that if I paid a single premium of 1L, the cover should be at least 1.1L

* As per Section 10 (10D(c)), the premium should not exceed 20% of the cover in any year of the policy’s tenure. Only then is the entire amount tax-free at maturity. If not, the maturity is added to the income of that year and taxed.
This means that if my cover is 1L, then premium should not exceed 20000 in any given year for the duration of the policy

Investment outside india

Source: "A Google in your portfolio"; ET Wealth; Dec 27,2010

Taxation angle :
This is a major disadvantage global investors have to bear with. While long-term capital gains from equities listed in India are tax free, they are taxable for foreign stocks. So be prepared to dole out long-term capital gains tax at 20%, but only after indexation to factor in inflation

For the passive investor:
Not comfortable venturing out? There are several global diversification options available for you here as well. The first option is India depository receipts (IDRs) of global stocks listed in India. Standard Chartered Bank (SCB) IDR, the only option available at present, offers good value

Taxation :
There is no confusion with regard to taxation here. It will be treated as debt scheme. So investors have to hold on for a year to take the benefit of long-term capital gains tax. Another option is to use the domestic mutual funds that invest a small portion of their corpus in international markets like Templeton India Equity Income Fund

How to get most out of jewellery sale?

Source: ET Wealth ,10Jan2011

· Only a gram of jewellery with 91.6% of gold passes muster as 22 carat gold. It means 91.6% gold purity or 916 points of gold is present in every 1000 points of the item. 1000 is 24 carats, 750 is 18 carats.
· Retaining a record of purchase while buying or selling jewellery
· For investment, turn to gold bars or coins

Testing purity

· Jewellers test using a Caratometer. This is a faulty practice.
· A person selling or buying gold can demand fire assay testing for a nominal fee (also called hallmarking). A part of the gold is melted and tested. The marking is done using punches or a laser marking machine. The Bureau of Indian Standards (BIS) website lists labs that provide hallmarking.
· You can also demand a hallmark certificate from the jeweler. The cost varies and is usually around Rs. 25 a unit.
· Hallmark has long been used as a safeguard to buyers of gold and gold articles in many countries.
· It jewellery is hallmarked, the mark on the jewellery is more authentic than paper (certificate) as the paper may relate to any other jewellery.

Rates
· Checking rates – SMS “GOLDRATE” on 575758 (All India Gems and Jewellery Trade Federation (AIGJF) for the day’s gold rate. (http://www.gjf.in/). Please note that "GOLDRATE" is one word. If you send an SMS to "GOLD RATE", then many jewellers would have registered and the service will pick up the first one and send you details of the schemes of that jeweller.
· If the message says, “22K S:2033, 22K B:1911”, a jeweler will sell 22 carat jewellery @ 2033 and will buy back @ 1911.

Access your credit information report - India

Source - ET Wealth-3 jan 2011

 

Your Credit Information Report (CIR) contains details of our credit history and track record in taking and repaying loans from banks and finance companies. A loan applicant with a good credit record will find access to loans easier, faster and on favourable terms.

 

The credit information bureau of India Ltd (Cibil) consolidates the information on individual borrower's credit history, sourced from different member credit institutions such as banks, credit card companies and NBFCs, into a single report called the CIR. This is then made available to its members (banks, finance companies) to facilitate their lending decisions.

 

You can access your own CIR for a fee. You can also check and correct errors in the report and to initiate action to improve your credit record. It is a good idea to keep your CIR updated and correct, so it is easier and faster for you to apply and get loans at competitive rates

 

How do I get my CIR?

1. Fill up a CIR request form. It can be downloaded from www.cibil.com/accesscredit.htm

2. Submit self-attested copies of address proof (bank statement, utility bill) and identity proof (PAN card, passport or voter's ID)

3. Make a demand draft for Rs. 142 in favor of Credit Information Bureau (India) Ltd., payable at Mumbai. If paid online, send unique registration ID and transaction ID.

4. Send documents and draft to Cibil at : Hoechst House, 6th Floor, 193 Backbay Reclamation, Nariman Point, Mumbai 400021

 

Points to Note:

Restricted Access: Your CIR is accessible only to you and to members of Cibil who may want to cross check the credentials of a prospective borrower. A third person can't see your CIR

Corrections: If you find errors in your CIR, you have to approach your lender. Cibil will alter the CIR only when members report changes

Rating: CIR only provides factual information on your repayment record. It does not classify, rank or rate you based on your credit history.