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Monday,
August 13, 2001, Chandigarh, India  
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How to
plan for retirement
IDBI in a
fix over IFCI bailout
Q: I have purchased house with borrowed capital
from nationalised bank as per following details:... |
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Bank
interest
Medical
negligence victims not consumers
Gloomy
outlook
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How to plan for retirement Can one build one’s own pension plan by exercising investment choices that ensure not only good returns, but also lower risks? It is also important that the return is relatively assured despite falling interest rates all around. Is this possible? Perhaps! In this three part series, let us zoom in on some of the investment schemes that could help one earn a comfortable monthly income, post-retirement. Mind you, do exercise caution and your own judgement as the endeavour here is to take a closer look at some of the better-known pension plans available in the market.
Post Office Monthly Income Scheme Post Office Monthly Income Scheme (POMIS) is a deposit scheme offering interest at the rate of 9.5 per cent per annum payable monthly. This is a fairly viable plan for a person looking out for assured pension on his investment. This is a high yielding scheme from the Post Office where the maturity period is six years. The minimum amount invested is Rs 6,000 and there is a maximum limit Rs 6 lakh in joint account. 9.5 per cent interest is payable monthly (Rs 95 will be paid every month on a deposit of Rs 12,000) Another big attraction of POMIS is that a 10 per cent maturity bonus is paid on the investment at the time of maturity. POMIS investment has to be held for the full period of 6 years for the monthly bonus to be payable which makes POMIS returns higher than many comparable instruments. Premature withdrawal from POMIS investment is possible after one year but the principal deposit shall be returned after deducting 5 per cent, in such a case. No such deduction will be made if the POMIS account is closed after three years but then, no maturity bonus is payable. Premature withdrawal in POMIS may be more costly than those in a bank FD because of the loss of maturity bonus. Interest on POMIS is not subject to TDS and post-office schemes being government run institution offer a higher degree of safety. Bank fixed deposits would come closest in terms of safety but interest on bank deposits are subject to TDS. The interest and maturity bonus on POMIS are also eligible for deduction from taxable under section 80L.
Monthly Income Plans by MFs Monthly Income Plan (MIP) from mutual funds have been catering to requirements of large number of investments including pensioners. But do not confuse them with guaranteed fixed income Monthly Income Plans which are struggling to stand by their assurances. The open-end MIPs do not guarantee any return but aim at providing regular returns. These funds do not guarantee returns unlike bonds or deposits. But they still hold out fair promise primarily for their ability to guard your capital against inflation, in addition to the regular income that they provide. With income from mutual funds being tax free, though debt and debt-oriented funds have to pay a 10 per cent distribution tax, those in the higher tax bracket may find themselves better off with a certain level of uncertainty that ensures tax-free income. Investors are advised to check the proportion of equity component in the scheme and then make investments. Nevertheless, always remember — higher risk and higher returns go hand in hand. To be continued
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IDBI in a fix over IFCI bailout
New Delhi, August 12 IDBI, which is planning to raise Rs 3,000 crore through bonds this fiscal, would be able to come up with its share of capital for IFCI only after the first tranch of the bonds issue. Market apprehensions are that IDBI, which was passing through a difficult phase, might approach SBI to provide it additional funds so as to carry out the bailout in time. However, SBI Chairman, Janaki Ballabh, told PTI: “It is all speculation. We have not discussed anything on the issue as we are only a minor stakeholder.” According to the Rs 1,000 crore bailout package announced by the government for IFCI, IDBI with 31.71 per cent stake would have to inject about Rs 200 crore as per the “pro-rata” basis of the Rs 600 crore fund infusion by stakeholders, official sources said. LIC, GIC and its former arms have 17.47 per cent stake in IFCI and are required to bring in a little over Rs 100 crore. State Bank of India (SBI), which has 2.1 per cent stake in IFCI, has to bring in a meagre Rs 12.6 crore although it was flushed with funds.
PTI
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by A. N. Shanbhag
Q: I have purchased house with borrowed capital
from nationalised bank as per following details:... Agreement
for purchase/sell was signed on November 26,’99. Stamp duty paid was
Rs 15,000 and registration charges paid were Rs 6,000 at that time.
House loan was applied on December 12, 2000 with processing charges to
the tune of Rs 3,000. Sale deed for possession of house was completed on
May 14, 2001, stamp duty and registration charges paid were Rs 200. 1) Can I claim tax rebate for stamp duty, registration charges, what is paid in 1999/2001 as above for the financial year 2000-2001 by filing IT return? Or when should I claim it? 2) Can I claim tax rebate for processing charges also? 3) I want to do electrical fittings, wood work etc for the already possessed house by borrowed capital from bank. Can I claim tax rebate for the same and if yes, how? 4) I also want to extend my house by one room by borrowed capital. Can I claim tax rebate for the same and if yes, how? 5) How should I claim rebate for pre EMI interest paid for four months. —
Shirirsh D. Penurkar A: 1. The rebate on repayment of
capital and the deduction on interest payable are allowed only when the
income from house property becomes chargeable to tax. In other words,
the construction should be complete, the flat should be ready for
occupation and the municipal annual value is known. The interest for the
years prior to the year in which the property was completed, shall be
deducted in equal installments for the year during which it was
completed and each of the 4 immediately succeeding years. Unfortunately, there is no corresponding provision for the rebate. I am afraid, the authors of the legislation have forgotten to do so. Therefore, the tax rebate for stamp duty, registration charges, etc., paid in 99-00 cannot be claimed by you since the house was completed in 01-02. 2. Processing charges can be construed as a part and parcel of the loan. 3. If you take a loan to acquire, construct, repair, renew or reconstruct any house property (including residential), from any source, the interest is deductible. On the other hand, the rebate u/s 88 can be claimed only if the loan is taken from some certain specified sources (not any source) and is for purchase or construction (not repair, renew or reconstruct) of only a residential house (not any house). There are no such restrictions on the interest. Bank is an approved source. 4. Extension of a house is not a house and therefore these reliefs cannot be claimed. Q:
I have taken a housing loan from my company at an interest rate of 4 per
cent in 1997. Is there a tax liability because of the new provisions of
the IT Act about cost to employer or the subsidised rate loan? If yes
then how much? — Santosh Kharolkar A: If the employer has taken has a loan for the explicit purpose of providing the loan to his employees, the difference between the interest paid and the interest received by him will be treated as the perk value and taxed in the hands of the employees. On the other hand, if it is a subsidised housing loan provided by the employer from his own resources, there is no tax liability in the hands of the employee. Of course, in either case the employee is entitled to claim the tax rebate on the loan repayment and the deduction on interest paid. Q:
I had invested Rs 10,000 in Canpep 91 in 1991 and the same has how
matured in 2001. However I received the maturity amount of Rs 7,960 as
they have deducted Rs 2,040 as income tax 20 per cent plus 2 per cent
surcharge. Can they deduct the tax when there are no capital gains and
the amount received by me is the same as I had invested? Furthermore
when I file my tax returns how should I account this amount as there are
no capital gains and what rate of tax should be paid by me if I am
liable for tax on this amount? — K.G. Shenoy A: ELSS schemes came in existence in FY 91-92 under the umbrella of Sec. 80CCB where the capital withdrawal is taxable in the year of withdrawal. In other words, you have to pay tax on the capital of Rs 10,000 even if there were a loss. Over and above this, tax on the capital gains, if any, has also to be paid. If there is a loss, you can set it of against your other capital gains, short-term or long-term, earned during the financial year. In case any balance loss remains in your hands, it can be carried forward for similar set off. Unfortunately,
it appears that the benefit of indexation is not available on ELSS
schemes floated in 1991 and 1992, though I strongly feel that it can be
claimed. The faulty wordings used in Sec. 45(6) has caused some
confusion. I am given to understand that some of the ITOs allow it and
others do not. If you were allowed the benefit of indexation, you could
have claimed long-term capital loss.
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by R. N. Lakhotia Bank interest Q: How much tax I have to pay for the financial year 2000-01 on bank interest Rs 66500. I have earned having no other income? I have the PAN. — K.S. Bhatia, Shivpuri Out of the bank interest income of Rs 66,500, Rs 12,000 will be exempted u/s 80L thereby leaving net taxable income of Rs 54,500 on which the income-tax payable comes to Rs 450.
Lease Q: I want to lease out my residential accommodation to my employer @ about Rs 1800 per month. This accommodation will be provided to me free of charges in lieu of House rent allowance. Kindly let me know the Income Tax position in this case. Will I have to pay income tax for lease amount earned by me and the perquisite of accommodation provided to me in lieu of house rent allowance, which at present is about Rs 650 per month. — P.N. Gupta,
Guru Nanak Colony In respect of self lease of your residential property to your employer, you will be eligible to claim a tax deduction in respect of house rent allowance received by you. However, on the rental income so received by you, Income-tax will be payable after granting you tax deduction for repairs, etc. @ 25 per cent of the annual value for the assessment year 2001-2002 and @ 30 per cent of the annual value for the assessment year 2002-2003.
Donations Q: Certain staff members of this Centre are donating amount to Red Cross Society Punjab Branch. Advertisement in Tribune shown that donations made to Red Cross are 100 per cent tax free u/s 80-G (2) (aviii). Ads. given by R.C. Society, Ambala. Kindly clarify whether our donations are covered under above said section. — Bhagat Ram, Please obtain a copy of the Income-tax exemption certificate from the Red Cross Society so as to avail 100 per cent deduction on the donations made by you. Also enclose a copy of the exemption certificate with your Income-tax return.
Extra tax Q: I am serving in education department as a teacher. I paid about 1800 extra as tax for the year 1999-2000. Can I deduct this extra payment of tax from the taxable amount for the year 2000-2001. If so, under which section please. — A.S., Muktsar The extra tax paid by you for one accounting year cannot be adjusted against the tax payable for the subsequent year. You have to file your income-tax return and claim refund in respect of the extra tax paid by you for a particular assessment year.
PF deduction Q: Is it in order to bifurcate Provident Fund deducted for yester years, while bifurcating arrears of salaried class u/s 89 and get benefit of P.F. U/s 88. For example savings made during 1999-2000 are Rs 55,000 now arrears paid in 2000-01 and P.F. deducted for 1999-00 Rs 5000. —
A. K. Mahajan, Ghorab While granting tax relief u/s 89(1) in respect of arrears salary you will be eligible to claim the benefit of tax rebate on the full savings made by you for which at the time of filing the income-tax return full benefit was not claimed or granted. |
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by Pushpa Girimaji Medical negligence victims not consumers Last fortnight, five persons who underwent cataract operation at an eye camp at Chhindwara District Hospital in Madhya Pradesh, lost their sight, thanks to the gross negligence exhibited by those who were in charge of the eye camp. And according to newspaper reports, the families of those affected are now asking the government, which has initiated a high-level probe into the incident, to pay them compensation. See the irony of the situation. Even though these are victims of medical negligence, they cannot seek compensation through the consumer courts constituted under the Consumer Protection (CP) Act because in order to do so, they should have paid for that service. Consumer courts have been established to provide relief to consumers who are victims of negligence — be it in the provision of services or goods. And in order to ensure that these courts are not beyond the reach of poor consumers, the law has ensured that there is no court fee to be paid. The simple process of adjudication prescribed under the law also ensures that the redress is quick and affordable. Yet, the law keeps services provided free of charge outside the jurisdiction of these courts. And as a result, denies justice through these courts to those who need it most. In fact, if services such as these provided free of cost also came under the ambit of the consumer courts, those providing such services would not be so complacent about the quality of service provided by them. The case of Tapan Kumar Nayak vs State of Orissa (FA No 1128 of 1994) underscore this point. Here, an infant who was administered triple antigen injection and anti-polio drops at an immunisation camp, suffered a severe adverse reaction leading to brain damage and muscular deformity. The parents filed a complaint before the State Consumer Disputes Redressal Commission, alleging negligence on the part of the government in administering a defective vaccine. the Commission, however, held that the complainants were not ‘consumers’, as they had not paid for the service. And as a result they had no right under the CP Act to seek compensation for negligent service through the courts constituted under it. The parents even knocked at the doors of the National Commission, which is the apex consumer court, without success. A shocking fact that came to light during the hearing of this case was that the staff of the primary health centre had not even noted the batch number, date of manufacture and expiry of the vaccine in the register maintained for the purpose!. Would they be so careless in maintaining the records or play with the life of a child so casually, if they knew that they could be hauled up under the CP Act? On the day the news item about the eye camp appeared, there was another report on the compensation awarded by a city court in New Delhi to the parents of a child who died on account of Delhi Vidyut Board’s negligence. It took the parents, as long as eleven years to get a compensation of Rs 1.5 lakh for the loss of their only child. According to the report, five year old Rahul was playing with his friends in a park in the colony when he was electrocuted by a live wire hanging from the electric pole there. Since local authorities who provide civic services free of cost are not answerable to the consumer courts, the parents had to wage a long legal battle before a city court. Be it a case of death caused by a fall into an open manhole or electrocution caused by a live wire left hanging dangerously at a public place, most of the victims of civic bodies’ negligence are poor people, who cannot afford to go to a regular law court and fight a protracted legal battle. I remember a case filed before the Maharashtra State Commission, where a person using a public toilet provided by the municipality suffered permanent disability because the entire structure fell like a pack of cards on him while he was using it. The Commission expressed its regret at having to turn him away as the Consumer Protect Act did not provide for relief against the negligence of civic bodies that provide free service. (Shri Raosaheb Devrao Hajare vs Ulhasnagar Municipal Council, Complaint No 237 of 1990). Even though the Bill to amend the CP Act, introduced in Parliament during the last session, incorporates a large number of changes to strengthen the law, there is no proposal to bring civic services and health services provided free, within the ambit of the consumer courts. Hopefully, the Standing Committee of Parliament which is now looking at these amendments, will suggest the necessary changes that will open the doors of the consumer courts to the poorest of poor in the country and the Members of Parliament who will have to eventually pass the Bill will lend their support to it. |
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by J. C. Anand Gloomy outlook In spite of the fact that during the last fortnight, the Sensex improved by 84.32 points (2.6 per cent) there was no improvement in the market sentiment which remains gloomy, Trade volumes are low and the small investor is keeping away from the market. Options trading has also not picked up much. Even where this facility is available, there are not many who go in for it. Unfamiliarity as well as the uncertain market conditions are keeping back the traders. The financial institutions and the
mutual funds are adjusting themselves to the changed environment and there is no bulk buyer. In fact, the economic situation and the market outlook are getting gloomier. The latest “quick estimates ” of the Index of Industrial production released by the Central Statistical Organisation on August 9 paint a very dismal picture of the Indian economy. The growth rate for April - June is just 2.1 per cent, (as against 6.1 per cent during April - June 2000) In June 2001, it stood at 1.5 per cent (as against 5.9 per cent last year). In fact no major sector of industry is doing well. It is not surprising that international rating agencies have downgraded India’s long-term local currency and short-term foreign currency from “stable to negative”. Along with this fresh rating, Standard and Poor has downgraded the outlook on several Indian top companies including Reliance Industries, Larsen & Toubro, Indian Oil Corporation, Tata Power Company, National Thermal Power Corporation. Justification for downgrading India’s sovereign rating is: widening and large budgetary deficit, slowness in economic reforms and disinvestment of PSU companies, lack of cohesion in the ruling group of parties etc. When the industry is not doing well at all and exports are declining, how can anyone expect the economy and the market to do well in this financial year. There is also no indication that the global recession is easing down. In fact, there are reports that the economic recession is also spreading to Europe. In the USA, the Federal Reserve in its latest report has indicated that the weakness of the manufacturing sector is spreading to other industries. There are huge stocks of unsold stocks. In the present situation, no objective analysis would recommend entering the stock market as a long -term investor. The market indices may be moving within a narrow range but the market has not yet bottomed out. The second quarter results, which should be available by September 15, would be worse than the first quarter results. This is a direct inference from the marked slowdown in the Index of Industrial Production growth rate. The best advice that can be offered to the long-term investors is to mark time, put surplus investable funds in the banks and wait for the market to find some stable balance with reasonable growth prospects. I was a little surprised when I read statement of the new UTI chairman that the stock market would recover by October this year, and the US-64 would be linked with the NAV even before March 31, 2002. Let us wish that he proves right but it has almost become a tradition that the chairman of the UTI often speak through their hats, more eager to console and please the UTI investors than to take realistic view of things and of the UTI financial predicaments. Many enquires are being made by US-64 investors whether they should stay invested or make proper use of the facility to cash up to 3000 units. When many contradictory statements are coming forth from the UTI, it is best to take out what is possible under the present facility. Some investors are persistant in making large purchases in scrips which they had purchased at three to four hundred times higher. “Averaging” is a technique by buying scrip at lower prices to bring down the average prices of their previous purchases bought at much higher prices. In the present situation, please keep away from “averaging” at least for a few months for I expect the market prices of even blue-chip scrips to move lower. At present, any money put in “averaging” is money poured into the loss account. Investors should also keep away from optical fibre companies like Aksh Opti and Sterlite Opti for the present because the D.O.T has cancelled the previous tenders and has decided to issue fresh tenders. The ostensible reason is that the international price of optical fibre has fallen drastically. |
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Inflation steady Shital Fibres Nestle India Malwa Spinning WAP phone Dalmia BHEL |
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Can
one build one’s own pension plan by exercising investment choices that
ensure not only good returns, but also lower risks? It is also important
that the return is relatively assured despite falling interest rates all
around. Is this possible? Perhaps! In this three part series, let us
zoom in on some of the investment schemes that could help one earn a
comfortable monthly income, post-retirement.
