Here's why keeping a stop loss is so important

 Here's why keeping a stop loss is so important

If a stock falls from Rs 100 to Rs 5 then it sees a fall of 95 percent, but it will need 1,900 percent jump to travel the reverse journey from Rs 5 to Rs 100

 

While most investors in stock market are fixated on the profits made, experienced players know one of the key things to keep in mind is stop loss.

Stop loss is the level of a stock price where investors/traders should sell an equity or commodity to limit their loss.

Many players stay invested in a scrip even when it is falling with a view that they will sell it when the stock rises to the level at which they bought it, to cover their losses. But they fail to understand that when a stock falls 50 percent, it has to gain 100 percent for it come to that very level.

While calculating the percentage of damage in a stock, one should note that larger the loss, higher the percentage gain needed for losses to recover.

·         A loss of 50 percent requires a 100 percent gain for the stock to recover to the same level.

·         A loss of 75 percent requires a 300 percent for the stock to recover to the same level.

·         A loss of 90 percent requires a 900 percent for the stock to recover to the same level.

·         A loss of 95 percent requires a 1,900 percent for the stock to recover to the same level.

·         A loss of 99 percent requires a 9,900 percent for the stock to recover to the same level.

 

For e.g. If a stock falls from Rs 100 to Rs 5 then it sees a fall of 95 percent, but it will need 1,900 percent jump to travel the reverse journey from Rs 5 to Rs 100.

 

Hence, keeping a stop loss and adhering to it when the stock market is falling is very important, especially if a stock is fundamentally not strong.

 

Happy Investing

Source: Moneycontrol.com

How to build your retirement corpus

 How to build your retirement corpus

For a comfortable retirement, it's essential that you start saving early, choose good products, avoid debt and review your retirement plan from time to time

 

Still reeling at the number of zeros you've found in your retirement goal? Don't get your heart rate up. While the corpus you're targeting may seem daunting today, it is well within reach with some disciplined investing. Here's a five-step recipe to building the corpus you need.

Start young
It may be a little odd to start thinking about hanging up your boots when you are just putting them on for your first job. But an early start makes the difference between sprinting towards your target like Hima Das and huffing and puffing towards it like an octogenarian.

Let's see how much a 25 year-old (let's call her Alyssa) will need to invest at different points in her life if she wants to get to the retirement kitty of Rs 12.5 crore. If she starts off immediately at 25, she has 35 years to go to retirement and a monthly SIP of about Rs 22,690 in an equity fund earning 12 per cent will get her to her goal. But if she waits until 35, the SIP amount she needs shoots up to Rs 73,430 at the same 12 per cent return to get her to it. This demonstrates that starting early is the single most important thing you can do to scale the Mount Everest that is your retirement goal.

Step up
What if the Rs 22,690 monthly savings we mentioned is a tall order for Alyssa to save in her initial working years? That problem is quite easily solved by starting off with an affordable number and stepping up one's SIPs as one's career takes off. If Alyssa starts with a Rs 10,000 SIP in her first year and increases it by 10 per cent every year, she can get to Rs 11.3 crore, which is within touching distance of her retirement goal (Rs 12.5 crore) by the time she retires. Apart from raising your savings with your income levels, ploughing any windfalls or bonuses that you receive in your working years into your retirement kitty can help you get to your goal faster.

Apart from stepping up your savings in a disciplined fashion, it is important not to stop your SIPs or make abrupt changes to your asset choices if the equity markets go through a bear phase or a prolonged period of low returns. Persisting through these phases is in fact what reduces your acquisition costs and bumps up your long-term return from equities.

Don't stick to EPF and PPF
Many folks make the mistake of thinking that the monthly contributions they're paying into the Employee's Provident Fund or Public Provident Fund will comfortably take care of their retirement.

But the main competitor that you're trying to race against when planning for retirement is inflation. And EPF and PPF may not be the best investments to stay ahead of inflation in the long run. Inflation rates in India may be lying low for now. But over the past decade, investors have had to live through whole decades of 8 per cent plus inflation. Both the EPF and PPF invest much of their funds in government securities, which offer the lowest interest rates in the market. Therefore, expecting these vehicles to consistently beat inflation is unrealistic.

You should also note that the interest rates you're seeing today on the PPF and EPF are rates that apply to the current year and are not guaranteed for perpetuity. If interest rates in India continue to fall in the long run, the returns you earn on these vehicles will plummet, too. Equity investments, in contrast, benefit from falling rates and offer you a better shot at beating inflation in the long run.

The reason why most folks hesitate to include equities in their retirement portfolios is that they're spooked by the wild gyrations of the indices from day to day. But the daily movements of the indices detract from the steady upward climb that the Indian indices have managed over the last 25 years.

Therefore, think of your PPF and EPF investments as just the safe debt component in your retirement portfolio. The bulk of this portfolio, ideally 80-90 percent if you are below 50, should be in equities. For the equity portion, start SIPs in two-three multi-cap funds with a good track record. If you're a newbie investor who isn't sure about choosing the right funds, don't delay. Start off with SIPs in a fund that tracks the Sensex.

If you are wondering about the tax exemption that the EPF and the PPF get you, you can consider the tax-saving variant of multi-cap funds: equity-linked savings schemes. They have also moved in line with the multi-cap category.

Stay off savings destroyers
Starting early and getting a good dose of equities gives you an early advantage in retirement. But meeting that target still isn't easy. We suggested that Alyssa either save Rs 22,690 a month starting now or start at Rs 10,000 and step it up by 10 per cent every year until 60, to get close to her target (based on a moderate return assumption of 12 per cent on her portfolio).

But to save so much of her income throughout her career, Alyssa will also have to be careful about not wasting any money or investing in the wrong products.

EMIs on loans early in your career, especially high-cost personal loans or credit-card loans, can be a big drain on your finances, preventing you from making any meaningful savings towards your long-term goals. So can over-investing in property or land. Many young folks in their 20s and 30s believe that buying a luxurious home is a sign that they've arrived. But stretching your budget to buy a home can rob you of not just your mobility and flexibility but also your savings potential during the best years of your career. Even at the current reasonably low interest rates, a Rs 50 lakh home loan comes at an EMI of Rs 49,390 per month. At the end of 15 years, you would have paid back the bank nearly Rs 90 lakh to the bank. Had you rented a similar home at one-fourth the cost, you'd have a lot of that money sitting in your retirement portfolio!

Folks in their 40s or 50s often decide to buy their second or third piece of property as their income levels rise. But given the abysmal rental yields in India and uncertain capital appreciation, leveraged property investments often prove wealth-destroying rather than wealth-enhancing moves. At this stage in life, you should be avoiding EMIs and putting that money to work on your retirement.

Steering off poor investments that vacuum up your savings is equally important, too. This means staying off high-cost investment-cum-insurance plans and other opaque options.

Review and adjust
Finally, no piece of financial advice given to you today, including that on retirement, may hold good for all times. Folks who retired in the nineties could afford to live entirely off fixed-income investments that paid them double-digit returns, without any need for equities. Those who did so after 2000 had to face the double whammy of high inflation and low rates and couldn't do without equities.

Therefore, the size of investments, asset-allocation plan and choice of avenues that we suggest today for your accumulation phase will change if inflation rates, interest rates or equity returns change dramatically. This makes it imperative for you to review your retirement portfolio twice a year to see if you are on track.

 

Happy Investing

Source: Valueresearchonline.com

NEFT, RTGS & IMPS: Which mode should you choose for transferring money?

 NEFT, RTGS & IMPS: Which mode should you choose for transferring money?

Based on the value of the transaction, the speed of transfer and other factors, you should decide the mode of transfer

 

While making the Reserve Bank of India’s (RBI’s) Monetary Policy announcement on October 9, Governor Shaktikanta Das said that the Real Time Gross Settlement (RTGS) System of fund transfer will be made available 24x7 from December 2020 onwards. The decision was made to facilitate swift and seamless payments in real-time for domestic businesses and institutions. At present, the RTGS service window for customer transactions is available to banks from 7 am to 6 pm on a working day.

Similarly, in 2019 the RBI had made the National Electronic Funds Transfer (NEFT) system available on a 24x7x365 basis.

Over the years, it has getting easier to transfer money online. But which method should you choose to transfer your money to others? Banks provide several modes such as NEFT, RTGS and Immediate Payment Service (IMPS). Each of the transfer methods has different features. Based on the value of the transaction, the speed of transfer and other factors, you should decide the mode of transfer.

  

 

National Electronic Funds Transfer (NEFT): Using NEFT, you can electronically transfer money from your bank account to a person holding an account in the same or a different bank. Transfers happen in batches every half hour; they aren’t done in real time. The minimum transaction value is one rupee and maximum transfer limit varies with each bank. For instance, the maximum transfer limit is Rs 20 lakh per day at IDFC First Bank and at ICICI Bank it’s Rs 10 lakh a day.

NEFT transfers made through a bank’s mobile app or net banking facility do not attract any charges. But if you go to your branch to do a NEFT transfer, there are charges. For instance, ICICI Bank charges between Rs 2.25 to Rs 24.75 plus GST depending on the transaction value.

Real Time Gross Settlement (RTGS): In the RTGS process, the money is credited in the beneficiary’s account in real time, that is, immediately. The RTGS system is primarily meant for large-value transactions that require immediate clearing. It’s widely used by corporates and institutions for fund transfers on a real-time basis. The minimum amount that can be transferred through RTGS is Rs 2 lakh and maximum transfer limit varies with the bank, but there is no upper ceiling set by the RBI. For instance, the maximum transfer limit is Rs 20 lakh per day at IDFC First Bank and Rs 10 lakh for ICICI Bank.

There are no transaction charges for RTGS initiated through online modes (i.e. internet banking, mobile apps), but some banks charge fees for transacting through bank branches. For instance, ICICI Bank charges Rs 20 to Rs 45, plus GST, depending on the transaction amount.

Immediate Payment Service (IMPS): IMPS provides real-time fund transfer facility on online channels of banks such as mobile banking, net banking, through SMS and via ATMs. In the IMPS system, the National Payments Corporation of India (NPCI) facilitates the transfer of funds between member banks. The transfer from your account to the beneficiary account is instant. You will require the beneficiary bank account number and IFSC code to complete the transaction. You can transfer the amount using IMPS system throughout the year, 24/7. The minimum transaction value is Re 1 and the maximum amount that can be transferred is Rs 2 lakh. It’s widely used for small-value transactions by retail customers.

Depending on the bank, the transaction charges may vary. For instance, there are no charges for transferring using the IMPS method levied by IDFC First Bank, but HDFC Bank charges between Rs 3.5 to Rs 15, plus GST, depending on the transaction amount.

Why use IMPS when NEFT is also available 24/7?

With IMPS, transfer of funds happens instantly on a real-time basis using net-banking and mobile banking. It’s suitable for small-value online transactions up to Rs 2 lakh.

NEFT transfers happen in batches, every half-an-hour; it’s not in real time. If the beneficiary doesn’t need the amount instantly, you can use this method to transfer the funds. Also, you can use this method to transfer high-value amounts as the maximum transaction limit is set by the bank, which goes up to Rs 10-20 lakh.

What information is required when using the RTGS or NEFT funds transfer service?

The few essential details required are as follows: amount to be transferred (remitted), beneficiary customer’s account number, name of the beneficiary bank and branch, name of the beneficiary and the IFSC code of the beneficiary bank branch.

My bank account got debited while transferring via NEFT/RTGS/IMPS, but beneficiary account is not yet credited, will I get back the money? 

Yes. If the beneficiary’s bank is unable to get credited for any reason, the bank will return the money to the remitting bank within one hour. Once the amount is received by the remitting bank, it is credited to your account by the bank.

Happy Investing

Source: Moneycontrol.com

Mutual fund categories at a glance

 

Mutual fund categories at a glance

This classification tree will help you understand the different types of mutual funds

 

There are hundreds of mutual funds in India. If you were to try and understand each one individually before deciding which is suitable to invest in, you are taking on a near impossible task. However, the challenge is made easier once you divide the funds into categories and sub-categories according to their investment characteristics. You may then start analysing which category meets your needs.

Value Research has been classifying funds based on their underlying investments for a long time. Last year, market regulator SEBI came up with a classification system to standardize fund categories for all asset management companies (AMCs). Our own classification system was quite similar to the one mandated by SEBI, but we have fine tuned it to align more closely with that of the regulator.

The purpose of this fund classification system is to help investors match their expectations and risk-taking ability with the type of fund. The first thing to understand about fund classification is that it is almost entirely about dividing the entire risk-return continuum into bands of roughly equal return and risk expectations. This makes the real task of identifying funds that are likely to generate higher returns at lower risk easier.

At the broadest level, funds are classified according to the ratio of equity and debt investments in their portfolios. There are pure equity funds, debt funds and finally, hybrid funds that have both equity and debt. Their relative return vs risk levels are obvious. Within this first level of classification, the primary criterion for classifying equity funds is the size of the companies they invest in. There are funds that focus mostly on large companies or medium-sized or small companies and there are those that keep their assets distributed among all these in some ratio. There are other axes along which equity funds can be classified, like the sector or industry they invest in.

 

 

 In the accompanying infographic, the first level depicts the basic asset types. These are equity and debt (fixed income). There's also another category in which we have placed gold funds since this doesn't fall into any of the other categories. Equity and fixed income funds are further subdivided into smaller categories based on other characteristics.

And if you go by how fund companies describe their funds, you will end up with a large number of funds that appear to be unique or near-unique. You may feel there aren't too many other funds like them. However, this apparent uniqueness is a marketing imperative. It is something that has been invented by fund companies in order to appear different from other funds.

However, an investor's interest is best served by keeping things simple. There are few long-term investment needs that cannot be met by investing in a balance of funds that are mostly large-cap equity along with a little bit of mid-caps.

The best thing about having a good classification system for funds is it helps you realise that making a choice is actually quite simple and a vast majority of funds can simply be ignored.

Happy Investing

Source: Valueresearchonline.com 

 

Aarey has been saved. But who will save Mumbai?

The decision of the Maharashtra government to relocate the metro car shed away from a green belt is a grim reminder of the mess that Mumbai has witnessed with regards to infrastructure development.

 

No one who has seen the infrastructure activity in Mumbai and Maharashtra between 2014 and 2019 will dispute that the former Chief Minister Devendra Fadnavis is a rank outperformer.

At a personal level, I must concede that I assessed the former CM incorrectly in the initial part of his tenure when he started out by doing token actions like renaming railway stations. His agenda of infrastructure creation sounded more like his predecessors who did little more than the inauguration of projects. By 2017 – I knew I had gone wrong in my judgement when the fruits of his labour were widely visible.

There was no infrastructure plan as grand as his vision of the Mumbai Metro. And its appeal was pervasive. Even real estate developers, not the biggest supporters of the former CM, realised its potential and were banking on its timely execution. No real estate marketing material was complete without invoking a station planned next to the project site. Newer pockets of real estate development emerged on the back of the Metro.

A DECISION THAT IS A SETBACK FOR THE MUMBAI METRO

However, on October 11, 2020 – his successor Uddhav Thackeray announced the car shed for one line of the Metro will be relocated from the ‘green’ Aarey Colony to a distant location in Kanjurmarg. The battle between a determined government to have its way and a fierce battery of environmentalists that had raged on – saw its apparent closure with this move of the new government.

The message was clear: Aarey had been saved. And the environment is supreme. If there is an impact on delay in commercial services, cost-escalation or even credibility – so be it.

The relocation venue may be debatable. In my view, however, it is reckless to have reversed the decision at such an advanced stage of the project. Since there is no official report in this regard, it is reasonable to assume that the damage has either not been fully assessed or it will not be flattering.

Commentators cite damages between Rs 2,000 crore and Rs 4,000 crore and an opening that may be delayed by at least two years. Given that there is an involvement of the Government of India, Government of Maharashtra and Japan International Cooperation Agency with regards to this mega project, it is not yet even certain whether the last word on this decision has been said.

REMINDER ON OBSTACLES IN INFRASTRUCTURE BUILDING

In a way, this development is a grim reminder of the mess that Mumbai has witnessed with regards to infrastructure development. The railway network has been saturated and stressed – unable to handle the humongous population that relies on it. The bus network is limping.

Old infrastructure like roads is maintained in a shoddy manner. With such a framework, 

new infrastructure creation should have attained the highest priority. Instead, administrators 

have been unable to confront stakeholders and vested interests that create exasperating and 

expensive obstacles. Nowhere is it better illustrated than in the execution of the Bandra-

Worli Sea Link.

The foundation stone was laid in 1999 with an estimated project cost of Rs 660 crore. By the time it was complete in 2009, the cost had escalated to Rs 1,630 crore with the additional interest cost alone at close to Rs 700 crore. Similarly, the Mumbai Trans Harbour Link that has always had the potential to de-densify Mumbai by providing connectivity between Mumbai and Navi Mumbai had been on the discussion table since the last three decades and today at the execution stage has seen cost-escalation rise multi-fold. Ditto with the Bandra-Versova Sea Link. Needless to say, this translates into a higher charge levied to the commuter.

It is these types of obstacles on key projects over the years that have made Mumbai a terrible place to commute for its residents. A den of concentrated action and demand gets formed with connectivity and transport acting as a barrier. As a vehicle of mass transport, the Mumbai Metro has the potential to alter that and normalise real estate prices across the city instead of the current disparate highs and lows. In fairness, it is not as if the government decision sends the entire Metro project into disarray.

But it is a powerful symbol that Mumbai is a city where infrastructure creation remains low on priority with little regard for financial consequences due to delays or alterations. Note that the construction of the Metro forced a 1 percent Metro Cess on property purchases adding to the already-inflated cost of real estate for a home buyer.

This column has consistently argued that Mumbai and its real estate is beyond redemption. The only question was whether it would go down silently into the night or not. With the burst of activity in the last three years, it appeared Mumbai was unwilling to go down without a fight. The recent announcement has, however, made it clear. The city is back to the old ways of indecisive infrastructure development. Aarey may have been saved. But who will save Mumbai?

 

Source: Moneycontrol.com

Exposure to COVID-19 does not guarantee immunity, reinfection causes more severe symptoms, finds Lancet study

 

Exposure to COVID-19 does not guarantee immunity, reinfection causes more severe symptoms, finds Lancet study

A study published in The Lancet Infectious Diseases journal charts the first confirmed case of COVID-19 reinfection in the United States and indicates that exposure to the virus may not guarantee future immunity

 

COVID-19 patients may experience more severe symptoms the second time they are infected, according to research released on October 13, confirming it is possible to catch the potentially deadly disease more than once.

A study published in The Lancet Infectious Diseases journal charts the first confirmed case of COVID-19 reinfection in the United States — the country worst hit by the pandemic — and indicates that exposure to the virus may not guarantee future immunity.

The patient, a 25-year-old Nevada man, was infected with two distinct variants of SARS-CoV-2, the virus that causes COVID-19, within a 48-day time frame. The second infection was more severe than the first, resulting in the patient being hospitalised with oxygen support.

The paper noted four other cases of reinfection confirmed globally, with one patient each in Belgium, the Netherlands, Hong Kong and Ecuador.

Experts said the prospect of reinfection could have a profound impact on how the world battles through the pandemic. In particular, it could influence the hunt for a vaccine — the currently Holy Grail of pharmaceutical research.

"The possibility of reinfections could have significant implications for our understanding of COVID-19 immunity, especially in the absence of an effective vaccine," said Mark Pandori, for the Nevada State Public Health Laboratory and lead study author.

"We need more research to understand how long immunity may last for people exposed to SARS-CoV-2 and why some of these second infections, while rare, are presenting as more severe."

Waning immunity?

Vaccines work by triggering the body's natural immune response to a certain pathogen, arming it with antibodies it to fight off future waves of infection. But it is not at all clear how long COVID-19 antibodies last.

For some diseases, such as measles, infection confers lifelong immunity. For other pathogens, immunity may be fleeting at best.

The authors said the US patient could have been exposed to a very high dose of the virus the second time around, triggering a more acute reaction. Alternatively, it may have been a more virulent strain of the virus.

Another hypothesis is a mechanism known as antibody dependent enhancement — that is, when antibodies actually make subsequent infections worse, such as with dengue fever.

The researchers pointed out that reinfection of any kind remains rare, with only a handful of confirmed cases out of tens of millions of COVID-19 infections globally.

However, since many cases are asymptomatic and therefore unlikely to have tested positive initially, it may be impossible to know if a given COVID-19 case is the first or second infection.

In a linked comment to The Lancet paper, Akiko Iwasaka, a professor of Immunobiology and Molecular, Cellular and Developmental Biology at Yale University, said the findings could impact public health measures.

"As more cases of reinfection surface, the scientific community will have the opportunity to understand better the correlates of protection and how frequently natural infections with SARS-CoV-2 induce that level of immunity," she said.

"This information is key to understanding which vaccines are capable of crossing that threshold to confer individual and herd immunity," added Iwasaka, who was not involved in the study.

 

Source: Moneycontrol.com

Use the correct ITR form or else your tax returns would be invalid

 

Use the correct ITR form or else your tax returns would be invalid

Seven ITR forms are available for you to file returns. Complete disclosure of your income is not enough. Make sure you use the correct form, too

 

One size doesn’t fit all they say. The case with tax forms is no different. There are seven different Income Tax Return (ITR) forms for assessees to file their return for the assessment year 2020-21. Out of these seven forms, five can be used by individual taxpayers, depending on their income level, sources of income and other rules. Selecting the correct ITR form is very important, as filing a return with the wrong ITR form is considered as null and void by the income tax department. Read on to know the right form that you need to use.

Salary and other income upto Rs 50 lakh? Use ITR-1

ITR-1 is the most used form among the seven. Just to give you an idea of its use, during assessment year (AY) 2019-20, about 3.3 crore people used ITR-1 to file their returns, out of about 6.78 crore total returns filed – almost 50 per cent. ITR-1 can be used by a resident individual assessee and a Hindu Undivided Family (HUF) with a total income of up to Rs 50 lakh during the financial year 2019-20. This total income includes income from salaries or pension, one house property, other sources (interest on bank deposit and so on), and agricultural income of up to Rs 5,000.

However, this form cannot be used by an individual who is either a director in a company or has invested in unlisted equity shares. Besides these, a person who is a non-resident or not ordinarily resident, or a person who has income from business or profession or owns more than one house property cannot use ITR-1 to file the tax return. There are a few more cases in which this ITR form cannot be used by an individual.

Income from foreign assets or unlisted shares? Use ITR-2

ITR-2 in most cases is an extension of ITR-1. Those who cannot use ITR-1 typically fit into ITR-2. The ITR-2 can be used by those individuals and HUFs who have income from salary or pension (even if it exceeds Rs 50 lakh), and/or income from house property (one or more) in the previous financial year. One can also use ITR-2 to file returns if income includes winning a lottery or there is income from owning and maintaining a race horse or income taxable at special rates.

Also, an assessee who had investments in unlisted equity shares at any time during the previous financial year, or an individual who is a director in a company, can use ITR-2.

Some of the others who can use ITR-2 are those who have Resident and Ordinarily Resident (ROR) or Resident but Not Ordinarily Resident (RNOR) status, apart from non-resident Indians (NRIs). If someone has income in the form of capital gains, holds or has earned income from foreign assets or entity, has income of more than Rs 5,000 from agriculture, then that person too can use ITR-2 to file tax returns.

But ITR-2 cannot be used by someone who had income from profits and gains of business or profession or who is a partner in a partnership firm and has income from that partnership.

Doctor, lawyer, consultant, or income from any profession? Use ITR-3

ITR-3 can be used by an individual or a HUF who has income from a profession or a business. For instance, a doctor, a lawyer or a shopkeeper can use this form to file tax return. Irrespective of whether the person is non-resident or resident (ROR/RNOR) can use this form to file a return. Also, those who have income from salary, pension, house property, or capital gains, besides income from profession and business can use ITR-3 to file the return.

However, companies, trusts, co-operative societies and firms including LLPs are not allowed to use ITR-3 form to file return of income.

For presumptive income, use ITR-4, but mind the caveats

ITR-4 can be used by both resident individuals and HUFs who had income either from profession or from business in the previous financial year, but want to adopt the presumptive income scheme (PIS) to calculate their income tax liability. According to Sections 44AD, 44AE and 44ADA of the Income Tax Act, 1961, PIS can be used by businesses that had a total turnover of less than Rs 2 crore, and by eligible professionals with gross receipts of less than Rs 50 lakh during the previous financial year. The main advantage of opting for PIS is that you are not required to maintain books of accounts.

Under PIS, businesses can estimate their net income at the rate of 6 per cent of the total turnover, if gross receipts are received through digital mode of payments; or at the rate of 8 per cent in case of cash receipts. On the other hand, professionals like doctors, lawyers, architects and interior designers who opt for PIS have to declare 50 per cent of the total receipts during the fiscal as profit and get it taxed accordingly. However, both business owners and professionals can voluntarily declare their income at a higher rate than mandatorily required under the scheme.

Remember, if a person’s business turnover exceeds Rs 2 crore, one cannot opt for PIS, and then ITR-3 will be applicable instead of ITR 4. Besides that, the total income to file return using ITR-4 should not exceed Rs 50 lakh.

Also, those who wish to set off expenses with income earned cannot opt for PIS and thus ITR-4 will not be applicable. Others who cannot use ITR-4 include those having more than one house property (whether let out or self-occupied), who had agricultural income in excess of Rs 5,000, who were a director in a company, held any unlisted equity shares at any time during the previous year, had financial interest in assets located outside and loss under income from other sources and so on.

Who can use ITR-7?

ITR-7 can be filed by any person or company that is required to file tax return under Section 139(4A)—income from a property held by a trust, Section 139(4B)—income derived by a political party, Section 139(4C)—entities such as scientific research associations, educational institutions, hospitals and other medical institutions, news agencies, and so on and Section 139(4D)—returns by colleges, universities or any other.

 

Happy Investing

Source: Moneycontrol.com

 

The Code on Social Security, 2020: How it impacts wages and benefits of employees

The new code has new rules for contribution to social security and payment of employee benefits, including retirement benefits

 

An essential step to reforming workplaces is the coming of the code on social security in India. Social security is usually understood as some form of monetary support that the government provides to those who are either incapable of being employed or are inadequately employed. In the Indian context, social security has a different meaning altogether. In India, our social security has spanned over a multiplicity of labour laws that our state and central governments have implemented over the course of many years. These regulate wages and worker benefits, address occupational safety and also set rules for labour and industrial relations.

Consolidating laws

Complying with multiple laws at both the state and centre levels has been no less than a nightmare for many businesses, posing a very real and practical hindrance to the ease of doing business in India. Therefore, the new social security code is a welcome change. The Code on Social Security, 2020, subsumes eight existing central labour laws. These laws are the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952; Payment of Gratuity Act, 1972; Employees’ Compensation Act, 1923; Maternity Benefit Act, 1961; Employees’ State Insurance Act, 1948; Workers Cess Act, 1996; Cine Workers Welfare Fund Act, 1981; Building and Other Construction and Unorganised Workers’ Social Security Act, 2008.

The Code on Social Security, 2020 consists of new rules for contribution to social security and payment of employee benefits, including retirement benefits. The Code has been passed by the Parliament and awaits the nod of the President. The Government is considering implementing the Code by December 2020, along with other three labour codes, viz., The Industrial Relations Code, 2020, Code on wages, 2019 and The Occupational Safety, Health and Working Conditions Code, 2020.

New-age businesses that thrive on e-commerce have created new types of jobs. Some of the workers in these new businesses were not covered under any of the existing laws. The new Social Security Code expands the scope of social security by providing for registration of all types of workers including gig workers, unorganised workers and platform workers. Therefore, in terms of coverage the scope has been expanded. Gig workers will now become eligible for life and disability coverage, maternity benefits, pension etc.

Taking care of the retirals

The law also expands scope to cover fixed-term contract workers who will now be eligible for gratuity; whereas earlier only employees which were permanent were covered. Under the Code, gratuity becomes due to an employee upon their termination from employment after a continuous service period of at least five years, which is the same as before.

The events giving rise to gratuity are superannuation, retirement, resignation, death or disablement due to accident or disease or termination of a contract under fixed-term employment or on the happening of any event notified by the central government. However, the completion of five years of continuous service is not necessary in the case of termination of employment due to death or disablement or expiration of fixed-term employment or happening of any such event as may be notified by the Central Government. In the case of death of an employee, the gratuity would be due to their nominee or legal heir. With the inclusion of ‘expiration of fixed term employment’, fixed term contract workers will become eligible for gratuity and this is a welcome move.

A social security fund will be created for paying these benefits to workers and it will be funded by central and state governments and also through CSR funding. Aggregators who are digital intermediaries employing gig workers will have to set aside at least around 1-2 per cent of their annual turnover (amount not exceeding 5 per cent of the amount payable to the workers) for the purpose of this social security fund. Hopefully, related rules may be announced in the coming days so that more clarity will be available as to how employers will estimate the total amount payable to the workers to set aside an appropriate amount. The law also states that the central government may provide for self-assessment of contribution by aggregators, leaving scope for regulation.

As per existing laws, employers in certain businesses with at least 100 workers need prior government approval to carry out layoffs and retrenchment. This limit has now been increased to 300. This change puts power back in the hand of businesses, workers may be more prone to be at the receiving end of arbitrary dismissal.

The Code also provides for the setting up of a ‘National Social Security Board’. The functions of the Board include recommending schemes to the central government and also monitoring the schemes for the different types of workers, advising the Government on the matters relating to the administration of the Code amongst others. A regulatory authority to separately administer the code would be beneficial to monitor the welfare of workers and it can better track the efficacy of schemes. The Code contains penal provisions in the case of failure to pay gratuity to employees or a failure to pay the contributions. Also, the Code prioritizes employees’ dues under the Insolvency and Bankruptcy Code, 2016.

 

Happy Investing

Source: Moneycontrol.com

All about how dividends would be taxed from this fiscal

 

All about how dividends would be taxed from this fiscal

Dividends would be taxed in the hands of the recipients and not companies or fund houses

 

Do you expect to receive dividends from Indian companies and Mutual Funds in this financial year? Check for the tax withheld by the domestic companies and Mutual Funds from your dividends. With effect from financial year (FY) 2020-21, dividend is taxable in the hands of the shareholders and unit holders and not in the hands of the company/Mutual Fund.

For the past several years, in order to reduce the compliance burden on account of withholding taxes on dividend for both, companies (in the form of E-TDS returns and issuing TDS certificates) and individuals (in the form of enclosing the TDS certificates in the tax return), dividends had been exempted from tax in the hands of recipients. The tax burden was shifted from the recipients to the companies and Mutual Funds themselves. A domestic company or Mutual Fund in India, which had declared, distributed or paid any amount as dividend, was required to pay a distribution tax on such dividends.

From DDT to personal tax slab

Dividend distribution tax (DDT) at the rate of 15 per cent (plus applicable surcharge and cess) was lower than the highest tax rate payable by individual taxpayers at 30 per cent (plus applicable surcharge and cess). Consequently, dividends received by tax payers who had high dividend income was indirectly subjected to tax at a lower rate. To address this anomaly, from FY 2016-17 onwards, resident individuals having dividend from domestic companies in excess of Rs 10 lakhs were liable to tax at 10 per cent (plus applicable surcharge and cess) on such dividend, in addition to the companies paying DDT.

Technically, dividend is income in the hands of the shareholders and unit holders, and not in the hands of the company and Mutual Funds. Also, with the advent of technology and easy tracking system available, now the process of withholding tax or offering the dividend income to tax is no longer cumbersome. Hence, from FY 2020-21 onwards, dividends from domestic companies and mutual funds are taxable in the hands of the shareholders and unit holders at their applicable slab rates and DDT has been abolished.

As dividends have been made taxable in the hands of the individual, the provisions for withholding tax have also been reinstated. Domestic companies and mutual funds are liable to withhold tax at 10 per cent on dividend income paid to resident individuals in excess of Rs 5,000. However, as a temporary relief measure due to COVID-19, tax withholding rate has been reduced to 7.5 per cent till 31 March 2021. Please note that your annual tax credit statement (Form 26AS) is likely to have the details of only such dividend on which tax has been withheld (i.e., dividend income in excess of Rs 5,000).

Taxation of NRIs

For non-resident individuals, tax withholding would be at 20 per cent (plus applicable surcharge and cess). A non-resident individual also has the option of being governed by the provisions of the Double Tax Avoidance Agreement (DTAA) between India and his country of tax residence, if they are more beneficial to him. For instance, if a DTAA restricts taxation of dividend income to 15 per cent for a resident of that country, the tax rate mentioned would be applicable for computing tax as well as withholding tax, subject to specified conditions being met (including obtaining a tax residency certificate from the country of residence outside India).

Interest expenses incurred to earn such dividend are allowed to be deducted from the dividend up to a maximum of 20 per cent of the dividend income. No other expenses can be claimed against the dividend income.

Dividend income from foreign companies continues to be taxable at the applicable slab rates. If a resident individual has paid tax in a foreign country and is liable to pay tax in India also, he can claim foreign tax credit as per the DTAA with the foreign country.

In view of the above, it will be prudent to keep an eye on the dividends received during the year, so that the same can be factored into the estimated taxable income while determining the advance tax payable during the year and offered accurately to tax in the tax return.

Happy Investing

Source: Moneycontrol.com

Use a Will to gift your property, or you may end up being homeless

 

Use a Will to gift your property, or you may end up being homeless

To save stamp duty and time, some transfer properties through gift deeds. But parents must ensure that gift deeds are water-tight

 

In 2017, when 71-year-old Mandar Bhosle of Mumbai gifted his immovable property to his children out of love, he had not imagined becoming homeless. A year after gifting the house, his son asked Bhosle and his wife to move out. “I had signed the gift deed agreement that my son had prepared. At that time, I did not realise the implications,” says a depressed Bhosle, sitting in an old-age home.

Siddharth Hariani, Partner at Phoenix Legal says that most parents tend to get swayed by their love for their children and gift away their homes. “But they do not seek legal guidance when doing so and then have a feeling of not being treated well by the children,” he adds. Often, elderly parents do not approach legal advisors while signing the gift deed, as they have complete trust and faith in their children or are doing it under the pressure of their kids.

It's important to know how to make a water-tight gift deed that can also be revoked if you feel unwelcome in your own home after gifting it away.

Is using a gift deed advantageous?

A gift deed is an instrument that allows you to transfer a movable or immovable property to the donee (the person receiving the property). In Bhosle’s case, the senior couple chose to gift their house to their children (the donees).

Such a gift deed falls under the ambit of the Indian Contract Act 1872. Also, since the couple gave away an immovable property, the Transfer of Property Act 1882 is also applicable, which entails a written agreement that needs to be stamped, registered and attested by two witnesses. In Bhosle’s gift deed, the two witnesses were his son’s friends.

Why is a gift deed used, rather than an outright transfer, say, though a Will? “The donee receives full exemption from income tax on receiving the property. Also, the donee has to pay marginal amount of stamp duty under the Indian Stamp Act,” says Zulfiquar Memon, Managing Partner, MZM Legal.

The stamp duty amount varies across states. Maharashtra has a cap on stamp duty payable on gifting of residential properties to blood relatives, at Rs 200, irrespective of the value of the property. “Whereas, if you transfer the property through a Will, the stamp duty charges are flat at Rs 75,000 in Mumbai,” says adviser Priyesh Sampat.

Gift deeds also work. Sampat says that through a gift deed, a property gets transferred within a week, whereas it takes about 8-12 months in the case of a Will.

How to make a strong gift deed?

If you must choose the gift deed route to transfer property to your children, make sure your agreement is made in a way that protects  you later. “In a gift deed, you must build a condition for the children, asserting that we (parents) have a right to continue using the gifted residential property and that it should be continued till the time we are alive,” says Mayank Mehta, Partner of Pioneer Legal.

Also, try to be a joint holder in the property instead of giving it away entirely. “There is no prohibition in law that donor cannot keep a stake in the property gifted,” says Payal Parikh, Managing Partner, ANB Legal.

How can you revoke a gift deed?

You can revoke the gift deed at a later stage only if there is a specific clause mentioned in the deed. Alternatively, if the gift deed has clauses that specify a child’s duty towards the upkeep and maintenance of their parents with dignity, providing for their basic amenities, fulfilling physical needs and so on and if any of these conditions are not met, the parents can revoke the gift deed.

In such cases, the law considers the gifting as having been done under coercion or undue influence, even without free consent or, worse, fraudulently. Parents can file an application for reclaiming the property at the tribunal court and revoke the gift deed under which it was transferred.

This maintenance tribunal is faster and quicker in resolving such disputes. “Under the welfare act, the tribunal is required to dispose the matter within 120 days of being brought to its notice,” says Hariani.

Make sure that your application clearly demonstrates how the donees (your children) has failed to live up to the terms. Section 23 (1) of the Maintenance and Welfare of Parents and Senior Citizens Act, 2007 ensures that “the senior citizens feel more protected. This act has been successful in taking the senior citizens away from the rigours of long-drawn litigation battles with their children before regular civil courts,” says Memon.

“If the donee is not willing to give back the property gifted, a lawyer can be approached to fight the case in court,” says Parikh. Also, if you are incapable of enforcing your rights for declaration of the transfer of property as void due to illness or aging, it can be executed by an appointed attorney. But, while presenting the facts to the maintenance tribunal, you need to be present.

A will is better than a gift deed

“In a Will, property continues to be in your name, whereas in a gift deed, the property stands in the name of the done, the moment you conclude the gift deed,” says Mehta.

It’s always better to give your house to your children through a Will, instead of a gift deed, especially if you have just one property – the one in which you currently reside.

You may want to experience the joy of giving away your house to your children, but the 

pleasure can still be yours by doing so via a Will.

Happy Investing

Source: Moneycontrol.com