Post Office Fixed deposit schemes eligible for tax savings under Sec 80c of the IT act. Salient aspects of the schemes are as follows: 1. These schemes are provided by India Post, part of Department of Posts, Goverment Of India. 2. These schemes are part of Post Office Savings Schemes. 3. Two tax savings schemes are supported: National Savings Certicate and Public Provident Fund.   National Savings Certicates Salient aspects of the scheme are as follows: Part of Post Office Fixed deposit schemes and is eligible for tax savings under Sec 80c of the IT act. Interest Rate is 8.00% per annum, compounded half-yearly. Minimum investment of Rs. 100, no maximum limit for investment. Tenure is 6 years. Investment up to Rs. 1 lakh per annum qualifies for IT Rebate under section 80C of IT Act. Certificates can be kept as collateral security to get loan from banks. More details are available at India Post. Public Provident Fund Salient aspects of the scheme are as follows: Part of Post Office Fixed deposit schemes and is eligible for tax savings under Sec 80c of the IT act. Interest Rate is 8.00% per annum, compounded quarterly. Minimum investment of Rs. 500, maximum limit of Rs. 70000 per annum. Tenure is 15 years. Investment up to Rs. 70,000 per annum qualified for IT Rebate under section 80 C of IT Act. Tax free returns. Loan facility available from 3rd financial year upto 5th financial year. Withdrawal permitted from 6th financial year. More details are available at India Post.

Tax Savings FD Rates for non-senior citizens

Institution Rate Additional Information Tamilnad Mercantile Bank 10.00 Indian Private Sector Bank.    South Indian Bank 9.50 Indian Private Sector Bank.    Oriental Bank of Commerce 9.50 Public Sector Bank.    State Bank Of Travancore 9.50 Public Sector Bank.    City Union Bank 9.50 Indian Private Sector Bank.    State Bank of Bikaner and Jaipur 9.30 Public Sector Bank.    Corporation Bank 9.25 Public Sector Bank.    State Bank Of India 9.25 Public Sector Bank.    IDBI Bank 9.25 Public Sector Bank.    United Bank Of India 9.25 Public Sector Bank.    Mahanagar Co-op Bank 9.25    Karnataka Bank 9.25 Indian Private Sector Bank.    Central Bank Of India 9.09 Public Sector Bank.    Punjab and Sind Bank 9.05 Public Sector Bank.    Lakshmi Vilas Bank 9.00 Indian Private Sector Bank.    Indian Bank 9.00 Public Sector Bank.    Indian Overseas Bank 9.00 Public Sector Bank.    Karur Vysya Bank 9.00 Indian Private Sector Bank.    Jammu & Kashmir Bank 9.00 Indian Private Sector Bank.    Bank Of Baroda 9.00 Public Sector Bank.    Canara Bank 9.00 Public Sector Bank.    Andhra Bank 9.00 Public Sector Bank.    Abhyudaya Co-operative Bank 8.75    ICICI Bank 8.75 Indian Private Sector Bank.    Dena Bank 8.75 Public Sector Bank.    State Bank Of Hyderabad 8.75 Public Sector Bank.    State Bank Of Mysore 8.50 Public Sector Bank.    Nainital Bank 8.50 Indian Private Sector Bank.    Allahabad Bank 8.50 Public Sector Bank.    Bank Of Maharashtra 8.30 Public Sector Bank.    HDFC Bank 8.25 Indian Private Sector Bank.    Dhanalakshmi Bank 8.25 Indian Private Sector Bank.    Thane Janata Sahakari Bank 8.00    Maharashtra State Co Operative Bank 8.00    The Shamrao Vithal Co-operative Bank Limited 8.00    Dombivli Nagari Sahakari Bank 8.00    The Ratnakar Bank 7.75 Indian Private Sector Bank.    IndusInd Bank 7.75 Indian Private Sector Bank.    Nutan Nagarik Sahakari Bank 7.50    SBI Commercial and International Bank 7.50 Public Sector Bank.    Nkgsb Co-op Bank 7.25    Axis Bank 7.25 Indian Private Sector Bank.    Greater Bombay Coop Bank 7.00    UCO Bank 0.00 Public Sector Bank.    Vijaya Bank 0.00 Public Sector Bank.    ING Vysya Bank 0.00 Indian Private Sector Bank.    Syndicate Bank 0.00 Public Sector Bank.    Catholic Syrian Bank 0.00 Indian Private Sector Bank.

Top 10 Tax-saving Instruments for Investors!

Let me share with you a small personal tryst with investment in Equity-linked Savings Scheme (ELSS) for tax-saving purposes. Since I track stock markets closely, my preference is usually tilted towards direct equity investments rather than going through the mutual fund route.
However, in order to stifle my taxable income, I had to invest Rs. 30,000 in an ELSS scheme way back in Feb-2008. The Indian markets were in the midst of a severe bear phase then, with Sensex hovering around 16000 levels.
The time ticked by and it was Feb-2009 on the calendar. It was time to invest another Rs. 30,000 to save on taxes. The Sensex was quoting at paltry 8000 levels – on hindsight, it turned out to be the trough of the bear market. Needless to say, there was panic written all over the screen.
 
Fortunately, for me, this period turned out to be a golden opportunity to average my previous lump-sump investment which went in at higher levels of market. The average value of my total Rs. 60,000 investments now stood correlated with Sensex 12000 levels.
But, you might not be lucky enough to get such averaging opportunities just around the end of every financial year. Your lump-sump investments may not necessarily stand you in sweet spot if your investments are made arbitrarily during the year-end. They need to be planned well in advance through out the year.

LESSONS:

1. Plan your tax-saving instruments – don’t leave it for the last hour.
2. Even tax-saving investments can be routed through systematic plans.
3. Most of the tax-saving investments are for minimum of 3 years.
4. Determine which investment option to save taxes suits you the best.
5. Investments with mere intention of saving taxes might backfire on you.

It’s that time of the year when most of the individuals are found scrambling to invest in tax-saving instruments just before the financial year-end. Currently, Section 80C of the Income Tax Act allows deduction of upto Rs.1 lakh from the gross total income. Plus another Rs. 20,000 for investments in infrastructure bonds if this Rs.1 lakh limit is exhausted.
Let’s have a look at some of the tax-saving options available to individuals:

1) Public Provident Fund

Public Provident Fund, or PPF, is a long-term, statutory scheme of the Central GOI. Currently, the interest rate offered through government-backed small savings scheme is around 8%, which is compounded annually. On maturity, you pay absolutely no tax under Section 80C.



This long-term scheme is for 15 years; hence if your investment horizon is short-term in nature, PPF is not meant for you as it locks your liquidity for a relatively long period of time. In this scheme, you need to invest a minimum deposit of Rs.500 and upto maximum of Rs.70,000 in a financial.

2) Unit-linked Insurance Plans

Unit-linked Insurance Plans (ULIPs), which are eligible for Section 80C tax rebate, are investment products that provide dual benefits of life insurance and savings element as a one stop solution for an individual’s financial goal. However, if you don’t need insurance, going with ULIP is not the best investment bet on the horizon.
Recently, insurance regulator IRDA had initiated a few corrective measures by hiking the threshold limit for ULIPs from 3 years to 5 years of lock-in period and mandated a minimum guarantee for such plans. Now, the policyholders can also opt for pre-mature exit without any penalty.

3) Equity-linked Savings Scheme

Equity-linked Savings Scheme (ELSS) is mutual funds that help you save taxes under Section 80C as well as generate decent long-term returns from the equity markets. Such schemes are typically characterized by a three-year lock-in period.
However, the tax benefits of ELSS will be phased out with the introduction of the Direct Tax Code (DTC) starting from April 1, 2012. But, the revised code mandates that existing ELSS funds will be able to claim tax-exemptions. So, this might just be your last opportunity to put money is lucrative tax-saving mutual funds.

4) 5-Yr Bank Fixed Deposits

You might be thinking how come bank fixed deposits are included in tax-saving schemes? Since 2006, Bank Term Deposits which are of over 5 years tenure and upto Rs.1 lakh are allowed exemption under Section 80C of the Income Tax Act, 1961. Such deposits should necessarily be in the RBI mentioned list of Scheduled Banks.
Most of such tax-saving fixed deposit avenues are of fixed tenure and do not allow pre-mature withdrawal facility. Further, such term deposits can not be pledged to secure a loan. Most importantly, the biggest drawback of this scheme is that the interest for the amount deposited is taxable.

5) Employee’s Provident Fund

Salaried individuals are compulsorily required to contribute 12% of the sum of basic pay and dearness allowance to Employee’s Provident Fund (EPF). This sum is deducted by the employers from the monthly payroll of employees as a social security scheme akin to a forced-saving towards retirement planning.



EPF brings with it key benefits as a fixed-income instrument providing tax benefits under Section 80C at the time of investment. Even the returns from EPF are tax free on maturity. The employer also has to make a matching contribution to the EPF.

6) National Savings Certificate

The 8% returns from National Savings Certificate (NSC) are not only assured and tax exempt under Section 80C, but also government guaranteed. Unlike PPF, NSCs have no upper limit on the maximum amount that can be invested in a fiscal year.
This small saving scheme offers tax-free initial deposit for 6 years. However, interest in NSC is taxable. But, the interest for the first 5 years is eligible for a deduction as NSC is a cumulative scheme – where interest is reinvested and is qualified under fresh deduction in NSC.

7) Infrastructure Bonds

In Union Budget 2010, Finance Minister Pranab Mukherjee proposed the deduction for funds flowing in long-term infrastructure bonds in India upto Rs.20,000 under Section 80 CCF of the IT Act, 1961.
These bonds issued by RBI-notified entities carry long tenures of 5-10 years for facilitating investment in infrastructure projects within the country. The interest earned can vary from 7.5% to 8.5% depending upon the issuer and investment option chosen. For the investors at highest tax bracket, such investments can bring in savings of upto around Rs. 6000.

8) Insurance, 9) Health Premiums & 10) Tuition Fees

You can claim tax benefits for the health insurance premiums to the extent of Rs. 15000 under Section 80D. Moreover, you can also claim an equal amount of deduction for buying medical policies for your parents. Any amount paid towards life insurance premium for yourself or your family is eligible for tax break under Section 80C.
If you’re paying tuition fees for your children’s full-time education, you are eligible for tax deduction under Section 80C. Mind you, the said tax benefit is not for the donations paid to such institutions.

Key Employee Tax-Free Savings Account

Question

In a recent internal technical interpretation,

the CRA indicated that where common shares of a company are issued to a tax-free savings account (TFSA) of a key employee as part of a freeze, the CRA considers the shares’ FMV increase to be an “advantage” as defined in subsection 207.01(1) of the Income Tax Act

—that is, a benefit taxable to the employee.

What is the basis for this position, and how should the value of this advantage be determined? Can the CRA clarify whether it would attempt to put a value on the new common shares at the time of the transfer, or whether the value must be determined annually on the basis of the future FMV growth? Does it matter whether the issuer is a public company or a private company?

Response

Section 207.05 imposes a special tax if an advantage is extended to the holder of a TFSA, the TFSA itself, or any other person not dealing at arm’s length with the holder. “Advantage” is defined in subsection 207.01(1) to include any increase in the total FMV of property held in connection with a TFSA that can reasonably be considered to be attributable, directly or indirectly, to

• a transaction or event (or a series of transactions or events) that would not have occurred in an open market between arm’s-length parties acting prudently, knowledgeably, and willingly, and one of the main purposes of which is to benefit from the tax-exempt status of the TFSA;
• or a payment received in substitution for either (1) a payment for services rendered by the holder or non-arm’s-length person, or (2) a payment of a return on investment or proceeds of disposition in respect of property held outside the TFSA by the holder or non-arm’s-length person.

In the case of an advantage described above, the amount of tax payable is equal to 100 percent of the increase in FMV of the TFSA property. A separate tax is payable for each advantage, and the liability to pay the tax generally lies with the holder of the TFSA.

We confirm that it remains the CRA’s view that the transactions described in the question would be considered an advantage.

The CRA is also of the view that the words “directly or indirectly” in the definition encompass not only the increase in the FMV of the TFSA resulting from the share issuance, but also all future increases in FMV that are reasonably attributable to the initial advantage. These increases include, for example, any increase in FMV of the TFSA or any other TFSA of the holder that is reasonably attributable to any dividends paid on the shares, any capital appreciation in value on the shares or on any substituted property (whether realized or not), and any income earned on income. Because the advantage tax is required to be remitted annually, it would be necessary to determine the total increases in FMV annually.

The fact that the company might be a public company would not be a relevant factor in determining whether shares issued to a key employee’s TFSA as part of a freeze are subject to the TFSA advantage rules.

We would also like to take this opportunity to discuss several tax-planning schemes involving TFSAs that have come to our attention. These schemes purportedly enable taxpayers to effectively avoid the statutory limit on TFSA contributions and, in some cases, to avoid paying tax on withdrawals from registered retirement savings plans (RRSPs) and other registered plans or on otherwise taxable income.

The Department of Finance announced on October 16, 2009

several measures to address these schemes. Briefly, the proposed measures include a ban on trading activities between a TFSA and the taxpayer’s registered or non-registered accounts. It is also proposed that any income earned on deliberate TFSA overcontributions or prohibited investments will be treated as an advantage and thus as subject to a 100 percent tax.

While these proposed amendments apply on a prospective basis only, the CRA intends to closely review any unusual TFSA transactions that took place before the announcement (as well as those that occur after the announcement) and, in appropriate circumstances, to apply existing anti-avoidance rules to challenge the purported tax benefits being claimed.

The TFSA advantage rules give the CRA significant scope to challenge schemes that are designed to avoid the TFSA statutory contribution limit or to shift taxable income away from a taxpayer and into the shelter of a TFSA. Schemes that rely on unfairly valued transactions, artificial transactions, or transactions that would not reasonably be expected to occur between arm’s-length parties dealing in an open market are clearly caught by the advantage rules and will be challenged by the CRA where appropriate.

The CRA may also challenge the valuation of the transaction or assert that the transaction is not legally effective. In such circumstances, the transaction may be treated as a contribution to the TFSA and thus taken into account in determining the 1 percent per month tax on TFSA overcontributions. Where the transaction involved an RRSP or other registered plan, it may be treated as a taxable withdrawal from the registered plan. The CRA may also, in appropriate circumstances, hold the financial institution that administers the registered plan liable for any unremitted withholding tax and associated penalties.

In addition to tax consequences that may be present under the TFSA-specific rules, the CRA may, in appropriate circumstances, apply the general anti‑avoidance rule (GAAR) to deny the tax benefit that was obtained by virtue of the transaction or assess third‑party penalties or gross negligence penalties.

We wish to remind taxpayers and their advisers that the CRA has a number of compliance tools at its disposal to challenge TFSA schemes, up to and including criminal prosecution for the most egregious cases. We encourage any taxpayers who were involved in these schemes to avail themselves of the CRA’s voluntary disclosure program.

Save tax, Invest in Infrastructure Bonds

In this year’s budget finance minister has not reduced only the tax rates but also given an additional exemption i.e. Deduction from Income for Investment in Infrastructure bond (Section 80CCF of the Income-tax Act).

Few years back there was a provision for deduction for investment in infrastructure bond, which was later on withdrawn. But now it has been reinstated again. Traditionally, Infrastructure bond has been issued in the month of January and February i.e. towards financial year-end. This year Infrastructure Finance Corporation of India (IFCI) has come out with its issue of infrastructure bonds now. The rate of Interest is fixed at 7.85 % for Buyback after the 5 year lock in period, with Cumulative and Non-cumulative option, and 7.95 % for Non-Buyback with Cumulative and Non-cumulative option. The investment allows benefit of deduction of income to the extent of Rs 20,000 in a year u/s 80CCF of the Income Tax Act. This is in addition to deduction of Rs 100,000 allowed u/s 80C.

The rate of interest as per government’s directive should not exceed the yield on government securities of 10-year maturities, prevailing at the end of the month that precedes such issue.

Points that need to be kept in mind before investing:

• Interest on these bonds are taxable
• Capital gains if any on sale of bonds after 5 years is taxable with no indexation benefit
• These bonds are unsecured, there by increasing the risk of loss
• The bond can be pledged or hypothecated for obtaining loans from banks after the lock-in period.

Other institutions like LIC, IDFC, and other Non-banking Finance Companies, which may be notified by the government, will also be authorized to issue infrastructure bonds the financial year 2010-11. LIC, which normally comes out with interesting policies each year, may also decide to raise funds. Since LIC is an insurer, we may not be surprised if LIC offer life cover along with the bonds.

The interest rate for issues that may come out later in the year may vary, and accordingly the total benefits arising on account of post tax yield.

We have been witnessing a rise in interest rates since the last policy meet of the RBI. Further the sensex and nifty have also been steadily rising. The RBI may, in order to remove excess liquidity, increase the base rates as seen in the past.

Smart Investment tips - I

Whether we like it or not, Money continues to be the main motivator for most of the people. Since last 3 decades, stock market is one of the most promised and successful money-spinner for investors. Looking to the revived market in last week, retail investor’s confidence has grown and many started rethinking about investing again in the market. Many are still puzzled how to be careful and still earn money in the stock market. Here are few tips for investor.


New Investment Option: Commodity - Rare earth metal - Lithium

1.   Keep investment and trading strategy different

Understand the difference between investment and trading. Investment should always have long term strategy and potential growth oriented stocks. For trading, we need to listen to market information and keep eye on momentum stocks.

2.   Keep a long term view

In case of investment, you need to keep long term view. On immediate bases of short term cases, prices may get volatile but it should not affect the confidence of investor. Fundamentally strong and growth oriented shares normally gives 12 to 15 % annual return in long term.

3.   Trade at fair interval of time

Investor who is trading show not think about daily or weekly trading. They should trade at interval of 2 – 3 months by selecting good shares and proper exit limit. 8 out of 10 times, market follows the seasonal pattern e.g. rises during the annual result declaration season etc. If investor invests according to the patterns and market sentiment for short to medium term, he can earn profit.

4.   Make small but regular investment

For investor, systematic investment plan is the best possible option. Small but regular investment return can build good wealth in long term. Investor should pick the leading mutual fund and start monthly SIP. He should break his total monthly investment into 2 to 4 parts and invest in different mutual funds. SIP has given 15 – 17 % annual return in last two decades.

5.   Exit at right time

Good investor knows when to exit. In case of trading its more important to know your stop loss. Don’t hesitate booking profit or even loss. Timely exit is the key to any investment. In case of investments, investor should make an exit while he meets the target.

6.   Avoid emotional decision

In case of investment or trading, don’t go by emotions. Loved company or advice from a relative may not bring profit. Earlier profitable stock doesn’t mean the future gain, every stock has its peak and it can’t go beyond that. It’s the fundamental and profitability of the company can make a real good profit for you.

 So, investing and earn profit with cautious approach.

Now File Your Banking Complaints By SMS

From shantytowns to remote villages, mobile phones are being used by masses. Mobile phones have clearly had a revolutionary impact on many lives.

The country’s largest lender State Bank of India has now come up with first of its kind innovative service for its mobile based customer to file complaints via SMS called ‘SMS Unhappy’ on all India basis.

In order to file a complaint, the customer has to send an SMS bearing the text ‘UNHAPPY’ to the number 8008202020.

A customer care executive will then soon call the customer and discuss the issue being faced and the actions to be taken thereof.

Once the corrective action has been taken, the customer’s nod will be taken by the bank branch and then the grievance cell will update their data.

The State Bank of India is the 29th most reputed company in the world according to Forbes. Also SBI is the only bank to get featured in the coveted “top 10 brands of India” list in an annual survey conducted by Brand Finance and The Economic Times in 2010.