Section 80CCD

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Income tax deduction under section 80CCD

Under Income Tax, TaxPayers have the benefit of claiming several deductions. Out of the deduction avenues, Section 80CCD provides taxpayer deductions against investments made in specific sectors. Under Section 80CCD, an assessee is eligible to claim deductions against the contributions made to the National Pension Scheme or Atal Pension Yojana. Contributions made by an employer to National Pension Scheme are also eligible for deductions under the provisions of Section 80 CCD. In this article, we will take a look at the primary features of this section, the terms and conditions for claiming deductions, the eligibility to claim such deductions, and some of the commonly asked questions in this regard.

There are two parts of Section 80CCD. Subsection

1 of this section refers to tax deductions for all assesses who are central government or state government employees, or self-employed or employed by any other employers. In this case, the deduction of a maximum of 10% of the salary in the case of salaried employees and 20% of the gross income in the case of self-employed taxpayers is permitted. The total amount of deductions under this subsection of Section 80CCD cannot be above INR 1 lakh in a fiscal year. Subsection 2 of Section 80CCD refers to the contributions made by an employer towards NPS on behalf of an employee. This subsection allows the employees to claim the contribution as a deduction. The deduction amount is limited to 10% of the employee's salary.

 

Terms & Conditions for claiming deductions under Section 80CCD

Let's look at the terms and conditions that must be fulfilled to claim deductions under the provisions of Section 80CCD:

-Deductions available under this section can be claimed by both salaried and self-employed individuals, as well as their employers, so long the contributions have been made to the National Pension Scheme/Atal Pension Yojana.

- Maximum deduction of INR 1.5 lakh can be claimed under Section 80CCD. The computation is as follows: 10% of the salary in case of salaried individuals (this would include the basic salary plus the dearness allowance granted) or 20% of the gross income in the case of self-employed individuals.

- From FY 2016-17 onwards, the Finance Department has permitted individuals to claim an additional deduction of up to INR 50,000 on account of any contributions made towards NPS only under subsection 1B. This subsection provides that an assessee is allowed a deduction in the computation of his total income of the whole of the amount paid or deposited in the previous year in his account under a pension scheme notified by the Central Government. This deduction is irrespective of the amounts claimed as deduction as 10% of the salary or 20% of the gross income in subsection 1.

-If an individual is claiming deductions under Section 80CCD, the same cannot be claimed under Section 80 C.

-Any deductions made under subsection 1 of Section 80CCD are capped at INR 1 lakh per year. Any deductions made under subsection 2 of Section 80CCD are capped at INR 1.5 lakhs and is over and above the INR 1 lakh limit.

 

Who is eligible for claiming deductions under Section 80CCD?

Deductions under Section 80CCD can be made by salaried as well as self-employed assesses. However, such deduction is only permitted for contributions made towards the National Pension Scheme or Atal Pension Yojana.

Deductions on employer contributions are also permitted under Section 80CCD. However, corporate or HUFs or any other class of assesses are not allowed to claim any deduction under the provisions of this section. It is also important to note that only contributions made to Tier 1 accounts of NPS are eligible for the benefit of the deduction. The deductions can be claimed at the time of filing the income tax returns at the end of the financial year.

 

How to claim tax deductions under Section 80CCD?

The deductions under this section can be claimed at the time of filing IT returns. Evidence of payment of the contribution to the pension account should be provided. If you are filing your returns online via the website of the income tax department, the details of deductions under Section 80CCD will be populated on its own from the information available in Form 24Q. The total amount of deduction under Section 80CCD (1) cannot exceed INR 1.5 lakhs. An assessee can also utilize the provisions of Section 80CCD (1B) to claim an additional deduction of INR 50,000 for the contributions (made by the assessee itself or deduction from salary) towards NPS.

Claiming a deduction can reduce your tax liability significantly. Therefore, it is crucial to calculate the tax deductions carefully when filing the returns.

 

FAQs on Section 80CCD

Are HUFs eligible to claim Section 80CCD deductions?

No, this section provides tax deduction benefits for individuals only.

 

What is the National Pension Scheme?

National Pension Scheme was launched in 2004 by the Government of India as a pension-cum-investment scheme. This scheme benefits Indian citizens between the age of 18-65 years. NPS is a very popular option for those individuals who do not draw a steady post-retirement pension. The scheme is regulated by the Pension Fund Regulatory and Development Authority. NPS is based on a contribution model: the subscriber of NPS, while employed, is required to contribute to the retirement account on a regular basis. The contributions received are, in turn, invested by pension funds. The investments are in equity, bonds, government bonds, and alternative assets. The total amount accumulated in the NPS account is dependent on the contributions made and the income from the investment of the amount. The subscribers are permitted to withdraw from the NPS account only for specified reasons.

 

What is the Tier-II account of the National Pension Scheme?

Tier-II account is a voluntary savings account. It can be opened only where a subscriber has a Tier I account under NPS. The minimum initial contribution is INR 1,000. A minimum of INR 250 should be contributed at one time. Except in the case of government employees, there are no restrictions on the withdrawal of funds from the Tier II account. This account also allows the subscriber to transfer the funds to the Tier I account at any time.

 

Is it possible to claim Section 80CCD deduction on the amounts contributed to the Tier II account of the National Pension Scheme?

No, the benefit of the deduction is only available for the contributions made to the Tier I account.

 

I have a Tier I NPS account, and I am self-employed. I wish to claim Section 80CCD deduction. What investment proof do I need to furnish to claim the benefits?

You can submit the Transaction Statement as proof of investment. You can also download the receipt of voluntary contribution made in Tier I account for the financial year in question. It can be downloaded from the tab titled "Statement of Voluntary Contribution under National Pension System (NPS)" once you log on to the NPS website.

 

What does the word 'salary' refer to for claiming Section 80CCD deduction?

As per the explanation appended to Section 80CCD, salary includes dearness allowance but excludes perquisites and any other allowances provided by an employer.

 

Rahul has a Tier I NPS account. He is self-employed and makes his contributions to NPS through cheque. Is this contribution eligible for claiming deduction under Section 80CCD?

Yes, both cash and cheque are permitted for claiming deductions.

 

Are there any exclusive benefits available for claiming tax deductions under Section 80CCD in the case of government employees?

Except for those employed with the Armed Forces, in case of government employees who joined services after 1st January 2004, an additional deduction of up to 10 percent of salary is eligible for tax deduction under Section 80CCD(2). Government employees are also eligible to enjoy an increased income tax deduction of 14% of the employer's contribution.

 

Ritesh is an NRI. Is he eligible to open an NPS account?

Yes, an NRI is eligible to open an NPS account. However, all contributions made to NPS account by an NRI is subject to the regulations prescribed by RBI and FEMA. Additionally, OCIs and PIOs are not eligible to open NPS accounts in any capacity.

 

Is it possible to open multiple NPS accounts?

No, an individual can only have one NPS account. However, you can consider opening an NPS account and an account under Atal Pension Yojana.

 

What are the benefits available for the contributions made to Atal Pension Yojana?

As per the clarification issued by the Central Board of Direct Taxes in 2016, Atal Pension Yojana qualifies as a pension scheme for the purpose of Section 80CCD. Therefore, the benefits are precisely similar to that of the National Pension Scheme.

 

What is the deduction allowed under Section 80CCD(2)?

As per the provisions of Section 80CCD (2), an assessee who is a salaried individual is eligible to claim deductions up to 10% of the salary. This includes basic pay and dearness allowance. The contribution made by the employer towards NPS can also be claimed as a deduction under this section. The deduction under this subsection is in addition to the benefits under Section 80CCD(1).

SIPs are Best Investments as Stock Market s are move up and down. Volatile is your best friend in making Money and creating enormous Wealth, If you have patience and long term Investing orientation. Invest in Best SIP Mutual Funds and get good returns over a period of time. Know which are the Top SIP Funds to Invest Save Tax Get Rich - Best ELSS Funds

For more information on Top SIP Mutual Funds contact Save Tax Get Rich on 94 8300 8300

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Bharat Bond ETF

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The government of India has paved the way for the launch of India's first corporate bond ETF called as Bharat Bond ETF. Edelweiss Mutual Fund will be managing it.

The fund is mandated to invest in AAA-rated bonds of select public sector companies (see the table 'List of constituents and their proportions in the portfolio').

The government has a threefold objective behind launching this product. One, to deepen the liquidity of the Indian debt markets and provide a gateway for easy retail participation. Two, to solve investors' dilemma of picking premium bonds. Lastly, to help the underlying government-owned companies raise funding for their operations.

But does it make sense for you, the investor, to invest in it? Lets find out.

What is the product?
As the name suggests, it is an exchange-traded fund which will be listed on a stock exchange from where its units can be bought and sold post launch. It will have two variants - one maturing in 3 years and the other in 10. Upon maturity, the fund will be redeemed and the money returned to the investors.

The issue size of the 3-year variant is set at Rs. 3,000 crore (with the option to extend it by an additional Rs 2,000 crore) and for the 10-year variant is Rs 4,000 crore (with the option to extend it by Rs 6,000 crore).

What makes it stand out?
The fund has a lot of things going for it.

• Low-cost structure: The USP of this fund is its wafer-thin expense ratio. At 0.0005% , this bond ETF will be the cheapest mutual fund product in India and one of the cheapest debt funds in the world. In the debt segment, costs matter a lot and this provides it a massive advantage over the more conventional debt fund alternatives.
• High quality portfolio: Comprising bonds issued by government-owned entities, the default risk will be low here. In the middle of credit blow-ups, the consequent side-pocketing, and the generally prevalent risk aversion, this fund offers the kind of safety the besieged debt fund investors are seeking at the moment.
• Predictability of returns: The fixed maturity feature of the ETF will provide predictability of returns. If held till maturity, the investors of the 3-year variant may expect 6.69% per annum while those of the 10-year variant can hope for 7.58% per annum. It is important, however, to note that no mutual fund guarantees returns. The above figures are simply based on the current indicative yields of the indices which these funds will replicate.
• Transparency: There will be daily portfolio disclosures on an independent website. On that front too, it scores over the conventional debt funds which disclose their portfolios once a month.
• Tax efficiency: As with other debt mutual funds held for more than a period of three years, investors will be able to get the benefit of indexation here. In comparison to your interest from deposits which is taxed at your marginal rate of tax, the ETF at 20% inflation-adjusted rate is a better alternative. Importantly, the timing of the launch is such that you may get indexation benefit for an extra year. For instance, the 3-year variant will provide indexation benefit for four years, if held till maturity, further bumping up your post-tax returns.

What about liquidity?
Large investors who wish to buy or sell units worth Rs 25 crore or more can directly do so with the fund house. Smaller investors would be able to transact in the units on a stock exchange. The AMC claims that it will appoint several market makers to ensure that adequate liquidity is available on the exchange. Whether they are able to actually create enough liquidity will become clear only once the units are listed.

In any case, the AMC is also planning to come up with the Fund of Fund (FoF) variants almost simultaneously (expected launch date between 13th-20th December) which puts the liquidity concerns to rest. We believe the FoF variants will be better for small ticket investors or those who do not have a demat account.

Should you invest?
At the time of the ongoing mess in the debt funds space, a fixed income fund that offers high quality portfolio, predictable returns (though not guaranteed, of course!) and ultra-low costs seems too good to be true. Bharat Bond ETF comes across as a good option for fixed income investors, particularly those whose investment horizon coincides with the maturity period of the two variants.

But the ones interested in the 10-year variant should note that it can be fairly volatile in the initial years of its existence. Its long maturity profile will make the portfolio quite sensitive to interest rate movements. But it shouldn't matter much if you are looking to hold for the entire 10-year duration.

The NFO period for retail investors will be from 13th to 20th December 2019 and those interested will be able to invest in unit sizes of Rs 1,000, but only up to a maximum investment amount of Rs 2 lakh.

SIPs are Best Investments as Stock Market s are move up and down. Volatile is your best friend in making Money and creating enormous Wealth, If you have patience and long term Investing orientation. Invest in Best SIP Mutual Funds and get good returns over a period of time. Know which are the Top SIP Funds to Invest Save Tax Get Rich - Best ELSS Funds

For more information on Top SIP Mutual Funds contact Save Tax Get Rich on 94 8300 8300

OR

You can write to us at

Invest [at] SaveTaxGetRich [dot] Com

Mirae Asset Focused Fund

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Mirae Asset Focused Fund (MAFF) is a new fund from the stable of Mirae Asset Mutual Fund. It is an open-ended diversified equity scheme which will follow a focused approach of investing in equity and equity related instruments.

As per SEBI regulations, a focused fund is not allowed to hold more than 30 stocks and invests a minimum of 65% of its assets in equity and equity related instruments. MAFF will allocate its assets as per the given prescribed limits in equities and will also allocate some portion (up to 35% of its total assets) to debt and money market instruments from an asset allocation standpoint and to mitigate the risk.

In an endeavour to capture potential gains over the long term with a focused approach, MAFF will diversify its equity portfolio by being sector and market cap agnostic. Nonetheless being a focused fund it would entail very high-risk.

Hence, MAFF is suitable for investors who are willing to take the high risk and have an investment time horizon of at least 5-7 years while they seek to appreciate their capital.

Table 1: NFO Details

Type	An open-ended equity scheme investing in a maximum of 30 stocks intending to focus in large cap, mid cap and small cap category	Category	Diversified Equity -- Focused Fund
Investment Objective	To generate long term capital appreciation/income by investing in equity & equity related instruments of up to 30 companies. There is no assurance that the investment objective of the Scheme will be realized.
Min. Investment	Rs 5,000 and in multiples of Re 1 thereafter	Face Value	Rs 10 per unit
Plans	• Regular* • Direct *Default option	Options	• Growth* • Dividend (Pay-out and Reinvestment*) *Default option
Entry Load	Nil	Exit Load	If redeemed; •  Within 1 year (365 days) from the date of allotment: 1% •  After 1 year (365 days) from the date of allotment: Nil
Fund Manager	Mr Gaurav Misra	Benchmark Index	Nifty 200 Index (TRI)
Issue Opens:	23/04/2019	Issue Closes:	07/05/2019

(Source: Scheme Information Document)

How will the scheme allocate its assets?

Under normal circumstances, the scheme's asset allocation will be as under:

Table 2: MAFF's Asset Allocation

Instruments	Indicative Allocation (% of Total Assets)		Risk Profile
	Maximum	Minimum
Indian equities and equity-related securities$*	100	65	High
Money market instruments/debt securities, Instruments and/or units of debt/liquid schemes of domestic Mutual Funds	35	0	Low to Medium

$ subject to overall limit of 30 stocks
*Equity and Equity related instruments include convertible debentures, equity warrants, convertible preference shares, equity derivatives etc. (Source: Scheme Information Document)

What will be the Investment Strategy?

The Scheme will primarily invest in equity and equity-related securities.

The fund manager will follow a focused approach on the investments. The investments will be limited to a maximum of 30 stocks. The fund has the flexibility to invest across market capitalization in large cap, mid cap and small cap category.

The focus would be to build a portfolio of strong growth companies, reflecting our most attractive investment ideas at all points of time.

The universe of stocks will comprise majorly of companies having robust business models, enjoying sustainable competitive advantages as compared to their competitors and have high return ratios.

The Fund Manager will create a robust portfolio to avoid concentration risk and liquidity risk. The Fund Managers will monitor the trading volumes in a particular stock before investment to avoid liquidity risk.

Risk Mitigation measures arising from investments in equity/equity related instruments

• Being a Focused Fund, the scheme has a security concentration risk, however, the scheme will endeavour to have a diversified equity portfolio comprising stocks across various sectors of the economy to reduce the sector-specific risks.

• The scheme targets to maintain exposure across different market cap segments - i.e. large, mid-cap and small cap. This shall aid in managing volatility and improve liquidity.

• Any investments in debt securities would be undertaken after assessing the associated credit risk, interest rate risk and liquidity risk.

Besides, the Scheme will also invest in debt securities and money market instruments.

• The credit quality of the portfolio will be maintained and monitored using in-house research capabilities as well as inputs from external sources such as independent credit rating agencies.

• The investment team will primarily use a top-down approach for taking interest rate view, sector allocation along with a bottom-up approach for security/instrument selection.

• The bottom-up approach will assess the quality of security/instrument (including the financial health of the issuer) as well as the liquidity of the security.

• Investments in debt instruments carry various risks such as interest rate risk, reinvestment risk, credit risk and liquidity risk etc. Whilst such risks cannot be eliminated, they may be minimized through diversification.

Who will manage the Mirae Asset Focused Fund?

Mirae Asset Focused Fund will be managed by Mr Gaurav Misra.

Mr Gaurav Misra has an Honors degree (BA. Hons) in economics from St Stephen's College and an MBA from IIM Lucknow to his credit. Prior to joining Mirae Asset Mutual Fund, he was associated with ASK Investment Managers Ltd for over a decade as a Senior Portfolio Manager

Currently, at the fund house, he co-manages Mirae Asset India Equity Fund.

The outlook of Mirae Asset Focused Fund:

The fate of MAFF hinges on the performance of the stocks held in the portfolio. Although, the fund manager will follow a robust investment style that includes the following:

- A focused approach

- Flexibility to invest across market capitalisation and sectors

- An aim to build and manage a portfolio comprising of strong growth companies based on the investment process

- Building a robust portfolio that will mitigate risk

Image: MAFF's Investment Style

(Source: Mirae Asset Focused Fund One-Pager)

But considering the present volatility due to the ongoing Lok Sabha elections with investors speculating the election's outcome. Constructing the portfolio would be a challenging task for the fund manager, and if the Indian equity markets hit more turbulent waters ahead it may inflict high-risk

At present market when the S&P BSE Sensex is already near its 52-week high. Earnings will have to justify the valuations. The trail P/E of the S&P BSE Sensex and the large-cap index is currently at 28x and 26x. Even the P/E of the S&P BSE MidCap index has scaled to around 30x. Calling any of these levels as 'cheap' would be an imprudent judgement. The S&P BSE SmallCap Index is trading at a negative P/E of around 102x, but that doesn't mean valuation-wise small-caps look attractive. What it means is, many constituents of the BSE SmallCap index are making losses thereby contributing negatively to its growth.

Even though the fund has the option to invest in equity derivatives instruments for hedging or balancing the portfolio to optimize returns and mitigate the risk involved.

While the portfolio construction will be in a diversified manner with a sector agnostic and across market cap, allocating a dominant portion to large caps can offer stability to the investment portfolio. Investing in large blue-chip companies with strong balance sheets and proven track records in the portfolio could help ride the wave of short-term volatility to a certain extent. In present conditions, having a concentrated portfolio of small and mid-caps will prove to be more harmful. Hence, how the fund manager constructs the portfolio is crucial and remains to be seen.

SIPs are Best Investments as Stock Market s are move up and down. Volatile is your best friend in making Money and creating enormous Wealth, If you have patience and long term Investing orientation. Invest in Best SIP Mutual Funds and get good returns over a period of time. Know which are the Top SIP Funds to Invest Save Tax Get Rich - Best ELSS Funds

For more information on Top SIP Mutual Funds contact Save Tax Get Rich on 94 8300 8300

OR

You can write to us at

Invest [at] SaveTaxGetRich [dot] Com

How to choose a SIP Fund

Are there any best SIPs?

SIPs are a medium to invest in mutual funds. Hence, there's nothing like 'best SIPs'; you need to select best or winning mutual fund schemes to invest so that SIPs work best for your objective of wealth creation to achieve long-term financial goals.

So, selecting an appropriate mutual fund scheme for your SIPs is very crucial.

SIPs are Best Investments as Stock Market s are move up and down. Volatile is your best friend in making Money and creating enormous Wealth, If you have patience and long term Investing orientation. Invest in Best SIP Mutual Funds and get good returns over a period of time. Know which are the Top SIP Funds to Invest Save Tax Get Rich - Best ELSS Funds

For more information on Top SIP Mutual Funds contact Save Tax Get Rich on 94 8300 8300

OR

You can write to us at

Invest [at] SaveTaxGetRich [dot] Com

How to PPF Account extension after maturity

A PPF account can be retained after maturity without making any further deposits. The balance will continue to earn interest till it is closed.

Public provident fund or PPF remains one of the most popular savings options for the long term despite a gradual decline in interest rates over the years. PPF accounts have a maturity period of 15 years and they can be extended. If there is no fund requirement, financial planners say, PPF account holders should extend the account beyond 15 years. In terms of income tax implications, PPF accounts enjoy the benefit of EEE (exempt-exempt-exempt) status. Under Section 80C, contribution up to Rs 1.5 lakh in a financial year qualifies for income tax deduction. The interest earned and maturity proceeds are also tax free.

What are your options when a PPF account matures?

1) A PPF account can be closed after the expiry of 15 financial years from the end of the year in which the account was opened.

2) The subscriber can retain his/her PPF account after maturity without making any further deposits for any period without limit.

3) The balance in the account will continue to earn interest till it is closed.

4) The subscriber can make one withdrawal of any amount in each financial year.

5) If the subscriber wants to make further contributions after the PPF account matures, it can be extended in blocks of five years.

6) There is no limit on the number of times you can extend the PPF account.

7) But if the PPF account holder wants to continue with the contribution-mode after maturity, he/she has to submit Form H within one year from the date of maturity of the account.

8) If the subscriber fails to submit Form H but continues to make deposits in the account, the fresh deposits into PPF account will not earn any interest.

9) Also, in this case, the fresh deposits in the PPF account will not be eligible for deduction under Section 80C of the Income Tax Act.

10) In case the person has opted to extend his account by a block of five years, during each block period he/she can make one withdrawal not exceeding 60% of the balance at the commencement of each block. This amount can be withdrawn either in one installment (one year) or in more than one installment in different years, not exceeding one withdrawal in a year.

SIPs are Best Investments as Stock Market s are move up and down. Volatile is your best friend in making Money and creating enormous Wealth, If you have patience and long term Investing orientation. Invest in Best SIP Mutual Funds and get good returns over a period of time. Know which are the Top SIP Funds to Invest Save Tax Get Rich - Best ELSS Funds

For more information on Top SIP Mutual Funds contact Save Tax Get Rich on 94 8300 8300

OR

You can write to us at

Invest [at] SaveTaxGetRich [dot] Com

SIPs Can mke you Rich

Over the last three to five years, an additional development in the actual mode of paying for the SIP investment has improved matters further. Earlier, SIPs meant writing a pile of cheques and giving them to the fund. Obviously, there was a limit to this, generally anything from 12 to 36 months. As a result, investors felt that an SIP was a fixed tenure plan. When the cheques would run out, investors would take their time to go through the whole effort again. At that point, if the markets were looking depressed, they would not do it at all. 

Now, investors generally give an ECS mandate for the monthly SIP investment amount to be directly transferred from their bank accounts. Generally, this is a perpetual mandate. Stopping the SIP requires an instruction to be registered. Earlier, stopping was automatic but continuing involved a fresh pile of cheques to be written. In my experience with investors, I have felt that this change of defaults has had a huge impact. 

The kind of returns that one can get with SIPs are truly mind-boggling. Here are a few very long-term examples. I took up four funds that have been around for decades and calculated what would have happened if I had done a modest SIP for the last 20 years 

It turns out that just a small investment of Rs 5,000 a month over two decades left me with sums of Rs 1.29 crore, Rs 1.85 crore, Rs 1.21 crore, and Rs 2.05 crore for the four funds. The amount invested in each case was just Rs 12 lakh (Rs 5,000 a month for 20 years). An investment like this can change the life of a middle class person. However, there's no special complexity in doing this. Just something straightforward, done over a long period. 

SIPs are Best Investments as Stock Market s are move up and down. Volatile is your best friend in making Money and creating enormous Wealth, If you have patience and long term Investing orientation. Invest in Best SIP Mutual Funds and get good returns over a period of time. Know which are the Top SIP Funds to Invest Save Tax Get Rich - Best ELSS Funds

For more information on Top SIP Mutual Funds contact Save Tax Get Rich on 94 8300 8300

OR

You can write to us at

Invest [at] SaveTaxGetRich [dot] Com

Adding Spouse as Co-owner when Buying a House

It makes sense to add spouse as co-owner as it helps in enhanced loan eligibility and provides tax benefits to both co-borrowers on interest and principal repayment. Also, succession of a jointly owned property is smoother compared to the lengthy process involved in case of single ownership.

Here are four benefits of owning a house jointly.

Lowers stamp duty

One of the significant additional expenses that a buyer has to bear while buying a house is stamp duty and registration fee for registration of property papers in the buyer's name.

However, "you may prefer to have your wife's name as the first owner as it can help you save a lot of money towards paying the stamp duty

In many states, stamp duty fees for registration of property is higher for male buyers and lower for women. For instance, in New Delhi, a woman has to pay 4% stamp duty compared with 6% for a man; if the property is bought jointly in the name of a man and a woman, buyers have to pay a stamp duty of 5%.

Similarly, in Haryana, a man is required to pay 8% stamp duty in urban areas and 6% in rural areas, while a woman has to pay 6% in urban areas and 4% in rural areas. 

Increases loan eligibility

Most property purchases are financed through home loans. When giving out a loan, lending institutions first determine the eligibility, which primarily depends on the income of the borrower. Typically, loan eligibility is around five times the annual salary of the borrower. However, "If the borrower draws insufficient income, has a low credit score or a low repayment record, a co-borrower's involvement is a blessing for the loan applicant and the lender is assured of timely repayment. Financial lenders require all co-owners of a property to be co-applicants of the home loan. However, all co-applicants may not necessarily be co-owners

In case of joint applicants, incomes of all the borrowers are taken into consideration to determine the loan eligibility and can enhance the loan amount. For instance, if your yearly income is about ₹10 lakh, you may get a loan of up to ₹50 lakh. If your spouse also earns ₹10 lakh a year, both of you can jointly borrow up to ₹1 crore. Besides, "having women as a co-applicant could also get you concessional interest rate at several financial institutions. It could either be your mother, sister, wife or daughter, but they need to be the first home buyers

Gives tax benefits to both

Repayment of home loan can give tax benefits to both joint owners of a house.

Payment of stamp duty and registration fee qualifies for deduction up to ₹1.5 lakh under Section 80C of the Income Tax Act, 1961. Principal repayment in a year can be claimed up to the overall limit of ₹1.5 lakh allowed under Section 80C of the Act. The interest paid on the home loan is allowed for deduction under Section 24(b) of the Act up to ₹2 lakh a year, in case the home loan is acquired for a self-occupied house. 

Joint borrowers who are also joint owners of the property can each claim deduction separately up to the above mentioned limits, as per their ownership share. However, jointly they cannot claim more than the actual amount of home loan repaid.

It is always beneficial when both partners contribute an equal proportion while buying a property. This will help them in getting equal taxation and capital gains benefits

There are other tax benefits as well. In case you plan to rent out the property, rental income can be shared by both the owners and may attract tax at a lower rate. For instance, if both the owners earn ₹8 lakh per annum and the property they jointly own with equal shares is rented out at ₹4 lakh per annum, ₹2 lakh each will be added to their incomes. In other words, their total individual income would be ₹10 lakh each, which comes below the slab of 30%. In the same example, if the property was owned by only one of them, the total income of that individual would have become ₹12 lakh, pushing the person in the 30% tax bracket.

Eases succession

In case the property is jointly owned by both the spouses—as a joint owner or a joint tenant with equal shares in the property—it may ease up succession issues. At the legal level, "doing so (joint ownership) also ensures that the spouse has no problems when it comes to claiming his or her rights of the property in the case of the demise of the other spouse

"In case one of the spouses dies, there will not be much stress and work involved to get the mutation done in the name of the surviving owner. It is easy and saves you charges involved for mutation

While there are many advantages of buying a home jointly with spouse, remember that problems could arise if your relationship sours.

SIPs are Best Investments as Stock Market s are move up and down. Volatile is your best friend in making Money and creating enormous Wealth, If you have patience and long term Investing orientation. Invest in Best SIP Mutual Funds and get good returns over a period of time. Know which are the Top SIP Funds to Invest Save Tax Get Rich - Best ELSS Funds

For more information on Top SIP Mutual Funds contact Save Tax Get Rich on 94 8300 8300

OR

You can write to us at

Invest [at] SaveTaxGetRich [dot] Com

Hierarchy of investment needs

We know how investing is different from just saving. If we put our saved money somewhere where it will grow, then that's investing. However, there are a number of possibilities available when we want to invest, and it isn't possible to make sensible choices without having a way to classify things.

However, let's not jump into classifying investments right away. Before we do that, we need to classify our need for making an investment. Investments can be made for a huge variety of needs. You could be saving for emergency medical funds which are usually required at a moment's notice. Or you could be saving for your retirement which is a few decades away, or anything in between.

We have created a useful framework for thinking about these investment needs. We divide investment needs into four levels. Each level is more fundamental than the ones that come after it. You should satisfy the need at each level before going on to the next one.

Those who know a bit about psychology may recognise this system as being based on the 'Hierarchy of Needs', a concept proposed by psychologist Abraham Maslow. Maslow's hierarchy dealt with basic human needs like food, shelter, etc. Basically, human beings deal with their higher needs after the simpler ones are satisfied.

So here's Value Research's Hierarchy of Investing Needs:

LEVEL 1: Basic contingency funds
This is the money that you may need to handle a personal emergency. It should be available instantly, partly as physical cash and partly as funds that can be immediately be withdrawn from a bank. Online banking and ATMs make it relatively simple to get this organised.

LEVEL 2: Term insurance
Calculate a realistic amount which allows your dependents to finance at least short and medium-term life goals if you were to drop dead or be struck with a debilitating injury or disease. You should have an adequate term insurance before you think of any savings.

LEVEL 3: Savings for foreseeable short-term goals
This is the money needed for expenses that you plan to make within the next two to three years. Almost all of this should be in minimal risk, deposit-type savings avenues.

 

LEVEL 4: Savings for long-term foreseeable goals
Same as level 3, except the planned expenses are more than three to five years away. This level should be invested in equity and equity backed investments like equity mutual funds.

One could think of many levels beyond this and really, the details matter much less than the concept. Depending on one's circum-stances, any of the levels may have to be modified. For example, you may have enough income-producing assets to make insurance relatively less important.

However, this doesn't decide how much to invest in each need. This system aims at preventing you from going to higher level unless the lower one is fulfilled. If you haven't put emergency cash in a savings account, then don't buy term insurance. If you don't have term insurance yet, then don't start putting away money for your daughter's college education, and so on.

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