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When exactly does PPF account mature ? Answer is not 15 yrs !

Posted on by Jagoinvestor

When does a PPF account mature ? If you thought that its 15 yrs from the date you started your PPF account, then you are wrong ? Yes – there is a myth around this topic and most of the people do not know how does it actually work.

Its extremely simple to find out when exactly your PPF account matures, and let me show you how to calculate it!

How is PPF maturity date calculated for PPF account ?

The maturity period for PPF account is 15 years from the close of the financial year in which the initial subscription was made. Its that simple. So if you open your PPF account on 4th Nov 2014, this date lies in the financial year 2014-2015 , then the financial year ends on 31st Mar, 2015 .

So the 15 yrs will be calculated from this date (31st Mar, 2015) and the lock in year would be 2015+15 = 2030 . So the exact date would be 1st Apr, 2030 in this case.

ppf maturity calculation

Note that PPF maturity always happens on 1st Apr , and not any random date of a year. Most of the people just add 15 yrs to the date of opening of PPF account to find out the maturity date.

Below you can see a short video which will explain PPF maturity calculation to you. Have a look at it.

So technically your PPF account can mature in 16 yrs in best case, suppose you open your PPF account in the first week of Apr, then your 15 yrs will be calculated from the next year (financial year ends on 31st Mar of the next year).

Jagoinvestor Android App Launched – Read articles on your Mobile

Posted on by Jagoinvestor

I am happy to share that finally we have launched an android app for the blog and an iOS app is in making and will be launched very soon.

You can do various things on the mobile app like reading the latest articles, checking your portfolio (for clients only), do your mutual funds investments and redemptions. You can also visit our knowledge section and check out some education material or use financial calculators on the app.

Here is the Android app link

jagoinvestor mobile android app

 

I hope this will make life easy for many people. You can download the app on any mobile or tablet which is on android platform. Give give your suggestions and comments on this.

Everything you wanted to know about Advance Tax and Penalties under it

Posted on by Jagoinvestor

Are you paying your income tax only at the end of the financial year ? If your answer is YES, then understand that you are doing it in wrong manner. Today we will learn about Advance Tax which is not widely understood and its quite important thing to know. I know that majority of the people don’t follow this process and pay the income tax at the end of the year only (infact on the last minute many times), But today you should understand if advance tax is applicable in case your case or not.

You can either view the youtube video below to learn about it, or skip it and read the article below.

What is Advance Tax ?

As the name suggests, Advance Tax is part payment of your income tax liability in advance. So instead of paying everything at the end of the year, you pay it 3 times in a year in parts. The concept of Advance tax exists because govt wants you to pay income tax as you earn month after month and not at the end of the year. Advance tax is to be paid when your annual tax liability exceeds Rs 10,000 overall .

However important point is that Advance tax is applicable on your Income from sources other than your Salary like

  • Interest on FDs or Savings bank deposits exceeding Rs. 10,000/-
  • Rental income on House Property/properties
  • Capital Gains on sale of Mutual Funds or Shares
  • Income from any other sources not mentioned as above.

Which means that if you are a salaried employee who does not have any other income source and if your employer deducts TDS regularly, then Advance Tax is not applicable in your case. You dont need to worry about it.

On which date you have to pay Advance Tax ?

You have to pay advance tax 3 times in a year, which is 15th Sept , 15th Dec and 15th Mar and you should be paying not less than 30% , 60% and 100% of your income tax liability before these dates. Below picture makes it clear for you.

advance tax payment

Which means that if your income tax liability for a year is Rs 1,00,000 , then you should pay advance tax of Rs 30,000 by 15th Sept, another Rs 30,000 by 15th Dec and rest Rs 40,000 by the end of 15th Mar

What if I don’t pay Advance Tax on time ?

If Advance Tax is applicable in your case, then you should be paying it on time, but if you don’t pay it on time, then you can pay it on the next due date along with the interest. So those who have not paid the first installment (i.e. September 15) of Advance Tax (if applicable to you), then you can pay it together with second installment (on of before 15th Dec), but with interest on the first instalment for deferment of the same by three month and if you are not paying it even on Dec 15th , then you can pay it by the end of the year along with the interest.

You will be charged with penalty under Sec 234B and 234C incase you ddon’tpay your advance tax on time. Let me quickly share what is sec 234C and sec 234B

Understanding Penalty under Section 234C

Lets first understand sec 234C. Under this section, if you don’t pay your installments of advance tax on time, then you are charged 1% of simple interest for next 3 months on the amount of shortfall. So this is the penalty to be paid because of DELAY!

Understanding Penalty under Section 234B

If your total advance tax paid by last due date (15th Mar) is less than 90% of your advance tax liability, then you will have to pay 1% interest on the balance amount each month until you complete the payment. which means that suppose your income tax liability is Rs 1,00,000 in total and if you have not paid anything upto 15th Mar, then you will be charged 1% on the outstanding balance (Rs 1 lac in this case) each month, unless you pay it, so if you pay in June , then you will be charged for 3 months penalty and it would be Rs 3,000 in total other than penalty under sec 234C.

Lets understand sec 234B and 234C with help of case studies. Lets assume that your total Income Tax payment for the year would be Rs 50,000, then as per rules of Advance tax, you should be paying

  • Rs 15,000 by 15th Sept
  • Another Rs 15,000 by 15th Dec
  • And Rest 20,000 by 15th Mar

Now imagine you don’t pay any advance tax , then how much penalty you will pay under sec 234B and 234C under various situations ? Below I have explained 4 situations where you pay your full income tax on different dates. Check out how much penalty you will have to pay under these situations !

advance tax payment example

How to pay Advance Tax ?

Now comes the final question, that how can you pay your advance tax ? Most of the people are worried on this, as they feel that paying advance tax would be very tough or involves lots of hassles, but thats not correct. You can make payment of your advance tax in less than 5 min.

There are mainly two ways of payment advance tax.

1. Offline option

Almost all the banks have tie up with govt for accepting the advance tax from the taxpayers, you can go to the banks which have the tie up and fill up the challan number 280 and pay your advance tax to them.

1. Online Payment of Advance Tax

The other faster way to make payment online. Here is how it works

Step 1: Go to https://onlineservices.tin.egov-nsdl.com/etaxnew/tdsnontds.jsp

challan 280 for advance tax payment

2. Choose Advance Tax option and other details and make payment

When come to the next page, you will have to choose various details here. Make sure you choose your

  • PAN Number (of utmost importance)
  • Advance Tax (under Type of Payment)
  • Email, Phone and Address details
  • Assessment year (to know more about this, click here)

Once you choose these details, you can then click on “proceed” and it will connect you to the Bank which you had selected, It will show you your NAME on the next page, so that you can confirm there was no mistake from you end, then you can make the payment online, and you will be able to print the receipt online (you will also get it on email)

Online Payment of Advance Tax

Are you paying your Advance Tax

I guess, you are now clear about the advance tax and how its calculated . Its a good practice to pay your advance tax on time and do not delay it because it can mean a penalty of few thousand rupees in most of the cases. I know its tempting to delay the headache and complete the payment once in a year, a lot of people might be ok with paying some penalty, but then you also invite related problems with it. Pick your choice.

Join Action Month – Take-up 30 Day Challenge to complete your Life & Health Insurance (Download E-BOOK)

Posted on by Jagoinvestor

We are back with Action Month ! … You may be high on knowledge, but check if action is missing in your financial life or not ? If thats the case, action month will be of great help to you.  We invite you to see Action month as an opportunity for you to get into action.

Action month is a group campaign where you can choose to be a part of it and promise yourself to complete long time pending tasks in your financial life. This time we will provide full encouragement and support to bring a turnaround in your financial life.

If you are ready to take-up “30 DAY CHALLENGE” we would love to have you as action month participant.

We decided to bring back the action month in the month of Dec, 2015 and its mission is to help you in protecting your family.There are two area’s which you need to take care if you want to protect your family and yourself and they are

  • Life Insurance
  • Health Insurance

Top 5 Reasons – Why people remain under insured in Life and Health Insurance

  • Casualness: A lot of people are casual when it comes to buying health and life insurance cover. They are simply not present to the importance of this area and so they end-up without adequate life and health cover
  • Over analysis: A lot of so called “intelligent” investors choose to remain busy with their product over research habit.Because of this they continue doing analysis all the time. Over analysis keeps them away from taking right kind of action
  • Confusion: There are innumerable products available in the market and any investor can very easy fall into confusion trap. Confusion is one big reason why people fail at buying life and health insurance policy.
  • Procrastination: A lot of investors know they need to buy life and health cover but they are victim of procrastination. They continue to procrastinate and remain under insured
  • Fear: A lot of investors are afraid to approach companies and advisors. They are afraid of either getting wrong advice or they think they will be pressurized to buy wrong products. Inside this fear they do not initiate conversation of having life and health cover.

Bonus Reason to Join Action Month

I will give you one more reason for joining action month. Its already the month of Dec, and in next 1-2 months you would need to submit your investment receipts in your company to avail income tax benefits. If you complete taking life + health insurance in this month, you will have your recipts by Jan and you will be able to save income tax under sec 80C and 80D .

How will this Action Month Work?

Step 1

 Calculate your Life Insurance and Health Insurance status by using the calculators below

Step 2

 Register for the action month by filling up the form below we will send a joining kit which has 2 ebooks on life insurance and health insurance as GIFT in 48 business hours.

Step 3

 You then become part of our 30 day challenge action month, where you promise yourself to complete your actions before the end of this year (within 30 days).You have choice to take actions on your own or take Jagoinvestor support in completing both the actions.Claim Settlement Assistance – Jagoinvestor Team will be providing claim assistance service to all the clients who will buy TERM PLAN under our guidance.

Calculate your Life Insurance and Health Insurance Status

Below is a simple life insurance and health insurance calculator, which will help you understand where you stand in these areas. Put your numbers and see the output, and then fill up the form below these calculators to be a part of this amazing action month.

Join the Action Month REVOLUTION and be part of 30 day challenge

Finally, fill up the form below to register yourself in the action month and be part of our 30 day challenge. When you fill up the form below, you  officially register yourself in Action month and after 1 month we will ask for your actions and what is the status. Once you get policy in your hand we will ask you for a picture of you holding your policy with your loved ones.

ACTION MONTH IS CLOSED

Welcome to the 100 crore Club

(We want to HELP over 100 families in having adequate life and health cover)

We really wish that in this action month, the combined sum assured taken crosses at least 100 crore. Even if 100 people take 1 crore sum assured, it will be total of Rs 100 crores, which we call as 100 crore club. Are you going to be part of it ?

If you have any doubts or issues regarding this action month, you can ask your question below in comments section.

13 awesome ideas to make extra income other than your regular job [part 5/5]

Posted on by Jagoinvestor

Do you want to make extra income on a consistent basis apart from your regular job ? In this 5th article under “increasing income” series, we are going to look at some of the ways you can make some extra money other than your salary. I will be discussing 13 ideas, out which which most of the things can be instantly tried out by most of you.

Note that, here were are not talking about creating passive income which requires huge investment. We are mostly going to talk about ideas which can be implemented without requirement of huge capital, but only some time and dedication.

Lets look at these ideas one by one..

1. Consulting in your domain

If you are expert in some area, you can always give your consultancy service to smaller businesses who cant hire big companies. When we were brainstorming with a client of ours to generate second line of income, he identified that he has some great knowledge in the area of terrace gardening. He could see that he can help families with large enough terrace to setup their own balcony garden and earn some fees over weekends or extra time.

consulting

Look back at what all you know and have learned over these years, and you will realise that you have some really deep knowledge in some field, and surely there are many who are looking for someone like you, who will guide them well for a lesser fees (compared to professional fulltime companies)

2. Referral Business

Connecting two entities is another great way to make extra money by spending less energy. So can always have an agreement with some business entity to give clients on referral basis and earn a commission. I recently hired a designer for some work and I asked him if he knows someone who can PRINT the designs for me. He referred me to his friend who done the printing work. I am sure he must have got some cut for the referral and there is nothing wrong in it. Its a smart way of earning money.

Here is what Ajay shares in our last article.

I used to refer students to a local computer institute where i myself learnt ms office. they used to pay me 10% of the course fees paid by the student. i used to earn average between 1000 to 3000 monthly those days.

You might not know that even builders pay you 20-30k for each client referred (who bought the house). So now, have you got a friend who is into business or some kind of service ? Just talk to him if you can pass on clients to him and earn some money on it.

3. Create products and sell on Ebay

With websites like Ebay and OLX, you can now sell virtually anything on internet to those who are looking for products. So you can do some handicraft or anything else, which can be created at home in extra time and then it can be sold on ebay. Or you can find some local product which others would find awesome, but its not available in other parts of country and then start selling it online for a profit. Even you can look at some products which are selling at huge discount at stores (wholesale market or under clearance sale) and then sell it on amazon at regular price.

Earning from Ebay

Earlier, when you wanted to sell something along side your job, you needed to have a shop and someone was required to be at shop all the day, not anymore !.

Ramit has a great article dedicated on this topic.

4. Create a Course and Sell on Udemy.com or Skillshare.com

If you are an expert in some area, which you think can be taught to others by creating a course out of it, you can always sell it on udemy.com or skillshare.com and make money on the fees recieved by the students. So if you are an expert on cooking, Yoga, SEO , Designing, MS Excel, Java, Python … whatever.. Create a nice rich course , record your videos and done ! .. You can tie up with these websites and then earn a lot money. Just understand those models and work on it.

skillshare

5. Freelancing online

If you have extra time with you over weekends or after your job, you can freelance and take small projects. There are many websites like elance.com , odesk.com or freelancer.com where you can earn money by working on projects. There are thousands of people in India who are working full time on these kind of freelancing websites and believe me, they are earning in lakhs. Look at it as a serious way of making money and not just a time pass activity.

earning from freelancing

6. Become a Tutor online if you love teaching

If you have a knack for teaching and if you are an expert in some subject, you can become a tutor online for students. There are tons of websites like TutorVista or Tutor.com where you can try out this. You would need a great internet connectivity for this. It can work best for someone who is ready to work late in nights as many students from US and Canada would be right fit for you then.

7. Tutions at Home

This is the old favorite way of earning some side income. You must have listened to great stories of how many people have supported their families and their own studies just by taking tuitions. Then why not to extend your income even if you have a job ?

Do you know Music ? Are you an expert in Maths ? Vedic Maths ? Yoga or may be cooking ? Do you live in a residential society which has 100’s of other families? Then tutions is a perfect thing you can start give you are good at what you claim to. You can always dedicate 2 hours (if you really have them) and do some basic advertising in your apartment or nearby places and take students to teach them at home. The best part of this kind of tutors is that you refresh your dying knowledge, earn some money at the comfort of your home and you kill time which goes into unproductive things most of the times. myprivatetutor.com is a good place to register and start with.

7. Rent your empty house/room on Airbnb.co.in

Do you know that next time you head over to Goa for a family holiday, you can just rent out the whole house for 6-8 people at just Rs 5,000 a day . Thats correct!

airbnb in india

Airbnb gives you great way to rent your house or even an empty room, if you want to earn some extra money out of it. You can always give your extra room to travellers and people who are looking for 1 day-week stay on Airbnb.co.in. Just put pictures of your house/room, explain your conditions and rules, put the facilities and thats all. Clients will find your listing, make the payment online, and if you accept, you host them!.

The best part is that you keep 97% of the fees paid and you don’t have to search for clients yourself . Serve them as they come. If you have a full house at some great tourist place like Goa/Shimla/Manali or those kind of places, you can put your whole house on rental basis. Many people who have a second home or extra room, hire a maid and offer the full range of services of a regular basis. Imagine if your extra room is rented even 5 times a month and you earn Rs 1,000 from it ? Its Rs 5,000 extra income !

8. Teach someone live on Google Helpouts

If you have a skill, you can teach someone live on google helpouts. There are tons of categories like Arts and Music, Cooking, Home and Garden, Fitness and Nutrition and many more .. which you can choose from.

Google Helpouts

In this era of globalisation, I am sure there are enough number of people in the world who would like to pay to someone to learn some thing unique.

9. Do Odd jobs at Fiverr.com

Imagine you want your logo/brochure to be designed or want your website andriod app to be created ? It can be done at only $5 (Rs 300). There are tons of odds things you can do at fiverr.com . Most of the times its a small manual task, which is super easy for you, but tough for others.

A small assignment can be done at fiverr.com for $5 and you can raise the fees depending on the complexity involved. There are tons of people in world who are looking at delegating some task at a small fee.

fiverr

I have used it 2 times myself to get some work done and paid $5 two times.

10. Cooked meals Pickup

I recently ordered some amazing Egg Biryani in Pune (the most delicious) I had till date and the lady sold it from her home through registering at tastykhana.in. I had to go to the place to pickup the biryani.

That got me thinking how many people in our country cook some amazing things, but never capitalize on it. So if you have people at home who cook some speciality and you feel that it will loved by people in your city, you can start pickup service at home. Get the order, prepare the food , opt to deliver at home (at extra cost) or ask them to pick up from your place. And if you are thinking about preparing “Andhra meals” in Pune, I am your customer already.

11. Starting a Creche at Home

I am not talking about professional/big size creche here. If your home is big enough and there is a scope of it, a simple creche can be started. There will surely be some market for it. If most of the couples living around you are into full day jobs, you can surely cash on this opportunity and think about it.

Even if it means renting another 1 BHK flat and starting your creche there, its worthwhile. See how you can actually implement this – I just gave a direction

12. Freelance writing for someone websites/newspapers

If you are strong in writing and can put your ideas on paper in creative manner, then you can write for newspapers and magazines. I get tons of emails myself for freelance writing (i don’t do it but). Here is what Abhijit kulkarni has done..

earning by freelancing

Checkout how you can put your writing skill to earn more..

13. Sell nutritious health drinks around the Park nearby

One of our readers shared this idea with us. If there is nearby park or place, where people come for walk, jogging early morning, then you can always sell health/vegetable drinks and various healthy breakfast too. I am sure it will help you also personally to take care of your health and earn some extra income.

If you don’t have some one at home to do it or you lack time, you can employ a part time person to do this for 2-3 hours and pay them salary or a profit cut.

14. BONUS IDEA – Be a passive partner in someone else business

I know most of the people can’t do fulltime business, because they are into a regular job. But you can always invest your money, your ideas and some basic level of administration to run a side business along with a 3rd party whom your trust.

There are many awesome people, who have the ability and passion to do some business, but they dont have money or experience or some ideas to implement. You can partner with them and offer to invest money in the business and also contribute your time over weekends or after work if its possible for you.

Example 1 – Image a person who has a shop, you can help him/her start a internet cafe – because you are an expert in computers, networking and know the technical side of how to do it. You can build the systems and overall business. You do the backside work and the other person does the front office job. Divide the profits !

Example 2 – Do you know someone who is looking for a job and can drive well, but has limited time? How about you buy a Maruti Van and ask him to use it to start a pick and drop business for children in school . Divide the profits ! ..

Sonme months back, I heard the founder of Tastykhana.in in a TIE talk, where he shared that when they desperately needed some money in the starting years of their business, that time – one of the employee of an IT company put in Rs 1 lac in their business and within a year or two, he got back 20 lacs return through an exit option when they got funding later (it was something like this, if not exact)

Can you see a point I am making? I know its not an as easy as it sounds, but at the same time, its not as tough as you imagine. You need to take some level of risk and try out these things if you want to earn extra income.

How to handle .. “But .. “

I know these ideas must have pumped a lot of excitement in you and a lot of you might have a feeling of “But … and followed by some reason”.

Note that earning an extra income apart from your regular job, takes huge commitment. Its simple, but not an easy task. Its not for weak hearted. You will have to keep aside some of your reasons,come out of your comfort zone and take some pain in order to implement it.

It might means waking up early, it might mean sacrificing something in life (Read the story of Anupam on creating second income) , you might have to redesign your schedule, ask for support from others and taking some tough decisions. There is no shortcut when you want to make money in life.

This is exactly why most of the people never create any additional income, because they never take efforts for it. They are just focus on reducing their expenses, where the possibility is limited. Today I invite you to look at the other side, thats INCREASING YOUR INCOME, which has unlimited potential.

Also do not focus on the quantum of money you earn in the starting. What about Rs 1,000 extra in the first month ? It pays your PHONE BILL ! . Thats big thing .. Its EXTRA money afterall. I hope you loved these ideas and you would surely try out atleast one of these over the next 1 month. Plan for it and take action.

I would like to hear some more ideas from you, no matter how silly or crazy they sound. Even if its something which can earn you Rs 100 extra, please share it. Any contribution is appreciated.

What happens if policyholder dies within grace period ? The answer may surprise you !

Posted on by Jagoinvestor

Do you know what happens when the policyholder dies within the grace period provided after the due date of paying the premium. The answer might surprise you because there is a big myth around this topic.

Every life insurance company provide a grace period of 30 days for paying the premium after the due date is over. Companies send reminders on SMS and emails to make sure the customer pays their premiums on or before the due date. But if they forget to pay the premiums on time, still they get 30 days of grace period.

If premium are not yet paid after the grace period, then the policy is considered to be LAPSED and no death benefits will be given if the death happens after the grace period.

Do you get sum assured if death happens during grace period ?

And the answer is YES. As per the rules, if the death of the policy holder occurs on the due date of the premium payment or during the grace period, still the policy is valid and the beneficiaries will get the sum assured. But after deducting the the unpaid premium for the current year.

As a proof I am putting up a proof of what the website of Max New York Life Insurance says below. You can see the exact wordings below.

Grace Period in Life Insurance

So if a person has taken a 1 crore term plan for a 30 yrs period with premium Rs 10,000 per year on 20th dec 2010 and imagine the policy has run for 3 yrs , and now its the 4th premium is to be paid on 20th dec 2014 . The grace period will be upto 20th Jan 2015 .

Now if the premium was not paid and the death happens on 25th Dec 2014 , then its during the grace period. How much will be the sum assured paid to the customer family ?

It would be Sum Assured – all unpaid premiums for the current year

= 1 crore – 10,090
= 99.9 Lacs

Payment of Sum Assured if death happens during grace period

There have been a lot of cases, where a person just discontinued his policy for some reason and they faced an accident and died. Internet is full of these kind of cases.

A lot of times death happens during the grace period and because the family is not well educated on this aspect, they don’t know that they are still liable for a claim (we provide our clients family claim assistance service).

Conclusion

So make sure you do not forget to pay your premiums and make sure you do not wait for the reminders from the insurance company. You can set up your own reminders and be more alert and proactive on this.

Let us know if you knew about this information or not ?

Everything you wanted to know about Income Tax Notice and scrutiny cases ?

Posted on by Jagoinvestor

If you are a taxpayer then you must have heard the recent news about Income tax department’s drive by keeping a close eye on all your transactions. Even the salaried employees are on the radar.

Department has already identified 12 lakh taxpayers who have not filed their returns, more than 20 Crores high value transactions are being scrutinized and Notices/letters to more than 1.5 lakh people have already been issued.

Income Tax Notice - How to Avoid

8 reasons why you can expect income tax scrutiny notice?

Let’s take the first parameter today and see how & under what circumstances a notice can be issued to you as follows:-

Reason #1 – You have not filed your return

Every individual earning more than Basic Exemption Limit i.e. Rs. 2,50,000/- p.a. (Basic Exemption Limit has been enhanced from Rs. 2 lakhs to 2.5 lakhs in the last union budget for current financial year) needs to file tax returns compulsorily, even if the tax is already deducted (TDS) and paid .

So if you have not filed your returns for past few years, then you can expect a notice from IT department very soon. You might have not filed it due to your laziness or simply because you didn’t get the time, but understand that this mistake can cost you a lot especially when you have some any kind of tax evasion !

Reason #2 – Interest from FDs or Savings A/C

This is one big reason which can apply in most of the investors case . Generally banks deduct 10% TDS on the deposits interest by default, but you are suppose to pay any additional tax if applicable depending on your income tax bracket. There is a big myth that one does not need to pay any tax if TDS is cut by the bank.

For example – If you are 30% tax bracket and you have Rs 5 lacs FD in bank and imagine 8% is the interest rate, which means you get a Rs 40,000 interest from the FD , now the bank will deduct the 10% TDS (which is Rs 4,000) and pay to the govt , and give Rs 36,000 directly to you .

Now actually tax you had to pay was 30% to govt, which means that at the end of the year you need to pay additional Rs 8,000 in tax. If you have not done this , then you might be inviting trouble for future.

Reason #3 -Sudden drop in Income

Do you know that if there is a significant reduction in your income from last year, then it may cause suspicion and you might invite a IT scrutiny. This is more applicable in case of businesses and traders, because their income is highly volatile .

However in case of salaried people, this is not a big issue because in general there is no huge drop from the last year income. Let me give you an example – Imagine Ajay, who runs a business and earned Rs 15 lacs in a year and paid his taxes properly in year 2014 .

Now in 2015, he files his income tax returns with Rs 12 lacs income or Rs 17-18 lacs income, this looks natural overall , but imagine he files his return declaring his income to be Rs 3.5 lacs, then suddenly it raises some eyebrows and the IT department might want to talk to you . It might happen that you are not doing any tax-Chori, but IT department might want to enquire .

Reason #4 – Claiming Higher refund amount

If you have filed your returns claiming a high refund in a particular year, there are chances that you might get a scrutiny .

This is because firstly, its a higher amount to be refunded back to you , so naturally tax department might want to have a look at data and might question things (otherwise everyone will start asking for refunds without solid reasons) , and secondly – the refunds are generally a lower amounts because of the mismatch in your planning or some calculation and any big tickets will attract eye balls .

So if you have paid Rs 2 lacs tax, and you are asking for Rs 15,000 Refund or Rs 35,000 refund . It looks fine .. but if you ask back 90,000 refund, that might attract scrutiny.

Reason #5 – Mismatch in TDS credit

You need to check & reconcile your form 26AS with all the taxes as paid on your account . It should ideally not happen that the TDS amount you are claiming in your income tax return and the TDS actually updated in your form 26AS are different .

That’s why before filing your returns, its an important thing to check your 26AS , make sure its updated properly (check with your employer who has paid TDS, check with banks who paid TDS on your interests) . Only once everything looks fine, then claim the TDS amount . Don’t assume things like (my employer must have paid TDS and updated it properly) .

Reason #6 – Non Declaration of Exempted Income

There are various income’s on which you don’t have to pay income tax , but they must be still mentioned in the income tax return . Things like your long term capital gains tax from equity/dividends received on equity shares of Indian companies/Saving bank account interest up to Rs. 10000/PPF interest , or lets say gifts you receive from your parents/relatives ..

These are some of the things which are exempted from tax, but that does not mean you don’t have to tell the income tax department about it and you should anyways not hide it because there is no reason for it. I know a lot of people might be feeling – “Since it is already exempt, then what is the need of declaring it, I have never done it for last so many years!”  .

So now as you know make sure you take your income tax filing very seriously, because till the time you don’t get IT scrutiny its not an issue , but the day you will get it, you will know it’s a pain

Reason #7 – Taking double benefits due to change in Job

Many times salaried employee who changed job during previous year gets multiple form 16 & fails to declare income from all the employers & calculate and pay the due taxes, if any. It may arise on account of certain deductions & benefits given twice .

Many times, it has been observed that when people changes their job during  a year they forgot to inform about their previous income to their new employer or if at all they have declared it, they forget to make sure that it has been duly incorporated while calculating their tax liability and arriving at a TDS figure and because of this failure, new employer will deduct taxes on the income which will go from their side by giving and allowing all the deductions like 80C/section 10 etc.

All over again (as the previous employer had already factored the same while paying TDS) and also basic exemption limit and initial tax slabs benefits are also given again resulting in lower deduction of taxes.

But due to lack of this technical knowledge along with a pressure and joy of a new job this goes unnoticed and there is a shortfall in taxes which was supposed to be deducted and paid to the government; so beware when you change your job and inform previous employer income duly to your new employer to avoid getting an IT notice.

Reason #8 – High Value Transactions

If you have executed high value transactions either for investments or spending then chances of you getting the notice from IT Department are very high.

For example – Your credit card usage of more than Rs. 2 lakhs p.a./ investing in FDs for more than Rs. 5 lakhs/ depositing more than Rs. 10 lakhs in your bank account/ investing more than Rs. 2 lakh in MFs or Rs. 1 lakh in Shares or buying or selling property over Rs. 30 lakhs.

All these transactions are reported to the IT department under Annual information Returns filed by respective companies and may attract an enquiry ranging from simple to exhaustive by IT department.

How to Avoid getting Notice from IT department

With the IT department becoming net savvy and going online, it has become very easy for them to identify discrepancies in your papers and to keep a close eye on almost every financial transaction you do.

Even the honest taxpayers have received notices and have come under the scrutiny causing them running around to prove their honesty. Hence it becomes very critical for everyone to maintain their papers & documentary evidences properly to safeguard their own interest.

Here is sample of how a tax notice looks like in reality. I have scanned and uploaded a real life tax notice for you to look at below

Income Tax Notice Sample

You need to take the following actions to minimize your chances of receiving a notice –

  • Always file your returns on time and correctly – This is the basic precaution you need to take to ensure 100% compliance with the law. Make sure you are filing the return correctly and all the details given by you while filling Returns matches with the details available with department.
  • Submit ITR V to Centralized Processing Centre (CPC) Bangalore: Your filing of taxes would get complete only when your ITR V reaches CPC. Just uploading returns online is not enough; make sure you get confirmation of its receipt from CPC. Please follow the Dos & Don’ts of sending ITR-V to CPC.
  • Check your form 26AS (Tax Credit Statement): “26AS” gives the details of the “TDS” deposited on your behalf. You should check all the TDS payments duly credited to you or get it rectified otherwise. It can be viewed though NSDL or IT department’s site and even through Bank’s online portal.
  • Mismatch in Income & Expenses/investments:  If your income was Rs. 10 lakhs and you invested Rs. 25 lakhs, you need to justify the source of used funds and the same applies to expenses also.
  • Gifts/Money credited to your account: If you have funds credited to your account out of Gifts or loan from relatives/ friends, you need to keep the documentary evidence for the same. You may also need to report these transactions in few instances.
  • Declaring “Exempt” Income: Even though few Incomes are exempt from the tax, you still need to declare this while filing your return.
  • Updating PAN details: Keep updating any changes in your pan data like address/surname change post marriage etc.
  • Pay Advanced Tax: if you are liable to pay advance tax, then you have to pay it as per its schedule & deadline.
  • Form 15H or 15G: Use 15H/15G instead of claiming refund, submit this at all the financial institutions like banks to prevent them from deducting TDS on your investments with them; in case your Income is below the taxable limit.
  • Avoid High Value transactions: Department gets information for all your high value transactions from the concerned institution and chances of you coming under scrutiny increases. Avoid these transactions wherever possible & plan it carefully and legally.

How to deal with Income Tax Notice if you are already in receipt of one?

Any communication from IT department & especially receiving a Notice can send shivers down your spine, even though it might be a routine enquiry or a simple clarification sought. Notice can be issued for varied reasons and there is no standard single solution to deal with different notices in the same way, but you can surely follow these 6 steps steps as mentioned below in response to any kind of notice you may receive:-

 

Step 1

 Neither Panic nor Ignore –  Your first reaction could be to press the panic button or ignoring it completely due to ignorance, both ways are wrong and key is to handle this carefully and sincerely else you may end up paying hefty penalty along with tax payment.

Step 2

 Check if its issued in your PAN – Department issue notices based on your PAN and not by name, so make sure notice is issued in your PAN and do not pertains to someone else who shares similar names or DOB as yours!

Step 3

 Identify the reason behind issuing a notice – Reasons could be a simple mismatch in TDS or inconsistency in your returns or some serious concerns like income concealment or survey or scrutiny of accounts.

Step 4

 Check Validity and Issuer Details – Check the validity of a notice & timely issuance and under which IT section it has been issued and also look at the mention of officer in-charge, his or her designation, signature, address with details of ward & circle no. etc. Verify these details in view to avoid being cheated.

Step 5

 Check DIN – If the notice is delivered online then check document identification number.

Step 6

 Preparation two sets of documents and covering letter – Start collecting documents which you are asked to furnish before the assessing officer or based on the gravity of the notice. and make sure you prepare a covering letter along with the set of documents. Prepare two set of all the documents required to be submitted to the department along with a covering letter, get a stamp on your copy for your record purpose and as a proof of submission of documents and complying with the notice. You can also consult a CA for his help in drafting the proper income tax notice reply letter

3 Important Points you should always remember

  • Reply in time – Always reply in time even if you are not able to collect the required documents. You can even ask for some time to prepare the same. It would establish that you are honest and cooperating with the laws.
  • Preserve the Envelope: If you receive the notice in an envelope please keep the same safely as it contains Speed Post number which work as an evidence of its delivery to you.
  • Professional Help: If the gravity of notice is high then it would be prudent to have a CA represent you (you can hire us for your issues or any other income tax related problem). Otherwise you can follow the above steps and represent yourself in most of the cases.

One of the major steps that you need to take even otherwise is to keep track & records of all your Tax papers & financial transactions for the last 6 years as it will help you substantiate your claims in case of any scrutiny.

I hope this guide has given you enough knowledge about the income tax notice and why scrutiny cases happen . If you just take care of few things, you can surely lower the chances of getting income tax notices. Let us know what all did you like and if you have any questions in the area of income tax ?

This article is guest post by Rishabh Parakh, a Chartered Accountant by Profession & Founder Director of Money Plant Consulting, which provides services related to income tax filing, scrutiny cases and various other CA related services with operations in Pune, Mumbai and expanding to other regions.

Interview with Anupam on creating 2nd income source along with his regular job – part 3/5

Posted on by Jagoinvestor

Do you want to know how someone created his 2nd income other than the regular 9-5 job ? In this 3rd article for “increasing income” series (part 1 and 2 here), we present an interview with Anupam Mehra from Bangalore, who is one of our blog readers and has agreed to share his story of creating second income in his life. I was very impressed with him because he has done something which most of the people only imagine and never make it a reality by taking extra efforts for whatever reason.

Having Second Income in India

So I mailed Anupam 7-8 questions to answer, so that it can be shared with you all. I am sure you will get some great ideas from him, a lot of motivation to something similar in your own life and at the end, lets start a new kind of culture on this blog where we share our knowledge with others so that it can enrich others life in some way.

Here is the interview ..

1. Can you share very quickly about yourself and what you do right now in job ?

I have post-graduate degree and have about 8 years of experience. My education and profession are in the same field, Electronics. I have broad range of experience in all aspects of product design. I was lucky in a way that in both the two companies that I worked for, there were no set job definitions. For example, some companies have set roles like development, testing, documentation, verification etc. But, for me I had to do all of this at some point of time. This helped me gain good experience overall. I think for all new graduates, embrace this sort of opportunities since it will give you a good idea on what interests you. You can choose to specialize in something that really interests you as you gain more experience.

For me alternate source of income did not mean alternate field of profession. I am really passionate about my area of work. Initially for earning 2nd income, I completed a few projects on freelancer websites like Elance and others. Some of the projects were not related to Electronics, for Ex: Visual Basic Automation, but for most part I did projects in my field of interest only. Some of the projects I quoted a very low price to ensure I got the project. For the past one year, I have been consulting with a US-based company. I am guiding a group of engineers in verifying a very complex design. I have provided a lot of automation tools that I developed, which is helping the engineers improve their productivity.

2. How does it feel to have another source of Income apart from your professional active job income?

To begin with, I wanted more control in my career. I did not want to worry about layoffs, appraisals, not getting onsite etc. I also wanted to see if I can get better at what I do. Of course making more money feels really great. I feel content professionally which makes be feel relaxed at home and I spend more “quality” time with my family. It just means I can save more (and of course my wife thinks she can spend more…).

3. Was it tough to start earning alternate income ? Because most of the time everyone has this complain of “not having enough time” ?

Not having enough time is the first thought that will come to our mind. To being with, I evaluated how much time that I spend on unnecessary activity. One of the first things that I did when I started freelancing was make a commitment not login to facebook, gmail, whatsapp etc while at my work. I am required to spend X amount of hours at work. I was determined to use all this time efficiently such that I would not have to spend extra time in the office. Of course, sometimes I would have to work 14-16 hours a day to meet some deadlines. But mostly I wanted to be disciplined and not spend extra time in the office unnecessarily.

And the good thing about freelancing is you can do it in your own time. After I come home “early” from work, I would spend time with my family, do all the regular stuff, put my 2yr old son to bed and login to work. This sometimes would work well, since my clients would be in the US or UK and the time works out perfectly. I would also wake up at 5.30 a.m. instead of the usual 7.00 a.m. on weekends just to get some work done before my family wakes up. At any point I have not worked for more than 15 billable hours a week. I had made this clear to all my clients as well.

4. How did you identify that you can earn alternate income – Because most of the people complain – “I have no idea what can I do other than my job ?”

The starting point for me was, identifying my strengths. What it is that I can offer better than most? How much time can I spare comfortably on a weekly basis? I explored teaching options that are available, both offline and online. I started off with this initially. As I mentioned before, Visual Basic programming was a hobby for some time which I used to generate some income. Basically once I had an open mind, I was not hung up with the type of work. I was more interested on the service that I can provide and its quality. I offered real value for money initially as I built my reputation on the freelancing websites and then slowly picked and chose which projects to bid/work on. So the question is “what skills do you possess that you can leverage to generate an income?”

5. What is one single thing you consider as most important thing one should have in them if they want to create second income source of income ?

Attitude – “Go-Do”

What I mean is I lot of people including me used to have these great ideas when having lunch/tea with colleagues and friends. Some of us have this frustration that “I am wasting my time”,” I should be doing a lot more”, “common guys, let’s start a company on our own”.

But somewhere in the daily grind, we remain in inertia… mostly because we want that comfort zone. You are the CEO, CFO and CTO of your one-person enterprise, be it being employed in a company or working for an alternate source of income. Having the great attitude of believing that you can do it and offer outstanding service to your clients will surely help you succeed.

6. Do you think now when you have a 2nd income source, you have higher confidence to start a 3rd alternate income source too ?

Absolutely! The possibilities and opportunities are limitless. I have just started. I intend to continue this. Some of my ideas require me to invest some capital. I have earmarked a percentage of my Additional Income to fund these. Multiple sources of income -> that’s the long term goal.

7. How has your financial life changed after you have started getting an alternate source of income ? Have your savings gone up ? Has your quality of life improved ?

I have to mention this here. My following of Jago Investor started when trying to correct my mistake of investing in endowment plans. So in the past two years I have corrected my initial mistakes (with the help of Jago Investor blog, Pattu Sir’s Blog etc) as well as started generating my additional income. So, both of these two factors have definitely improved my financial life. My wife and I made a combined decision on what percentage of regular income and additional income we will save. Rest is for spending. By doing this, we are living and saving comfortably.

We save most of our additional income by the way. We do not want to get used spending away this income as it might cause lifestyle inflation which might be difficult to recover from.

Since I am spending my personal time with generating additional income, I am more conscious on spending time with my family. I try to make it “quality” time. I regularly take casual days off where I am completely cutoff from both regular and additional work. I must say I have a supportive wife as well.

This additional income helps me in not worrying about the small stuff. Instead of worrying about the expense most of which is not in my control, I “worry” about increasing my income. This has led to a smoother family life.

8. Do you think having an alternate source of income is some kind of luxury or something which everyone should mandatorily have ?

Different folks, different strokes Manish!

It would be nice to have. I also recognize that some people will not be able to do it. Some folks might genuinely not have the time or would love to spend every free minute with their family or would be really happy with what they earn. My suggestion is people should evaluate if they really want to and can work additionally to generate an income.

Second source of income builds in some security in case of loss of regular job for whatever reason. It could also be a way for a person to transition from a regular job to full-time entrepreneurship.

Sometimes I also wonder if hours of research while choosing a mutual fund which can generate additional 0.5%-1% returns is worthwhile. Can this time be better utilized in updating skills and working for additional source of income?

Thanks

I would like to thank Anupam to accept my invitation to share his answers for my questions and share it with everyone else. I am sure you must have learned few things from this interview. You might have also got some validation from this interview about your own imagination and thinking. You can also see that someone has really done it and it works and now you will do it in your own financial life

Next week in the 4th part of this series, we will be talking about passive and active income and some ideas around it.

Now the question for you is – Are you working on creating alternative income source somehow ? Have you tried it ever ? and failed ? or succeeded ? Please share whatever you want in comments section below and lets have more conversation around this topic !

How Top up loans are good alternatives of Personal Loan ?

Posted on by Jagoinvestor

Imagine you already have a home loan and now after few years of payment, you again need some extra loan for some purpose? What would you do? One would ideally think of applying for a fresh loan from scratch and might get it too. But there is a faster option to get a loan if you already have a running home loan and its called top-up loan.

Top up loans

How does top-up loan works?

When you take a home loan for the first time, you have some home loan eligibility up to which you can take the loan. If you have consumed that full limit, then you are not eligible to get any further loan immediately, but over the years when you have paid back some part of your loan and if your income has also increased, then it may happen that your loan eligibility has gone up. At that point, you are eligible to take up a top-up loan which is over and above your existing home loan. What exactly happens if you get a loan up to an amount of your loan eligibility minus your existing outstanding loan.

Almost all the bank rules say that you are eligible for a top-up loan only after 6-12 months of paying off the earlier loan because only after some time is over, your loan eligibility changes.

Let’s take an example

Assume that Ajay, a software engineer working in Bangalore has an income of Rs 10 lacs a year. Assume that his loan eligibility was Rs 50 lacs and he takes a home loan of Rs 45 Lacs. Now assume that he has serviced the loan EMI for the next 3 yrs and now his overall income has gone up to 12 lacs per annum and his outstanding loan balance now is only Rs 38 Lacs. Now based on his current income, his new loan eligibility is 55 lacs.

Now if he applies for a top-up loan, the bank will deduct the 38 lacs of an outstanding loan from his new loan eligibility of 55 lacs and only provide him 17 lacs (55-38) of the top-up loan. The documentation and the overall process will be faster in this case, as there is an existing relationship and also the history is known by the bank. Below is the graphical representation of the same example I took above.

Top up loan example in India

You need to have a good repayment track record to avail a top-up loan. Just because you have some loan eligibility does not mean that there is a guarantee of getting a top-up loan. The final decision is always with the loan provider. The bank will also investigate with you the purpose of taking the top up loan. Below you can see for what purpose the top up loan can be taken.

  • Renovation at home
  • To be used as a personal loan
  • To buy another property
  • To buy a plot or Land
  • Purchase of consumer durable products
  • Children’s marriage/education
  • Business requirements
  • Medical expenses

5 Benefits of Top-Up Loan

Benefit #1- Tax Benefits on a top-up loan 

You will get tax benefit on a top-up loan only if the loan amount is used for buying a house (on principle and interest) or if you are using it for renovation purpose (interest part). For any other purpose, if you use the money, you will not get any tax benefits.

Benefit #2- The interest rate for a top-up loan 

A The interest rate for the top up loan is around 1.5% to 2% higher than the home loan interest rate of the bank, which means it can go up to 11.5% to 14% finally.

Benefit #3- No Security Required

A top-up loan does not need you to mortgage some asset, because its given on top of your home loan and anyways your home documents are with the bank. So one important point to note here is that even if you close your original home loan, you need to also close your top up loan before you can ask back your original house papers from the bank.

Benefit #4- Top-up loan amount 

 Generally, the amount of top-up loan cant exceed the original home loan amount you have taken and also there is always an upper limit defined by the bank for the top up loan, which can range anywhere from 15-40 lacs. So if you have taken a Rs 30 lacs home loan, you can take the maximum top-up loan of another Rs 30 lacs if your eligibility supports you after some years.

Benefit #5- Processing Fees

Almost all the banks will charge a processing fee for approving the top up loan . The charges are same as their home loan processing charges . For example – if you take a case of HDFC LTD , the charge 0.75% of the loan amount or Rs 2,000 which ever is maximum as the loan processing charges for the top up loan.

Top up Loan is a good alternative of Personal Loan

By now you must have understood that a top up loan is a much better alternative to a personal loan. there are a much higher chances of getting a top up loan if you already have a home loan and have a clean and good track record of payment in past. Also if you have already passed 3-4 years of your home loan repayment , you can get a decent amount of top up loan. Given the interest rates of personal loan can be as high as 18-24% , its always a good idea to try for top up loans.

Let me know if you knew about this concept or not ?

6 tricks to increase your Home loan eligibility and learn how its calculated by banks ?

Posted on by Jagoinvestor

Today you are going to learn how much home loan amount you are eligible for. I will show you how banks calculate your home loan eligibility and what are some of those factors which can impact your loan eligibility.

At the end, I am also going to share some tips you can take to increase your home loan eligibility.

home-loan-eligibility-calculator

What is Home Loan Eligibility ?

Home Loan Eligibility simply means how much loan amount you can get for buying a home. Just because you are earning Rs 1 lac a month, does not mean that you can take a Rs.50 lacs loan. Its always based on a formula and is calculated based on some formula and logic, which we are going to see today.

There are several other kind of loans like Personal loans, Car Loan, Education loans – but out of all the loans, home loan is the biggest ticket size loan and takes longer to pay off. While this article is true for all kinds of loans, still we will focus on home loan eligibility in this article.

Think from the Lender’s point of view

Before we go deeper into this article, I want you to think like a lender for some time. Think as if you are a lender and you are giving loan to someone. How will you think, how will your thought process be? Think for a minute and trust me, you will yourself realize that calculating someone’s loan eligibility can be very easy.

There are various factors one has to look at before giving a loan to someone. Just because someone is earning a lot of money, does not mean that he/she is eligible to get loan of any amount. There are various other factors which will come into picture.

I have recorded a full video on this topic which you can view below or on this direct link on youtube.

So before we look at those factors, let me quickly show you an example and explain you the simplest way of calculating the home loan eligibility

Example of Calculating Home Loan Eligibility

Lets say Ajay earns Rs 80,000 per month as a Software Engineer. Now its very obvious that he is not left with all Rs 80,000 per month as his savings. After deducting his expenses and commitments, he must be left with some amount.

As a thumb rule, banks in India assume that you are able to save anywhere from 40%-50% of your in hand income. For this example, lets say that the ratio is 50%.

So the bank will assume that the savings per month is 50% of Rs 80,000 , which is Rs 40,000. This Rs 40,000 is available for repayment of any kind of EMI’s .

Now bank will do the reverse calculation and find out how much EMI is required to pay off Rs 1 lac loan using the standard interest rate and tenure. Assuming that the bank takes 20 yrs tenure and interest rate of 10.5% , the EMI required to pay Rs 1 lac loan per month comes to Rs.998.

Now they find out how much loan Ajay can handle if he can pay Rs.32,000 EMI per month, considering Rs.998 is required to pay Rs 1 lac loan. So it would be

Rs.1 lac * 40,000/998 = Rs.40 Lacs.

So this way, Ajay’s home loan eligibility is Rs.40 Lacs.

What if there was an existing EMI of Rs 10,000 ?

Assume that Ajay had an existing personal loan for which he was paying Rs.10,000 EMI per month. In that case, his available saving would not be considered as Rs.40,000 , but 30,000 only (40,000 – 10,000)

In which case, his loan eligibility would be just Rs.30 lacs using the same technique.

Now this is the most simple way of looking at home loan eligibility calculation. There are various banks which use different formulas and calculations, but all of them will revolve around this same logic I explained about.

Important Note –

It depends on the bank on how much % saving they assume a person does. In the example above I have taken 50% as the assumption, but some banks might take it as 40% or even 35% .

I calculated home loan eligibility on ICICI’s Home Loan EMI and Eligibility Calculator for the same example above and I got the following result

Home Loan Eligibility Calculator Example from ICICI bank

I checked the same example on CIBIL website and even there website gave me very similar result

Home Loan Eligibility from India

Factors which Affect your House Loan Eligibility

Now lets look a little deeper into some of the core factors which affect your loan eligibility. Some lenders might not use all the factors, but still its a good idea to understand how its related and do something about it.

1. Your Income

The amount of loan you are eligible for depends directly on your income.This is one single factor which impacts your home loan eligibility to the greatest extent. Its very simple, higher your income, higher is the chance of you being able to pay the bigger liability.

Your actual situation might be anything, but the simple logic is that higher income person can pay more EMI and hence he/she can take higher loan.

A person earning Rs 1 lacs has higher chances of affording Rs 30,000 EMI , compared to a person who earns just Rs.40,000 .

Now if you are salaried employee, your income is assumed to be more stable than a person who is self employed or into a business. Its more easier for a salaried person to get a loan compared to a self employed person earning Rs 1 lac a month for obvious reasons.

Note:

A lot of banks will ask for your salary slips for past 1 yr and 3 yrs of IT returns, and bank statement for atleast 6 months. This is to calculate and get an idea of your overall cash flows and what are your spending patterns.

A lot of banks do not consider the LTA , HRA and medical allowances you get from the company, so they will deduct those amounts from your yearly take home.

I thought I will mention one important point here. In reality your income can be anything, but what really matters is your income on papers, which is ITR returns you have filed over last 2-3 yrs. A lot of people do not disclose their full income and pay less taxes, Its going to directly impact their loan home eligibility.

For a self Employed Professionals, along with the ITR’s for past 3 yrs, banks also require Profit and loss statement along with Balance sheet certified by a CA for last 3 yrs.

2. Age of the applicant

The age of the applicant also matters to some extent, but not significantly. Paying a home loan is a long term commitment. And banks have to ascertain how long you can pay off the EMI.

A person in his 30’s can pay the loan for next 30 yrs, but a person who is 50 yrs old will retire at 60 and has just 10 yrs in hand and in that case, he can get a loan for lower amount compared to more younger person.

3. Credit history

Your past credit history and repayment record has direct impact on your loan eligibility. If someone has a bad repayment record, then he/she might not get the loan itself. But in some cases where bank considers the application it might happen that they only approve a certain percentage of the eligibility

In our earlier example, Ajay had a loan eligibility of Rs 40 lacs in normal circumstances. Imagine that he has a bad record in past and he had not paid his past EMI’s on time and his overall credit score was bad, then it might happen that the bank agrees to only approve Rs 10-15 lacs of loan instead of his original 40 lacs loan.

4. Profession

Profession of the loan-seeker also matters a lot. Some professions are categorized as negative or risky by the lenders. People in such professions may find it difficult to get a loan sanctioned. What a lender requires is a stable income for a very long term.

So if a person is into jobs which are well paying and which are considered stable like Software Engineers, Banking jobs etc (which are white collar jobs), then the person is eligible for a higher loan amount.

However certain jobs like BPO sector jobs, running your own shop, Insurance Agent have lower loan eligibility because the income is uncertain or the chances of losing a job is higher.

5. Your Relation with the Bank in Past

A lot of banks (especially PSU and cooperative banks) still look at your past relationship very seriously. If you have an account with bank from last 10 yrs, it will matter a lot sometimes. In some cases banks directly issue a loan in multiple of your income.

6. Your Employer Category

Almost all the banks categorize various big companies into A,B,C category and offer different interest rates to their employees. so employees of Infosys, TCS, Microsoft and companies like that will be offered a better interest rates companies to smaller companies.

Check with the bank about it and you might get a slightly less interest rate, which can matter a lot on long term. You can also get processing fee waiver if special schemes are running.

5 tips to increase your loan eligibility ?

So you understood how the loan eligibility is calculated and some factors which impact it, so now lets see some of the actions you can take to increase your loan eligibility.

Tips to increase your loan eligibility

1. Go for a longer loan tenure

your EMI depends on the tenure of the loan, so if you increase the loan tenure, you might get a higher loan eligibility.

So if you were planning to take a loan for 10 yrs, and assume that your loan eligibility came to Rs 20 lacs, if might happen that it goes up to 30 lacs if you are ready to take a 20 yrs loan. Its as simple as that. This is because you are committing to pay over a higher time frame.

2. Prepay an existing loan completely

If you have any existing loan which is about to complete, then better pay it off completely. This is because in that case, your monthly savings will go up and that will increase your loan eligibility .

For example – imagine you are able to save Rs 40,000 per month. But you have an existing personal loan for which you are paying Rs 15,000 per month EMI and that leaves you with remaining Rs 25,000 only. Now imagine that you have Rs 1 lac in outstanding for that personal loan and its going to complete in next 8 months, after which you will have full 40,000 with you for paying home loan EMI .

But right now your bank will see that you just have Rs 25,000 in hand to afford additional EMI , and you will have a loan eligibility of only Rs 25-30 lacs, where as in reality you know personally that you can afford much more EMI given a chance.

So in this case, its always a better idea to arrange for money from somewhere else and pay off the personal loan fully and that will free your EMI there, and you will be left with full Rs 40,000 in your hand. This simple action will increase your home loan eligibility by a big margin

3. Extend your other loan tenure and decrease the EMI for the other loan

Now this is just an extension of the above trick . You have to think about how you can show the bank that you have a higher amount available with you.

So if you have any other EMI going on and you cant prepay it fully, then at least you can increase the tenure of that other loan, which will decrease the EMI part and that would leave you with more money in your hand each month.

For example, imagine you have another home loan for which your tenure left is 4 yrs and your EMI is 15,000. Now if you cant prepay it fully, what if you can increase the tenure to 10 yrs, may be the EMI comes down to Rs 9,000? That would mean extra Rs 6,000 with you. That can show the bank that you can pay more EMI on the other loan now …

Check this point with the bank when you need the loan. In some banks this thing might not be of any use if they do their calculation on outstanding loan.

4. Include the spouse or parents for the loan application

This is pretty clear. If you include your spouse or parents as additional loan applicants, then your overall loan eligibility will go up because now there is more income to support that loan.

The person you are including should have all the documents and ITR as proof for their income and its stability

5. Add any bonus you are liable of

You should also mention to the banks if you get additional bonus or perks from your employer or if you have any other source of income like rental income, interest from deposits or some other business income apart from your regular income.

Even if you mention that your spouse also earns some additional income which can be used later, then it might help sometimes. This particular point is not going to increase your loan eligibility, but at times this can help you get your loan approved.

Conclusion

The simple point of this article is that banks look at your potential to repay the future loan and there are factors which affect that and you can take some actions to improve your chances of securing the loan or increasing your loan eligibility

Let us know about any questions you have or some thoughts you want to share ?