EPFO launches online PF transfer facility for PF trusts

epfo-launches-online-pf-transfer-facility-for-pf-trusts

Provident fund accounts with privately held PF trusts can now be transferred online to accounts maintained by the retirement fund body EPFO.

At present, workers are required to file PF transfer claims on changing jobs to consolidate their PF accounts and benefits under the Employees’ Pension Scheme 1995 run by the Employees’ Provident Fund Organization (EPFO).

According to a circular today issued by the EPFO for its over 120 field formations, the facility will be available for employees’ changing jobs from an exempted establishment (PF trusts) to un-exempted establishment (maintaining accounts with EPFO).

As per the circular, the body has started a process of registering digital signature certificates of the authorized signatories of exempted trusts in July this year for launching this new facility. There are 3,621 private provident fund trusts (PPFT) which are managing the accounts as well as retirement fund of their workers. These trusts are regulated by the EPFO.

There are over five crore active subscribers whose accounts are being managed by EPFO. But these are all un-exempted firms which don’t operate a trust and file provident fund returns with EPFO.

Digital live certificate will facilitate the pensioners of the body to provide live certificate through his registered mobile handset.

The pensioners are required to submit a live certificate every year in November. At present there are about 47 lakh pensioners under EPFO’s pension scheme.

The facility is developed the National Informatics Centre (NIC).

Tax Implications on Vacant or Second House Property

Even vacant Second house has tax implications

Second House or Vacant House also comes under Income Tax as well as Wealth Tax Purview.

Even vacant Second house has tax implicationsIndian People tends to invest mostly in two assets, first is gold and second in house property. The rising prices of gold as well as property makes it more lucrative but one must consider the tax implications before buying or investing in these assets. Gold does not add any tax liability if it puts idle in you safe or bank but house property does. If an assessee has more than one house property then there will be tax liability on the house kept vacant, equivalent to rented house property. Lets understand this provision in detail.

Income Tax on Second House

The current provisions under the Income Tax Act, 1961 classify house properties into three categories – one self occupied property (SOP), let out property and deemed to be let out property (DLOP). While, the tax implication for the let out property category is relatively straight forward, there is always an area of consideration in respect of the other two categories.

The Act classifies a property as SOP only in two situations. First when the owner actually uses the house for the purpose of his own residence. Second when he is unable to occupy his property which is situated in one location and on account of his employment/business/profession carried out at any other place he stays in a rented premise in such other place. The benefit of classifying a property as an SOP is that the gross taxable value of such property is considered as NIL and a deduction of interest on housing loan for acquisition is allowed deduction up to Rs 1,50,000.

However, if you own more than one such SOP, you have a choice to treat any one of the properties as SOP. The other such property (ies) which lies vacant will be treated as DLOP under the Act. So, if you were under the impression that if no rent is earned there is no tax on any of your properties, you may want to re-look at your year’s tax returns.

If a property is treated as a DLOP, it is effectively put at par with a let out property as far as taxation is concerned. Hence, a notional rental value (method to calculate such value prescribed under the Act) is considered as the gross taxable rent for such property. You are allowed to claim a flat deduction of 30% for repairs and maintenance charges. So, if you have a second flat lying vacant in an area, where the monthly rental is Rs 20,000, it will push up your taxable income by Rs 1.68 lakh (Rs 20,000 x 12 = Rs 2.4 lakh, less 30% = Rs 1.68 lakh).

At first this concept of taxing notional rent may appear very discouraging. However, one should not lose sight of the deduction for interest on amount borrowed to buy/construct this property. In case of a DLOP this interest is fully allowed as a deduction from the notional rental income, as compared to a deduction of only up to Rs 1,50,000 for a SOP. This additional deduction may result in a loss from house property which can be set off against your other taxable income.

Wealth Tax on Vacant House

In addition to the income tax implications, if you own more than one house which is neither rented by you nor used for the purpose of business/profession, you would also be liable to pay wealth tax on the same.

Wealth tax is 1% of the amount by which the combined value of these assets exceeds the Rs 30 lakh limit. So, if you have a vacant flat worth Rs 80 lakh, you will have to pay wealth tax of Rs 50,000 (1% of Rs 50 lakh). If you have other assets, such as jewellery, luxury car and artifacts, the liability rises further.

Wealth tax is a recurrent tax, it is payable on the same assets year after year, even though these assets have not created any value for the owner during the year. Worse, there is no escaping it. The only way to avoid this levy is to opt for assets that are not under its ambit.

Commercial property, for instance, is a more tax-efficient investment than a second house. It is not only exempt from wealth tax but the returns are also higher than those from residential property. Such a property is also eligible for deduction of interest paid on a loan as well as the 30% standard deduction from rental income. So, even as it enjoys all the benefits and even offers a better cash flow, commercial property will not push up your tax liability if you are unable to find a suitable tenant.

Points to Remember

  • You are required to pay tax on rental income from the second house even if it is lying vacant.
  • If a person owns more than one house and it is vacant, its value is added while calculating the owner’s wealth.
  • A 1% wealth tax is payable on the amount exceeding Rs 30 lakh.
  • Commercial property is not included while calculating the wealth of a person.
  • The interest paid on a loan taken to purchase commercial property is also eligible for tax deduction.
  • Commercial space usually fetches a higher rent than residential property. It is also possible to take a loan against this rental income.
  • The rental income from commercial property is eligible for 30% standard deduction as in the case of residential property.

Tax Treatment of Equity & Debt Mutual Funds in India

Taxation of Mutual Funds in India

Mutual Funds Taxation in India

Income from Mutual Funds can be segregated into two parts Dividends (return on investment) and Capital Gain (increase in value of investment). Accordingly taxation on Mutual funds can also be divided into two categories:

  1. Tax on Income / dividend distribution by a scheme
  2. Tax on Capital Gain/Loss from the redemption of MF units

Capital Gain Taxation on Mutual Funds

Appreciation in the value of asset is termed as Capital Gain, let’s say you bought few shares of Reliance for Rs. 1 lakh and sells it for Rs.2 lakhs, you have made a Capital Gain Rs. 1 lakh which is taxable under the head of Capital Gain but the rate of tax is decided by the period of holding, i.e. short term and long term.

Tax Treatment of Mutual Funds in IndiaMutual Fund is further divided into two parts

  • Equity Mutual Fund
  • Debts Mutual Fund

Before Diving into the taxation part first we want to attract our reader’s attention towards the meaning of both types of Mutual Fund.

Equity Mutual Funds

Equity mutual fund means a fund where the investible corpus is invested by way of equity shares in Indian companies to the extent of more than 65% of the total proceeds of the fund, so even balanced funds will be categorized in Equity Funds.

Debt Mutual Funds

All the other funds which do not fit into the definition of Equity Mutual Funds, including Fund of Funds (mutual funds which invests in other funds) and International Funds (funds which have more than 35% exposure to international equities) will be kept under debt category for tax purpose.

Taxation on Mutual Funds under Capital Gain in India

Capital Gain Tax on Equity Mutual Funds

The Capital Gain is divided into two parts according to holding period.

Long Term Capital Gain: If the holding period of Mutual Fund exceeds 1 year, then it is categorized as Long Term asset and there will be no tax at the time of redemption of mutual fund units. Suppose you invested 1 lakh in ITU Fund and sold it after 1 year for Rs. 1.4 lacs, then there will be no tax on the appreciated value of ITU fund of Rs. 40,000.

LTCG is tax-free for equity mutual funds under section 10(38).

Short Term Capital Gain: If the mutual funds are held for less than 1 year i.e. you bought and sold mutual fund within a year, then it is categorized under Short Term asset and the Capital Gain arises shall be taxable @ 15% under section 111A of Income Tax Act.

In the above example, if you had sold ITU fund within 1 year then there will be tax liability of Rs. 6,000 (15% on Rs. 40,000) as Short Term Capital Gain.

Note for NRIs: Long Term Capital Gain is also exempted for NRIs but in case of Short Term Capital Gain there will be a TDS (tax deducted at source). Which means Tax will be deducted by Mutual Fund Company before paying redemption (sell) amount, which is 15%.

Capital Gain Tax on Debt Mutual Funds

Recommended Read: Taxation on Debt Mutual Fund after Budget 2014

Short Term Capital Gain: The gain arises due to redemption of debt mutual fund within 3 year (Earlier 1 year)shall be added in the income of investor and tax will be charged at the rate according to the tax slab. (Refer: Tax Slab Rate for Assessment Year 2014-15)

Suppose Mr. Sanyam has Income from house property Rs. 3 lacs and income from debt mutual fund Rs. 30,000. Then the total tax shall be 10.30% (10% slab rate + 3% Cess) on Rs. 1,30,000 (Rs. 3,00,000 + Rs. 30,000 – Rs. 2,00,000) i.e. Rs. 13,390 (which shall be rounded off to the nearest multiple of 10 u/s 288B)

Long Term Capital Gain: The benefit of exemption under section 10(38) is not available in debt mutual fund. Any long term gain arises from the sell/redemption of debt mutual funds shall be taxable at the rate:

  • With Indexation – 20% + 3% Cess
  • Without Indexation – 10% + 3% Cess (Removed in Budget 2014)

Note for NRIs – NRIs will receive their redemption amount only after tax:

  • Short Term – 30% TDS + 3% Cess
  • Long Term – 20% TDS + 3% Cess

Taxation of Dividend paying Mutual Funds

Tax on dividend paying Equity Mutual Funds:

The dividend received in hands of unit holder for an equity mutual fund is completely tax free. The dividend is also tax free to the mutual fund house. This means, the fund house is also not liable to pay any tax on the dividend received. Thus for equity mutual fund, dividend is tax free for both—unit holder and fund house.

Tax on dividend paying Debt Mutual Funds:

The dividend income received by a unit holder on his debt mutual fund is also tax free. But, the mutual fund company has to pay a dividend distribution tax (DDT) before distributing this income to its investors.

Here’s a broad summary table of the information covered in the article above.

Type of Mutual Fund Definition of Short term & Long term Short term Cap gain Treatment Long term Cap gain Treatment Dividend Distribution Tax (DDT)(paid by MF house/company)
Equity Mutual Funds Less than 365 days is Short Term. 15% taxation under section 111A Nil (Exemption under section 10(38) Nil (No DDT Payable as per section 115R)
365 days or more is Long Term.
Debt Mutual Funds(non Liquid schemes) Less than 3 years is Short Term. Taxed as per individual tax slab of the investor 10% without indexation OR 20% with indexation, plus 3% cess 12.5% plus 5% surcharge plus 3% cess, totally 13.519%(under section 115R)
3 years or more is Long Term.
Money Market and Liquid Schemes Less than 365 days is Short Term. Taxed as per individual tax slab of the investor 10% without indexation OR 20% with indexation, plus 3% cess 25% plus 5% surcharge plus 3% cess, totally 27.038%
365 days or more is Long Term.
Gold ETFs Same as Debt Mutual Funds Same as Debt Mutual Funds Same as Debt Mutual Funds Same as Debt Mutual Funds

It is important to have an understanding of DDT, as it is investors who have to bear burden of such taxes.

The rates of DDT on Debt Mutual Fund are as follows:

For an individual / HUF and NRI, DDT is 13.519% (12.5% + 5% surcharge + 3% cess).

DDT for money market & liquid MF

A liquid / Money Market scheme attract more DDT than a normal debt MF, and are taxed at the rate 25 % plus surcharge (5%) and education cess (3%), which effectively amounts to 27.038%.

Type of scheme Rate of DDT for individuals, HUF & NRI
Equity oriented MF schemes Nil
Debt schemes 13.519%
Liquid / money market schemes 27.038

In addition to DDT, a scheme also pays securities transaction tax at the applicable rates (0.1% for FY12-13) at the time of buying and selling equity shares or derivatives on the recognized stock exchange.

I tried my best to compile all information about taxation of mutual funds, Please do let me know if you see any errors or have any queries!!!

Top Employee Provident Fund Questions Answered

Employee Provident Fund

Are you in Job!! If yes, than you must have heard or even holding an account of Employee Provident Fund (EPF). The EPF is maintained solely by the Employees’ Provident Fund Organization of India (EPFO). As per the act, any company employing more than 20 persons has to register with the EPFO.

Recommended Read: EPF Rules Changed w.e.f 1st September, 2014

Here are the top Employee Provident Fund queries answered:


Q. Is Contribution to Employee Provident Fund Mandatory?

A. Yes, contributing to EPF is mandatory for the employees who have a basic salary plus dearness allowance is up to Rs.15,000 (earlier it was Rs.6,500). And those who are earning above Rs.15,000 may contribute voluntarily.

But the decision to opt out of scheme should be taken at the start of your career. In case, you have been a member of EPFO once, then you are not allowed to opt out of the scheme.

Opting out of the scheme will increase your in hand salary and thus your tax outgo will also increase, so it is strongly recommended to avail this scheme as this is the easiest way to build a corpus for retirement.

Q. What are the Tax-Benefits of EPF contribution?

A. One more benefit of this robust scheme is that the contribution made towards EPF is an eligible deduction under section 80C. The maximum deductible contribution is Rs.1.5 lakhs i.e. the limit of section 80C.

Q. What is the Break-up of EPF Contribution?

A. As per EPF Act, 1952, the monthly contribution of employee and employer would be divided in the following way:

Employee Provident Fund Queries

So if your basic salary plus dearness allowance is Rs.15,000 than the contribution would go in this way:

Scheme Employee
Contribution
Employer
Contribution
Employee Provident Fund Rs.1,800 Rs.550.5
Employees’ Pension Scheme 0 Rs.1,249.5
Employee Deposit Linked Insurance 0 Rs.75

Q. What is the current interest rate on EPF?

A. The current rate of interest is 8.75% p.a. The interest is compounded yearly.

The point to note in the interest calculation is done only on the part of EPF not on EPS. So if your contribution towards EPS is Rs.1,800 (12%) and your employer contribution towards EPF is Rs.550 (3.67%) and Rs. 1250 (8.67%) towards EPS, than the interest of 8.75% would be calculated on the amount of Rs.2,350.

Q. Which one is better – EPF Vs. PPF?

A. Generally Employee Provident Fund is for salaried person and Public Provident Fund is for self-employed person. But salaried person can enjoy benefit of both EPF as well as PPF while self-employed person can only take benefit of PPF.

Recommended Read: EPF vs. PPF

Q. How to Check my EPF Balance Online?

A. Members who are active means currently contributing towards the scheme can access their account on the portal of EPF India i.e. at

http://www.epfindia.gov.in

Q. How and when can I withdraw my EPF account money?

A. You can withdraw your EFP money for various reasons but only by fulfilling certain conditions, non-compliance of which would result in levying of penal interest.

Recommended Read: Reasons and Condition to withdraw EPF Money

Apart from the above stated conditions, if a person is taking a VRS at the age of 54 and above, then EPF money could be taken out only up to the 90% of the balance.

Q. What is Illegal Withdrawal of EPF Money?

A. As per EPF rules, withdrawing of EPF money at the time of switching jobs is illegal. You can withdraw only and only if you have not joined any other company    within two months of quitting the job. You can transfer you EPF money once you get a new job.

Q. Can I contribute more than 12% towards EPF?

A. As per EPF Act, 1952, the minimum contribution of employee towards EPF account should be at least 12% but one can contribute up to 100% of your salary plus DA. This extra contribution from employee does is called VPF (Voluntarily Provident Fund) but remember this does not bound employer to contribute more. Employer can continue to contribute up to statutory limit of 12%.

However, many employers do not allow extra contribution of employee towards EPF. So you have to file an application with the Regional Provident Fund Commissioner. The format is given below:

Q. Is there any other benefit of EPF?

A. One more benefit of EPF account holder is that it gives a life insurance cover of Rs.60,000. This comes from the Employees’ Deposit Linked Insurance Scheme and for this employers have to contribute 0.5% of your monthly basic pay as premium for your life cover.

But companies that already provide life insurance benefits or group insurance policy to employees are exempted from contributing to this scheme.

Q. How to make any grievance of EPF?

A. The easiest way to file a grievance is to do it online.

Recommended Read: How to file EPF Grievance Online?

The other way to file grievance is to locate the regional office and drop the grievance by yourself.

http://www.epfindia.com/jurisdictionNew.asp

Few Fixed Deposit Features you might not know

fixed deposit benefits

Benefits of Fixed Deposit you perhaps didn’t know

With the increased limit of Tax-Saving Fixed Deposit up to Rs.1.5 lakhs, everyone is rushing to get more benefit. But there are few extra which you might want to know before making a fixed deposit.

fixed deposit features

Fixed Deposit at Floating Rate

Generally deposits are freeze at a fixed rate for fixed term but there are few banks and non-banking finance companies (NBFCs) that offer deposits at a floating interest rate.

For Instance IDBI and IOB (Indian Overseas Bank) offers Term Deposits at Floating rate in which interest rates are declared every quarter i.e. on April 1, July 1, October 1 and January 1 every year.

Reinvestment of Interest

Some banks offer the facility of reinvesting the interest earned on Fixed Deposit at the prevalent interest rates.

For example you get Rs.5,000 interest every quarter. So bank will make a new FD at the prevailing interest rate of Rs.5,000 every quarter and you will get the money at the maturity of original Fixed Deposit.

No penalty

Premature withdrawal of Fixed Deposit attracts penalty but there are some banks who do not charge penalty on withdrawing money before maturity.

Ingvysya FD Plus is one such plan which offers zero pre-closure charges i.e. Fixed Deposit can be broken at any time without any penalty.

Flexible Term

Mostly Fixed Deposits are made for a particular purpose such as for child marriage or to buy some expensive items etc. but many times these things get postponed and depositor might want to extend the term of the Fixed Deposit. In this case the depositor has to wait for the maturity and then reinvest it at the prevailing interest rate. The interest rates could be lesser.

Some banks offer deposit that allows depositor to extend the term of FD without major changes in other conditions.

Fixed Deposit with Insurance

Fixed Deposit does not only increase your wealth but also take care of your health. Some banks provides accidental insurance policy with bank fixed deposit.

One such product is provided by DHFL. Depositor will get accidental death insurance of Rs.1 lakhs and for the first depositor in case Fixed Deposit is held jointly.

Adding and Breaking fixed deposits

Multiple Deposit of smaller amount for each purpose is a cumbersome process which involves large paperwork.

Banks have introduced products where a bulk deposit is divided into deposits of smaller denominations according to the depositor’s requirements.

Conclusion: Fixed Deposits is a great investment scheme but one must gain knowledge about every possible feature to get highest returns.

Best Tax-Saving Scheme: PPF vs. Bank FD vs. KVP vs. NSC

Best Tax-Saving Instrument

Best Tax-Saving Scheme u/s 80C

The first step towards Tax Planning is to look out for tax-saving instruments which are eligible for deduction under section 80C. The deductible investment list is exclusive with a threshold limit of Rs.1,50,000. This restriction makes it utmost necessary to opt the best tax-saving scheme not only to save tax but also to increase your wealth also.

Recommend Read: Deductions under section 80C

When we talk about section 80C, the first thing that comes into the mind is Tax-Saving Banking Fixed Deposit, apart from this there are few other options which gives neck to neck competition to Bank FDs. Below I have listed few of the most popular tax saving schemes under section 80C.

  1. Kisan Vikas Patra
  2. Public Provident Fund
  3. Tax-Saving Bank FD
  4. National Saving Certificates

Let’s dive into the details on each of the instruments:

Kisan Vikas Patra:

Revamped Kisan Vikas Patra was launched yesterday with annual yield of 8.7%. Investment in KVP will get doubled in 100 months but no withdrawal can be made up to 2.5 years.

With no tax benefits on money invested as well as interest accrued, this scheme seems to lose its charm this time.

Recommended Read: Highlights of Kisan Vikas Patra 2014

Public Provident Fund:

Being EEE PPF is by far one of the best tax-saving instruments, if time period is not an issue for investor because the lock-in-period of PPF is almost thrice of any other scheme i.e. 15 years, although money can be withdrawn prematurely but only up to 60%.

The Rate of Return of PPF for year 2014-15 is 8.7% with tax benefits on the invested amount, accrued interest as well as for amount obtained at maturity.

Recommended Read: Everything on Public Provident Fund

Tax-Saving Bank Fixed Deposit:

Bank Fixed Deposit is Safest and most trusted tax-saving instrument under section 80C. Bank FD gives return at the rate of approx 8.5% (Know: Tax-Saving FD Rates of Various Banks) with a maturity term of 5 years. Unlike other tax-saving instruments Bank FD can be easily broken (encashed) in the case of emergency without much reasoning. Banks usually charges a penal interest for early payment but whole money can be withdrawn. The major drawback is the Bank FD is taxation part, tax is payable on the maturity amount.

Last week limit of deductible amount u/s 80C for Bank Fixed Deposit has been increased to Rs.1.5 lakhs (earlier it was Rs.1 lakh).

Recommend Read: Save TDS on Fixed Deposit Interest

National Saving Certificates:

In the Budget 2014, National Savings Certificates was modified by incorporating Insurance Feature under which if the investor dies before maturity than the legal heirs will be given a certain amount of invested amount before the maturity and remaining amount will be paid on the maturity.

The NSC comes in two tenure 5 years and 10 years while former gives annual return of 8.6%, later provides 8.9% but the benefit of the NSC is the calculation of return. While all other instruments bears an annual compounding, NSC gives half-yearly compounding.

Let’s say if you invest Rs.1 lakh at interest rate of 8.8% per annum compounded annually, than the return after 10 years would be Rs.2,32,428 while in case of half-yearly compounding you would be getting Rs.4,000 more i.e. Rs.2,36,597.

However this extra benefit does not hold strong because the interest earned is taxable.

Recommended Read: Get Insurance Cover with National Savings Certificates

PPF vs. Bank FD vs. KVP vs. NSC

Best Tax-Saving Instrument

Final Words of Wisdom

The decision on selecting the best tax-saving scheme revolves around the time period. If investor is comfortable with the long-term period than he should definitely go for PPF scheme because there is no taxation on the earning and the rate of return is almost equal to every other instrument. Another benefit is that Government also revises rate of return of PPF each year, so the deposit does not get locked on the same interest rate for whole time period like in Bank Fixed Deposit.

Recommended Read: Why not to Invest in Kisan Vikas Patra 2014?

In case investor does not want to invest for long-term and looking for shorter term of 5 years than National Saving Certificates is the scheme to choose. Both Bank FD and NSC have same taxation and give same return but interest is compounded half-yearly in NSC while yearly in Bank Fixed Deposit.

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