You are on page 1of 59

Retirement Toolkit

The dream that seems to unite all 20-something overachievers of our time is to retire early. The formula: get into the fast lane, work your guts out, make a pretty packet, get out of the rat race -- and get a life. What separates the dreamers from the daydreamers is some amount of planning -- a roadmap and some course corrections along the way. With this versatile tool, you won't go wrong. It tells you: • • • • How How How How much you'd have on retirement if you stopped saving now long your savings will last post-retirement much you need to retire comfortably much you need to save from now to get there

The assumptions • • • An inflation rate of 8 per cent Long-term capital gains tax of 10 per cent on all investments barring PPF (currently tax-free) and fixed deposits The value of your spouse's Provident Fund corpus is added on to yours at the time you retire.

Some guidelines As you go along in life, your expense chart goes through considerable change. Give yourself a moment to consider how you think yours will when you input your postretirement monthly expenses. You might expect considerably higher medical expenses, for example, or that you'll spend far more on indulgences like food and travel, or entertainment.

How to save Capital Gains tax in 03-04 By A. N. Shanbhag I have repeatedly observed that, our legislators, particularly the authors of taxation, revel in making tax laws complicated. So complicated that it is very difficult to understand these, leave alone follow them. No wonder there is a spate of litigations overburdening the judiciary. Tax on long-term capital gains and exemptions thereon is a case in point. Following are the various provisions in brief: 1. 'Short-term capital asset' is a financial asset held for 36 months or less immediately preceding the date of transfer. This minimum holding period is 12 months only for listed equity shares, bonds and debentures. It is also 12 months for government securities and units of UTI/MFs, listed or not.

2. Short-term gains (= sales less cost) if not setoff, are taxed at the normal rate applicable to the assessee. 3. Long-term gains are computed by subtracting the indexed cost of acquisition and improvements from sale proceeds. For this purpose, RBI declares Cost Inflation Index for every financial year (See Table-1 of Chapter-1, 'Wonderland of Investment - Taxes'). The indexed cost is arrived at by multiplying the original costs of acquisition and improvements with the index of the year of sale and dividing by the indexes of the year of acquisition and improvements respectively. 4. Cost of acquisition of bonus shares is to be taken as nil whereas that of rights and renunciation of the entitlement to apply for rights is to be taken at the cost to the investor. 5. Capital gain is considered as a separate block from which no deductions under Chapter-VIA of ITA (Sec. 80L, 80D etc.) are allowed. 6. In the case of Resident individuals and HUFs, where the other normal total income is less than the tax threshold of Rs. 50,000, tax will be levied on the excess over the minimum taxable limit. This facility is not available to NRIs. 7. Sec. 54F grants exemption from tax on LT capital gains arising out of sale (or transfer) of the financial asset other than a residential house, provided the assessee has purchased within 1 year before or 2 years after the date of sale or has constructed within 3 years after that date, a residential house. At the time of the sale of the original capital asset, the assessee should not be an owner of more than one residential house. The exemption is 100% where the cost of the new house is more than or equal to the sale proceeds of the financial asset. If only a part of the sale proceeds is used, the exemption would be pro-rata. The excess is chargeable to tax. 8. Sec. 54 also offers similar exemption on LT gains arising out of sale of a residential house but requires reinvestment of only the amount of capital gains and not the entire sale proceeds. Moreover, the condition that the assessee can own only one house at the time of sale is not applicable. If part of capital gains is invested the exemption allowed is proportionate. 9. Exemption is also available u/s 54EC to the extent of capital gains deposited in the notified Bonds of NABARD, NHAI , REC, SIDBI or NHB. Deposits of the entire capital gains (or excess thereof) in the Bonds earn full exemption. Partial deposits earn proportionate exemption. 10. Setoff of losses against gains is interesting. FA02 has laid down that since the LT gains are subject to lower tax incidence, the LT losses can be setoff only against LT gains. The ST losses continue to have the privilege of setoff against any capital gains, ST or LT. The balance losses, if any, can be carried forward separately to the next year for setoff against only the capital gains of that year. No loss can be carried forward for more than 8 years immediately succeeding the year for which it was first incurred. Will the old carried forward losses have to be split into ST and LT? 11. Tax on LT gains (these are always computed after indexation) is at a flat rate of 20%. In the case of listed securities (shares and debentures) and units of UTI/MFs where the minimum qualifying holding period is 1 year, the assessee has the

option to pay tax @10% on the difference between the sale price and cost of acquisition (without indexation) if it is beneficial for him to do so. 12. Rebate u/s 88 is not allowed against tax on LT gains. However, tax rebate u/s 88B for senior citizens or the u/s 88C for non-senior citizen ladies, is allowed. To understand the complications, let us examine the method of computing the tax on capital gains and the ways to save it through a real-life case of Mrs. Khorshed Rateria. Before proceeding further, I must warn you - The complications are so confounding that if you do not have the perseverance to read it over and over again until you have understood the fundas, go to 'Strategy for Multiple Scrips', at the end of this Chapter. For ease of understanding, we shall ignore surcharge without any loss of generality. Case Study After accepting VRS, Mrs. Rateria had deposited her total investible funds of Rs. 5,15,000 on 27.10.99 in UTI Bond Fund. She gets a pension of Rs. 59,177 which, translates into a taxable income of Rs. 35,506 after standard deduction of 40%. Thanks to her investment in UTI Bond Fund, a Pure-growth, Open-ended, Debt-based scheme (POD), her income chargeable to tax was below the tax threshold of Rs. 50,000. However, under my advice, she continued to file tax returns to maintain continuity. She had to sell all these units on 31.10.01 to cater for the marriage of her son. Since the sale was after a holding period of one year and it was a POD, she earned substantial long-term capital gains. She has a carried forward LT loss of Rs. 5,440 from earlier years. She desires to know how much minimum amount she has to subscribe to NABARD Bonds or the amount she should invest in a new housing property to earn total exemption leading to nil tax. The LT gains are to be computed always with indexation. The carried forward loss should be setoff only against this gain with indexation. The gap between the tax threshold of Rs. 50,000 and her normal income (pension) of Rs. 35,506 is Rs. 14,494. This certainly can be adjusted against the gains with indexation. In her case, it is advantageous to pay tax @10% without indexation (See the box in the Table-1). She also has a right to claim a tax rebate of Rs. 5,000 u/s 88C for non-senior women assessees. She has to arrive at the exact contribution required to be made in NABARD Bonds (or to a housing property) for reducing her tax liability (@10% without indexation) exactly to the level of Rs. 5,000, which is exempt u/s 88C. Suppose she contributes Rs. 70,348 to NABARD. The capital gains with indexation come down at Rs. 25,652. It is necessary to arrive at the proportional sale and the cost. The sale

is Rs. 1,63,950 and the cost (without indexing) is Rs. 1,13,950. The difference is Rs. 50,000. Tax @10% thereon is Rs. 5,000 which is exactly the tax rebate she is entitled to. How did I arrive at this magic figure of Rs. 70,348? By trial and error! Try and try, you will succeed at last. Can any legislation be more complicated? I wonder... Table-1: How to Save Tax on LT Gains
Sale Proceeds : FY 01-02 Cost of Acqisition : FY 98-99 Cost Inflation Index : FY 01-02 Cost Inflation Index : FY 98-99 Indexed Cost =515000 x 426/351 Sale - Indexed Cost = Capital Gain Carried forward loss Threshold of Income Tax Other Income Gap upto Threshold Net Captial Gain PROPOSAL 1 : PAY TAX Sale value of net capital gain Cost value of net capital gain Sale - cost of net capital gain Tax at 10% Less : Rebate u/s 88C Final Tax Payable Net Captial Gain Contribution to Nabard Taxable capital gain Sale value of taxable capital gain Cost value of taxable capital gain Sale-cost of capital gain Tax @10% Less : Rebate u/s 88C Final Tax Payable PROPOSAL 3 : INVEST IN HOUSE Sale value of capital gain Less Invested in house Difference Cost value of the above Difference 613,571 426,450 187,122 18,712 5,000 13,712 96,000 70,348 25,652 163,950 113,950 50,000 5,000 5,000 0 613,571 449,622 163,950 113,950 50,000 by trial & error <== Answer = 613571 - 449622 = (163950/740977)x515000 = 163950 - 113950 = 5000-5000 by trial & error <== Answer = 96000 - 70348 = (25652/115934)x740977 = (25652/115934)x515000 = 163950 - 113950 = 10% of 50000 = 18712 - 5000 <== Answer = (96000/115934)x740977 = (96000/115934)x515000 = 613571 - 426450 = 10% of 187122 740,977 515,000 426 351 625,043 115,934 5,440 50,000 35,506 14,494 96,000 = 50000 - 35506 = 115934 - 5440 - 14494 Capital Gain = 115,934 20% of the above 23,187 Sale Minus Cost = 225,977 10% of the above 22,598 Therefore, Opt for 10% without indexation.

Tax @10% Less : Rebate u/s 88C Final Tax Payable

5,000 5,000 0

= 10% of 50000 = 5000-5000

[Excerpt from: Taxpayer to Taxsaver: AY 2004-05 by A. N. Shanbhag. Published by Vision Books, New Delhi. Price Rs. 235/-. This book is available at WalletWatch-Vision Bookstore on this site. A. N. Shanbhag is a best-selling author and a very widely syndicated columnist on personal finance and taxation.] All rights reserved.

Set off and carry forward losses
Ganesh Jagadeesh & Co The manner and process of setting-off of losses and the subsequent carry forward of balance losses flow in the following manner: INTER SOURCE ADJUSTMENT Adjustment of loss from one source against income from another source within the same head of income within the same year. INTER HEAD ADJUSTMENT Adjustment of loss under one head against income from another head of income within the same year. CARRY FORWARD OF LOSSES The balance loss after the above two adjustments are carried forward to the subsequent assessment year. However, all the above are subject to certain conditions which have been presented in a nutshell.
For the Current Assessment Year
Type of loss Inter source Adjustment (Sec 70) (same head of Income) Inter Head Adjustment (Sec 71) (Different heads of Income)

For Subsequent Assessment Year
Carry Forward of Losses and for how many years Profit/Income against which carried forward loss can be Set off in subsequent year(s) Should the business/ activity continue Is it necessary to submit return of loss in time in accordance with Sec

139(1) House Property (Sec 71B) Allowed for 8 Years Income under the head "Income From house Property"

Allowed

Allowed

N.A.

No

Capital Gains

Allowed (Short Term Capital Losses can be Set Off Not Allowed Against Long Term Capital Gains and Vice Versa) Allowed (Losses cannot be set off against winnings from lotteries, crossword puzzles etc.)

Allowed for 8 Years

Any Income under the head "Capital Gains" (Short Term Capital Not Losses can Yes Necessary be Set Off Against Long Term Capital Gains and Vice Versa)

Income From Other Sources (Other than Loss from activity of owing and maintaining race horses

Allowed

Allowed

N.A.

N.A.

No

Loss from the activity of owing and maintaining race horses (Sec 74A)

Allowed only against income from the activity Not Allowed of owing and maintaining race horses

Allowed for 4 years

Loss from activity of owing and maintaining race horses can be set off only against income from activity of owing and maintaining race horses

Yes

Yes

Allowed only Speculation against Loss (Sec Not Allowed Speculation 73) profits

Allowed for 8 years

Speculation Losses can be set off only Not Yes against necessary Speculation Profits

No loss can be set off against winnings from lotteries, crossword puzzles, races including horse race, card games and other games of any sort or from gambling or betting of any form or nature --- Section 58(4). Loss from non-speculation business can be set off against speculation or nonspeculation business

The tax implications of the house rent allowance (HRA) seem to baffle most people. Taking the case of two individuals, Ram and Shyam, who work in the same company, Ganesh Jagadeesh & Co have explained this allowance in detail. Two significant differences between the two individuals, which is necessary for this study, is that Ram resides in his own house while Shyam in a rental accommodation. Are both eligible for HRA? Yes. Because the payment of HRA by an employer does not depend upon its end-use by the employee. An employee may prefer to stay in his/her own accommodation but will still be eligible to receive HRA if it is a part of the salary package. This is so, because HRA, as its name suggests, is an Allowance supplementing the Basic Salary and Dearness Allowance/Pay, if any, in a salary package. Is HRA taxable? In the case of Ram, who stays in his own house, tax is payable on the full amount of HRA received by him. Shyam, living in a rented accommodation, may qualify for relief on the HRA received by him, such relief being dealt with under section 10 (13A) of the Income Tax Act, 1961. When is HRA exempt from tax? A salaried individual, in order to get an exemption on his/her HRA, must fulfil the following basic conditions: • • • The employee must not live in his/her own house He/she must pay rent for accommodation Such rent must be more than 10 per cent of his/her salary

Is Shyam exempt from tax? Shyam fulfils the first two conditions. The amount of his salary and rent paid by him will determine whether he meets the last condition too. If Shyam's monthly salary is Rs 10,000, he will qualify for HRA exemption should the rent paid by him exceed Rs 1,000 (10 per cent of salary). How much will Shyam's exact exemption amount to? The extent to which HRA is exempt is limited to the least of the following: • • • For residential accommodation located at Bombay, Delhi, Calcutta or Madras - an amount equal to 50 per cent of salary and 40 per cent elsewhere HRA actually received by the employee Excess of rent paid over 10% of salary

Assume: Shyam's annual salary = Rs 1,20,000 HRA = Rs 42,000 Monthly rent = Rs 3,000 Rental accommodation situated at: Cochin Shyam will be eligible for exemption on HRA to the extent of Rs 24,000 being the least of the following:

• • •

Rs 48,000 (being 40 per cent of salary since rented house is at Cochin) Rs 42,000 (being HRA actually received) Rs 24,000 (annual rent of Rs 36,000 - Rs 12,000 which is 10 per cent of salary)

How should one avail of this exemption? Provide your employer with information about the rent so that he can credit you with the eligible amount of relief before deducting tax at source. You can also claim such exemption when filing your tax return and seek a refund. In all cases where HRA exceeds Rs 600 per month (Rs 7,200 per annum), evidence of rent paid, meaning rent receipts, have to be produced. The assessing officer has the right to call for proof of payment. Points to remember • Allowances are different from reimbursements in that they are usually fixed in value and are paid irrespective of whether the recipient incurs expenditure or not. They are aimed at meeting specific requirements like entertainment and travel. They could also be of a compensatory nature like a border area/remote area allowance could be paid to an individual posted in the Lakshadweep Islands. Salary for HRA purposes = Basic Salary + DA/DP + commission (only if calculated as a fixed percentage of turnover achieved by the employee) Salary will not include any arrears for earlier years, which are received during the previous year. If a bonus is received for the last year in the current year, such amount of bonus will not be included in HRA salary for the purpose of determining HRA exemption. You can include the amount of bonus due to you for the current year which you will receive only in the next year. Salary will include all amounts due (even if not received) pertaining to the period during the previous year during which the rental accommodation is occupied by the employee. HRA actually received has to necessarily pertain to the period in the previous year when the rental accommodation is occupied by the employee - meaning, HRA received for that period during which the employee was not occupying the rental accommodation will not be exempt. (If Shyam were occupying his rented house for only 9 months during the year, then the HRA exemption of Rs.24,000 computed above will get restricted to Rs.18,000 (pertaining to the period of his occupancy).

• • •

• •

Crucial sections of the Income Tax Act
Larissa Fernand Granted. They can be pretty mind boggling. To help you in your tax planning, here is an explanation of the various sections of the Income Act, 1961. Section 80L of the Income Tax Act, 1961 Interest earned upto Rs 15,000 in a financial year will not be taxed, out of which Rs 3,000

is specifically allocated to interest on government securities, income from Unit Trust of India and mutual funds. Schemes falling under this section are:
• • • • • • • •

National Savings Certificate VIII Post office time deposits Post office recurring deposits Post office monthly income scheme National Savings Scheme 1992 Notified debentures of co-operative societies, institutions or public sector companies Government securities Deposits with a banking company, co-operative bank, co-operative society by members, approved financial institutions and housing boards.

Section 88 of the Income Tax Act, 1961 Offers a rebate of 20 per cent. A rebate is when the government gives you a concession on your taxable income to encourage investments in certain instruments. That means 20 per cent of the amount invested in specific instruments will be deducted from the total tax payable. So if your tax liability is Rs 1,00,000 and you invest Rs 50,000 in the public provident fund, which is entitled to such a rebate, a 20 per cent deduction takes place. That amounts to Rs 10,000. Your tax liability drops from Rs 1,00,000 to Rs 90,000. The aggregate contribution to schemes entitling one for a tax rebate is subject to Rs 60,000. An additional Rs 10,000 is in respect of contributions made to new equity and debenture issues of infrastructural and power companies, units of mutual funds dedicated to infrastructure and approved bonds of ICICI and IDBI. So an individual can reduce his tax liability by Rs 14,000 if he takes all these options into account. Moreover, any payment of principal made by an individual towards the cost of purchase or construction of residential property will qualify for a deduction of up to Rs 10,000. The schemes offering a tax rebate are:
• • • • • • • • • • • •

Life insurance premiums Provident fund Public provident fund 10/15 years Unit Linked Insurance Plan 10/15 years Dhanaraksha National Savings Certificate VIII National Housing Bank National Savings Scheme-92 Jeevan Dhara/ Jeevan Akshay of LIC Equity-linked tax-saving schemes Retirement Benefit Plan of UTI Repayment installment of a housing loan

Section 10 of the Income Tax Act, 1961 To lure you into investing your money with specific instruments, the government does not tax you on the interest earned. So interest on instruments falling under this section are totally exempt from tax.
• • • • • • • •

Dividends from companies Units of UTI and mutual funds Interest payable by public sector companies on notified bonds and debentures Interest on relief bonds (Rahat Patras) Interest on 'Deposit scheme for retiring government employees, 1989' Interest on post office savings bank account Interest on public provident fund Receipts from a life insurance policy other than Keyman Insurance and Pension Plan

Section 80E of the Income Tax Act, 1961 Servicing a loan out of income chargeable to tax which you have taken for higher education is deductible up to a ceiling of Rs 25,000 a year for eight successive years. This amount has been raised to Rs 40,000 in the last budget. The loan should have been taken by an approved charitable institution or financial institution. If your employer provided the loan, you disqualify. Section 80D of the Income Tax Act, 1961 If you are medically insured, then you can get a deduction up to Rs 15,000 for premiums paid on your gross total income. The deduction was up to Rs 10,000 but has been increased by Rs 5,000 from FY 2000 - 2001. If you are paying the premiums for your dependent spouse, parents or children, then this benefits can be availed even on their premiums. Section 80DD of the Income Tax Act, 1961 If the taxpayer has a dependent relative who is mentally retarded or suffers from some permanent physical disability then a deduction of Rs 40,000 a year is given for medical treatment, training or rehabilitation. This is allowed in full irrespective of the actual expenditure on medical treatment. This amount includes investments in UTI's 'Special Plan for the Handicapped' and LIC's 'Jeevan Aadhar.' But you will need a doctor's certificate who works in a government hospital. Section 80DDB of the Income Tax Act, 1961 Expenditure on actual treatment for specific diseases, like cancer, renal failure and even AIDS, gets a deduction of up to Rs 40,000. This will be applicable if the individual himself contracts this disease or a dependent relative. Section 10(13)A of the Income Tax Act, 1961 If you own the house, this is not applicable to you. Moreover, you should not be selfemployed but a salaried employee availing of house rent allowance (HRA). Fulfill these

factors and you are entitled to a deduction on rent paid. The amount deducted is based on the least of these three factors:
• • •

50 per cent of the salary where residential house is in one of the four metros or 40 per cent if it is in another metro Actual HRA received by the employee Excess of rent paid over 10 per cent of salary

Assume your salary is Rs 10,000, HRA amounts to Rs 2,000 and actual rent is Rs 2,500. According to the first criteria, the deduction will amount to Rs 5,000, Rs 2,000 according to the second and excess of rent paid over 10 per cent of salary is Rs 1,500. Since the least qualifies, the sum valid will be Rs 1,500. Section 80GG of the Income Tax Act, 1961 All self-employed individuals and employees not getting any house rent allowance (HRA) are entitled to deduction. The deduction will be the least of:
• • •

Rent in excess of 10 per cent of total income 25 per cent of total income Rs 2,000 per month

Fools guide to basic tax computation?
Want to know in which tax bracket you fall? Interested in figuring out what it actually amounts to? Read on to find out.
Income per annum
Upto Rs 50,000 Rs 50,000 to Rs 60,000 Rs 60,000 to- Rs 1,50,000 Over Rs 1,50,000 Nil 10% 20% 30%

Tax

Surcharge
Nil Nil 10% 15%

Total

10% 22% 34.5%

Annual income of Rs 2,00,000
Rs 60,000 - Rs 50,000 = Rs 10,000 Rs 1,50,000 – Rs 60,000 = Rs 90,000 Rs 2,00,000 - Rs 1,50,000 = Rs 50,000 Total tax

Percent of tax

Amount

10% of Rs 10,000 Rs 1,000 22% of Rs 90,000 Rs 19,800 34.5% of Rs 50,000 Rs 17,250 Rs 38,050

The above calculation is based on the assumption that no investment has been made in any tax saving instrument.

How to harvest a tax-free crop
Murali Iyer Everybody would love to avoid tax. And a lot of them took the route of buying agricultural land farm houses to make some non-taxable income. The definition of agricultural income under the Income Tax (IT) Act is exhaustive and covers rent or revenue from land being used for agricultural purposes, income from agricultural operations and income from farmhouses. Rent or Revenue As per the Income Tax Act, "Rent" is described as periodical or pre-determined payment in cash or kind, while "Revenue" implies a sharing agreement depending on agricultural produce. Cultivation of land to some extent is necessary for the income to be treated as agricultural income. While growing of crops is covered under agriculture's ambit, activities like poultry farming, dairy farming, aquaculture and sericulture on the same land are not treated as agricultural activity. There is no tax on rent or revenue accruing from such land. The land should be assessed to land revenue in India or subject to a local rate. Moreover, a direct link needs to be established between the land and revenue. Thus, while rent on land being tilled will be treated as income, interest on late payments is taxable. Owners of agricultural land, tenants who have sub-leased the land and mortgagees of such land - all enjoy tax-free agricultural income. With SEBI cracking down on plantation companies, a lot less is heard nowadays on that front. As these companies were offering tax-free income, many urban residents were attracted to such schemes for it was their only way of earning agricultural income. What needs to be examined here is whether the buyer gets leasehold rights to the land, or to some trees, or whether he gets rent. If the scheme provides for the investor owning the trees or getting leasehold rights on the land, then it is considered to be agricultural income, and hence tax-free. In the absence of either of the two, any other income is considered non-agricultural income, chargeable to tax. Agricultural operations All tillers (whether a tenant or sub-tenant of the land) are deemed as agriculturists and enjoy freedom from tax. Processing of agricultural produce to make it fit for sale in the markets is also covered under the ambit of agricultural income. Here, ownership of the land is not a necessity. In many cases, raw agricultural produce may not fetch the right market price. To make it marketable, further processing may be necessary. Even though the final objective of the processor is to sell the produce at a higher price, such sales are treated as agricultural income. But if the farmer buys processed product and sells at a profit, such income will be taxed.

Further, if substantial value addition is involved (with the whole character of the primary produce undergoing a sea change), the entire operation is not treated as agricultural income. In such cases, the process will be broken down into primary, secondary and tertiary activities. While the primary and secondary activities will be treated as agricultural income, the rest will be treated as business income (taxable). Similarly, if you get tempted to get into lumberjacking or cutting down a large growth of trees for tax-free profits, you could be in for a nasty shock. This income will not be treated as agricultural income, as your involvement lies only in cutting, sawing and selling of the trees etc and such profits will be taxed. Activities such as cultivation, soil treatment and others associated with farming have to be indulged in for such an activity to be non-taxable. Farmhouses The definition of "farmhouse" covers buildings owned and occupied by cultivators of agricultural land as well as assessees who receive rent or revenue from such land. According to the law, the sole purpose of such houses should be as residing places or usage as storehouses. But there are ample instances of these "farmhouses" being used for private parties, conferences, marriages and even being rented out with the revenue being shown as agricultural income! So now, thanks to the first millennium budget, all nonagricultural income from farmhouses are subject to tax. Sale of agricultural land Earlier, profit on sale of agricultural land was exempt from tax. But now, agricultural land situated in an urban area or within a distance of 8 km from any notified municipal or cantonment board area is considered a capital asset. Thus, profit from the sale of such land is liable to be taxed as a capital gain. But agricultural land outside the purview of the 8 km limit will be deemed to be in a rural area. Thus, profit from sale or transfer of such land would be considered tax-free. Although agricultural income is fully exempt from tax, individual assesses are required to club agricultural income along with other sources of income while filing returns based on the specific slab rates. Resultantly, the rate of taxation is higher for them. The methodology followed for calculating assessees' tax liability with agricultural income is:

Tax is first calculated on the assessee's net agricultural income plus total nonagricultural income. Tax is then calculated on the basic exemption slab increased by the assessee's net agricultural income. Amount of tax payable by the assessee is the difference between the above two

This methodology is followed only if assessee's non-agricultural income is in excess of the basic exemption slab (Rs 50,000 for assessment year 1999-2000) and agricultural income is higher than Rs 600. Be careful while filing returns and clearly mention agricultural income. Any discrepancy can be met with severe fines and penalties. Also, all

receipts of such income and land records should be kept at hand to show the authorities in case of enquiries.

Allowances are taxable income
UNI In a significant judgment adversely affecting millions of employees both in public and private sectors, the Supreme Court has held that the dearness allowance, city compensatory allowance (CCA) and the house rent allowance (HRA) given to them would be ''taxable income.'' In view of the amendment in the definition of the word ''income'' the court pointed out, any special allowance or benefit, specifically granted to an assessee to meet expenses wholly, necessarily and exclusively for the purpose of the duties of an office would be included in the word ''income''. ''It has also been pointed out that under sub-clause (iiib) of clause (24) of section 2 of the act, any allowance granted to an employee-assessee either to meet his personal expenses at his place of work or his place of residence or to compensate him for the increased cost of living is also to be included in income. Therefore, it is conceded that the payment of the HRA or the CCA would be covered by the word 'income'," the court clarified.

The ABC of capital gains
Larissa Fernand How often have you heard that term but never knew what to make out of it? Here are some FAQs to help you come to grips with this issue. What is capital gains? Capital gains is nothing but the profit made on selling a capital asset. What is a capital asset? Any property held by an assessee (that means an income tax payer). So it can be shares, units of UTI, debentures and land.

However, furniture, personal belongings, agricultural land (subject to certain criteria), Special Bearer Bonds, 1991, Gold Deposit Bonds (1999 scheme), 6.5 per cent Gold Bonds, 7 per cent Gold Bonds, National Defence Gold Bonds issued by the Central Government and raw material held for the purpose of business is not termed as a capital asset. Interestingly, though, from the year 1973-74, jewellery is treated as a capital asset. How are capital gains treated in the Income Tax Act? Either as short-term capital gains or long-term capital gains, depending on the number of years it is held. What is the tax on capital gains? If cost-inflation indexation is considered, then it is charged at 20 per cent whereas it is 10 per cent if cost-indexation is not considered. NRIs pay capital gains at the rate of 10 per cent. How is inflation taken into account? Starting with 1981 - 82 as the base year, the Reserve Bank of India notifies the Cost Inflation Index every year and the income tax department uses this figure in its calculations.
Financial year 1981 – 82 1982 – 83 1983 – 84 1984 – 85 1985 – 86 1986 – 87 1987 – 88 1988 – 89 1989 – 90 1990 – 91 1991 – 92 1992 – 93 1993 – 94 1994 – 95 1995 – 96 1996 – 97 1997 – 98 1998 – 99 1999 – 2000 Cost Inflation index 100 109 116 125 133 140 150 161 172 182 199 233 244 259 281 305 331 351 389

Based on the above figures, how is the cost indexed?
ASSUMPTION You bought a home for: In the financial year: You sold it for: In the financial year: CALCULATION: Cost inflation index: Indexed cost: Long-term capital gains: Rs 5,00,000 1985-86 Rs 15,00,000 1995-96 1995-96 index 281 ---------------------------- = --------- = 2.11278 1985-86 index 133 Rs 5,00,000 x 2.11278 = Rs 10,56,390 Rs 15,00,000 – Rs 10,56,390 = Rs 4,43,610

So if I sold it before the stipulated holding period, I don't get the indexed benefit? Correct. And to make it more clear, lets work with some figures.

You bought a home for In the financial year You sold it for In the financial year You repaired the house for In the year Expenses on transfer Capital gains

Long-term capital gains Rs 5,00,000 1985-86 Rs 15,00,000 1995-96 Rs 5,000 1990-91 Rs 5,000 Rs 4,30,890.25

Short-term capital gains Rs 5,00,000 1993-94 Rs 15,00,000 1995-96 Rs 5,000 1994-95 Rs 5,000 Rs 9,90,000

How long should I hold the asset to avail of long-term capital gains? Equity, preference shares and units of Unit Trust of India (whether they are quoted or not), debentures or government securities (listed on a stock exchange), units of mutual funds specified under section 10(23D) (whether quoted or not), have a holding period of just 12 months. For all other assets, like property and diamonds, the holding period is a minimum of three years. If you sell it before this time frame you will have to pay short-term capital gains. Is there any way I can avoid paying capital gains tax? The budget of 2000 - 2001 abolished section 54EA and EB, which were available for claiming exemption on capital gains. A new section 54 EC was introduced, instead. Under this, investments qualifying for exemption are bonds issued by the National Highway Authority of India (NHAI) and the National Bank for Agriculture and Rural Development. Are there any transactions that do not come under capital gains? Yes, certain transactions are not considered as transfer and hence not considered as capital gains. They are:
• • • • • • • • • • •

distribution of assets to shareholders on liquidation distribution of assets to members of HUF on total/ partial partition transfer on account of a Will/ irrevocable trust/ gift transfer by holding company to subsidiary and vice versa transfer on account of amalgamation transfer on account of demerger transfer of agricultural land in India transfer of artifacts to National Museum, National Art Gallery or the government transfer of bonds into shares of the company transfer of membership to stock exchange by assessee to company in lieu of shares of that company (done before December 31, 1998)

If I sell my car, do I have to pay capital gains? No. The sale of a car is exempt from capital gains tax since it is a personal item. What about an insurance claim? No. The payment of an insurance claim is not an amount being paid for taking over an assets. So it is not subject to capital gains.

If I lend my shares, they get returned with other distinctive numbers. What is the law on that? Here again, lending shares with specific distinctive numbers and receiving them back with other distinctive numbers does not result in a transfer. So here too it is not subject to capital gains tax. What if I make a capital loss instead of a gain? Any capital loss suffered (short-term and long-term) is available for set off against shortterm or long-term capital gains. Any unadjusted loss can be carried forward for a period of eight subsequent assessment years. Also see Capital Gains Calculator

When the tax sleuths conduct a 'raid'
Larissa Fernand Having the tax boys ransack your home and turn it upside down can be a harrowing experience. Thus, it would make matters a lot easier if you are aware of your rights and duties when faced with such an eventuality. Decoding the legalese
• •

Assessment: Income tax authorities looking at a filed income tax return. Scrutiny: When they decide to conduct a detailed and in-depth review of the return. Survey: Could be routine (often conducted in an area from time to time) or acting on specific information. A factory showing a low turnover may have the authorities snooping around checking stocks. A restaurant showing losses may have them sitting there a couple of hours, or maybe the entire day, to check how business is doing. Don't ask them for a warrant, they don't need one, anyway. But then they cannot walk away with any of your possessions, either. Don't worry about them coming home. A survey is only done on commercial premises. Search & Seizure: In plain English, it is a raid. And it can be done on commercial or residential premises, need not be preceded by a survey and they can walk away

with whatever they feel is undisclosed. This time around, however, they do need a warrant.

Panchnama: A document, detailing the entire 'Search & Seizure' operation, which has to be signed by you and two witnesses.

What sets the ball rolling Information has various ways of reaching the Income Tax Department. It could come from other government departments, newspapers, magazines and publications, or from informers. Did you know that informers are awarded 10 per cent of the tax on unaccounted money if the lead proves to be a genuine case of tax evasion? However, before you convince yourself that this is a lucrative way to earn a few extra bucks, think again. Informers are liable to be prosecuted under Section 182 of the Indian Penal Code if the allegations prove to be false. Once the Income Tax Department is satisfied that they have a genuine case of tax evasion, the information is passed on to the Director of Investigation who can then authorise a search. In the course of a raid, if officials discover illegal foreign exchange or ascertain that money has been siphoned off into overseas banks, the relevant information is passed onto the Foreign Exchange Regulation Act (FERA) officials. Incidentally, raids can be conducted under various Acts. The most common being the Income Tax Act, the Central Excise and Salt Act, and FERA. The only difference is that while you can't be arrested during a raid under the Income Tax Act, you enjoy no such advantage in the other two. What the process entails It starts as a wake-up call with the tax sleuths knocking at your door as early as 6:00 am so that they have the luxury of spending the entire day at your place. Not a great way to start the day. For you, i.e. Also, you certainly can't tell them to come back later or refuse to let them in, lest you want to land up in jail. Now that you are forced to greet them (they never come alone), have the presence of mind to ask for a warrant of authorisation and check to see if it is actually issued in your name: for, maybe it is your neighbour they are actually after. Convinced that it is you they have set their sights on, check out the credentials of the search party and then introduce them to each and every one at your house. If you have guests, they too have to be introduced. And don't try packing them off because nobody is allowed to leave once the tax authorities come calling. After the introductions, ask two witnesses over. Make sure they are not the gossipy folks next door or else the entire neighbourhood will hear of your plight by that evening.

Then starts the grilling. Don't try to use the line: "I won't talk without my lawyer present." The law does not require your lawyer to be present. Try to be as honest as possible. Questions will vary from how much you earn, what your monthly expenditure is, how many people you support, how much of money is currently on the premises, do you have any gold or valuables at home, and do you possess a bank locker. If you are not sure of an answer, say so. Then comes the crucial part when they may just decide to tear your house apart. Here, you can't do a thing except watch. And when you see them rip your Shyam Ahuja furnishings in the hope of finding dollars stashed in the mattress, or tear down the wallpaper in a bid to find a hollow in the wall, you can cry your heart out. Of course, you have the option of ignoring them and going right ahead with your day. Do you need to eat? No one can stop you, though chances are you would have lost your appetite by then. Their's, nonetheless, is whetted. They may follow you into the kitchen and check jars, bottles and cupboards to see if anything interests them, and they wouldn't be looking for food. There is no room in the house that is not accessible to the raid party. Since all your statements will be recorded along with the entire proceedings in what is called a 'panchnama,' read them carefully before you and the independent witnesses sign it. If the authorities want to seize any 'evidence', you can't stop them. But they can only take books and belongings of the person named in the warrant. They will make a list of these articles which will have to be signed by you and the two witnesses. Whew! They've finally gone. Now get on the phone and call your lawyer and chartered accountant. Then write to the officer who authorised the search requesting for a copy of the warrant as well as reasons and the statements recorded. And, if the tax boys found nothing incriminating, you can challenge the action of the department and file a writ petition to get the raid declared null and void. However, in case you were thinking of nailing down any particular officer, forget it. The income tax officials have immunity under Section 293 that states that they cannot be sued if nothing is found during a raid. Your rights and duties Your duty: You cannot stop them from entering your house. Your right: Check for a sealed warrant of authorisation in your name and with your address signed by the commissioner or senior commissioner. Your duty: Introduce everyone in your house. Your right: Ask the members of the search party to introduce themselves. The person heading the team should be of the rank of officer or inspector. Frisk them before the search to ensure that they don't plant any 'evidence' when they are raiding your premises.

Your duty: Refrain from making any calls to anybody, including your lawyer. A call is only permitted to your doctor or for an ambulance, in case you end up getting a heart attack during the proceedings. Your right: You can call two independent witnesses to be present during the proceedings and when statements are being recorded. Your duty: Allow them to seize account books, cash, jewellery, ornaments, antiques, property papers, documents, bullion, valuables and any other article which they feel is incriminating. They can also keep them in a cupboard and seal it. Your right: All documents, books and belongings taken by the authorities will have to be returned within 180 days, except for a specifically recorded reason that has the approval of the commissioner. Your duty: Answer each and every question put forth to you. Your right: To get a copy of any statement before it is used against you in prosecution proceedings. What happens then Now you have to file a special return for search proceedings. A notice estimating your undisclosed income will be served and tax at the rate of 60 per cent will be imposed. The notice will specify when you have to pay up (15 to 45 days) with an interest of 2 per cent per month imposed on delayed payments. If you state that you have an undisclosed amount of Rs 10,00,000 but the tax authorities figure it out to be Rs 20,00,000, then you pay a penalty that could be as high as three times the difference of Rs 10,00,000. Failure to furnish such a return can you three months imprisonment under Section 276 CC of the Income Tax Act.

Do you need to file a return?
Larissa Fernand Trying to figure out if you need to file a return? Need to know if you fall under the 'oneby-six' scheme? Want to know what a PAN is? Read on. Understanding the 'one-by-six scheme'? Section 139 (1) of the Income Tax Act, 1961, requires every individual, whose total income exceeds the maximum amount which is not chargeable to tax, to file a return. That means, only those individuals whose annual income is less than Rs 50,000 are

bypassed. However, if the person fulfills any of the conditions mentioned below, he is obligated to file a return.
• • •

• • •

Ownership/ lease of a motor vehicle Occupation of certain specified categories of immovable properties (ownership, tenancy or otherwise) Foreign travel to a country (excluding pilgrimage to holy places in Saudi Arabia and China), other than Bangladesh, Bhutan, Maldives, Nepal, Pakistan and Sri Lanka Subscription of a telephone Holder of a credit card (not being as "add-on" card) issued by a bank or an institution Member of a club where the entrance fee charged is Rs 25,000 or more

If an individual is 65 years old or more, and not engaged in any business or profession, he is not subject to immovable property and telephone conditions. When does a salaried individual have to file his return? A salaried individual has to file his returns on or before June 30 of the relevant assessment year. If a person fails to file his return of income by that period, he can file a belated return under section 139 (4) of the Income Tax Act, at any time before one year from the end of the assessment year or before the assessment is completed, whichever is earlier. If you are not filing the return or belated return within the time allowed, you will be treated as an assessee in default, irrespective of the fact that TDS is deducted from your salary. Not furnishing a return of income is not a crime, but attracts penal interest and penalty under section 234A and 271F of the Income Tax Act, 1961. Who needs a Permanent Account Number? That bring us to the Permanent Account Number (PAN). The latter is an alphanumeric combination of 10 characters allotted by the Income Tax Department and issued in the form of a laminated card. The PAN is ultimately meant to supplant the General Index Register (GIR) Number which is currently in use. An individual would have to be in possession of one, if he fulfills the criteria mentioned below.
• • •

An assessee whose income exceeds Rs 50,000 An individual carrying on a business or profession whose total sales, turnover or gross receipts are (or are likely to exceed) Rs 5,00,000 An individual who is required to furnish a return of income for income derived from property held under trust or other legal obligation wholly for charitable or religious purposes If you fall under the one-by-six scheme where it is mandatory to file a return

How should one apply for the PAN? So you figured that you do need a PAN. The procedure for application of one is quite simple. Obtain Form No 49A from the Income Tax office and fill it up. You will have to submit it at the ward where you will be assessed since PAN applications are to be made to the assessing officer having jurisdiction to asses the applicant. Don't forget to submit with two black-and-white photographs along with the applcation. When do I have to quote the PAN? When filing your returns, in all 'challans' for payment of direct taxes and in any other correspendence with the Income Tax authority. There are other transactions too which need the PAN to be quoted.
• • • • • • • •

Sale or purchase of immovable property valued at Rs 5,00,000 or more Sale or purchase of motor vehicle other than two wheeler Application for installation of telephone connection (including a cellular telephone) Opening an bank account Time deposit exceeding Rs 50,000 with a bank Deposits exceeding Rs 50,000 in an account with a Post Office Savings Bank Contract of a value exceeding Rs 1 million for sale or purchase of securities (shares, debentures) Payment to hotels and restaurants against their bills for an amount exceeding Rs 25,000 at any one time

What should I do if I have not yet received the PAN? In all cities, there is a central office in the Income Tax Department which is in charge of allotting these numbers. You will have to approach that cell. You can start by contacting the public relations officer of the Income Tax Department and ask for the address of the PAN cell. A duplicate PAN card can be issued when the PAN card has been lost or misplaced. This could be when the assessee has not received the PAN card from the department, even after the department has despatched it or there is an error in the PAN card issued to the assessee owing to wrong or incorrect information furnished by the assessee/applicant while filling Form 49A or due to subsequent change of name or other details. In case of reported loss of PAN card by the assessee, a copy of the First Information Report (FIR) filed with the police should be obtained before processing the request for issue of a duplicate PAN Card. In case the assessee claims that the PAN Card, despatched by the tax department, has not been received, an affidavit to this effect may be obtained from the assessee for providing a duplicate PAN Card. Assume you made the PAN application in one place, say new Delhi, and then got transferred on business to another city, say Bangalore. Since you had made an application

while you were in New Delhi, the official letter intimating the PAN will be sent by the Income-tax Department to your New Delhi address. Since you will be filing your returns in Bangalore, it would be advisable for you to write a letter to the PAN Cell, Bangalore, intimating to them the fact that you have already applied for the PAN at New Delhi and that now you are going to be assessed at Bangalore. Attach a photocopy of the said application to the letter and request them to allot the number to you. An individual must intimate his assessing officer as to any change in the name, address or the nature of the business on the basis of which the PAN was allotted. Which form is relevant when filing your returns? There are two factors that go into determining the applicable form for filing your return of income. One is the type of income that comprises your total income. The second is your net total income for the year. To be more precise, you may determine the form applicable to you from the following: FORM: 2A or 2D ['Saral'] SOURCE OF INCOME: All income except business income. INCOME LIMIT: Net total income should not exceed Rs 2,00,000 during the year. FORM: 3 or 2D ['Saral'] SOURCE OF INCOME: All income except business income. INCOME LIMIT: Total income for the year is above Rs 2,00,000. FORM: 2 or 2D ['Saral'] SOURCE OF INCOME: Total income includes business income. INCOME LIMIT: No limit You can get these forms from any Income Tax office falling under the jurisdiction of the area in which you stay, you may even get these forms from some specialised stationery shops. After ascertaining the form applicable to you, you shall have to fill the relevant details on the form. Also see: Facts on filing of returns

L&L fee fixed
The Maharashtra government decided to do away with the stamp duty imposed on Leave and Licence (L&L) agreements and impose instead a registration fee. Registration of L&L agreements continues to be mandatory along with a registration fee of Rs 1,000 for municipal corporation limits and Rs 500 for outside of it.

This fee will be irrespective of the size and cost of the property or the purpose of its use.

Transfer formalities in a co-operative society
Jyoti Dialani
So you own a flat (or office or, maybe, even a shop)in a co-operative housing society. And you decide to sell it. Or, maybe, just transfer it on someone else's name. Execution of the agreement is just part of the procedure. There are lots of other procedures to follow. • • • • A member who desire to transfer his flat in the society has to give 15 days' notice to the secretary of the society. This has to be done in a prescribed form whereby he has to state his intention for doing so. A committee meeting will then be called and this shall be placed before them. It will then be decided whether the member is eligible to transfer his shares and interest in the society. If the committee finds that the member is not eligible to do so, the committee shall direct the secretary to inform the member about the same. Whatever be the decision of the committee, the secretary is bound to convey this information to the member within three days of the decision of the committee.

If the seller is given the go-ahead signal, here are the formalities to be followed: • • • • • • • Submission of an application for transfer of his shares and interest in the property of the society in the prescribed form along with share certificate. Submission of an application for membership of the proposed transferee. Submission of a letter stating valid reasons for the proposed transfer. Clearance of all liabilities of the society. Payment of transfer fees of Rs 50. Payment of entrance fee of Rs 10 payable by the proposed transferee. To pay a premium amount to be fixed at the general body neeting of the society. This amount should not exceed 2.5 per cent of the difference between the book value of the flat and the sale consideration received by the transferor or Rs 25,000, whichever is less. The payment of premium is not applicable in case the flat has been transferred to a member of his family or it is inherited by an heir. Submission of a no-objection certificate, if required under any law in force at the time of transfer, or under any order or notification, issued by the government or by any other law enforcing body or authorities. Submission of an undertaking/declaration required under any law in force at that time in the form as prescribed under the bye-laws.

• •

Once the complete applications for transfer are submitted to the secretary, the committee shall follow the below mentioned steps for disposal of the application. • • • • • • The secretary scrutinies applications carefully. Any defects/irregularities/shortcomings in the documents submitted shoudlb e brought to the notice of the member within seven days of its receipt. Once the applications are rectified/regularised and completed, the secretary has to place the same at the next held committee meeting or general body meeting, for consideration and approval. The committee or the general body, as the case may be, shall consider the applications at the meeting and take decisions, after going through all the details. The committee has to ensure that the applications received by the secretary of the society are considered and disposed off within three months of the date of this receipt. In the event of rejection of any application, the committee or the general body, as the case may be, has to record the reasons for such rejection in the minutes of its meetings. The secretary has to communicate, the decision of the committee/general body, as the case may be, to the applicant member, within 15 days of the decision of the committee or general body Where the application is rejected, the secretary shall also convey the reasons for rejection. The committee or general body, as the case may be, shall not refuse any application for transfer except where there is non-compliance of any provision of the Act, or the Rules and the Bye-Laws or any other law in force at the time or any notification or order issued by the government. If the committee/general body does not convey the decision of the meeting on the application for transfer, to the applicant member within three months of the receipt of the transfer applications, the application shall be deemed to have been accepted and the transferee shall be deemed to have been admitted as a member of the society.

Documents involved in transfer
Jyoti Dialani
When submitting your application to the secretary of the co-operative housing society in the event of selling your apartment (or transferring it to another person), make sure you have all the documents in order. Here is a list documents which the transferor/transferee must verify and submit alongwith the application. • Notice of Intention of a member to transfer his shares and interest in the capital/property of the society

Rule 24 of the Maharashtra Co-operative Societies Rules, 1961 states that the member has to give a 15-days notice in writing, addressed to the secretary of the society stating his intention to transfer the flat/shop/office in the society to the

proposed transferee. This notice has to be written in the prescribed form, containing the name of the transferee and also the consideration for sale. • Letter of Consent of the proposed transferee for the transfer of the shares and interest in the capital/property of the society from the transferor to him.

According to Rule 24 (1)(b) of the Maharashtra Co-operative Societies Rules 1961, the proposed transferee has to give a letter to the secretary of the society giving his consent to the proposed transfer of the shares and interest of the transferor member of the society to him. • Application for transfer of shares and interest in the capital/property of the society, to be given by the proposed transferor (being an individual).

Bye-Law No 40(d)(i) requires the proposed transferor to make an application to the secretary of the society in the prescribed form, for transfer of the shares. Details such as share certificate number, the distinctive numbers of the shares held by him, the flat number and area should be included. This letter has to state that the liabilities due to the society by the tranferor have been fully paid and that he will discharge any other liabilities that may become due until the transfer is approved. In this letter the transferor is required to state reasons for the transfer and he is also required to state that the shares/interest in the society have been held by him for a period of not less than one year. • Declaration by the transferor for not holding an immovable property exceeding 500 sq metres in any urban agglomeration.

Bye-Law No 40(d)(ix) imposes upon the transferor of the flat/shop/office in a society to submit a declaration on Rs 20 stamp paper stating that he does not hold any land, whether vacant or otherwise exceeding 500 sq metres in area, anywhere in any urban agglomeration, mentioned in the Urban land (Ceiling and Regulation) Act, 1976. It must also contain details like names of the transferor and transferee, flat number and area of the flat intended to be transferred. • Declaration by the transferee for not holding an immovable property exceeding 500 sq metres in any urban agglomeration.

Under Model Bye-Law No 19(viii), the proposed transferee, who is an individual has to submit to the society, a declaration on Rs 20 stamp paper stating that he does not hold any land, whether vacant or otherwise exceeding 500 sq metres in area, anywhere in any urban agglomeration, mentioned in the Urban Land (Ceiling and Regulation) Act, 1976. • Undertaking by the proposed transferee to use the flat for the purpose for which it is purchased.

Under Bye-Law No 19(iv), the proposed transferee has to submit an undertaking on a Rs 20 stamp paper to use the flat to be purchased by him for the purposes mentioned in the letter of allotment issued to him under Bye-Law No 78(a). The

purpose as mentioned in the letter of allotment may be specified as residential, commercial etc. • Undertaking by the proposed transferee or by any of his family members, who is owning any plot/house/flat in thearea of operation of the society, to dispose off the same

Under Bye-Law No 19 (vi), the proposed transferee has to furnish an undertaking on a Rs 20 stamp paper to dispose off the house,plot or flat, already owned by him or by any of the members of his family, and located in the area of operation of the society. This undertaking must also state that he shall dispose off the said plot/flat/house within a period of six months from the date of transfer of the flat in the society to him. • Undertaking by a prospecture member having no independent source of income (if applicable).

If the proposed transferee is a non-earning person (he has no independent source of income), he is required under Bye-Law 19(v), to submit an undertaking on a Rs 20 stamp paper to discharge the liabilities to the society. • Certified copy of the agreement

A certified copy of the sale agreement executed by the parties to the transaction in respect of the flat, on a Rs 20 stamp paper has to be submitted. • Share certificate in original

Original share certificate in the name of the Transfer or has to be submitted. • Copy of stamp duty receipt

Proof of payment of stamp duty in the form of copy of receipt issued by the stamp authorities. • Copy of Registration Receipt

Certified true copy of registration receipt evidencing payment of Registration fees, issued by the Sub-Registrar of Assurances within whose jurisdiction the Society falls. • Copy of possession letter

A copy of the letter issued by the transferor to the transferee, stating that the transferee has been put in vacant, peaceful and physical possession of the flat, has to be submitted. • Letter to the electricity department of the body governing electricity supply

A letter written by the transferor to the electricity department giving information about the proposed transfer. This letter contains details such as the consumer number, the meter number, the address of the flat and a request to transfer the meter and electricity connection and deposits in respect of the flat to the name of the transferee. • Letter to the society in respect of the donation given by the transferor

If the transferor is giving a certain donation or voluntary contribution to the society, he has to submit a letter to the secretary of the society that he is giving the amount of donation as a voluntary contribution towards the Common Amenities Fund and also that he has instructed his accountant to effect the same as a voluntary contribution in his books of account. • Certified copy of the Power of Attorney

A certified copy of the Power of Attorney on Rs 100 stamp paper by the transferor to the transferee, empowering the latter with certain authorities to act, argue or to represent the transferor and also to sign letters, documents etc. related to transferring the ownership of the flat in the name of the transferee. • Indemnity Bond-cum-Affidavit by the transferee

The transferee has to submit an indemnity bond-cum-affidavit on a Rs 100 stamp paper giving certain declarations that the he shall abide by the society's rules and bye-laws and to regularly pay the bills of the society, not cause any nuisance/annoyance to the neighbouring flats, not to use the flat for commercial purposes and not to give the flat on a leave and license basis. The purchaser also undertakes not to carry out any illegal changes/alterations/ structural modifications in the flat purchased by him. The flat purchaser is also advised at the time of transfer, to submit a nomination form as required under Bye-Law No 34. This nomination form should carry details such as the share certificate number and distinctive numbers of the shares held by him, the flat number and the area of the flat. By submitting this form, the member nominates a person/persons, to whom the shares and interest in the society held by him, shall be transferred in the event of his death. Please note that there are different formats of nomination forms in respect a case of single nominee and that of more than one nominees. Also the nomination form has to be attested by two witnesses.

A buyers' market
Aparajita Saha

Home is where the heart is, or so they say. But actually purchasing one (a home, that is) relies on more practical factors such as low interest rates, attractive and competitive home finance packages and great tax incentives. And, believe it or not, the home buyer actually has all these factors in his favour. Interest rates on home loans have never been lower. Real estate financers are bettering one another with their respective loan packages and services. The government has redefined its role from being a provider to that of a facilitator. Real estate prices have bottomed out. Builders are pulling up their proverbial socks and improving their act. That leaves the consumer faced with one issue: to buy or not to buy? Let's see if we can answer that one. Property aspect Where prices of property are concerned, Pranay Vakil, chairman, Knight Frank (real estate consultants) advocates making a purchase. "Reasonable prices and a balance between the construction and land cost make it a good time to buy a house," he opines. Around four years ago, the real estate market witnessed a crash in prices. Consequently, potential buyers adopted a wait-and-watch strategy. However, a lot of them who had been sitting on the fence are convinced that this is the right time to make a move simply because of the reasonable and stable prices. Have property prices bottomed out? Unlike the stock market where the sensex acts as a barometer, the real estate market lacks a scientific index to measure property prices. Hence, it is not possible to answer that question candidly. The biggest hinderance to developing an index and monitoring it is the lack of transparency in transacted prices. The 'black' component in the price makes it difficult to develop and utilize an index. Added to this are other problems such as the lack of a base for statistical estimates, lack of published data, unavailability of dependable data and the absence of macrofigures make index construction very difficult. In spite of the absence of a scientific and reliable index, experts feel that real estate prices are at their lowest best now and can go only in one direction - upwards. "The volatility with respect to prices has subsided. In fact prices are going to increase in a steady manner due to the spurt in demand," feels Rajiv Jamkhedkar, manager, retail assets, personal banking, HSBC. According to real estate observers, property prices have come down by almost 35 per cent in the last four years indicating that probably the market has bottomed out. Mathru Prasad, assistant vice president, GIC Housing Finance Ltd (GIC), is of the opinion that the "pricing policy has undergone a change. Earlier prices would be based on what the traffic could bear. Now it's far more reasonable as prices consist of the cost and a certain profit level. Property prices have leveled out." Yet another point in favour of purchasing accommodation under the present circumstances is that builders are far more flexible now. The reasons for this are

simple. "Supply has been greater than demand. It's only recently that demand is catching up. There is competition among the builders to attract consumers," feels Prasad. This has forced builders to becomes more professional and competitive. Adding to this, Jamkhedkar says, "Competition forces developers to give value to customers. Consumers now get ready property as well as quality. This has increased consumer confidence who are more certain of getting a good deal." "Builders are offering a lot more quality, service and value for money than they did earlier. They have introduced international features and raised their standards to benefit the consumers. The recession has brought about professionalism in the construction business," says Raymond Dastoor, deputy general manager, marketing, GESCO Corporation Ltd. The financials Interest rates, which are a prime determinant while purchasing real estate, are also at an all time low. Interest rates were around 17-18 per cent six-seven years ago. Today we see a substantial drop to 12-13 per cent. In fact, these are the lowest rates being witnessed in the past 22 years. Hence the trend of thought that with interest rates touching such a low, they can only rise. There is not definite answer on this front. Suresh Chandnani, assistant vice president, ICICI, chooses to be cautious and says, "It is difficult to say whether interest rates have levelled out or if they will fall further or rise, but they are at a low right now." Last but not least, what should ultimately convince the buyers is the presence of a large number of flexible and attractive loan packages, each of them striving to be as competitive and alluring as possible. Real estate financers are emphasising on qualitative aspects such as service that assign utmost importance to the consumer. Free insurance, waiver of prepayment dues, extended tenure of loans and flexibility with respect to loan repayment are just some the features used to lure consumers. The government has adopted an encouraging stance, inducing an increasing number of people to go in for self-owned houses. Budget 2000-01 raised the tax deduction on interest on house loans for self-occupied houses from Rs 75,000 to Rs 100,000. Consequently, a number of housing finance players recorded a surge in the number of disbursals. Mahesh Shah, manager (communications), HDFC, states, "If an individual belonging to the highest income bracket avails of a loan, he can save Rs 34,500 per year." To put it in a nutshell: the consumer never had it so good! So back to our question: to buy or not to buy? The verdict: Go for it!

A checklist before you buy property
Larissa Fernand

Buying land? It can turn out to be quite problematic if you don't tread carefully. For starters, make sure that the title is clear or else claims on your land will result in years of litigation. The moment the land is yours, fence the entire area to prevent encroachment. Simultaneously arrange for security to prevent any illegal occupation. Once you start developing your property, you may be faced with a whole new range of issues. Getting hold of basic amenities like plumbing, water and electricity may prove problematic. Of course, if you have purchased agricultural land, the government may not permit any construction on it. In fact, extreme care should be taken when buying agricultural land since the terminology is different and so are the local laws. For example, one person may own the land while another the crops. This will cause a problem regarding possession of land. Always ask for a copy of the plan approval by the Town and Country Planning Board or any other similar authority before buying vacant land. That brings us to an apartment under construction. This one will be cheaper than an outright purchase of one ready for occupation. But do check for the commencement certificate for full work and make sure that all the titles are clear. Construction should have commenced with at least two slabs completed. Make sure that there is sufficient work going on at the site. As far as a readymade apartment is concerned, you have to check the finish of the flat: flooring, painting, amenities, switches, windows, doors, permanent fixtures, plumbing and common area finishes. If you take a housing loan, then the actual repayment of the loan commences after the housing finance company makes the final disbursement. Until the final disbursement is made from the housing finance company to the real estate developer, the consumer has to pay a pre-EMI rate of interest. So if construction is delayed, then the final disbursement too is delayed and the buyer loses out by paying more pre-EMI. This problem will not arise in the case of a ready apartment where repayment starts immediately. If nostalgia and sentiment are pushing you towards buying an old home characterized with its Gothic architecture, hold on. Chances are that the government might have categorised it as a heritage property. Grade I constructions are those that have a historical value and no changes in construction are permitted on the structure. These are usually held by the government and not available to the general public. You might be eyeing a Grade II or III structure. Under these categories, repairs and modifications are permitted with the approval of the authorities. Limited interior changes and repairs are permitted under Grade II while alterations (including design and reconstruction) are permitted under III though they have to match the original plan.

Jyoti Dialani
Imagine you want to sell your apartment. At long last, you manage to zero in on a buyer who is ready to offer what you want. And then, you find that the co-operative society wants a 'fee' to allow you sell your own apartment. Now, imagine yourself as the buyer. You just manage to cough up hard-earned money to buy that apartment and then you realise that the society wants a transfer fee. In both the instances, you are bound to be furious. Welcome to the controversial issue of the legality of a transfer fee demanded by a co-operative housing society. This fee is an amount charged by the society to the person selling his apartment or the person buying an apartment in the society. At the time of transfer, the transferor is requested to give a letter to the society stating that he is giving the donation as a voluntary contribution towards the common amenities fund, maintenance fund or major repairs fund, and that he has instructed his accountant to reflect the same as a voluntary contribution in his books of accounts. So, is this fair? If the society has adopted the Model Bye-Laws, it has to follow the provisions contained therein. Model Bye-Law No 40(d)(v) of co-operative housing societies as approved by the commissioner for co-operation under the Maharashtra Co-operative Societies Act, 1960 provides for payment of a transfer fee of just Rs 50 by the transferor-member to the society. Also, sub-clause (vii) of the Model Bye-Law No 40(d) provides for a payment of premium at a rate to be fixed by the general body meeting not exceeding 2.5 per cent of the difference between the book value of the flat and the price realised by the transferor on a transfer of flat or Rs 25,000, whichever is less. It also imposes restrictions on accepting an amount exceeding Rs 25,000, whether by way of donation or otherwise, unless it is paid voluntarily by the member. However, today the transfer fees are not restricted to an amount of Rs 25,000. It fact, there are no guidelines for societies to follow. The amount is fixed by passing a resolution at a special general body meeting of the society. It is paid at a fixed rate per square foot or as a lump-sum. And, make no mistake, this amount could be huge.

Let's talk about legality So, while it is legal to pay transfer fees, is it legal to demand huge amounts from a buyer or seller? Let's see what the law says on this issue. In the case of The Poona Hindu Middle Class Co-operative Housing Society Ltd v/s Sudhakar Gopal Palsule before the Maharashtra State Co-operative Appellate Court, Bombay (Pune Bench), it was held that any donation demanded by the society in excess of what was permitted by the bye-laws, if such bye-laws are not amended, is illegal. In another case of (1989) CTJ 319, Ramana Co-operative Housing Society Ltd v/s S D Chittar, Bombay, before the Maharashtra State Co- operative Appellate Court, Bombay, it was held that the society had no right to charge transfer fees in excess of the provision of Re 1 under the bye-laws and that the member had a right to demand the money back with damages in the form of interest. This is applicable in the case of a society which has not adopted the model bye-laws. Such a society can recover a maximum transfer fee of only Re 1 at the time of transfer of a flat. It should be clarified that this amount shall remain the same, regardless of the area of the flat transferred and it is not Re 1 per sq ft, but only Re 1 fixed. It is clarified that The Maharashtra Co-operative Societies Act and Rules do not provide for any right to the society allowing it to charge transfer fees in addition to the Re 1 as prescribed by the bye-laws when the member intends to transfer his property in the society in favour of a third party. In fact, The Bombay High Court went a step further in holding that the resolution fixing transfer fees, even if passed by the general body of the society, would have no over-riding effect and binding on the members, if it is not approved by the Registrar and, even if approved, it would be totally illegal. What can you do? Unfortunately, despite these rulings, today no transfer can be effected without conceding to the demand of transfer fees by various societies, which has become an accepted norm. Of course, if you want to protest, you are free to take this issue to court.

Larissa Fernand
Cash payment decreases your capacity to borrow If the seller gives you a quote of Rs 1.5 million and you opt for a loan to finance the

deal, most housing finance companies will put up just 85 per cent of the amount. That means Rs 2,25,000 will be your look out. Now, if the seller insists that Rs 3,00,000 come in as cash with just Rs 1.2 million on cheque, then you will have to put up Rs 4,80,000 since the housing finance company will finance just 85 per cent of Rs 1.2 million which amounts to Rs 1.2 million. This is excluding all the documentation fees for the loan. It is possible to reverse the transaction Should a problem arise whereby you can't go ahead with the deal, then you can cancel the entire transaction for a fee. If you have been dealing in cash, there is obviously no record and you may end up forfeiting the entire amount. The undeclared amount is usually given upfront with the booking amount but with no record that the money has changed hands. Undeclared cash transactions involve larger capital gains tax Let's assume that you buy property worth Rs 1.5 million. Years down the road if you decide to sell it for Rs 2 million, then capital gains will be calculated on Rs 5,00,000. If the seller had insisted that you declare the transaction as just Rs 1.2 million, then the capital gains, when you decide to sell, will be calculated on Rs 8,00,000. A huge undeclared amount can get the tax men sniffing at your door Let's say that you have set your sights on this palatial apartment in a prime location in Mumbai offering you a fabulous view of the sea. It's going to set you back by Rs 10 million. The hitch: the seller has no intention of declaring Rs 2 million to the authorities. So the papers are drawn up for Rs 8 million. Section 37(I) of the Income Tax Act states that properties where the transaction cost is Rs 7.5 million or more (Mumbai), Rs 5 million (Delhi), Rs 2.5 million or more (Calcutta, Bangalore, Chennai, Ahmedabad, Pune) and Rs 2 million and above (other cities) is to be brought to the notice of the income tax department. If the authorities feel that the property has been undervalued, then they can auction it to the nearest bidder. On record, since you have just paid Rs 8 million, that is all that will be reimbursed. You lose the balance Rs 2 million which you have already paid to the seller.

Larissa Fernand
Totally ecstatic about buying your new home? After all, you are getting fairly good bargain for 2,000 sq ft of area. Don't mean to be a kill-joy, but, can you tell me how the area is defined?

Is it carpet area? If not, is it 'built-up' area or 'super-built up' area? What's the difference, you ask? Quite a bit. With no common criteria for measuring constructed space, the quote could be on the basis of any of the above three concepts. Of course, it goes without saying that there is no universally acceptable definition of these terms too. Generally speaking, the carpet area is defined as the actual area within the walls of your house. To demonstrate, if you had to lay out a carpet, how much area would it require? That's the carpet area for you. Built-up area goes a step further and it includes the carpet area as well as the area of the inside walls. Super-built up or the sale area is the most comprehensive and includes a proportionate share of the lobby, staircase, outside corridor and elevator. In some cases, the terrace is also included in this. The total area of all these divided by the number of apartments in proportion to the size is how this calculation is done. This break up is extremely essential as builders can place anywhere from 60 per cent to 80 per cent of the super built area as carpet area. That means, if the quote is on 2,000 sq ft, the carpet area could be anywhere from just 1,200 sq ft to 1,600 sq ft. If this break up is not mentioned in the agreement, demand that the builder mention it in the sale deed.

Larissa Fernand So you are all set to go in for a Leave and License agreement. But don't sign on the dotted line just yet. Before you go any further, here's what you should make note of. WHAT THE AGREEMENT MUST INCLUDE

Exact lease period

Deposit amount

Security deposit return clause stating that the deposit has to be returned to the tenant within 7 days of expiry of the lease term or else interest will be charged per day

Rate of interest to be paid in case of deposit not being returned must be specified

Monthly rent

Names of people permitted to reside on the premises

Whether premises are to be used for residential purposes or otherwise

Car parking

If furniture is being provided, the agreement should be split into two: Leave & License / Furniture & Fixtures agreements

A clause indicating that the agreement will be terminated due to earthquake, riot or such acts of nature so the tenant need not pay for the period that premises are not occupied

Other than a security deposit, if a deposit is taken against non-payment of telephone or electricity bills, the exact amount should be stated

A clause stating when the deposit has to be returned to the licensee if all bills are settled and, if not, the rate of interest to be imposed

A clause indicating that the licensee stays in possession of the apartment till the landlord returns / settles all his dues

A clause regarding what causes a breach of contract by either party and what the penalty is

A clause indicating that the licensee has a right to stay in the apartment for the specific time period even if the owner decides to sell, transfer or mortgage his property

A provision of at least three months notice in case either party wants to break the contract earlier than the original period CHECKLIST FOR THE LANDLORD

Don't permit the licensee to stay on the premises until the agreement is written on a stamp paper and duly signed by both

If you are open to negotiations, fix the rentals slightly higher than what you would like to earn

Municipal taxes and monthly society outgoings will have to be paid by you

Utilities like the telephone and electricity bills have to be paid by the licensee

Check the credentials of the client and ask for references

All agreements should be in writing

A client has the right to verify if past electricity and telephone bills have been paid (keep paid bills ready)

A client has the right to check the title papers and the floor plan to verify the area of the apartment

Ask for a no-objection certificate from the society giving permission to lease the apartment

The society may levy a non-occupancy charge on the owner of the premises

Do not extend license periods by a supplementary document; draw a fresh agreement CHECKLIST FOR THE TENANT

Leakages: Check for leakages and ask the landlord to rectify them. If he does not and you are still willing to stay there, negotiate for a lower deal.

Title documents: Does the person leasing the apartment to you actually own the apartment?

Electricity bills: The electricity meter should be in the owner's name and the past bills should have been cleared.

Society objections: A no-objection certificate, or NOC, from the society permitting the lease of the apartment

Plans: The floor plan should clearly tell you what the area of the apartment is and a qualified architect must have certified the plan.

Payments: All the payments (monthly rent and deposits) required from you should be stated in the agreement.

Cheque payments: Make each and every single payment only by cheque

If the owner of the apartment is not signing the agreement then make sure that the person doing so has the Power or Attorney to that effect

Making money on Leave & License
Larissa Fernand You have a vacant apartment. But, you will never rent it out. After all, what if your tenant decides not to vacate and makes your apartment his own. That's why tenancy has been put on the backburner and L&L is now the most popular option. A Leave & License agreement does not give the occupants any ownership rights. The agreement only permits occupancy for a specific timeframe which could range from 11 months to 33 months. Should he refuse to vacate, the matter can be brought before the Competent Authority who will then take action. A lease, on the other hand, generally refers to a plot of land and has a much longer timeframe which could extend to 99 years. Where a lease is concerned, the occupant can sub-lease it to a third party (if permitted in the lease deed), a right not given in the case of L&L.

A rental is shunned by landlords as the issue of permanent occupation often causes problems. With no definite timeframe, the tenants often refuse to relocate and claim tenancy rights. If the matter is taken to court, it is dragged on for years. Is permission required? If it is an apartment, permission of the society is needed. Some housing societies insist that the licensee (the person you have leased your apartment to) becomes a nominal member of the society. It is not as frightful as it sounds. Unlike an ordinary member, the nominal member has no voting rights, is not eligible to become a committee member and cannot be appointed as a society representative. So what's the logic? In case he decides to play tough and refuses to vacate, apart from the apartment owner filing a suit, the society can also do so in the co-operative court. If it is a company, then suits can be filed under the Companies Act. Getting your money's worth The most lucrative deals can be got by letting out your apartment to a company looking for residential space for its employees. If you are lucky enough to own an apartment in a building used for commercial purposes or situated in a commercial area, then you can offer it for office space. However, corporates are extremely finicky when hunting for space. The Money Channel has listed some of the criteria they consider necessary. While your premises may not fulfill all the criteria, at least satisfying most of them should suffice. What companies consider when taking office space
• • • • • • • • • • • • •

How well connected it is to the public transport system? Is it situated in the prime commercial district Extreme proximity to the airport makes it too noisy A good finish to the building and an impressive lobby Car parking Ample number of elevators Air-conditioning Power back-ups Cross ventilation and natural light (specially in areas of frequent power cuts) Column free space. Obstructing columns are unwelcome, especially if they are planning an open office Utilities (pantry, toilets) to one side of the office No leakages A minimum of 9 ft for the floor-ceiling height, which is the height below the beam. (If ducts have to be planted, the height is reduced by 1.5 ft.)

What companies consider when taking residential space

• • • • • • • • • • • • • • • •

Pleasant surroundings. Slums are a negative factor. A garden, lake or sea rank high Good unobstructed view Extreme proximity to the airport is a disadvantage A good finish to the building Car parking Service elevator Adequate cross-ventilation and natural light Efficient management of space with no wasted in long corridors Spacious area, a crammed feeling is a big negative Column free space No leakages Servant's quarters Laundry drying space Security Fire-fighting system AC ledges

Fixing a quote for L&L There are two ways to make money on L&L: investing the refundable security deposit and earning a monthly income. Let's assume that according to the market value of the property, the cost to the tenant should be Rs 3,00,000 for 11 months. You, as a landlord, will make more money if you take a lower deposit and a higher rent. Here is the range within which you can negotiate with the licensee (person you are leasing out the premises to).
Deposit by tenant (Rs) 1,00,000 Rent by tenant (Rs/month) Cost to tenant for 11 months
Bank offers 8% p.a. on deposit 18,182 1,00,000 + 2,00,000 = 3,00,000 Rs 7,333/ 11 months 7,333 + 2,00,000= 2,07,333 1,25,000 15,909 1,25,000 + 1,75,000 = 3,00,000 Rs 9,166/ 11 months 9,166 + 1,75,000 = 1,84,166 1,50,000 13,636 1,50,000 + 1,50,000 = 3,00,000 Rs 11,000/ 11 months 11,000 + 1,50,000 = 1,61,000 1,75,000 11,364 2,00,000 9,090

1,75,000 + 1,25,000 2,00,000 + 1,00,000 = 3,00,000 = 3,00,000 Rs 12,833/ 11 months Rs 14,666/ 11 months 12,833 + 1,25,000 = 14,666 + 1,00,000 = 1,37,833 1,14,666

Total earning for landlord at end of 11 months (Rs)

• • • •

Make sure the returns you are expecting are in tune with the market value. Fix quote on the basis of the market value. If you are open to negotiation, fix it higher than what you would like. You will earn more if you take a higher monthly rent versus a deposit (assuming you place the latter in a bank fixed deposit). If the monthly rent is surplus income, open a recurring deposit for the amount or at least part of the amount. It will increase your returns, however minimal.

If you are repaying a loan, make sure that the monthly income earned on this is more than the equated monthly installment, or EMI, that you pay to the housing finance company.

HOME | MONEY | PERSONAL FINANCE | REAL ESTATE

April 17, 2000 Banking Cards General Insurance Lifestyle Loans NRI Real Estate Taxation Travel

Larissa Fernand What's in a name? If it is property that is the subject of discussion, then it's all in the name. Naming a person as the owner of a house is one decision that requires careful thought. And, once done, it may be virtually impossible to revert that decision. Listed below are the various options available that will take care of the inheritance factor.

Individual ownership
There is one sole owner who calls the shots. No one else's permission or signature is required to sell (or even lease or rent). While this leaves no room for conflict, it might turn out to be a problem if you reside in a different town. You can take care of this issue by handing over the power of attorney to a neighbour, relative or friend to deal with any property matter that might crop up. Where succession is concerned, it all depends on who the individual wishes his/her successor to be. Of course, you have to make this clear in your will. In the absence of a will, the various personal laws based on religion will come into force. Get in touch with your lawyer to understand the various implications of each law. Christians, Jews and Parsees come under the Indian Succession Act. Buddhists, Jains and Hindus come under the Hindu Succession Act. The Muslim law is further divided depending on the various sects but a common feature is that the owner can pass on only one-third of his property. The balance goes in accord with the Muslim law.

Joint ownership
Now it does not make much of a difference if you don't draw up your

Crucial real estate documents
Larissa Fernand Real estate is an aspect of personal finance that touches virtually each individual's life. At some point in your life, you may decide to buy a house or sell the one you have. Incomplete documentation can mean big trouble. Agreement of sale: All important information regarding the sale is recorded here, such as the area, apartment number, cost of the apartment, mode of payment, tenure of payment and date of possession. Title deed: A title deed in your name indicates that the property is indeed yours. And if you ever decide to mortage your property for a loan, you will need to give the original title. Should you sell the property, retain a copy of the sale deed. In fact, every original document concerning the legal title of the property has to be handed over to the new owner. But don't do so unless you make photocopies of each and every single one of them. This will help you in calculating your long-term capital gains. If the property is sold in parts then do not submit the original sale deed. Since you bought the entire property in one lot and are disposing it in parts, you need not surrender this document. It will suffice if you just hand over certified and true photocopies of the original purchase deed to the new buyers. Letter attesting ownership of property: There have been innumerable instances where property has been mortgaged by the seller. And the seller has not informed the buyer that he has taken a loan against the property. To make sure that you are not conned, ask for two documents to set your doubts at rest. The first is the original title deed. If the property is mortgaged, he will not have this in his possession. The second is the letter attesting to ownership of property. This one is usually given when buying land or when the amount being transacted is large. In other cases, the buyer's lawyer will need to check up on his own. He can do this by either asking the society or going to the registrar of assurance's office (the registrar will know if the property is mortgaged). Later on, if you ever decide to mortgage the property, you will need the original title and this document. Certificate attesting payment of income tax dues: If the seller is an income tax defaulter, he can be legally prevented from selling his property. The tax officials can debar him from selling the property until all dues are

settled. The seller needs to obtain a document from the IT Department stating that he does not it any dues. Obtaining it should not take more than a week to 10 days. Memorandum of understanding: If you are unable to make the entire payment upfront, you will need to format a memorandum of understanding which will state all the conditions as to when the payments are to be made. Make sure that the period as well as the amount owed is recorded correctly since this will be the one document that can prove how much you owe the selling party. Form 37I: In case the value of the property is more than Rs 75,00,000 (Mumbai), Rs 50,00,000 (Delhi), Rs 25,00,000 (Calcutta, Chennai, Bangalore, Ahmedabad, Pune) and Rs 20,00,000 (Chandigarh, Jaipur, Cochin, Trivandrum, Nagpur, Faridabad, Gurgaon, Gaziabad, Noida, Kanpur, Patna, Lucknow, Bhubhaneshwar, Cuttack, Coimbatore, Madurai, Hyderabad, Surat, Indore, Baroda, Bhopal), government permission is needed to transact a sale. This document has to be filed by both the buyer and seller, and the entire procedure will take around three months excluding the month in which it is filed. Stamp duty: Since stamp duty is levied by state governments on all real estate agreements, it varies from state to state. The amount is dependent on the purchase price that is shown in the agreement of sale. For example, in Maharashtra, a purchase valued at Rs 10,00,000 would invoke a stamp duty of Rs 38,750. For amounts exceeding Rs 10,00,000, the duty is 8 per cent of the amount plus Rs 38,750. Stamp duty is to be paid at the time of registration. Registration: Registration refers to the recording of the contents of a document with a Registering Officer appointed by the state government. The registration of the agreement has to be done after a fixed period of time from the due date of execution. The date and amount to be paid for registration varies between states. The deadline in Maharashtra is four months from the date of execution and the fees are 1 per cent of the amount with a maximum of Rs 20,000. Fard: Where a purchase of agricultural land is concerned, all details regarding ownership, quantity of land, mortgage of land, if any, and details on who is cultivating the land is mentioned in a document called Fard. Obtain the latest copy of Fard from the seller. Once the sale deed has been executed in your favour, apply for a new Fard in your name after meeting the concerned Patwari of the area. Make sure that the new Fard contains your name as the owner and cultivator.

Coping with the pink slip
Larissa Fernand
Yes. We are actually talking about what you should if you do get sacked. Most people don't think much about it till it happens. And then, they are too shocked to react. In case you have landed in such a spot, read on. • • • Tell your family about it. Immediately. You will have to start cutting corners and you will need your family members to also do so, specially if you are the sole bread earner or the main bread earner. Take stock of all your liabilities and see where you can cut down. Of course, you can't cut down on food but you can do away with the 'goodies' or with the imported cheese. Entertainment will have to drop. Take stock of all your assets to see if you need to sell any. Will any of the debentures be maturing in the near future? Till then would you need to sell some shares to see you through. Don't consider selling your house in a hurry. You may never be in a position to buy one again. Instead, you could move to a cheaper location and rent the current home. Look at various sources of income that you may be getting. Are you getting rent from somewhere which will help pay off all your bills? Any income scheme which assures you of a regular return? Don't stop any payments on housing loans or insurance. You may end up losing your home and, if you fall sick, then you will not even have a medical insurance to see you through. Stop using your credit card. And if you do, then make sure that you settle all bills at the end of the month. If you decide to carry over payments in the hope of getting a job in the near future, you are walking on a thin rope. If the job does not materialize, your debt will mount fast. Don't take any loans. Don't think of going in for a personal loan to make ends meet. Anyway, you won't get one if you don't have a job. If you are desperate for cash, try and take loans from your assets. You could explore options like a loan from your public provident fund (PPF), provident fund or insurance policy. You could also use your house as a mortgage but that would be a more expensive method. And do file your returns. It could be that you were sacked mid-way through the year, so the tax man will want an account of your income till then. Make sure you sit with your accountant to ensure that you don't have any taxes to pay. And, if you do, please pay them. Of course, this is assuming that you do have substantial income that does put you in the tax bracket.

• • •

Getting out of debt
Larissa Fernand

You can't figure this one out. All you seem to do is service your loans and pay your bills. You are in a debt trap and you want out. Hopefully these tips will show some light at the end of the tunnel. • • Started revolving credit on one of your cards? Stop making any payments on that card. Each and every single payment will get caught in the revolving credit. Start using cash or another credit card. The interest on the card is killing you. Switch cards. Opt for any of the other cards, like the Amex, ICICI or Stanchart card, which offer a low rate of interest for six months (if you transfer debt). Transfer all your debt onto this card and stick to the date of six months to clear your outstandings. Alright. You are in a soup. You are revolving credit on all your cards. Consolidate your debt. Opt for a personal loan and repay all the other loans. Then focus on servicing just this one loan. The personal loan will be cheaper to service than revolving credit. List all your inflows (salary, interest, dividends, rent earnings, gifts, windfalls, bonus, LTA) and outflows (money spent every month). The inflows should be more than the outflows or at least match them if you are steeped in debt. If outflows are more than inflows, start cutting down. Here's how: Don't stop payments on electricity bills, water bills, telephone bills, gas bills, doctor/ dentist/ chemist bills, children's school fees, insurance premia, household help, house rentals or loan repayments. Keep money aside for taxes and sudden expenditure like an illness or a repair job. Cut down on your newspaper bills (you can do away with one or two of the international publications for some time), clothing and footwear. Knock out CDs, video cassettes, LCDs, books, holidays, gifts, impulsive buys, eating in expensive place and consuming alcohol. Keep entertainment to the bare minimum. Leave home without your credit card. That will stop you from using it. Tear up your ATM card. Don't keep much money in the savings account except what is needed for your monthly expenditure. Put the rest in bank fixed deposits so should an emergency arise you can just break the deposit. And do not keep spare cash at home.

Larissa Fernand
Not sure where you stand where your finances are concerned? Take a look at these questions. If you answer positively to even one of them, then you do have a cause for worry. • Is your income insufficient to clear your debt?

• • • • • • • • • • • •

Are you resorting to borrowing from one source to pay another? Is more and more portion of your income being used to settle debts? Is your income just sufficient for your monthly expenses and utility bills? Are you tapping on your investments to clear your debt? Has your borrowing increased lately? Are you a compulsive spender? Are you using your credit card to extend your income? Are you becoming extremely uneasy about your debt situation? Are you having trouble monitoring your debt from various sources? Do you feel that you are in a debt trap and haven't a clue when you are going to get out? Have any of the cheques you issued 'bounced' for lack of sufficient funds? Do you find yourself ignoring or avoiding calls from creditors?

The first step is to Get out of debt. Once that is done, follow these tips on How to start saving. Finally, be disciplined. The trick is in opting for investments which keep going only if a particular amount is constantly fed into it. • A Public Provident Fund (PPF) account allows you to make a maxium number of 12 deposits in a year. So either you can put in an amount every month, every alternate month, an annual lumpsum or whatever intervals between deposits you wish to maintain. Since it is not mandatory that you deposit an amount every month but every year, you probably need an instrument that will force you to be more disciplined. Opt for a recurring deposit in a bank or even the post office recurring deposit. Here you are forced to deposit a fixed amount every month for a fixed time frame. At the end of the tenure, you get the principal and the rate of interest earned over that period. This is basically targeted at the risk-averse. You are assured of a fixed rate of return over this time frame and you can reinvest the full amount at the end of the tenure. Willing to take a little more risk? Opt for a systematic investment plan (SIP) of a mutual fund. Here too you are forced to keep a fixed amount of money aside every month. Assume, you deposit Rs 1,000 on a monthly basis. If the net asset value (NAV) of the fund is quoting at Rs 50, you will get 20 units of the fund. The next month if the NAV drops to Rs 20, you will get 50 units. If it rises to Rs 60, you will get 16.7 units. So over time, your units in the fund will increase. You can take an income fund or if you are really keen on investing in stocks, then you can go for an equity fund. But the bottom line is to keep investing every month. There is no need to invest only in one fund. You can even try small amounts in different funds.

Saving for a home
Earlier: • Getting ready for retirement
Previously, Rohit Sarin analysed how an individual at three different stages of his life can plan for his retirement. This time around, he tackles another financial goal

which virtually everyone faces: house purchase. We will restrict this analysis within the following parameters: • • • House purchase at the age of 40 Balanced risk appetite Estimated current value of the property stands at Rs 2.5 million

CASE I Assumptions in the case of the 25 year-old.................... • • • • • Existing savings for house purchase: Nil Percentage of loan to part-finance house purchase: 25% Annual return on debt funds: 12 per cent Annual return on equity funds: 20 per cent Annual rate of inflation: 8 per cent

Which lead to.................................... • • • • • A recommended debt to equity ratio of 40:60. For this, a mix of debt and equity based funds should be selected. Estimated current value of the desired property of Rs 2.5 million would inflate to a little more than Rs 7.9 million after 15 years. This would be part financed by a loan to the extent of 25 per cent which is Rs 1,980,000. Therefore, the balance amount of Rs 5,950,423 would need to be saved over a period of 15 years. With a debt to equity mix of 40:60, the person needs to begin with a total monthly investment of Rs 5,954. This monthly saving/contribution would keep on increasing every year.

In figures, the complete 15-year plan translates to..............
Year Year 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Equity Fund Debt Fund 2,382 2,620 2,882 3,170 3,487 3,836 4,219 4,641 5,105 5,616 6,177 6,795 7,474 8,222 9,044 Total Yearly Income 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 3,572 3,930 4,323 4,755 5,230 5,753 6,329 6,961 7,658 8,423 9,266 10,192 11,212 12,332 13,566 5,954 6,549 7,204 7,925 8,717 9,589 10,548 11,602 12,763 14,039 15,443 16,987 18,686 20,554 22,610 71,447 78,591 86,450 95,095 104,605 115,065 126,572 139,224 153,156 168,468 185,316 203,844 224,232 246,648 271,320 5,547 17,374 32,034 50,051 72,039 98,712 130,902 169,579 215,869 271,083 336,742 414,610 506,734 615,488 743,621 Cumm. Balance** 76,994 172,959 291,444 436,590 613,234 827,011 1,084,485 1,393,288 1,762,313 2,201,864 2,723,922 3,342,376 4,073,342 4,935,478 5,950,419

CASE II Assumptions in the case of the 30 year-old.................... • Current existing savings towards purchase of home: Rs 100, 000

• •

Approximate post-tax annual return on existing savings: 15 per cent Percentage of loan to part-finance house purchase: 25 per cent of the net gap

Which lead to.................................... • • • • • • • Recommended debt to equity ratio of 50:50. For this, a mix of debt and equity based funds should be selected. Estimated current value of the property of Rs 2.5 million would inflate to Rs 53,97,312 after 10 years. The value of the current investment would grow to Rs 404,556. Therefore, the target amount to mobilise after 10 years would be Rs 49,92,757. This would be part financed by a loan to the extent of 25 per cent which is Rs 12,50,000. Therefore, the net amount to save in next 10 years would be Rs 37,42,757. With a debt to equity mix of 50:50, the person needs to begin with a total monthly investment of Rs 10,429. This monthly saving/contribution would keep on increasing every year.

In figures, the complete 10-year plan translates to............
Year Year 1 2 3 4 5 6 7 8 9 10 Equity Fund Debt Fund Total Yearly Income 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 5,215 5,736 6,310 6,941 7,635 8,398 9,238 10,162 11,178 12,296 5,215 5,736 6,310 6,941 7,635 8,398 9,238 10,162 11,178 12,296 10,429 11,472 12,619 13,881 15,270 16,797 18,476 20,324 22,356 24,592 125,152 137,667 151,434 166,577 183,235 201,558 221,714 243,888 268,272 295,104 9,301 29,054 53,418 83,223 119,433 163,168 215,728 278,618 353,580 442,634 Cumm. Balance** 134,453 301,174 506,026 755,827 1,058,494 1,423,221 1,860,663 2,383,169 3,005,021 3,742,759

CASE III Assumptions in the case of the 35 year-old.................... • • • Existing savings for house purchase: Rs 200,000 Approximate post-tax annual return on existing savings: 15 per cent Percentage of loan to part-finance the house purchase: 25 per cent of the net gap

Which lead to.................................... • • • • • • Recommended debt to equity ratio of 50:50. For this, a mix of debt and equity based funds should be selected. Estimated current value of the property of Rs 2.5 million would inflate to Rs 36,73,320 after 5 years. The value of current investment would grow to Rs 4,02,271. Therefore, the target to mobilise after 5 years would be Rs 32,71,049. This would be part financed by a loan to the extent of 25 per cent which is Rs 8,20,000. Therefore, the net amount to save in next 5 years would be Rs 25,51,049.

With a debt to equity mix of 50:50 the person needs to begin with a total monthly investment of Rs 24,150. This monthly saving/contribution would keep on increasing every year.

In figures, the complete 5-year plan translates to..............
Year 2000 2001 2002 2003 2004 Year 1 2 3 4 5 Equity Fund 12,075 13,283 14,611 16,072 17,679 Debt Fund 12,075 13,283 14,611 16,072 17,679 Total 24,150 26,565 29,222 32,144 35,358 Yearly 289,802 318,782 350,660 385,726 424,299 Income 21,537 67,278 123,695 192,711 276,559 Cumm. Balance** 311,339 697,398 1,171,754 1,750,191 2,451,049

Getting ready for retirement
Earlier: • Getting started Rohit Sarin
In the previous piece we saw that identifying goals is a first step in financial planning. Taking that as a lead, we have taken case studies of three individuals of varying ages: 25, 30 and 35. One common criteria being their goals: • • • • House purchase at the age of 40 Finance of child's education at 45 Finance their child's marriage at 55 years Retirement at 55 years

With the assumption that all of them share a balanced risk profile, here is how they should plan for their retirement. CASE I Assumptions in the case of the 25 year-old.................... • • • • • • • Current Monthly Expenses: Rs 10, 000 Monthly contribution to PF: Rs 1,500 Annual estimated increment: 10 per cent Annual return on PF: 11 per cent Annual return on debt funds: 12 per cent Annual return on equity funds: 20 per cent Annual rate of inflation: 8 per cent

Which lead to.................................... • A recommended debt to equity ratio of 40:60. For this, a mix of debt and equity based funds should be selected.

• • • • •

Estimated current value of monthly expenses of Rs 10, 000 would inflate to Rs 100, 627 on retirement after 30 years. To generate such an amount of regular income Rs 12,075,188 would need to be invested in financial instruments giving a steady annual return of 10 per cent. A major chunk (86 per cent) of this would be financed through accumulated PF balance which would have grown to Rs 1, 03, 71, 655. Therefore, the balance amount of Rs 17, 03, 534 would need to be saved over a period of 30 years. With a debt to equity mix of 40:60,, the person needs to begin with a total monthly of only Rs 143. This monthly saving/contribution would could keep on increasing every year.

In figures, the complete 30-year plan translates to..............

Year 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

No.

Equity Debt Cumm. Fund Fund Total Yearly Income Balance** (Rs) (Rs) 1 86 57 143 1,713 133 1,846 2 94 63 157 1,884 417 4,147 3 104 69 173 2,073 768 6,988 4 114 76 190 2,280 1,200 10,468 5 125 84 209 2,508 1,727 14,703 6 138 92 230 2,759 2,367 19,829 7 152 101 253 3,035 3,139 26,002 8 167 111 278 3,336 4,066 33,404 9 184 122 306 3,672 5,175 42,251 10 202 135 337 4,044 6,500 52,795 11 222 148 370 4,440 8,074 65,308 12 244 163 407 4,884 9,940 80,133 13 269 179 448 5,376 12,149 97,658 14 296 197 493 5,916 14,756 118,330 15 325 217 542 6,504 17,829 142,663 16 358 238 596 7,152 21,441 171,256 17 394 262 656 7,872 25,683 204,811 18 433 289 722 8,664 30,657 244,132 19 476 318 794 9,528 36,481 290,140 20 524 349 873 10,476 43,290 343,906 21 576 384 960 11,520 51,242 406,669 22 634 422 1,056 12,672 60,520 479,861 23 697 465 1,162 13,944 71,334 565,139 24 767 511 1,278 15,336 83,927 664,402 25 844 562 1,406 16,872 98,579 779,853

2025 2026 2027 2028 2029
CASE II

26 27 28 29 30

928 1,021 1,123 1,235 1,358

619 680 748 824 906

1,547 1,701 1,871 2,059 2,264

18,564 20,412 22,452 24,708 27,168

115,612 135,399 158,368 185,015 215,909

914,029 1,069,839 1,250,659 1,460,382 1,703,460

Assumptions in the case of the 30 year-old.................... • • • • • • • • Current Monthly Expenses: Rs 20, 000 Monthly contribution to PF: Rs 2,000 Annual estimated increment: 10 per cent Annual return on PF: 11 per cent Existing PF balance: Rs 100,000 Annual return on debt funds: 12 per cent Annual return on equity funds: 20 per cent Annual rate of inflation: 8 per cent

Which lead to.................................... • • • • • • Recommended debt to equity ratio of 50:50. For this, a mix of debt and equity based funds should be selected. Estimated current value of monthly expenses of Rs 20, 000 would inflate to Rs 136, 970 per month on retirement after 25 years. To generate such an amount of regular income Rs 1, 64, 36, 340 would need to be invested in financial instruments giving a steady annual return of 10 per cent. About 50 per cent of this would be financed through accumulated PF balance which would have grown to Rs 76, 73, 755. Therefore, the balance amount of Rs 87, 62, 586/- would need to be saved over a period of 25 years. With a debt to equity mix of 50:50, the person needs to begin with a total monthly of Rs 1,740. This monthly saving/contribution could keep increasing every year.

In figures, the complete 25-year plan translates to...................

Year No. 2000 2001 2002 2003

Equity Debt Cumm. Total Yearly Income Fund Fund Balance** 1 870 870 1,740 20,878 1,552 22,429 2 957 957 1,914 22,965 4,847 50,241 3 1,053 1,053 2,105 25,262 8,911 84,414 4 1,158 1,158 2,316 27,788 13,883 126,085

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

1,274 1,401 1,541 1,695 1,865 2,051 2,257 2,482 2,730 3,003 3,304 3,634 3,997 4,397 4,837 5,320 5,852 6,438 7,081 7,790 8,568

1,274 1,401 1,541 1,695 1,865 2,051 2,257 2,482 2,730 3,003 3,304 3,634 3,997 4,397 4,837 5,320 5,852 6,438 7,081 7,790 8,568

2,547 2,802 3,082 3,390 3,729 4,102 4,513 4,964 5,460 6,006 6,607 7,268 7,994 8,794 9,673 10,640 11,704 12,875 14,162 15,579 17,136

30,567 19,923 33,623 27,219 36,986 35,987 40,680 46,478 44,748 58,982 49,224 73,837 54,156 91,432 59,568 112,217 65,520 136,709 72,072 165,508 79,284 199,305 87,216 238,897 95,928 285,200 105,528 339,272 116,076 402,328 127,680 475,767 140,448 561,198 154,500 660,473 169,944 775,717 186,948 909,373 205,632 1,064,246

176,575 237,418 310,391 397,549 501,279 624,340 769,929 941,713 1,143,943 1,381,523 1,660,112 1,986,225 2,367,353 2,812,153 3,330,557 3,934,004 4,635,650 5,450,622 6,396,283 7,492,604 8,762,482

CASE III Assumptions in the case of the 35 year-old.................... • • • • • • • • Current Monthly Expenses: Rs 30,000 Monthly contribution to PF: Rs 2,500 Annual estimated increment: 10 per cent Annual return on PF: 11 per cent Existing PF balance: Rs 300,000 Annual return on debt funds: 12 per cent Annual return on equity funds: 20 per cent Annual rate of inflation: 8 per cent

Which lead to.................................... • • Recommended debt to equity ratio of 50:50. For this, a mix of debt and equity based funds should be selected. Estimated current value of monthly expenses of Rs 30, 000 would inflate to Rs 139,829 per month on retirement after 20 years.

• • • •

To generate such an amount of regular income Rs 1, 67, 79, 446 would need to be invested in financial instruments giving a steady annual return of 10 per cent. About a third of this would be financed through accumulated PF balance which would have grown to Rs 56, 37, 516. Therefore, the balance amount of Rs 111,41, 930 would need to be saved over a period of 20 years. With a debt to equity mix of 50:50, the person needs to begin with a total monthly of Rs 4,927. This monthly saving/contribution could keep increasing every year.

In figures, the complete 20-year plan translates to...................

Year No. 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Equity Debt Cumm. Total Yearly Income Fund Fund Balance** 1 2,464 2,464 4,927 59,129 4,394 63,523 2 2,710 2,710 5,420 65,042 13,727 142,292 3 2,981 2,981 5,962 71,546 25,238 239,075 4 3,279 3,279 6,558 78,701 39,319 357,095 5 3,607 3,607 7,214 86,571 56,427 500,093 6 3,968 3,968 7,936 95,228 77,090 672,410 7 4,365 4,365 8,729 104,750 101,922 879,083 8 4,801 4,801 9,602 115,224 131,635 1,125,941 9 5,281 5,281 10,562 126,744 167,051 1,419,736 10 5,810 5,810 11,619 139,428 209,125 1,768,289 11 6,390 6,390 12,780 153,360 258,957 2,180,606 12 7,029 7,029 14,058 168,696 317,822 2,667,124 13 7,732 7,732 15,464 185,568 387,188 3,239,880 14 8,506 8,506 17,011 204,132 468,753 3,912,765 15 9,356 9,356 18,712 224,544 564,474 4,701,783 16 10,292 10,292 20,583 246,996 676,605 5,625,384 17 11,321 11,321 22,641 271,692 807,745 6,704,821 18 12,453 12,453 24,905 298,860 960,885 7,964,566 19 13,698 13,698 27,396 328,752 1,139,471 9,432,789 20 15,068 15,068 30,136 361,632 1,347,465 11,141,886

Achieving your financial goals
Larissa Fernand

That is something you don't manage to do. You start saving with a particular aim in mind but then something else comes up and there goes the little piggy bank. Maybe you are saving, but don't really know what you are saving for. Follow these steps to help you achieve your financial goals. 1. The first step in achieving your goals is to list them and then prioritise them. So you need to renovate your house and budget for a holiday abroad and buy a music system. Which one has to been achieved first? Getting guests over a couple of months down the road? Then maybe you would like to do the renovation first. The holiday is anyway not on the cards till the end of next year. And where the music system is concerned, there really is no hurry. 2. Put a price tag to each. To do this you will have to be very, very concise and clear on what it is you are working towards. Does renovation mean just a paint job? Is it restricted to just one room in the house? Are you planning on changing the furniture? What about the upholstery? Depending on what you have in mind, you can determine the cost. As for the holiday abroad, take into account not just the airfare but also the visa costs, airport tax, hotel costs (if you are not visiting family or friends), shopping and any other sightseeing expenditure. 3. Now that you are aware of which needs are most important as well as how much it will cost you, set a time frame. Allocate separate budgets for each and start working towards it. Or, if your income does not justify saving simultaneously for three goals, then just save towards one at a time. So once the renovation is done, start saving for the holiday. But in all this, it is assumed that you are keeping a separate fund for retirement or for a rainy day which is not to be compromised on. 4. Another way of achieving your goals is to take a loan. How much of debt can you incur? The answer can vary from 25 per cent to 40 per cent of your gross income, depending on whether you pose the question to a conservative or an aggressive risk take. For this you will have to look at two factors: your comfort level with debt along with your net worth. If your income is just sufficient to get you by, it is ridiculous to think of taking a loan because you won't be able to service it. If you have to urgently meet your goal, then you may be forced to do so but make sure that you can comfortably repay the loan. On the other hand, if you have substantial assets and are not comfortable with the idea of being in debt, then use your money. Also, if you have to meet your goal with urgency, tapping your assets may be the only option. 5. Get yourself medically insured. God forbid, but should you meet with an accident, or, on the other extreme need a bypass, your hospital bill could set you back by around Rs 1,00,000 at least. Say bye to all your dreams and start from scratch. The only option: get yourself medically insured. No doubt, you will have to settle these bills first before you get reimbursed by the insurance company. But at least, you will get reimbursed. If not, your savings could get totally wiped out and worse still, you could end up in debt.

Whacky ways to save
Larissa Fernand

A little imagination can work wonders. Yes, but just how imaginative can you be with your savings? Well, here are 10 points to get your creative juices flowing. • • • • Was drooling over that pastry in the cafeteria, but decided that Rs 50 was too much to pay to put on a 1,000 calories? Dump the Rs 50 you would have spent on it in the piggy bank. Just finished repaying a loan? Pretend you haven't. Keep that sum aside every month (or, at least, part of it). Instead of landing up in the creditor's wallet, it will now find its way into your piggy bank. Start saving all 'extra' money. So the next time you go shopping with Rs 500 and spend just Rs 450, deposit the balance Rs 50 in the piggy bank. Over time, it will amount to a substantial sum. Are you an emotional spender? Angry? A new pair of shoes might help. Lonely? That new outfit would cheer you up. Depressed? A couple of beers would be perfect. This can turn out to be a big hurdle in your savings pattern, especially if you get lonely, angry and depressed often. It may be cheaper to visit a psychiatrist. Should you get a bonus, or a rich relative gives you a gift, or leaves a tidy sum for you in his will, invest this money instead of spending it. Find yourself using your card too often? Start leaving home without it. So that shoe sale, which would have got you spending on your card, will require you to make a trip back. If it's irresistible, you will. Chances are you won't. Pat yourself on the back for this. What if you do carry your card along for a genuine purpose and then you saw this sale and the temptation was just too much? Don't lose hope. Just sign with your left hand. Chances are that the shopkeeper won't accept the signature and you will be relieved of your obligation to buy. If your credit card gives you the option of putting a picture on it, put on someone's photo whom you utterly detest. Chances are you will hate using your card because the sight of that person's face would ruin your day. Every time you exceed your monthly budget, burn up calories. Keep a ration: say Rs 100 will get you walking for a kilometer. The result: a slimmer you, but a fatter wallet. The fact that you are not happy with your savings shows that you are not earning enough, to maintain your lifestyle. Earn more. That means, work more. It could mean taking up another job. Look at the brighter side: working like a dog will not leave you any time to spend money.

• •

• • •

Larissa Fernand

Ah! The convenience of Internet banking. You can access details of your account any time of the day, or night for that matter. Who's to bother with a trip to the bank? You can operate from your home or office and, maybe, even from a cybercafe. But before you do decide to opt for Internet banking, make sure that the services offered match your expectations. Broadly, there are four areas on which you should focus on: services offered over the Net, transfer of funds, account history and security.

Services
Can you stop payment of cheques? Does the bank permit ordering of cheque books over the Net? If yes, how many days will it take to reach you? Is it possible to report the loss of an ATM card online? What about payment of credit card bills online? Can credit card transactions be viewed over the Net? Requests for a new fixed deposit or renewal of existing deposits? Payment of electricity or mobile bills online? For demand draft requests, does the draft get delivered to your own address or to that of a third party?

Funds transfer
Can you transfer funds between accounts of the same bank? Do both the accounts have to be in your name or can you transfer from your account to someone else's account? Can you transfer funds from your account to an account with another bank?

Account history
How far back does the account history go? Can you download just the last transaction, the past four transactions or maybe even the past 10 transactions? Will you get a detailed report of a particular account? Is account information restricted to balance and statement enquiry. Can you check the balance in just one account at a time or do you have the option of checking it in all your accounts. Do you have the option of retrieving information on the basis of criteria other than name (date or amount). Can you check how many cheques have been issued or deposited in the past, say, eight transactions?

Security
How many login attempts are permitted before the password is disabled? Can you pre-set an activity period if your terminal is left unattended? For example, you are accessing information on your account but some urgent work cropped up and you left your terminal unattended. After, say 5 minutes or 10 minutes or maybe even more, will access automatically get terminated? Everytime you log in, will the last date and time of login be displayed? Besides hardcore banking, keep an eye open for other facilities as well. Does the bank offer free Net access for a fixed number of hours, can you customise your account. ICICI Bank offers to nickname your accounts to avoid remembering detailed account numbers. Can your balance be monitored and a message sent in case it drops below a particular level? In the future, banks plan to introduce e-broking services online and set up shopping

portals so that the money will be directly debited from the customer's account, eliminating credit card security problems. For starters, you can take a look at the demo offered by various banks on their sites. See which one you are most comfortable with. Here are the banks which you can check out: ICICI Bank (www.icicibank.com), HDFC Bank (www.hdfcbank.com), Global Trust Bank (www.globaltrustbank.com), IndusInd Bank (www.indusind.com), UTI Bank (www.utibank.com) and Federal Bank (www.federal-bank.com).
Way back in 1995, when Security First Network (SFN) set the first pure Internet bank amid a lot of sniggering, critics sat down to write its obituary. However, a year later, Booz Allen & Hamilton came out with a North American internet banking survey where the figures made a strong case for Internet banking. By way of costs, the survey stated that Internet banking is the cheapest form of delivery. Here is how they estimated the cost of transactions to be: $1.07 (full service branch), $0.54 (phone banking), $0.015 (PC banking) and $0.01 (Internet banking). Last month, Grant Thornton LLP, an accounting and management consulting firm, released its seventh annual banking survey. Based on a response of 638 North American banks, here are some of the findings: · By the end of this year, 78 per cent will have a Web site, up from 55 per cent at the end of 1999. · Currently, 17 per cent of all banks say they offer Internet banking services and another 47 per cent expect to offer them by the end of this year. · Internet banking services to be introduced by the end of 2000 include the ability to monitor account balances (55 per cent), transfer funds between accounts (54 per cent), pay bills (46 per cent), and apply for loans (37 per cent). Only 8 per cent will allow customers to make electronic trades through brokerage accounts. · 28 per cent of all banks cite both Internet portal Web sites and Internetbased banks as competitive concerns. · Within the next three years, 89 per cent of banks will offer home banking via an interactive Web site, 87 per cent will offer electronic bill payment, and 75 per cent will offer online loan applications.