Buying Health Insurance in India? Follow this 13 point checklist

Posted on February 23, 2015January 10, 2020 by Jagoinvestor

A lot of changes has happened in health insurance industry over last 5 yrs. The overall health insurance industry to some level is standardized and new regulations are in place. A lot of investors have bought their mediclaim policies many years back when rules were raw and when few things were in favor of insurers, not investors.

Given the changes, I thought, it’s the time to edit the whole article written long back and update all the points. So here you go.

Health Insurance products now have far fewer hidden bombs to surprise you now, For instance

All Health Insurance policies are now mandatorily issued for life-time.
Insurance companies cannot levy claim based loading once the policy is issued.
Insurers need to give a clear 3 months advance notification to existing customers before increasing premiums or terms in a policy.

What’s more, thanks to the competition brought in by specialized health insurance companies, there have been many interesting features added to the otherwise standard mediclaim products.

So now I am putting up 13 points every investor should read before they buy health insurance. These 13 points can act as the guide for someone who wishes to either buy a new health cover or wants to upgrade their health insurance cover. These points are not tips as such, but various dimensions revolving around the health insurance buying decision-making.

Point #1 – Don’t be too late in buying a health insurance policy

I have seen too many customers, especially the well-educated ones, literally trying to find a health insurance product which has all the “dream” features bundled into a single product. They want high cover, less premium, best claim settlement, no loading, OPD cover, extreme fast claim settlement, maternity and high-end benefits.

But sadly, such “dream” products do not exist in real-world. One has to understand that these health insurance products are highly complex and their premium pricing and features are linked to various parameters. You can’t get a product which has everything you wish.

At times, it happens that 8 out of 10 things required by the customer is present in the policy, but 2 out of 10 is not there, and what do customers do? They try to find some other policy which has all 10/10 things covered. This just leads to procrastination. There are millions of investors who are delaying taking health insurance from many years and this is the single biggest mistake one can make.

The risk of “No cover” in the future

The biggest problem with this approach is that, you might be denied a cover later in life, because you might have crossed that age limit, or you might have catched some illness which will not be covered now.

If there is one advice, just one advice, I would give anyone on Health Insurance. It would be this – “Never Delay. Set a deadline, buy that policy and get covered.”

Buying a good enough policy early is 10X better choice than buying “best health insurance policy” after 5 yrs. So the first thing you need to do is, be 100% clear that you are buying a health insurance product NOW. Focus on core big features which really matter, and don’t get too attached to tiny points which either do not match your requirement or are different than what you want.

Point #2 – Assess who do you want to cover and their health status

It is important to finalize the list of people you want to cover. Also, take an account their current health status. Make sure you cover most of your family members for whom you are responsible for. At times, people buy health insurance for self, spouse and kids and ignore parents.

If all are young and healthy, no hospitalization history, no chronic ailment detected, you are going to be spoilt for choice!
If you have members who are above 50 and/or have a medical history/condition then you should be prepared for some pain (more on this later) which will most probably include having certain time bound exclusions in your policy. Or you might have to pay higher premiums.

Point #3 – Assess your lifestyle

The greatest health insurance is taking care of your health. Keep a check on your own lifestyle, as well as your family’s. If you/your family is fit, following a healthy routine or regularly exercising, have healthy food habits, doesn’t smoke, has no history of excessive drinking, you’re in a good place with regards to risks and coverage required. If not, then you have a much higher risk to hedge. This, apart from inflation, needs to be taken into consideration, when deciding the sum insured.

If not, then you have a much higher risk to hedge. This, apart from inflation, needs to be taken into consideration, when deciding the sum insured. But be clear that just having good health or good lifestyle is not an excuse to ignore health insurance policy. Leading a good lifestyle just protects you from illnesses, you still don’t have much control on accidents, or some diseases which can still happen even though you have a good lifestyle.

Point #4 – Individual Covers or Family Floater?

You also need to be clear if you want to buy individual cover for each person, or a family floater policy?

Family Floaters seem to be a no-brainer, as they are very efficient. The idea is that not all family members will be hospitalized in the same year. You get a large cover shared amongst all family members for one of you to claim. The price is lower/efficient than buying individual covers.

But hold on! .

If one of your family members is older than 50, or has health issues, or lifestyle issues as discussed earlier, it would be sensible to look for an individual cover for such a member in addition to the family floater. You shouldn’t have a “high risk” member as part of your family floater, as if he/she has frequent claims, year-after-year, other members could be left without any cover, when they would need it.

If you don’t have the choice, and are getting a great deal with a family floater policies then go for a very high cover (in the range of 25-30 Lakhs). More on this in the next point for discussion.

Point #5 – Zero down on Sum Insured from Long Term perspective

The biggest mistake one makes when buying Health Insurance, is when one factors today’s costs and decides the insurance coverage, whereas in reality, you are likely to make claims around 25 years from now

Hospitalization costs today would be ranging from Rs. 50000 to Rs. 3 Lakhs. Assuming you are 30 today, at an modest average healthcare inflation of 7.5% for the next 20 years, single hospitalization bills will range (hold your breath!) at around Rs. 13 Lakhs when you are 50 years old.

What’s more, if you live even a mildly unhealthy lifestyle(as discussed earlier), you may have to bump the cover by another 25%, as you are at much higher risk, unless you take things in control and improve your lifestyle immediately. Think in terms of the long run, you may not need this policy right away, but in the future, you will most definitely benefit from having a higher cover.

OK, don’t sweat; we have smart ways on how to get a Rs. 16 Lakhs within your budget. Read on.

Point #6 – Compare Hospital Room Eligibility Capping

Now this is the big one. This single condition could depreciate the value of your health insurance with inflation. Something most agents/insurers won’t like you to know.

Many Health Insurance policies have room rent capping, which means you are eligible to claim expenses only up to a room costing below this capping. In case you opt for a room above this cap, you will have to bear the additional proportionate expenses on your own. Let me give you an example

Lets say, as per your policy you are room rent limit is Rs 4,000 per day . Now if you get hospitalized and you choose a room (for if you are forced to choose) which has room rent of Rs 10,000 . You might think that you will just get 4,000 per day for room rent from insurance company and other charges you will get as per the limit. But thats not true.

In reality, your room rent limit is 40% of the room rent chosen, hence all other expenses will be paid by 40% margin only. Means if your actual bill for ICU has been Rs 20,000 , and even if it’s in the limit, you will still be paid just 40% of 20,000 = Rs 8,000 .

If your doctors bill comes to Rs 50,000 and even if it’s in the limit , still you will be paid only 40% of that, which is Rs 20,000 . So overall you will be at a big loss only because of the room rent capping limit.

I hope you are now clear on the implications of the room chosen at the time of hospitalization.

Also factor in the inflation

One day rent for a Private room averages to around Rs. 4000 per day, today. At an inflation of 7.5% for next 20 years, the room rent would be in the range of Rs. 20000 per day.

Now, if you have a policy with room rent capping of Rs. 5000, and you opt for a private room with rent of Rs. 20000 per day. Insurance company is liable to pay you only 25% of all the costs claimed by you, in spite of your claim being within the sum insured limit.

Given a choice, your preference of health insurance should be in the following order:

Policies with Private Room eligibility.
Policies with No Room Rent capping.
Policies with Room Rent capping.

You must be surprised as to why have I suggested Private room eligibility policies above policies without room rent capping. The reason is simple, in my opinion; policies with no room rent capping have larger chances of being abused. Insurers could bear higher losses due to no control over the extravagance of a few customers. In the long run, it would be consumers who will pay for such extravagance of a few, through higher premiums or revision in the terms of the product, so that the Insurer can contain the overall losses.

As mentioned earlier, the above priority is to be kept in mind, in case you have a choice. In case you don’t (due to health conditions, age etc.) it is important to not give up and hedge your risks to the extent possible, by opting for a sum insured with the highest room rent limit. This way you will be able to contain some part of this ‘auto-depreciating’ cover!

Point #7 – Check for any sublimit/co-pay

There are clauses like sub-limits and co-pay in most of the insurance policies. They put a sub limit on a particular expenses (like 2% of sum assured). Make sure you are very clear about them and are fine with it.

There are few Insurance products that have limits for specified surgeries also. So even if your sum assured is Rs 5 lacs, they might restrict a particular surgery expenses to 50% of your sum assured.

Check with the products you have shortlisted. Also check for words like “limits”, “co-pay” or “deductible” in the policy. These are set deductions in claims. Ensure you have understood, and compared what these mean, before your decision to purchase is made.

Point #8 – Hospital Network is Important Parameter

While you compare the key features discussed above, you should also compare the hospital network of the shortlisted Insurance companies. You must compare these for areas you/your family is likely to be hospitalized. Though such lists are dynamic and can change anytime, it still gives you a good idea of the network that the Insurer has in place, in case you need to use it for a cashless treatment.

Check it out below to see the number of hospital and their names near your house (based on the pin code you provide them)

While a good network of hospitals is something you should definitely look at, but it should not be your primary parameter to judge a health insurance company.

Point #9 – Finally, go through Policy Wordings

Ask your Insurance Broker/Agent to provide you with the policy wordings of the product you have liked. Ensure you go through the Customer Information Sheet yourself. This is a one-pager that summarizes all the key conditions you must be aware off. Every health insurance product needs to file this with the Government (IRDA). Ask questions till you are satisfied.

I would strongly suggest look at the policy document sheet yourself online. Just go to google and search for “<health insurance policy name here> + “brochure pdf” and you will surely get the PDF document online. go through it and read it. below you can see, how I searched for Appolo Munich Optima Plus brochure online

Point #10 – Go for Super-Topup

In order to get the 15-17 Lakhs health insurance cover that would inflation proof you for the next 20-25 years, it is very sensible to buy a Super Topup policy. Recommend, that you go with a Rs. 5 Lakhs base cover with a Super Topup cover of Rs. 15 Lakhs. This can save close to 25-30% of premium vis-a-vis buying a Rs. 20 Lakh base plan.

2 important things here

Ensure there is no room rent limit in your Super Topup policy.
Ensure you buy a Super Topup Health Insurance along with your Base health Insurance policy tenure and they have similarly timed renewal dates.

You can read how super top up works in this article .

Point #11 – What to ignore while buying a policy ?

Now that you know what you must compare and consider, you must also know what to avoid?

Features like Ambulance, Daily Hospital Cash, Domiciliary, and any other benefits that don’t get used often, have a low consequence in the overall scheme of things. Hence, in my opinion, these should be overlooked, so that you focus on the bigger covers.

So focus on the network of hospital, fees for doctor consultation, Room rent Limit, ICU charges, Check if they are paying for medicines or not and these kind of expenses which make the the major part of your overall bill.

Things like Ambulance charges are not more than Rs 2,000 , if you have to pay it from your own pocket, even that its totally fine. Why to choose a policy based on that parameter ? Its always a bonus advantage and nothing else. So learn what to ignore and what to look at.

Point #12 – Ensure you appoint a good advisor

By now, you may have realized Health Insurance is a complex product and a good amount of research has to happen (but do not over do it). It is therefore recommended that you appoint a health insurance expert to help you shortlist products, explain the terms, answer your queries etc.

You even need a post-sales services like claim assistance and helping you out in co-ordinating with the health insurance company if you are stuck. If you find yourself a policy through an Insurance Broker, if required, he/she may also be able to help you through dispute resolutions with Insurers, in the long run, if any.

Let me show you an example of a claim rejection case with Max Bupa (company was right in rejecting the claim) . One of the readers among you had bought a policy through Max Bupa (through some individual agent, not broker) and he bought two different policies for himself and wife . He wanted a maternity cover and the agent told him that its covered in the policy. It was even written in the policy document, but it was clearly written that both husband and wife have to be in a single policy (floater policy) . But agent and client both didnt pay much attention to it.

And after 4 yrs, company rejected the case based on their terms and conditions (the claim itself was not valid) . Below you can see the scanned letter which company had sent to the client. Here company was correct in rejection of claim because client wanted something which was never covered in the policy. However if had paid more attention or had a great advisor on his side, he might have been informed in a better way.

Remember that unlike Life Insurance or many other policies, Health Insurance could have repeated claims through yours or your family’s lifetime. It is therefore important to have someone who can hand-hold you through the tedious paperwork and the otherwise time consuming processes of Insurance companies.

In the cases where you want to cover the family members who are above 50 and/or with pre-existing disease, it makes a lot of sense, to go through an insurance broker who deals in multiple insurance companies. Out of sheer experience, the broker will be able to help you zero down to few Insurance companies who are liberal. This will help you avoid the pain of doing medical tests with Insurance companies where chances of getting a policy are very low.

Point #13 – Review your existing policy and look at options to Port

If you have an existing policy which does meet the above mentioned 12 points, and you are still young and healthy, I would recommend you to look at porting your mediclaim policy to a better company around 2 months before your next renewal.

Unfortunately, if you have already made claims in your existing policy, or have any chronic ailment to declare for any family member, the chances of portability are very dim. I would then recommend you look at upping your cover with the same insurance company, and look for other options (like Super Topup) by which you can hedge the negatives in your existing coverage.

Buy your health insurance company NOW !

I recommend that you at least start looking at various options and take your decision quickly. That’s all folks. If you have any questions, comments, feel free scroll down to post your comments. Happy to help.

Gift to Family members – 3 awesome tips to save income tax legally

Posted on February 12, 2015March 16, 2020 by Jagoinvestor

Most of the people in India try to save income tax by investing the money in their spouse, children and parents name. We are going to explore this topic more deeper and help you understand the exact rules applicable and how you can save more tax legally, by gifting money to your family members.

Majority of people, just transfer the money to their family member account and invest that money, thinking that they will not be paying tax on that amount and it’s a smart way of gifting the money and avoid paying the tax. But that’s not correct. I have already written in detail about what is gift tax and certain exemptions when one don’t have to pay any tax on gifts received.

What most of the people do in real life is that, they just transfer the money to their family member bank account and invest that money in their name, assuming that by default it will help them in saving tax, because they have gifted away that money and because their family member has income below exemption limit, they also don’t have to pay any tax. However, it’s not that simple.

Now, let’s understand the tax implications of various people involved when a gift is given and what is the right way to save tax by gifting money.

Let’s take an example – where husband earns Rs 10 lacs per annum, gifts Rs. 1 lakh out of that to his wife, who is a homemaker. Wife, then invests this Rs 1 lac in a Bank FD at the rate of say 10% interest per annum and earns Rs 10,000 as income.

This transaction has three parts and the tax implications as follows

Tax Implication on GIVER (husband) for the amount gifted
Tax Implication on receiver (Wife) for the amount received
Tax Implication on the income earned, when the gifted money is invested.

Tax Implication on GIVER (husband) for the amount gifted

Let’s first talk about the tax implication for the person giving the gift.

The person, who gives the gift can never claim any income tax deduction or exemption from his/her income. Most of the people confuse the entire gifting implication and assume that the money which they have gifted to somebody will be reduced from their total taxable income and they have to pay tax only on the balance income. But that is not correct.

In the above example, the husband earns Rs 10 lacs per annum and should ideally pay tax on that full amount after deducting any income tax exemption they get from various sections like 80C and others.

How most of the people think?

Now husband can argue that the Rs. 1 lac which was gifted to his wife should be reduced from his total taxable income and he should be paying taxes only on Rs. 9 lacs. But this is simply not allowed!

Because – if this is allowed, then everyone will gift all their salary or business income to wife or parents and no one will pay tax at all, because they don’t have any income now as the entire income is gifted. That does not make any logical sense.

So in the above example, husband has to pay tax on his income of Rs 10 lacs subject to all the benefits as available to him under various sections of the IT act and let’s say that his total tax after all tax deductions (80C) comes to Rs. 75000/- and his post-tax income is Rs. 9.25 lacs. He can gift whatever he wants out of this post-tax income.

Tax Implication on Reciever (Wife) for the amount received

Now let’s take the tax implication for wife, who got the money in our example. Will she pay income tax on this gift received or not?

The answer is NO

Because this is a gift from her husband, who comes under the specified list of relatives who are exempt under the income tax act from gift tax liability. If she had got this 1 lacs from her friend or some random person, who is unrelated to her. In that case, this 1 lac would be considered her income for the year and taxed in her hands, but here she will not pay any tax on this 1 lac.

Below is the list of relations from whom if one gets any gift, they don’t need to pay any tax.

Your spouse
Your brother or sister
Brother or sister of your spouse
Brother or sister of either of your parents
Any of your lineal ascendants or descendants
Any lineal ascendant or descendant of your spouse
Spouse of the persons referred in above points

So the point is that, if one gets a gift from close family members, like spouse, parents, siblings etc, the receiver does not pay any income tax on the money received.

Tax Implication on the income earned, when the gifted money is invested

Now the tricky part comes in.

What happens when the gifted money is invested in products like FD’s or shares? Let’s say that the wife invests this Rs. 1 lacs in a bank FD and earns an interest @10% annually, ie Rs 10,000.

Now who will pay the tax on this interest of Rs 10,000?

Husband or Wife?

I know most of the people will think that its wife, because once she gets the gift, now its her money and she is 100% owner of that money and any income generated from that should also be her own income and she should pay the income tax on that amount. So here in this case, if wife does not have any other income apart from this Rs 10,000 , then her total income for the year will be Rs 10,000 only and as its lower than the exemption limit, so she will not be paying any tax and won’t be required to file any income tax returns.

However in real life, this is not how it works.

In this case, IT department clearly knows that people will gift the money to their spouse who does not have any income, so that the whole income generated become’s tax-free. To combat this, there is something called as Income Clubbing provisions, which adds the income of one person in other income in certain cases, and that will apply in this case.

So in the above example, this interest income of Rs. 10,000 would not go tax-free and will be clubbed with husband’s income and he has to pay tax based as per the applicable tax slab.

So if, husband earned Rs 10 lacs a year, now this Rs 10,000 will be his additional income making his total yearly income as Rs 10.1 lacs.

But Income earned from the income earned is not clubbed

One interesting point to note is that any further income generated from the income is not clubbed further and that will be 100% income of the person who got the gift.

So in above example, when wife gets Rs 1 lacs as gift, and earns Rs 10,000 as the income, that Rs 10,000 will be clubbed with income of husband, but when this Rs 10,000 is further invested into FD again and earns Rs 1,000 income, this time – it will be wife’s income and not husband.

So now, how you can apply this rule in real life? Here is a tip !

Let’s say you have Rs 10 lacs with you. If you invest this money in your name, you will earn Rs 1 lac as income from it and pay tax on it, but next time again when you invest this 1 lac, you will earn Rs 10,000 and then again have to pay tax on it because it will be your own income.

What is the alternative way ?

What you can do here is that, you can invest Rs. 10 Lakhs in your wife’s name and earn an interest of Rs. 1 lac. This Rs. 1,00,000 will be clubbed in your income for the computation of income tax; which was going to happen anyways. however, when your wife further invests this 1

However, when your wife further invests this 1 lac in another FD and earns Rs. 10,000 (assuming 10% interest) as interest on it, this time it will be considered as her income and will not be clubbed with your income. Assuming husband in 30% tax bracket, it’s a saving of Rs 3,000. Might look small, but its one of the ways to save the tax by Rs 3,000 in a legal way.

The image below shows you the rules and how the tax implication will apply in various cases explained above

3 tricks to save more tax legally by investing in family members name?

Now you are clear about the tax implication on person giving the gift, on person who is taking the gift and on the income generated from the investment done by the gifted money.

Now let’s see some things, which an investor can do to legally save tax in a more smart manner by involving their family members and that too in a 100% legal manner.

Trick #1 – Invest the gifting money into tax-exempt or low-tax instruments

Clubbing provisions will not apply when the gifted money is invested in any investment option which are tax exempt by default. Or one can invest in lower tax options.

For example – rather than a normal FD, if the money is invested in shares of a listed company and sold after 1 yr or an ELSS mutual fund, and sold after 3 yrs lock in period, then in that case the profits which attract on 10% tax as equity taxation after recent budget is only 10% without indexation, that too above Rs 1 lac limit

Trick #2 – Invest money in your parents name

You can save taxes by gifting money or by giving loans to your parents or in-laws because clubbing provisions does not apply in these cases. This is because any income generated on the gifted or loaned money to parents is purely parents income and will be taxed in their hands only.

Let’s see an example.

Assume that you have Rs 40 lacs in your hand which you want to invest and your father and mother are both senior citizen and have no income from any source. Now what you can do is, gift Rs 20 lacs to each parent and let it get invested in a bank FD at an interest rate of 10% (just an assumption)

Now both of them will get 2 lacs as the interest income individually and this is their only income in a year and will be below the exemption limit (Rs 3 lacs for senior citizens) . So there won’t be any income tax to be paid by them.

This way you have invested Rs 40 lacs in family name itself with ZERO income tax.

On the other hand if this 40 lacs was invested in FD on a main bread-winner name who is into 30% bracket, he would have paid 30% income tax on 4 lacs of interest, which is Rs 1.2 lacs. This whole 1.2 lacs is saved.

Even if parents are having additional source of income, it’s still beneficial to gift the money to them as it would lower the income tax outgo, because of the lower slab rates and applicable exemption limit.

You can apply the same logic and invest in property in parents name and let the income come to them and enjoy the tax-free income subject to exemption limits.

Trick #3 – Invest money on Major Children Name

In the same way, even the money gifted to major children (above 18 yrs) will not be clubbed in your hand. So in case you have children who are 18 years or older who are either studying or earning at a lower tax slab than you, then gifting your surplus money and investing in their name will neither attract gift tax nor clubbing of income will apply.

Income earned out of investments made by your major Children out of the gifts given by you will be taxed in their hands only.

This is really a great thing because if you are going to pay for some upcoming children education goal or marriage goal, then instead of investing the money in your name and funding the goal later, why not just gift the money to the child and invest it in their name itself. When the goal arrives, the money can then be used, but for years there will be no tax liability (or lower tax) and you will save a good amount of income tax.

You may even consider giving interest-free loans to your children as it is lawful and can help you save you more taxes. However when the children are minor then clubbing provision will attract except in cases where the income is earned by the child due to his or her skill or talent.

Plan your Income Tax with help of a CA

There are lots of ways one can save income tax by restructuring their investments in family members name. Generally people do not have much time to plan all this and for years they pay higher income tax and never optimize it. If you really want to work on this. I suggest hire a good CA for his consultancy services. This can be your family CA or some friend if you want or some external person whom you can trust.

Let me know what new ideas are coming to your mind right now after reading this article? What are your views on this? Please share it on comments section.

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.

21 tips you should follow to secure your banking transactions

Posted on December 26, 2014July 23, 2019 by Jagoinvestor

The world of banking has evolved too much in last 10 yrs and the way banking happens now is totally different from past. Millions of people across the world still do not take simple precautions while they should ideally take or they are too casual about things and later regret when they lose money in some kind of fraud.

Today I want to talk about simple tips and precautions which you should take in your banking and while transacting with debit and credit cards online. It’s up to you to see which of the suggestions and tips suggested applies to you and how deeper you want to be secured. Here are those tips

1. Scratch your CVV number

It’s one of the most common mistakes almost every credit card and debit card holder does. On the back of your card, there is a 3 digit CVV number, which is very critical information and only you should be aware about it. The first thing you should do after getting the card is that you should memorize and write it down somewhere and then scratch it, so that someone else can’t have a look at it. Note that this step will secure your CVV, but then you have to remember it, you can’t retrieve it back if you forget it yourself!

2. Make sure your internet banking password is very strong

Your password for internet banking is probably the most important thing you have to take care of. Make sure you keep it very strong. Do not use your date of birth, name, etc in password, so that one can’t guess it and it’s only known to you. Make sure you have Capital Letters, Numbers, special characters in the password (anyway it’s mandatory in most of the banks portals).

And if possible keep a long password, which makes it tougher to crack and even if someone is watching your fingers typing movement, it becomes extremely tough for them to remember. It’s a good idea to check your password strength on this password strength calculator

3. Make sure have sms alerts enabled for any amount

Make sure you have SMS alerts for all the debit and credit transactions. A lot of online frauds are series of transactions like buying 10 times on a similar site or couple of recharges to various mobile phones. If you get notifications on your phone even for small amounts, it will help you identify the start of a fraudulent activity.

4. Make sure you buy insurance for your wallet and its contents

Companies like OneAssist and CPPIndia have products like wallet insurance, which will cover you from theft and other frauds which are possible in day to day life. Not just that, they have much more than just insuring your credit and debit cards.

If you have ICICI bank Account, you can upgrade your debit card to RubyX and you will get One Assist complimentary benefits for your wallet insurance. Read more on this topic here

5. Do not save your banking passwords in Phone or Email in plain English

It’s a human tendency to take the shortcut route all the times, but when there is your money involved, it’s better not to ! . Do not store your banking passwords etc (I would say any password) in plain English in your emails or drafts or phone. Always make sure it’s in some format which only you understand, like interchange the alphabets one after another (e.g. – 12A47* becomes 214A*7) , so that you know what is the password, but even if someone gets access to it, has to spend some time to crack it. If you can avoid that also, it’s much better.

The other thing you can do is, you can just store start, middle and end 1-2 characters, because most of the times, we just need the start (most of us have multiple passwords). So if your password is MANISH987_FAKEpassw0rd , then you can store it as MA…98…FA…rd , and that’s all . You will most probably be able to recall it considering you are using it from long time, but someone else will not.

6. Never share your CVV / Expiry date to anyone on Telephone or email ever

Being financial literacy at low levels, millions of people are not aware which information is critical and which is not when it comes to credit cards, debit cards and online banking. Things like CVV , your Expiry dates etc are never ever asked by any bank customer care. They ask things like card number, start date, date of birth etc for verification purpose. But there are scams going on internationally where scamsters pose as actual customer care and in name of verification call, they ask for CVV number and Expiry Date, which is extremely confidential information and no one other than the cardholder should know.

7. Don’t let others punch your PIN at restaurants or Petrol Pump

I have seen tons of people who share their debit card CVV number at hotels while dining or even at petrol pumps just because its shortcut, and in 99% cases, nothing happens too and you are safe. But that 1% case is dangerous where someone looks at your expiry and CVV number, and then do the online transaction without requiring your OTP password (6 digit) on international websites (that last level authentication is just applicable for Indian websites)

I personally think you should punch your PIN yourself and not share it with others. Most of the time some restaurants even carry the EDC machine and bring it to you. If you are sharing your PIN with others and handing over cards at hotels, don’t be surprised if someday you get a sms saying – “You just purchased …. worth $340 at amazon.com” , it happens and very much can happen with you too! . Read the incident below

Four unauthorized transactions happened to my ICICI credit card on 27 Jan 2014 in USA in a Grocery Shop amount $1200 (Rs 70000) approx. The Credit card was with me all the times at Bangalore and I never shared my credit card or personal info to anyone. I was using the ICICI credit card from last 6 years. The transactions happened in night and in the morning I show the sms alerts and called customer care about that. (Source)

8. Have the customer care numbers in your mobile for emergency purpose

You should make sure that you have your credit card company customer care stored in your mobile to inform them as soon as possible in case there is some fraud transaction with your account or card. At times, we come to know about the fraud and we feel that we will inform the customer care as soon we reach home/office. But that can actually turn against you because of delay.

9. While using your ATM card, make sure you block the view of others

Looks are deceptive . You never know who is watching you and your activity and what’s their plan? It’s always a good idea to cover your hand while punching the PIN and make sure no one is looking at you. If its ATM, make sure no one is around you. I know many must be thinking that they should probably skip this point, but only when some fraud happens, you realize how important it is.

It’s like people start wearing helmets only after an accident and buy health insurance only when someone in relatives had paid a big bill at hospital.

10. Avoid ATM transactions very late at night or at lonely places

If possible, it’s better to avoid ATM transactions at lonely places or at nighttime especially after 10-11 pm . If you are using ATM’s at remote locations, you have to be extra cautious. There are numerous cases where someone entered the ATM while someone was using it and they at gunpoint looted them or because it was lonely and dark, someone tried to rob someone coming out of ATM.

11. If you don’t swipe your cards regularly, keep it at home

I do this myself. I generally use only credit card when I am transacting offline, and use credit card only for online transactions, so I don’t not carry my credit card at all (haven’t seen it from last one year actually). So if you do not use it on a very regular basis or only in some pre-know situations , then it’s better to carry them only when you require them. Else just keep it at home.

I know this does not apply for many people, but you can still learn from this point .

12. Do not put much info on Social Media

I have seen numerous cases of people sharing their bank account details, phone number, email id, PAN and even date of birth online one various portals online (even on this blog) especially on consumer complaint websites. Note that you can write your entire story without your critical details too. Never share your personal details with anyone stranger or on public forum

13. Enable Two Factor Authentication for your transactions

Enabling two factor authentications means that you will be asked to enter your transaction password and then either an OTP (which comes on SMS) or your card grid values. So there is security at two levels.
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Most of the banks now have this by default, but if your bank has a choice of it, then you should enable it and if your email accounts are too precious, then even they have two factor authentications now (Gmail)

14. Never click on links on email to go to sites

You should never click on the links which come on your email and visit the website of a bank or credit card company. That might be a fraud email, which is taking you to a similar looking website. As far as possible, always make sure you only open the website either by clicking on a pre-stored web address or book marked one by you or type it yourself and always make sure it starts with https://

Below is an example of one such email which was sent by a fraudster on the name of Axis Bank Security update, which was taking the person to some other website on clicking the link mentioned in the email.

Image Source (read the full story on this link) 15. Never access your internet banking passwords and accounts from cyber cafe and someone else PC

You should make sure you do not access your internet banking (and even your important mail accounts) from a public computer or unsecured networks. Places like cyber cafes are a NO NO .. I would even make sure that I do not operate my internet banking from someone else computer too. You never know what kind of softwares are stored on someone computer. There are programs called “Key loggers” which record your which keys are you typing and it keeps a note of it and can later be retrieved.

Even some viruses and Trojans might be stealing your important information on real time and you might be at risk

16. Make sure your computer firewall is turned on and are running antivirus software

A lot of people turn off their firewall to increase the speed of internet . Make sure you avoid keeping it off. The firewall of your computer is extremely important to protect you. Also, make sure you have a good antivirus installed in your computer and keep cleaning it from time to time. You never know what bad thing got installed while you were downloading something over the net (especially when you use torrents)

17. Use Mobile Antivirus in case you access banking from your phone

If you use your mobile frequently to access banking, then it’s a good idea to have even mobile antivirus installed . Most of the troubles come from the least expected people and place.

18. Do not choose to save your passwords in browser when it asks for it

When you login to any website with username and password, browsers often ask you if you want to save the password, so that you it auto populates it next time.

19. Keep your computer OS and browser up-to-date

Its highly recommended that you have an up-to-date browser and Operating system (I hope no one has Windows XP or Vista or old version of IE/Mozilla/Chrome) . There are several security updates which keep coming and many loopholes are detected and fixed from time to time. Almost all the banks suggest it clearly that users should keep their OS and Browsers updated. ICICI bank also mentions it on their security tips webpage ..

20. Use Virtual Keyboard if possible

You must have seen a keyboard kind of interface which can be used while typing password and username, you can use it to make sure you are safe. As I explained before, there are programs like ‘Spy Ware’, which can detect which keys are you hitting and can steal that data. But when you use the virtual keyboard, it can only record which keys you pressed because it’s not happening on your computer, but one the bank server (experts on this topic, please correct me if I am wrong)

You should read more on this topic here

21. Use a separate browser for banking purpose

I think it’s a great idea to use a separate browser itself for banking purpose. Like if you are using Chrome for your other browsing, you can keep Firefox reserved for the banking related activities. I know this might sound like it’s going to extreme level of security, but then it depends on how paranoid you are about this security thing. It’s a personal choice of yours. If you do this, you can choose to disable the cache at all and not save anything in browser at all by default, no plugins , no add ons .. just pure minimal level of browser.

Secure your Banking NOW!

I know that most of the people might be following a lot of things mentioned here. Now it’s time for you to follow the other things mentioned here. Banking is one of the core element of your financial life, which can be considered the central element I would say. It’s extremely important to take care of it with highest level of security.

I would love to hear your comments and any new tips if you want to give from your side?

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

Posted on November 8, 2014July 23, 2019 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.

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

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 ?

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

Posted on October 20, 2014August 6, 2019 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 ?

10 smart actions every Indian Parents should take, once their baby is Born ?

Posted on September 1, 2014August 6, 2019 by Jagoinvestor

When a new kid is born, your entire life changes. You are excited to enjoy the new phase of your life. Today we are going to touch upon some basic things you should watch out for and focus on after your new kid is born.

These are few things which you will eventually complete, but if you are too late, you might end up waste your time and energy. So its better to learn from others mistake and take some actions before hand.

Things to complete in your financial life once a new kid is born

Note that we are going to look at only those things which are related to personal finance at some level. Also most of the things are generic in nature, so if you do not agree to some, just move on and do not implement them for yourself. Lets look at them one by one.

1. Review your Life Cover

Once your kid is born, a new life comes into existence. Its now an additional responsibility you and your spouse have on your shoulder. All the future and current expenses needs to be taken care.

Think about it, all the school expenses, future education expenses, providing for all the best things in life – This all is going to cost a lot of money and the breadwinner is going to provide for that. So, If something happens to breadwinner, your life insurance should provide all these expenses.

So make sure you increase your life cover after reviewing all the numbers. In case you have not yet taken any life insurance, I strongly recommend now get a life insurance plan. As a thumb rule, I think increasing your life cover by Rs 50 lacs is the minimum you can do.

2. Get the baby added into Health Cover

If you already have a health insurance plan (either bought yourself or through employer), make sure you add the kid to the policy the moment they are born. If you do not have the health insurance yet, you can now get the health insurance and make sure the kid is part of the policy.

Some policies already cover your new born kid without any extra premium from the birth itself provided they have also paid for the maternity claim in the same policy.

As an example – Family First Health Insurance from Max Bupa has provision for new born babies from the day they are born and even cover vaccination costs for the first year. Look at the snapshot below

add newborn baby in health insurance

Below is the vaccination chart along with the age, vaccination name. It will help the new parents.

vaccination chart india

3. Start a Recurring deposit for upcoming school expenses

We conducted our workshops in 3 cities in India and one of the common point most of the participants agreed on is that school expenses on a yearly basis are in the range of Rs 50,000 to Rs 1 lac per year. Even the pre-schools are costing a bomb now, which can range anywhere from Rs 25,000 to 2 lacs per year.

Below is a report on pre-school charges in Bangalore from Times of India

Some pre-schools also double as creches providing day care, and charge astonishing rates. One such school in HSR Layout charges Rs 1.38lakh per year for day care of kids up to two years old. Timings are 8.30am to 6.30pm — one hour less costs Rs 1.25lakh, and till 3pm, it’s Rs 96,000.

There are some pre-schools that charge up to Rs 1.5lakh. A prominent national chain, with a branch in Indiranagar, charges around Rs 80,000. On an average, Rs 30,000-35,000 is what you will need to give your child a headstart in life. Most schools have also started their own pre-schools, from where the children automatically move on to nursery.

As these expenses will arrive in next 2-3 yrs, its important to make sure you are ready to arrange the money for this. The most simple way to plan for this short term goal is to either open a Recurring deposit in your bank or start an SIP in a debt fund.

If you want to plan investments for your children education or overall financial planning, you can leave your details on our services page and we will get back to you.

Coming back to the point, As an example, suppose the expenses are going to be Rs 45,000 and if you have 30 months in hand. You can just open a Rs 1,500 RD and when it matures after 30 months, you will have that money with you.

When I asked for some suggestions on this topic one one of the facebook groups run by Ashal Jauhari. Pattu gave an interesting point regarding School Expenses in the start. Have a look at the conversations below which was part of the long discussion in the thread there

school expenses for kids

4. Update your Nomination’s in various financial products

You might want to have your baby nominated in some of the financial products you own. It can be your bank accounts, fixed deposits, mutual funds or even some property. You might want to add your newborn as one of the nominee in the assets you own. Read more about nominations in this article if you do not understand what exactly nomination is.

Also, if you have written your WILL, then you might want to update it soon after the baby is born. If you miss this, and if you old WILL didnt have the right kind of wordings, then your baby might loose his/her share in your wealth in worst case.

5. Register the birth Certificate

Make sure you apply for the birth certificate for the new born asap. It is a simple process if you complete it in the starting itself, else it will get complicated later. Most of the hospitals anyways has this as one of the mandatory things you need to do.

You can get the form from the hospital itself and then submit it to the local authorities within 21 days of birth. This page mentions the procedure in detail in-case you want to have a look.

6. Start a Saving Bank account for kid

One of the best things you can do for the kid from the start itself is open a saving bank account for the new born the moment they are born. Almost all the banks have facility for kids to open their bank account. For example – ICICI Bank clearly mentions that any kid starting age 1 day to 18 yr are eligible to open a bank account called “Young Stars” with them.

I would like to draw your attention on 3 reasons why you should open a bank account for your newborn kid.

Reason 1 – Put all the Cash Gift in the Kids Bank account

The moment your kid is born, for next many months and years – you will start getting lots of gifts in form of Cash. Often this money is not handled properly in families because of its small ticket size and it gets consumed here and there and finally evaporates.

You can always make a rule that all the small/big money coming in the baby name (on their birthday’s or baby shower functions etc) will be deposited in the saving bank account opened for the kid.

Reason 2 – You can open dedicated long term investments for your kid’s future

Another reason why you might want to open a saving bank account for the kid is that if you want to invest for your kid long term education or any other thing. You can make sure you start the investments from the kid account itself.

This way the account will be dedicated for that purpose and your volatile decision making will not impact the savings for kid. You can either invest in Kids PPF account through this account or do a SIP in equity mutual funds for long term investments needs.

Mr. Jinesh Shah from in one of the facebook group shared what he does for her kid.

Reason 3 – Your kid will learn about banking and personal finance from very start of his life

Another good reason for opening the bank account for your new born kid is that once he/she turns upto 8-10 yrs, you can allow them to partially handle their own bank account and teach them banking aspects.

Learning that they have their own personal bank account will make them feel good and also they will take keen interest to learn these things, which most of the people learn very late in life.

Bonus Tip : You can also apply for your baby’s PAN card within few weeks/months of his/her birth. Anyways you have to make it later, so why not in the start itself. Its always a good practice to have a proof of identity in the start.

It will be handy if you want to apply for other kind of documents like Passport, bank account, etc . You can read this experience from Amit Gupta when he applied for PAN Card for her daughter.

7. Buy clothes and toys smartly – they’re often gifts

I know new parents are excited and want to give their best. They will buy lots of clothes and toys and no one has any authority to advice parents on what to do and what to not do. The emotional side of joy cant be suppressed. However Often new parents realized later that they have overspent too much on things which baby never needed.

In reality, for the first few months – the babies only sleep almost all the times and they grow so fast that things you had bought for them is now not needed by them. And when relatives and friends come for visits, they anyways bring lots of things you had already bought for kid.

So there are few tips which can optimize the expenses side and also help reduce the wastage done by many parents.

Rotate things among your group – There can be many things which can be rotated among parents for their new born kids. If you have some item which can be shared with some other new parents, then better share it with them and help them reuse things. There is nothing wrong in it.

Shop Slowly – Buy things one by one and not in a lot – If you want to buy something for your kid, start small – let the moment come and buy it. This way you will not buy things which are unwanted for kid.

Below is a survey done by Moneylife on the topic “The real cost of parenting” sometime back. It explains what kind of expenses families are doing on various stages for their kids. I am sharing the results for the age group 0-4 here. If you are interested to look at the full survey results, please read their full article here

8. Dont invest in CHILDREN PLAN

Yes, thats correct.

The moment you become parents, Apart from the joy and happiness, some part inside you will also be “very worried” about the kids future and how you will provide him/her best in life. This is the perfect mis-selling moment on the name of kid by various agents.

All the insurance agents (uncles and aunties) will come to you and try to sell you a CHILD PLAN. You will be sailing on the emotional boat at that moment and you will hear sentences like – “Gift you kid his bright future” and “This is the perfect thing you can buy for your kid in the start” .

While I am not against any policies and plans, but these Child Plans are often designed to exploit these kind of emotions and things are bundled in such a way that they look over attractive proposition to a new parents for their kid.

Inside the product its often the mix of insurance and investments with some kind of payout on regular basis. These are high on costs and a bit complex products. Its nothing but a slightly changed versions of ULIP’s or traditional insurance plans.

In case you are really impressed with those products, my suggestions is to wait for some months, and later study them properly and then buy them if you are fully convinced about them.

In general I would recommend any new parent to insure them with a simple Term plan and either open a Recurring Deposit or just invest in a simple mutual fund with SIP route to start with or you can follow this ready made calculator, I create sometime back for planning your kids investments

9. Have a 24/7 reachable Doctor nearby home

Medical expenses and Doctor visits are one of the top most expenses you will have to incur after the baby is born and for at-least first 1-2 yrs and you cant even avoid this issue.

You will have to travel many times to doctor. These visits are sometimes planned and often emergencies. You even might be in your office when you get a call from home that baby needs urgent attention and then you take a day off or leave early from office.

It helps a lot if the doctor is near you home or within few KM’s distance. At times people have their doctors as far as 15-20 km’s (for reasons like – “He/she is the best doctor I think”) and then in-case of emergencies it can take 2-3 hours to just travel.

So its always the best thing to have a good doctor nearby and try that they are reachable almost all the times. Ask their permission if you can call them anytime (day or night) and take consultation. Compensate them for their effort and they should agree.

10. Make a Baby Emergency Kit and save on Time+Money

This is a great tip shared by Nandish (He became father 1 yr back), while I was working on this article.

He shared that they have created an emergency kit for baby, which has medicines for the recurring issues and most common things which new parents will encounter all the times like stomach ache, teething issues, loose motions, fever etc. You can sit with your doctor and take consultations on what all to do in various situations without visiting them.

To show you importance of this emergency kit, I would like to share an incident which happened with Nandish. Her neighbor’s kid was having some issue around afternoon time, when her husband was in office and no one was there at home (I forgot the medicine name) .

She was trying to find out how she can get the medicine asap from somewhere. Because there was an emergency kit available at Nandish home, that common medicine was there and she could get it instantly. This is a small action, but it saved a visit to doctor and even a trip to market to just fetch the medicine.

This kit can also have wet wipes, extra nappies and every other thing you can imagine. Its even very handy if you suddenly have a travel plan (locally within city) and its going to take yours . Medimanage has put up a very nice starters guide for new parents, have a look at it.

Conclusion

The points if implemented will help you make your parenting journey more smoother and your financial life more better over long term. I know most of the people do not think about all the points mentioned above thinking they will handle things once they arrive, but then its your choice. Its a always a good idea to prepare for things well in advance and not wait for the last moment surprises.

Can you share some more tips which are not mentioned above. It will help people who are about to become parents or new-weds who will plan for their kids in next few years.

How you will save more Income Tax compared to last year due to Budget 2014 (Download Calculator)

Posted on July 11, 2014August 6, 2019 by Jagoinvestor

Budget 2014 was a big event this year as the expectations from BJP govt was very high. Here are some of the income tax rules which were changed int his budget and impact a common man directly.

1. Income Tax Exemption Increased from 2 lacs to 2.5 lacs

The basic exemption limit was raised by Rs 50,000 in this budget and now the new limit is Rs 2.5 lacs . So there is no tax to be paid upto income of Rs 2.5 lacs. For senior citizens, the new limit will be Rs 3 lacs. So the new tax slabs looks something like this

new income tax slab 2014 2015

3% education cess is extra on income tax2. 80C limit raised from 1 lacs to 1.5 lacs

This was a big relief for most of the people, as the old limit of Rs 1 lac in 80C was not enough for most of the people. There are too many things like EPF, PPF, Home Loan Principle amount, tuition fees, Life Insurance Premium, Tax Saving Mutual Funds and Tax saving FD and many more things, which gets 80C exemption.

Now with this exemption increase to 1.5 lacs, more motivation will be there for people to utilize this 80C limit. So if a person earns Rs 4 lacs, he/she can invest upto Rs 1.5 lacs in 80C, which lowers the taxable income to 2.5 lacs , which does not attract any income tax. So in best case, a person do not have to pay income tax upto Rs 4 lacs income with help of 80C investments done.

3. PPF limit raised from 1 lacs to 1.5 lacs

The limit for PPF investments was increase from 1 lacs to 1.5 lacs. This is going to be a great news for PPF fans and especially those who are investing in PPF in their children names, as the overall limit would increase for their family.

4. Home Loan Interest exemption raised from 1.5 lacs to 2 lacs

This was again a big relief for salaried class, as a lot of people who have taken home loan pay much more than 1.5 lacs of interest per year. With the increase of limit from 1.5 lacs to 2 lacs, the extra saving is of tax on Rs 50,000 , which turns out to be around Rs 15,000 for those who are in 30% tax slab. Note that this is only applicable for self occupied house taken on home loan.

5. Capital Gains Tax on Debt funds raised from 10% to 20%

The capital gains tax on debt funds has been raised from 10% to 20% and the minimum holding period to get benefit has been raised from 12 months to 36 months. So what happened was that earlier, people in 20%-30% tax slab rate used to invest in debt fund for 12 months and got it taxed at 10%, which was a great alternative to fixed deposits (where you pay 30% tax , if you are in higher tax slab) . But now this cant be done . Those who are interest to understand this part, please read this analysis on Deepak Shenoy Blog.

Then vs Now – An example calculation of a person earning Rs 10 lacs

Below I have given an example of a person who earns Rs 10 lacs, and takes full benefit under 80C , Home loan Interest and other basic exemptions like HRA, Medical Bills, Medical Insurance premium etc and compared his situation from past year rules vs the new rules which came in new budget. It has been seen that he can save approximmately Rs 30,000 additional tax. Have a look below

income tax calculation example

Download the Income Tax Calculator

I have created an excel calculator which you can use for calculating your new income tax and also compare with past year and see how much saving you will make with new rules.

Click Here to Download the Income Tax Calculator

Some Other Changes and Points from Budget

There is a proposal for introducing a single demat account for all the financial products
The EPFO will launch a unified EPF account, which will be a single account and there wont be headache to transfer or merge them every-time you change the job.
There will be uniform KYC across all financial institutions so that you don’t have to update your KYC at all the places

Please share how do you see this budget and the benefits ? Do you think its really going to help bring the “acche din” or not ? Please share your thoughts in comments section below.

What happens when Bank locker keys are lost?

Posted on June 26, 2014August 6, 2019 by Jagoinvestor

Have you ever pondered the consequences of losing the bank locker keys? In this article, I will share what to do when you lose your locker keys? What are the rules and charges involved in setting things right again?

what happens if you lose your bank locker key? How much fine you will have to pay to get your new locker keys?

What happens when you go to open the Bank Locker?

When you open a Bank locker, you are billed in advance for breaking charges and 3 years of rent (the former is to cover emergencies when the locker might have to be broken). RBI guidelines state that banks can charge this extra fee if they wish, but some banks might charge it later, only if the situation arises.

You get 1 single locker key only

When you open a bank locker, there are a total 2 keys to the locker; out of these, one key is given to you and the other is with the bank. The absence of duplicate keys means that it is very important to keep your keys carefully and not lose them. However, it is very natural that some people lose their keys or misplace them.

What happens when your locker keys are Lost?

When you lose your locker keys, the first thing you need to do is write to the branch manager informing them about the loss. They can then ensure that the locker cannot be accessed by anyone (for example, by someone who stole your keys).

Once you intimate the bank about the lost keys, your locker has to be replaced by a new one (and keys) OR the duplicate keys have to be created and given to you. In either case, they will be contacting the company that supplied the locker to them (mostly Godrej).

A trained technician will travel to the bank office and cut open the locker in the presence of a bank official and the person who rented the locker. This is to avoid any dispute over the loss of items from the locker. If the person renting the locker is not available, the bank will go ahead and break the locker and move the locker contents to a sealed box, which can be passed to the customer later.

Do I need to pay high penalty If I lose my locker key? Here is a reason below

Bankers do provide a replacement of duplicate key of lockers in case the same is misplaced or lost. There is no duplicate key of a bank locker as such. The bank has to call the supplier of the locker (i.e. the company that has supplied the lockers to the banker) and the supplier provides the duplicate key.

This may entail a cost of about Rs.3000 per key. This heavy cost is due to travelling cost and other administrative costs that are involved.

Any expenses incurred will have to be borne by the person owning the locker – a sum that can run into the thousands. Just because it is “loss of keys”, one should not treat it as a trivial matter and assume that duplicate keys will be provided for free.

Penalty charges may vary from the size of the locker?

Note that expenses can vary as per the size of the locker. For small lockers, the replacement charges will be less and will increase to large amounts for bigger lockers. I think the high expenses act as a deterrent to ensure that locker owners do not treat the safeguarding of their keys as a trivial matter.

For complete clarity, I have set out below excerpts from bank T&C’s regarding this issue.

From ICICI bank website

The Hirer(s) is/ are permitted to operate the locker with the key provided by the Bank and no operation of the locker shall be permitted with a key other than the key provided by the Bank at the time of executing the Agreement.

If the key of the locker, supplied by the Bank be lost by the hirer(s), the Branch should be noticed without delay. All charges for opening the locker, replacing the lost key and of changing the lock, shall be payable by the Hirer.

From SBI Bank website

In case of loss of key of the lockers, a service charge of Rs.509/- has to be recovered from hirer in addition to the actual expenditure incurred in breaking open the locker and changing of key by manufacturer of lockers.**

From City Union Bank website

In the case of locker keys reported lost by the hirer, a written declaration shall be obtained from him/her. The bank shall obtain from the manufacturing company a fresh set of lock and key. It shall be delivered by the company in a sealed box through its technical representative.

The technical representative shall open the box in the presence of the Branch Manager and the Hirer and then in their presence the locker shall be broken open.

The contents shall be removed safely and a new lock shall be fitted thereon. Then the NEW key shall be handed over to the hirer after collecting the charges for fitting the new lock and key.

Why do we need to keep the Bank locker keys Safe?

We may face 2 major consequences if we lose bank locker keys. They are as follows –

If the keys get into the wrong hands, then you fear to lose your locker contents. After all, you must be well aware how lousy bank officials are in checking the authenticity of the person opening the locker – all they do, is fill an entry in their register and that’s the end of it.
Another issue is you will have to pay hefty fines if the locker keys are lost. The amount of hassle and financial loss you need to absorb to rectify matters is huge compared to the size of mistake. It is therefore suggested to be careful from the onset.

Let me know your views on this article. Were you aware of these rules or not?

5 must know rules before Opening PPF Account for minor child

Posted on February 24, 2014August 19, 2019 by Jagoinvestor

PPF account is one of the most favorite investment product in India and every person wants to open a PPF account for minor child. However, there are lots of myths about the rules on opening PPF account for minor kids.

In this article, we will look at some of the important points you should know if you want to open a PPF account for your children. We will discuss about tax exemption, limit on the amount you can invest and PPF maturity rules. Here they are

UPDATE: The limit was 1 Lac when this article was written. Now it has increased to 1.5 Lacs.

rules ppf account for minor children

1. Who can open PPF account for minor Child ?

As per PPF rules, a guardian can open Public Provident Fund account for minor child, where guardian is

Either Father or Mother
Or incase of Parents are not alive, then any other guardian under the law can open PPF account for minor children, like Uncle, Aunt, Grandmother, Grandfather etc.
Incase a surviving parent is incapable of acting, then also some other guardian (as mentioned above) can open PPF minor account

2. How much can I invest in PPF account of Minor Child ?

There is a very big confusion around this topic. The most common question is – “Can I invest more than 1 lac in PPF account ?”

As per my understanding and all the readings I did on this topic, I came to know that One can invest maximum of Rs 1 lac in all the combined PPF (Public Provident Fund) account a person has which is self , and for minor children. Example – Imagine there is a Father (F) and Mother (M) and there are two minor children – C1 and C2 . Now follow scenario’s are possible

Father (F) can open PPF account for himself, C1, and C2
Wife (W) can open PPF account for herself, C1 and C2
Father can open PPF account for himself and C1 (or C2) , Wife can open PPF account for herself and C2 (or C1)

Here are these 3 scenarios possible

PPF account for minor

3. Can I deposit more than 1 lac in PPF account even if I don’t need income tax exemption ?

This is one question which really needs clarity, because a lot of people open PPF accounts for minor children and invest Rs 1 lac in all the Public Provident Fund accounts (Here are articles on opening PPF account with ICICI Bank and with SBI Bank).

You don’t get income tax exemption under 80C for more than total Rs 1 lac, which is fine for many people, but are you eligible to get benefits on more than 1 lac invested or not ?

As per PPF rules, you are just not allowed to invest more than Rs 1 lac in your own PPF account or any other PPF account where you are guardian. So if you have 2 kids and you have opened PPF account in their names, you might be thinking that you can invest 1 lac in your own PPF and 1 lac in each kid PPF account so that you can enjoy tax free maturity income later for your kids PPF account .

But I dont think its allowed, because as per PPF rules, the 1 lac limit is for an individual , not on per account basis .

But I have been investing more than 1 lac each year, already from many years !

I know, a lot of investors who have been investing more than 1 lac in PPF each year. Due to technological challenges, it might be possible that no one stopped you from doing it, but in future if govt comes to know that you have been avoiding the rules, you might not get any interest on the excess amount, so you might get back only the principal amount at the time of maturity.

A lot of Bank staff are also not clear on these rules , here is an incident which was shared by one of our readers

Today I met manager of the branch of bank (State Bank of India) where I have all these three accounts. I narrated the whole scenario. He does not see any problem with the situation.

I am really confused as to continue this mode of financial plan or to change it in the light of your clarification regarding the total ppf investment limit.

4. Do I need to declare about my personal PPF accounts at the time of opening minor PPF ?

A person can not have more than 1 PPF account on self name, but they can have it as a guardian for his children , but you need to declare about all your PPF (Public Provident Fund) account as self and for other children at the time of opening a new PPF account with other kids.

Because when you fill up the PPF opening form, there is a declaration you need to give about it , here is a snapshot of how it looks like

self declaration ppf form

Which means that legally you need to declare about your other PPF accounts , if you don’t do so, you are breaking the law and if in future its detected that you have been doing what is not allowed, all the money you have deposited in PPF account in excess to the limit allowed will just be returned to you without any interest, and that might be a big blow to your overall planning.

So, a small change you can do in your overall planning is that, you can ask your spouse to open PPF account as guardian for the child, this way, one husband can avail upto 1 lac benefit and wife can also avail upto 1 lac benefit.

5. What happens when the minor kid becomes a major ?

Case 1 : If PPF account matures before the child attains 18 yrs –

In this case the guardian can either withdraw the money from PPF or extend it for another 5 yrs block . In this case, the money withdrawn will be treated as guardian income and now when this money is invested somewhere else and any interest income is earned (learn how PPF interest is calculated), then it will be treated as guardian income only.

So imagine PPF (Public Provident Fund) account is matured and the kid is still minor (assume you opened the PPF when he/she was 1 yr old) and you get Rs 10 lacs from PPF account, now when you invest this 10 lacs into FD , you get Rs 1 lac as interest in a year, this interest income will be treated as your income (guardian income) and will be added into income and taxed accordingly.

Case 2 : If PPF account matures after the child attains 18 yrs (become’s major) –

In this case, the account will then be operated by the child (who has become major) and there will be no guardian. The child will then take his/her own independent decision.

In this case, because the PPF account has matured after the child has attained maturity age, all the maturity amount will be income of the child itself, Now any interest income earned on this amount in future will be kid income.

Conclusion

PPF account for minor children is a good idea if you want to build a long term corpus for their education or other requirement. However if you are already exhausting your own limit for PPF (Public Provident Fund), then it might not be that useful because their a limit on the investment amount.

You need to see how you want to divide the amount between your own and your kid and whom do you want to make guardian, yourself or your spouse ?

Can you share about your case ? Do you have PPF account for your minor child ?

6 reasons for which you can withdraw from your EPF – like Buying House, Medical treatment, Marriage etc !

Posted on February 12, 2014August 6, 2019 by Jagoinvestor

Yes, you read it right ! . Most of the people do not know that they can withdrawal partially from their EPF account even when they are in the job for some specific and important reasons in life like buying house, marriage and paying for education fees.

Today I am going to share with you this very hidden and not so known information about EPF partial withdrawal. EPF is an important part of most of the salaried individuals, but there is lack of awareness of how it can help you at times when you are pressed for money in life.

If you have worked for several years like 5-20 yrs already, you have accumulated a good amount in your EPF (Employee Provident Fund), but most of the people feel that its locked in and they will only be able to get it only at the time of retirement or will be able to withdraw/transfer it when they leave their job.

EPF withdrawal for house purchase, marriage or medical emergencies

6 situations when you can withdraw money from EPF account while you are working

Here are those 6 major milestones in life or reasons for which you can take out the money from EPF account

For Marriage Purpose of Self, Sibling and Children
For Education of Self + Children
Purchase/Construction of House or Flat
Repayment of Existing Home Loan
Repairs/Alteration of Existing House
For Medical Treatment

Different rules for different situations

Para 68 of Employee Provident Fund Act 1952, defines how much you can withdraw, under which condition, after how many years of service and finally how many number of times. But before you move forward, its important to understand two important terms – which are “wages” and “years in service”.

You should know these two terms because how much you can withdraw for some reason has some restrictions and defined like this – “You can withdraw maximum 36 times your monthly wages, only after 5 yrs of service”. So you will get confused on the terms like wages and years of service .

Most of the people confuse “wages” with the monthly take home salary or gross salary and do not understand how to calculate “yrs of service” because they have changed their jobs and keep moving from one company to another and have not transferred their old EPF account to new one.

So lets understand these two critical points

What is the meaning of “Wages” ?

Wages means Basic Salary + DA (if any) . So if you are earning Rs 80,000 per month take home,. but your Basic Salary + DA is only Rs.25,000 per month and rest 55,000 is other components, then for calculation purpose – “wages” will be Rs.25,000 only and not Rs.80,000 which is generally confused with.

What is the meaning of “X yrs of Completed Service” ?

How old is EPF account is the sum total of how many years you have worked. Do not confuse it with how long are you are employed in current job.

Because Employee Provident Fund (EPF) is a centralized pension system, if you ave worked for 3 yrs , 4 yrs and 2 yrs in 3 different companies, then your EPF account would be considered as 9 yrs old, provided you have transferred your old EPF accounts to the current one.

So in this example which I just gave, even if your current job is 2 yrs old, if you have transferred your old EPF to your current one, your “yrs of service” will be 9 yrs, and then you will be eligible for many benefits which we are going to talk in this article.

Incase you have not transferred your old EPF account to current EPF account, then in that case you will be at loss, because there is no data of your past employment in the current EPF account and you suddenly might not be eligible for various withdrawal benefits, because many of them require atleast 5 or 7 yrs of service.

So the first step you should do is transfer your old EPF to your new EPF account. Incase you have been facing issues while transferring your EPF account, file a RTI now and get it done !

What is Form 31 ?

Form 31 is the main form which one has to fill and submit to employer inorder to withdraw money for various important situations mentioned above. Along with form 31, you also need to provide specific documents depending on the case. You can either ask for Form 31 from your employer or download Form 31 from EPF website.

Fill this form and submit it to your employer who will then verify it and process it. Note that you should not send it directly to EPFO office, because it has to go through your employer only. Below is the form 31 attached if you want to have a look at it.

How will you receive the money from EPFO ?

When you fill up the form 31, you need to you need to fill up your bank details and also give a cancelled cheque and once your employer and EPFO verifies it and process it, you get the money through NEFT or RTGS in your bank account.

Incase the amount is less then Rs 2,000, you also have option to get it via money order.

6 situations when you can withdraw from your EPF

Below are those 6 important reasons for which you can withdraw from your EPF , now I am going to explain each of them in detail. Here they are –

Reason #1 – Marriage for self, children and siblings

You can withdraw from your EPF account for the occasion of marriage if you have completed 7 yrs of service. The interesting part is, you can avail this facility 3 times in life (during your service) and the maximum amount you can withdraw can not be more than 50% of the “Employee share” in EPF account.

You should be clear that even Employer contributes to your EPF account and that is not considered for this withdrawal. So even if your EPF account total balance is Rs 10 lacs, that whole amount is not considered for calculation purpose, only your own contribution and interest on that amount is used for calculation purpose.

This is applicable for the marriage of

Self
Son or Daughter
Brother or Sister

So for an example, lets say you have been working for 10 yrs and your sister’s marriage is coming up, you can withdraw money from your EPF account for this purpose.

You will need to provide the full address of venue, marriage date in form 31, and also attach some proof of wedding like Marriage invitation or the bonafide certificate of the fees payable and give it to your employer for verification and processing.

Reason #2 – For Education of Self + Children

You can also withdraw for education expenses for self and children. This is valid only for post matriculation educational expenses. By post-matriculation, it means after 10th standard .

So if you are admitting your child to any college or university for graduation or post graduation or any other professional course, you can withdraw from your EPF account. But this can be availed only after 7 yrs of service and the maximum amount you can withdraw is 50% of your own contribution.

This can be used for maximum 3 times in your lifetime, but this 3 times also includes the “marriage” as the reason. So the point is , for Marriage or Education purpose, you can withdraw for maximum 3 times in total.

Reason #3 – Purchase/Construction of House/Land

If you are planning to buy or construct a house OR purchase a land, you are eligible to withdraw some limited money from your EPF account once in lifetime. Here are some of the rules which you need to satisfy

The house/land should be on your name or your spouse name or jointly in the name of you and your spouse (no other combination is allowed)
You should have completed 5 yrs of service.
If you are purchasing land, the maximum permissible amount is 24 times monthly wages.
If you are purchasing or constructing a house/flat , then the permissible limit is 36 times monthly wages (including the acquisition of land also)

So for example –

If you are buying a flat and your salary per month is Rs.80,000 , but your basic salary + DA (wages) is only Rs.25,000 per month, then for calculation sake, your wages is Rs 25,000. So as per rule, you can withdraw upto 36 times your monthly wage, which is 36 x Rs.25,000 = Rs.9 lacs from your EPF account.

If you do not have that much money, then you will get less than 9 lacs. This is not a small amount if you think about it. When you take the home, there are so many costs involved and one is so hard pressed for money that time, Even few lacs is a big enough help.

The property in question should be free from any dispute or emcumbrances to avail this facility (here are 20+ terms you should know about real estate). Also the property should be registered and a proof of registration must be given to get this facility.

Reason #4 – Repayment of Existing Home Loan

This one is surely going to move a lot of you readers I know :). If you have a home loan, you can even withdraw some part of your EPF money to prepay your current home loan, but for that you need to have 10 yrs of service. However you can avail this only once in your lifetime, and this one time limit is clubbed with the last reason (3rd) above.

So one can either withdraw money from EPF account for purchase/construction of house or repayment of house loan, not both !

The property must be in the name of self, spouse or jointly registered with spouse.

A lot of people have a joint home loan with father, mother, siblings – but in those cases, you wont get this benefit. The amount you can withdraw will be 36 times of your monthly wages.

The money you will get under this clause, can be taken from self contribution and employer contribution in EPF. You will need to provide the proof for house agreement, sanction of house loan and some other documents as asked by the EPFO office.

Also the money will be issued directly to the lender bank, not to you (incase you thought you can trick the EPFO and enjoy the money for some other purpose). Next, you can use the money from your self + employer contribution.

Reason #5 – Repairs/Alteration of Existing House

At times, when your house is little old (after many years), there comes a time when you want to make some alterations and changes in current house and it burns your pocket. You might want to do some construction work, or lets say change your home tiles, or add a new room in existing house.

In all these cases, you can use EPF money for this purpose. However there are few rules

The maximum money you can take is 12 times your monthly wages
The house should be more than 5 yrs old after construction completion date.
You should have completed 10 yrs of service
You can avail this facility only once
The house should be in the name of self, spouse or jointly with spouse

Note that this money can only come out of your own contribution, not employer’s contribution

Reason #6 – For Medical Treatments

If you have health insurance, then well and good, but if you don’t have it and if you are hospitalized or have to undergo some major surgery, you might have to shell out a lot of money, but your EPF account can be of some help to you partially.

You can withdraw money from your EPF (Provident Fund) for a medical treatment for self or anyone is family in following 3 situations (any one, not all)

(a) The hospitalization is for more than 1 month (for any reason), or
(b) major surgical operation in a hospital, or
(c) if one is suffering from T.B., leprosy, paralysis, cancer, mental derangement or heart ailment and having been granted leave by his employer for treatment of the said illness.

The best part is that you can withdraw the money anytime in your service.

There is no requirement that, you must have completed X number of years in service. Even if you have been in service for just 1 yr or 2 yrs, you can still withdraw money for medical treatment – But at the same time, the maximum money you can take is limited to 6 months wages, which is not a very big amount, but still atleast you get some help and this option is there.

This benefit can be taken anytime you want and for any number of times during your life time. So in a way, your EPF will come to your rescue in times of need, at least partially if not fully!.

But, there are few documents you will have to produce and give along with Form 31 and those are

A certificate from your employer which states that the Employees’ State Insurance Scheme facility and benefits thereunder are not actually available to the member or the member produces a certificate from the Employees’ State Insurance Corporation to the effect that he has ceased to be eligible for cash benefits under the Employees’ State Insurance Scheme

A certificate from eligible doctor stating the fact that hospitalization of one month is required or there is a requirement of a major surgical operation or certifying that one is suffering from the mentioned illness – i.e T.B, leprosy, paralysis, cancer, mental derangement or heart ailment.

All the rules mentioned in a single chart

So that was all the rules I wanted to tell you, I also want to give you a single chart which has all the above points at one place.

epf withdrawal chart for house purchase, marriage or education expenses

An example of someone with 10+ yrs of experience

To give you a more clear picture, here is a simple example which will help you understand how much a person is eligible to withdraw in money terms. I have assumed that a person has completed 10 yrs of service and his wages per month is Rs 20,000 and his current EPF balance is Rs.10 lacs.

epf withdrawal example house purchase

Conclusion

Your EPF account is primarily for your long term wealth creation, Do not use it only because the money is available through that because its a place where your money gets accumulated each month without your intervention.

However in case of crisis situations and when you are not able to arrange for money from anywhere, its a good place to chip in and withdraw the money.

Let me know if you want to share any new information or have any doubts. I would be happy to answer them incase I know more

Point #1 – Don’t be too late in buying a health insurance policy

Point #2 – Assess who do you want to cover and their health status

Point #3 – Assess your lifestyle

Point #4 – Individual Covers or Family Floater?

Point #5 – Zero down on Sum Insured from Long Term perspective

Point #6 – Compare Hospital Room Eligibility Capping

Point #7 – Check for any sublimit/co-pay

Point #8 – Hospital Network is Important Parameter

Point #9 – Finally, go through Policy Wordings

Point #10 – Go for Super-Topup

Point #11 – What to ignore while buying a policy ?

Point #12 – Ensure you appoint a good advisor

Point #13 – Review your existing policy and look at options to Port

Buy your health insurance company NOW !

Tax Implication on GIVER (husband) for the amount gifted

Tax Implication on Reciever (Wife) for the amount received

Tax Implication on the income earned, when the gifted money is invested

3 tricks to save more tax legally by investing in family members name?

Secure your Banking NOW!

8 reasons why you can expect income tax scrutiny notice?

Reason #1 – You have not filed your return

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

Reason #3 -Sudden drop in Income

Reason #4 – Claiming Higher refund amount

Reason #5 – Mismatch in TDS credit

Reason #6 – Non Declaration of Exempted Income

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

Reason #8 – High Value Transactions

How to Avoid getting Notice from IT department

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

Step 1

Step 2

Step 3

Step 4

Step 5

Step 6

3 Important Points you should always remember

What is Home Loan Eligibility ?

Think from the Lender’s point of view

Example of Calculating Home Loan Eligibility

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

Important Note –

Factors which Affect your House Loan Eligibility

1. Your Income

Note:

2. Age of the applicant

3. Credit history

4. Profession

5. Your Relation with the Bank in Past

6. Your Employer Category

5 tips to increase your loan eligibility ?

1. Go for a longer loan tenure

2. Prepay an existing loan completely

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

4. Include the spouse or parents for the loan application

5. Add any bonus you are liable of

Conclusion

1. Review your Life Cover

2. Get the baby added into Health Cover

3. Start a Recurring deposit for upcoming school expenses

4. Update your Nomination’s in various financial products

5. Register the birth Certificate

6. Start a Saving Bank account for kid

Reason 1 – Put all the Cash Gift in the Kids Bank account

Reason 2 – You can open dedicated long term investments for your kid’s future

Reason 3 – Your kid will learn about banking and personal finance from very start of his life

7. Buy clothes and toys smartly – they’re often gifts

8. Dont invest in CHILDREN PLAN

9. Have a 24/7 reachable Doctor nearby home

10. Make a Baby Emergency Kit and save on Time+Money

Conclusion

Then vs Now – An example calculation of a person earning Rs 10 lacs

Download the Income Tax Calculator

Some Other Changes and Points from Budget

What happens when you go to open the Bank Locker?

You get 1 single locker key only

What happens when your locker keys are Lost?

Do I need to pay high penalty If I lose my locker key? Here is a reason below

Penalty charges may vary from the size of the locker?

Why do we need to keep the Bank locker keys Safe?