Retirement Toolkit

The dream that seems to unite all 20-something overachievers of our time is to retire
early. The formula: get into the fast lane, work your guts out, make a pretty packet,
get out of the rat race -- and get a life. What separates the dreamers from the
daydreamers is some amount of planning -- a roadmap and some course corrections
along the way. With this versatile tool, you won't go wrong. It tells you:

• How much you'd have on retirement if you stopped saving now

• How long your savings will last post-retirement
• How much you need to retire comfortably
• How much you need to save from now to get there

The assumptions

• An inflation rate of 8 per cent

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

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

How to save Capital Gains tax in 03-04

By
A. N. Shanbhag

I have repeatedly observed that, our legislators, particularly the authors of taxation, revel
in making tax laws complicated. So complicated that it is very difficult to understand
these, leave alone follow them. No wonder there is a spate of litigations overburdening
the judiciary.

Tax on long-term capital gains and exemptions thereon is a case

in point. Following are the various provisions in brief:

1. 'Short-term capital asset' is a financial asset held for 36 months or less

immediately preceding the date of transfer. This minimum holding period is 12
months only for listed equity shares, bonds and debentures. It is also 12 months
for government securities and units of UTI/MFs, listed or not.
2. Short-term gains (= sales less cost) if not setoff, are taxed at the normal rate
applicable to the assessee.
3. Long-term gains are computed by subtracting the indexed cost of acquisition and
improvements from sale proceeds. For this purpose, RBI declares Cost Inflation
Index for every financial year (See Table-1 of Chapter-1, 'Wonderland of
Investment - Taxes'). The indexed cost is arrived at by multiplying the original
costs of acquisition and improvements with the index of the year of sale and
dividing by the indexes of the year of acquisition and improvements respectively.
4. Cost of acquisition of bonus shares is to be taken as nil whereas that of rights and
renunciation of the entitlement to apply for rights is to be taken at the cost to the
investor.
5. Capital gain is considered as a separate block from which no deductions under
Chapter-VIA of ITA (Sec. 80L, 80D etc.) are allowed.
6. In the case of Resident individuals and HUFs, where the other normal total
income is less than the tax threshold of Rs. 50,000, tax will be levied on the
excess over the minimum taxable limit. This facility is not available to NRIs.
7. Sec. 54F grants exemption from tax on LT capital gains arising out of sale (or
transfer) of the financial asset other than a residential house, provided the assessee
has purchased within 1 year before or 2 years after the date of sale or has
constructed within 3 years after that date, a residential house. At the time of the
sale of the original capital asset, the assessee should not be an owner of more than
one residential house. The exemption is 100% where the cost of the new house is
more than or equal to the sale proceeds of the financial asset. If only a part of the
sale proceeds is used, the exemption would be pro-rata. The excess is chargeable
to tax.
8. Sec. 54 also offers similar exemption on LT gains arising out of sale of a
residential house but requires reinvestment of only the amount of capital gains
and not the entire sale proceeds. Moreover, the condition that the assessee can
own only one house at the time of sale is not applicable. If part of capital gains is
invested the exemption allowed is proportionate.
9. Exemption is also available u/s 54EC to the extent of capital gains deposited in
the notified Bonds of NABARD, NHAI , REC, SIDBI or NHB. Deposits of the
entire capital gains (or excess thereof) in the Bonds earn full exemption. Partial
deposits earn proportionate exemption.
10. Setoff of losses against gains is interesting. FA02 has laid down that since the LT
gains are subject to lower tax incidence, the LT losses can be setoff only against
LT gains. The ST losses continue to have the privilege of setoff against any capital
gains, ST or LT. The balance losses, if any, can be carried forward separately to
the next year for setoff against only the capital gains of that year. No loss can be
carried forward for more than 8 years immediately succeeding the year for which
it was first incurred. Will the old carried forward losses have to be split into ST
and LT?
11. Tax on LT gains (these are always computed after indexation) is at a flat rate of
20%. In the case of listed securities (shares and debentures) and units of UTI/MFs
where the minimum qualifying holding period is 1 year, the assessee has the
 option to pay tax @10% on the difference between the sale price and cost of
acquisition (without indexation) if it is beneficial for him to do so.
12. Rebate u/s 88 is not allowed against tax on LT gains. However, tax rebate u/s 88B
for senior citizens or the u/s 88C for non-senior citizen ladies, is allowed.

To understand the complications, let us examine the method of computing the tax on
capital gains and the ways to save it through a real-life case of Mrs. Khorshed Rateria.
Before proceeding further, I must warn you - The complications are so confounding that
if you do not have the perseverance to read it over and over again until you have
understood the fundas, go to 'Strategy for Multiple Scrips', at the end of this Chapter. For
ease of understanding, we shall ignore surcharge without any loss of generality.

Case Study

After accepting VRS, Mrs. Rateria had deposited her total investible funds of Rs.
5,15,000 on 27.10.99 in UTI Bond Fund. She gets a pension of Rs. 59,177 which,
translates into a taxable income of Rs. 35,506 after standard deduction of 40%.

Thanks to her investment in UTI Bond Fund, a Pure-growth, Open-ended, Debt-based

scheme (POD), her income chargeable to tax was below the tax threshold of Rs. 50,000.
However, under my advice, she continued to file tax returns to maintain continuity. She
had to sell all these units on 31.10.01 to cater for the marriage of her son. Since the sale
was after a holding period of one year and it was a POD, she earned substantial long-term
capital gains.

She has a carried forward LT loss of Rs. 5,440 from earlier years.

She desires to know how much minimum amount she has to subscribe to NABARD
Bonds or the amount she should invest in a new housing property to earn total exemption
leading to nil tax.

The LT gains are to be computed always with indexation. The carried forward loss should
be setoff only against this gain with indexation. The gap between the tax threshold of Rs.
50,000 and her normal income (pension) of Rs. 35,506 is Rs. 14,494. This certainly can
be adjusted against the gains with indexation.

In her case, it is advantageous to pay tax @10% without indexation (See the box in the
Table-1). She also has a right to claim a tax rebate of Rs. 5,000 u/s 88C for non-senior
women assessees.

She has to arrive at the exact contribution required to be made in NABARD Bonds (or to
a housing property) for reducing her tax liability (@10% without indexation) exactly to
the level of Rs. 5,000, which is exempt u/s 88C.

Suppose she contributes Rs. 70,348 to NABARD. The capital gains with indexation come
down at Rs. 25,652. It is necessary to arrive at the proportional sale and the cost. The sale
is Rs. 1,63,950 and the cost (without indexing) is Rs. 1,13,950. The difference is Rs.
50,000. Tax @10% thereon is Rs. 5,000 which is exactly the tax rebate she is entitled to.
How did I arrive at this magic figure of Rs. 70,348? By trial and error! Try and try, you
will succeed at last.

Can any legislation be more complicated? I wonder...

Table-1: How to Save Tax on LT Gains

Sale Proceeds : FY 01-02 740,977 Capital Gain = 115,934

Cost of Acqisition : FY 98-99 515,000 20% of the above 23,187
Cost Inflation Index : FY 01-02 426 Sale Minus Cost = 225,977
Cost Inflation Index : FY 98-99 351 10% of the above 22,598
Indexed Cost =515000 x 426/351 625,043 Therefore, Opt for 10%
without indexation.
Sale - Indexed Cost = Capital Gain 115,934
Carried forward loss 5,440

Threshold of Income Tax 50,000

Other Income 35,506
Gap upto Threshold 14,494 = 50000 - 35506
Net Captial Gain 96,000 = 115934 - 5440 - 14494
PROPOSAL 1 : PAY TAX
Sale value of net capital gain 613,571 = (96000/115934)x740977
Cost value of net capital gain 426,450 = (96000/115934)x515000
Sale - cost of net capital gain 187,122 = 613571 - 426450
Tax at 10% 18,712 = 10% of 187122
Less : Rebate u/s 88C 5,000
Final Tax Payable 13,712 = 18712 - 5000 <== Answer
Net Captial Gain 96,000
Contribution to Nabard 70,348 by trial & error <== Answer
Taxable capital gain 25,652 = 96000 - 70348
Sale value of taxable capital gain 163,950 = (25652/115934)x740977
Cost value of taxable capital gain 113,950 = (25652/115934)x515000
Sale-cost of capital gain 50,000 = 163950 - 113950
Tax @10% 5,000 = 10% of 50000
Less : Rebate u/s 88C 5,000
Final Tax Payable 0 = 5000-5000
PROPOSAL 3 : INVEST IN HOUSE
Sale value of capital gain 613,571
Less Invested in house 449,622 by trial & error <== Answer
Difference 163,950 = 613571 - 449622
Cost value of the above 113,950 = (163950/740977)x515000
Difference 50,000 = 163950 - 113950
Tax @10% 5,000 = 10% of 50000
Less : Rebate u/s 88C 5,000
Final Tax Payable 0 = 5000-5000

[Excerpt from: Taxpayer to Taxsaver: AY 2004-05 by A. N. Shanbhag. Published by

Vision Books, New Delhi. Price Rs. 235/-. This book is available at WalletWatch-Vision
Bookstore on this site.
A. N. Shanbhag is a best-selling author and a very widely syndicated columnist on
personal finance and taxation.]

All rights reserved.

Set off and carry forward losses

Ganesh Jagadeesh & Co

The manner and process of setting-off of losses and the subsequent carry forward of
balance losses flow in the following manner:

INTER SOURCE ADJUSTMENT

Adjustment of loss from one source against income from another source within the same
head of income within the same year.

INTER HEAD ADJUSTMENT

Adjustment of loss under one head against income from another head of income within
the same year.

CARRY FORWARD OF LOSSES

The balance loss after the above two adjustments are carried forward to the subsequent
assessment year.

However, all the above are subject to certain conditions which have been presented in a
nutshell.

For the Current

For Subsequent Assessment Year
Assessment Year
Type of Inter source Inter Head Carry Profit/Income Should Is it
loss Adjustment Adjustment Forward against which the necessary
(Sec 70) (Sec 71) of carried business/ to submit
(same head (Different Losses forward loss activity return of
of Income) heads of and for can be Set off continue loss in time
Income) how in subsequent in
many year(s) accordance
years with Sec
 139(1)
Income under
House Allowed the head
Property Allowed Allowed for 8 "Income From N.A. No
(Sec 71B) Years house
Property"
Any Income
Allowed
under the head
(Short Term
"Capital Gains"
Capital
(Short Term
Losses can
Allowed Capital
Capital be Set Off Not
Not Allowed for 8 Losses can Yes
Gains Against Necessary
Years be Set Off
Long Term
Against Long
Capital
Term Capital
Gains and
Gains and
Vice Versa)
Vice Versa)
Allowed
Income (Losses
From Other cannot be
Sources set off
(Other than against
Loss from winnings Allowed Allowed N.A. N.A. No
activity of from
owing and lotteries,
maintaining crossword
race horses puzzles
etc.)
Loss from
activity of
owing and
Loss from Allowed only
maintaining
the activity against
race horses
of owing income from Allowed
can be set off
and the activity Not Allowed for 4 Yes Yes
only against
maintaining of owing and years
income from
race horses maintaining
activity of
(Sec 74A) race horses
owing and
maintaining
race horses
Speculation
Allowed only Losses can be
Speculation Allowed
against set off only Not
Loss (Sec Not Allowed for 8 Yes
Speculation against necessary
73) years
profits Speculation
Profits

• No loss can be set off against winnings from lotteries, crossword puzzles, races
including horse race, card games and other games of any sort or from gambling or
betting of any form or nature --- Section 58(4).
• Loss from non-speculation business can be set off against speculation or non-
speculation business
The tax implications of the house rent allowance (HRA) seem to baffle most people. Taking the
case of two individuals, Ram and Shyam, who work in the same company, Ganesh Jagadeesh &
Co have explained this allowance in detail.
Two significant differences between the two individuals, which is necessary for this study, is that
Ram resides in his own house while Shyam in a rental accommodation.

Are both eligible for HRA?

Yes. Because the payment of HRA by an employer does not depend upon its end-use by the
employee. An employee may prefer to stay in his/her own accommodation but will still be eligible
to receive HRA if it is a part of the salary package. This is so, because HRA, as its name
suggests, is an Allowance supplementing the Basic Salary and Dearness Allowance/Pay, if any, in
a salary package.

Is HRA taxable?

In the case of Ram, who stays in his own house, tax is payable on the full amount of HRA
received by him. Shyam, living in a rented accommodation, may qualify for relief on the HRA
received by him, such relief being dealt with under section 10 (13A) of the Income Tax Act, 1961.

When is HRA exempt from tax?

A salaried individual, in order to get an exemption on his/her HRA, must fulfil the following basic
conditions:

• The employee must not live in his/her own house

• He/she must pay rent for accommodation
• Such rent must be more than 10 per cent of his/her salary

Is Shyam exempt from tax?

Shyam fulfils the first two conditions. The amount of his salary and rent paid by him will determine
whether he meets the last condition too. If Shyam's monthly salary is Rs 10,000, he will qualify for
HRA exemption should the rent paid by him exceed Rs 1,000 (10 per cent of salary).

How much will Shyam's exact exemption amount to?

The extent to which HRA is exempt is limited to the least of the following:

• For residential accommodation located at Bombay, Delhi, Calcutta or Madras - an

amount equal to 50 per cent of salary and 40 per cent elsewhere
• HRA actually received by the employee
• Excess of rent paid over 10% of salary

Assume:
Shyam's annual salary = Rs 1,20,000
HRA = Rs 42,000
Monthly rent = Rs 3,000
Rental accommodation situated at: Cochin
Shyam will be eligible for exemption on HRA to the extent of Rs 24,000 being the least of the
following:
 • Rs 48,000 (being 40 per cent of salary since rented house is at Cochin)
• Rs 42,000 (being HRA actually received)
• Rs 24,000 (annual rent of Rs 36,000 - Rs 12,000 which is 10 per cent of salary)

How should one avail of this exemption?

Provide your employer with information about the rent so that he can credit you with the eligible
amount of relief before deducting tax at source. You can also claim such exemption when filing
your tax return and seek a refund.
In all cases where HRA exceeds Rs 600 per month (Rs 7,200 per annum), evidence of rent paid,
meaning rent receipts, have to be produced. The assessing officer has the right to call for proof of
payment.

Points to remember

• Allowances are different from reimbursements in that they are usually fixed in value and
are paid irrespective of whether the recipient incurs expenditure or not. They are aimed at
meeting specific requirements like entertainment and travel. They could also be of a
compensatory nature like a border area/remote area allowance could be paid to an
individual posted in the Lakshadweep Islands.
• Salary for HRA purposes = Basic Salary + DA/DP + commission (only if calculated as a
fixed percentage of turnover achieved by the employee)
• Salary will not include any arrears for earlier years, which are received during the
previous year.
• If a bonus is received for the last year in the current year, such amount of bonus will not
be included in HRA salary for the purpose of determining HRA exemption. You can
include the amount of bonus due to you for the current year which you will receive only in
the next year.
• Salary will include all amounts due (even if not received) pertaining to the period during
the previous year during which the rental accommodation is occupied by the employee.
• HRA actually received has to necessarily pertain to the period in the previous year when
the rental accommodation is occupied by the employee - meaning, HRA received for that
period during which the employee was not occupying the rental accommodation will not
be exempt. (If Shyam were occupying his rented house for only 9 months during the year,
then the HRA exemption of Rs.24,000 computed above will get restricted to Rs.18,000
(pertaining to the period of his occupancy).

Crucial sections of the Income Tax Act

Larissa Fernand

Granted. They can be pretty mind boggling. To help you in your tax planning, here is an
explanation of the various sections of the Income Act, 1961.

Section 80L of the Income Tax Act, 1961

Interest earned upto Rs 15,000 in a financial year will not be taxed, out of which Rs 3,000
is specifically allocated to interest on government securities, income from Unit Trust of
India and mutual funds. Schemes falling under this section are:

• National Savings Certificate VIII

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

Section 88 of the Income Tax Act, 1961

Offers a rebate of 20 per cent. A rebate is when the government gives you a concession
on your taxable income to encourage investments in certain instruments. That means 20
per cent of the amount invested in specific instruments will be deducted from the total tax
payable.
So if your tax liability is Rs 1,00,000 and you invest Rs 50,000 in the public provident
fund, which is entitled to such a rebate, a 20 per cent deduction takes place. That amounts
to Rs 10,000. Your tax liability drops from Rs 1,00,000 to Rs 90,000. The aggregate
contribution to schemes entitling one for a tax rebate is subject to Rs 60,000.

An additional Rs 10,000 is in respect of contributions made to new equity and debenture

issues of infrastructural and power companies, units of mutual funds dedicated to
infrastructure and approved bonds of ICICI and IDBI.
So an individual can reduce his tax liability by Rs 14,000 if he takes all these options into
account. Moreover, any payment of principal made by an individual towards the cost of
purchase or construction of residential property will qualify for a deduction of up to Rs
10,000.
The schemes offering a tax rebate are:

• Life insurance premiums

• Provident fund
• Public provident fund
• 10/15 years Unit Linked Insurance Plan
• 10/15 years Dhanaraksha
• National Savings Certificate VIII
• National Housing Bank
• National Savings Scheme-92
• Jeevan Dhara/ Jeevan Akshay of LIC
• Equity-linked tax-saving schemes
• Retirement Benefit Plan of UTI
• Repayment installment of a housing loan
Section 10 of the Income Tax Act, 1961
To lure you into investing your money with specific instruments, the government does
not tax you on the interest earned. So interest on instruments falling under this section are
totally exempt from tax.

• Dividends from companies

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

Section 80E of the Income Tax Act, 1961

Servicing a loan out of income chargeable to tax which you have taken for higher
education is deductible up to a ceiling of Rs 25,000 a year for eight successive years. This
amount has been raised to Rs 40,000 in the last budget. The loan should have been taken
by an approved charitable institution or financial institution. If your employer provided
the loan, you disqualify.

Section 80D of the Income Tax Act, 1961

If you are medically insured, then you can get a deduction up to Rs 15,000 for premiums
paid on your gross total income. The deduction was up to Rs 10,000 but has been
increased by Rs 5,000 from FY 2000 - 2001. If you are paying the premiums for your
dependent spouse, parents or children, then this benefits can be availed even on their
premiums.

Section 80DD of the Income Tax Act, 1961

If the taxpayer has a dependent relative who is mentally retarded or suffers from some
permanent physical disability then a deduction of Rs 40,000 a year is given for medical
treatment, training or rehabilitation. This is allowed in full irrespective of the actual
expenditure on medical treatment.
This amount includes investments in UTI's 'Special Plan for the Handicapped' and LIC's
'Jeevan Aadhar.' But you will need a doctor's certificate who works in a government
hospital.

Section 80DDB of the Income Tax Act, 1961

Expenditure on actual treatment for specific diseases, like cancer, renal failure and even
AIDS, gets a deduction of up to Rs 40,000. This will be applicable if the individual
himself contracts this disease or a dependent relative.

Section 10(13)A of the Income Tax Act, 1961

If you own the house, this is not applicable to you. Moreover, you should not be self-
employed but a salaried employee availing of house rent allowance (HRA). Fulfill these
factors and you are entitled to a deduction on rent paid.
The amount deducted is based on the least of these three factors:

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

Assume your salary is Rs 10,000, HRA amounts to Rs 2,000 and actual rent is Rs 2,500.
According to the first criteria, the deduction will amount to Rs 5,000, Rs 2,000 according
to the second and excess of rent paid over 10 per cent of salary is Rs 1,500. Since the
least qualifies, the sum valid will be Rs 1,500.

Section 80GG of the Income Tax Act, 1961

All self-employed individuals and employees not getting any house rent allowance
(HRA) are entitled to deduction. The deduction will be the least of:

• Rent in excess of 10 per cent of total income

• 25 per cent of total income
• Rs 2,000 per month

Fools guide to basic tax computation?

Want to know in which tax bracket you fall? Interested in figuring out what it actually
amounts to? Read on to find out.

Income per annum Tax Surcharge Total

Upto Rs 50,000 Nil Nil -
Rs 50,000 to Rs 60,000 10% Nil 10%
Rs 60,000 to- Rs 1,50,000 20% 10% 22%
Over Rs 1,50,000 30% 15% 34.5%

Percent of
Annual income of Rs 2,00,000 Amount
tax
Rs 60,000 - Rs 50,000 = Rs 10,000 10% of Rs 10,000 Rs 1,000
Rs 1,50,000 – Rs 60,000 = Rs 90,000 22% of Rs 90,000 Rs 19,800
34.5% of Rs
Rs 2,00,000 - Rs 1,50,000 = Rs 50,000 Rs 17,250
50,000

Total tax Rs 38,050

The above calculation is based on the assumption that no investment has been made in
any tax saving instrument.
How to harvest a tax-free crop

Murali Iyer

Everybody would love to avoid tax. And a lot of them took the route of buying
agricultural land farm houses to make some non-taxable income. The definition of
agricultural income under the Income Tax (IT) Act is exhaustive and covers rent or
revenue from land being used for agricultural purposes, income from agricultural
operations and income from farmhouses.

Rent or Revenue
As per the Income Tax Act, "Rent" is described as periodical or pre-determined payment
in cash or kind, while "Revenue" implies a sharing agreement depending on agricultural
produce.

Cultivation of land to some extent is necessary for the income to be treated as agricultural
income. While growing of crops is covered under agriculture's ambit, activities like
poultry farming, dairy farming, aquaculture and sericulture on the same land are not
treated as agricultural activity. There is no tax on rent or revenue accruing from such
land. The land should be assessed to land revenue in India or subject to a local rate.
Moreover, a direct link needs to be established between the land and revenue.

Thus, while rent on land being tilled will be treated as income, interest on late payments
is taxable. Owners of agricultural land, tenants who have sub-leased the land and
mortgagees of such land - all enjoy tax-free agricultural income.

With SEBI cracking down on plantation companies, a lot less is heard nowadays on that
front. As these companies were offering tax-free income, many urban residents were
attracted to such schemes for it was their only way of earning agricultural income. What
needs to be examined here is whether the buyer gets leasehold rights to the land, or to
some trees, or whether he gets rent. If the scheme provides for the investor owning the
trees or getting leasehold rights on the land, then it is considered to be agricultural
income, and hence tax-free. In the absence of either of the two, any other income is
considered non-agricultural income, chargeable to tax.

Agricultural operations
All tillers (whether a tenant or sub-tenant of the land) are deemed as agriculturists and
enjoy freedom from tax. Processing of agricultural produce to make it fit for sale in the
markets is also covered under the ambit of agricultural income. Here, ownership of the
land is not a necessity.

In many cases, raw agricultural produce may not fetch the right market price. To make it
marketable, further processing may be necessary. Even though the final objective of the
processor is to sell the produce at a higher price, such sales are treated as agricultural
income. But if the farmer buys processed product and sells at a profit, such income will
be taxed.
Further, if substantial value addition is involved (with the whole character of the primary
produce undergoing a sea change), the entire operation is not treated as agricultural
income. In such cases, the process will be broken down into primary, secondary and
tertiary activities. While the primary and secondary activities will be treated as
agricultural income, the rest will be treated as business income (taxable).

Similarly, if you get tempted to get into lumberjacking or cutting down a large growth of
trees for tax-free profits, you could be in for a nasty shock. This income will not be
treated as agricultural income, as your involvement lies only in cutting, sawing and
selling of the trees etc and such profits will be taxed. Activities such as cultivation, soil
treatment and others associated with farming have to be indulged in for such an activity
to be non-taxable.

Farmhouses
The definition of "farmhouse" covers buildings owned and occupied by cultivators of
agricultural land as well as assessees who receive rent or revenue from such land.
According to the law, the sole purpose of such houses should be as residing places or
usage as storehouses. But there are ample instances of these "farmhouses" being used for
private parties, conferences, marriages and even being rented out with the revenue being
shown as agricultural income! So now, thanks to the first millennium budget, all non-
agricultural income from farmhouses are subject to tax.

Sale of agricultural land

Earlier, profit on sale of agricultural land was exempt from tax. But now, agricultural land
situated in an urban area or within a distance of 8 km from any notified municipal or
cantonment board area is considered a capital asset. Thus, profit from the sale of such
land is liable to be taxed as a capital gain. But agricultural land outside the purview of the
8 km limit will be deemed to be in a rural area. Thus, profit from sale or transfer of such
land would be considered tax-free.
Although agricultural income is fully exempt from tax, individual assesses are required to
club agricultural income along with other sources of income while filing returns based on
the specific slab rates. Resultantly, the rate of taxation is higher for them. The
methodology followed for calculating assessees' tax liability with agricultural income is:

• Tax is first calculated on the assessee's net agricultural income plus total non-
agricultural income.

• Tax is then calculated on the basic exemption slab increased by the assessee's net
agricultural income.

• Amount of tax payable by the assessee is the difference between the above two

This methodology is followed only if assessee's non-agricultural income is in excess of

the basic exemption slab (Rs 50,000 for assessment year 1999-2000) and agricultural
income is higher than Rs 600. Be careful while filing returns and clearly mention
agricultural income. Any discrepancy can be met with severe fines and penalties. Also, all
receipts of such income and land records should be kept at hand to show the authorities in
case of enquiries.

Allowances are taxable income

UNI

In a significant judgment adversely affecting millions of employees both in public and

private sectors, the Supreme Court has held that the dearness allowance, city
compensatory allowance (CCA) and the house rent allowance (HRA) given to them
would be ''taxable income.''

In view of the amendment in the definition of the word ''income'' the court pointed out,
any special allowance or benefit, specifically granted to an assessee to meet expenses
wholly, necessarily and exclusively for the purpose of the duties of an office would be
included in the word ''income''.

''It has also been pointed out that under sub-clause (iiib) of clause (24) of section 2 of the
act, any allowance granted to an employee-assessee either to meet his personal expenses
at his place of work or his place of residence or to compensate him for the increased cost
of living is also to be included in income. Therefore, it is conceded that the payment of
the HRA or the CCA would be covered by the word 'income'," the court clarified.

The ABC of capital gains

Larissa Fernand

How often have you heard that term but never knew what to make out of it? Here are
some FAQs to help you come to grips with this issue.

What is capital gains?

Capital gains is nothing but the profit made on selling a capital asset.

What is a capital asset?

Any property held by an assessee (that means an income tax payer). So it can be shares,
units of UTI, debentures and land.
However, furniture, personal belongings, agricultural land (subject to certain criteria),
Special Bearer Bonds, 1991, Gold Deposit Bonds (1999 scheme), 6.5 per cent Gold
Bonds, 7 per cent Gold Bonds, National Defence Gold Bonds issued by the Central
Government and raw material held for the purpose of business is not termed as a capital
asset. Interestingly, though, from the year 1973-74, jewellery is treated as a capital asset.

How are capital gains treated in the Income Tax Act?

Either as short-term capital gains or long-term capital gains, depending on the number of
years it is held.

What is the tax on capital gains?

If cost-inflation indexation is considered, then it is charged at 20 per cent whereas it is 10
per cent if cost-indexation is not considered. NRIs pay capital gains at the rate of 10 per
cent.

How is inflation taken into account?

Starting with 1981 - 82 as the base year, the Reserve Bank of India notifies the Cost
Inflation Index every year and the income tax department uses this figure in its
calculations.
Financial year Cost Inflation index
1981 – 82 100
1982 – 83 109
1983 – 84 116
1984 – 85 125
1985 – 86 133
1986 – 87 140
1987 – 88 150
1988 – 89 161
1989 – 90 172
1990 – 91 182
1991 – 92 199
1992 – 93 233
1993 – 94 244
1994 – 95 259
1995 – 96 281
1996 – 97 305
1997 – 98 331
1998 – 99 351
1999 – 2000 389

Based on the above figures, how is the cost indexed?

ASSUMPTION
You bought a home for: Rs 5,00,000
In the financial year: 1985-86
You sold it for: Rs 15,00,000
In the financial year: 1995-96
CALCULATION:

1995-96 index 281

Cost inflation index: ---------------------------- = --------- = 2.11278
1985-86 index 133

Indexed cost: Rs 5,00,000 x 2.11278 = Rs 10,56,390

Long-term capital gains: Rs 15,00,000 – Rs 10,56,390 = Rs 4,43,610

So if I sold it before the stipulated holding period, I don't get the indexed benefit?
Correct. And to make it more clear, lets work with some figures.
 Long-term capital gains Short-term capital gains
You bought a home for Rs 5,00,000 Rs 5,00,000
In the financial year 1985-86 1993-94
You sold it for Rs 15,00,000 Rs 15,00,000
In the financial year 1995-96 1995-96
You repaired the house for Rs 5,000 Rs 5,000
In the year 1990-91 1994-95
Expenses on transfer Rs 5,000 Rs 5,000
Capital gains Rs 4,30,890.25 Rs 9,90,000

How long should I hold the asset to avail of long-term capital gains?
Equity, preference shares and units of Unit Trust of India (whether they are quoted or
not), debentures or government securities (listed on a stock exchange), units of mutual
funds specified under section 10(23D) (whether quoted or not), have a holding period of
just 12 months. For all other assets, like property and diamonds, the holding period is a
minimum of three years.

If you sell it before this time frame you will have to pay short-term capital gains.

Is there any way I can avoid paying capital gains tax?

The budget of 2000 - 2001 abolished section 54EA and EB, which were available for
claiming exemption on capital gains. A new section 54 EC was introduced, instead.
Under this, investments qualifying for exemption are bonds issued by the National
Highway Authority of India (NHAI) and the National Bank for Agriculture and Rural
Development.

Are there any transactions that do not come under capital gains?
Yes, certain transactions are not considered as transfer and hence not considered as
capital gains. They are:

• distribution of assets to shareholders on liquidation

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

If I sell my car, do I have to pay capital gains?

No. The sale of a car is exempt from capital gains tax since it is a personal item.

What about an insurance claim?

No. The payment of an insurance claim is not an amount being paid for taking over an
assets. So it is not subject to capital gains.
If I lend my shares, they get returned with other distinctive numbers. What is the
law on that?
Here again, lending shares with specific distinctive numbers and receiving them back
with other distinctive numbers does not result in a transfer. So here too it is not subject to
capital gains tax.

What if I make a capital loss instead of a gain?

Any capital loss suffered (short-term and long-term) is available for set off against short-
term or long-term capital gains. Any unadjusted loss can be carried forward for a period
of eight subsequent assessment years.

Also see

Capital Gains Calculator

When the tax sleuths conduct a 'raid'

Larissa Fernand

Having the tax boys ransack your home and turn it upside down can be a harrowing
experience. Thus, it would make matters a lot easier if you are aware of your rights and
duties when faced with such an eventuality.

Decoding the legalese

• Assessment: Income tax authorities looking at a filed income tax return.

• Scrutiny: When they decide to conduct a detailed and in-depth review of the
return.

• Survey: Could be routine (often conducted in an area from time to time) or acting
on specific information. A factory showing a low turnover may have the
authorities snooping around checking stocks. A restaurant showing losses may
have them sitting there a couple of hours, or maybe the entire day, to check how
business is doing. Don't ask them for a warrant, they don't need one, anyway. But
then they cannot walk away with any of your possessions, either. Don't worry
about them coming home. A survey is only done on commercial premises.

• Search & Seizure: In plain English, it is a raid. And it can be done on commercial
or residential premises, need not be preceded by a survey and they can walk away
 with whatever they feel is undisclosed. This time around, however, they do need a
warrant.

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

What sets the ball rolling

Information has various ways of reaching the Income Tax Department. It could come
from other government departments, newspapers, magazines and publications, or from
informers. Did you know that informers are awarded 10 per cent of the tax on
unaccounted money if the lead proves to be a genuine case of tax evasion?

However, before you convince yourself that this is a lucrative way to earn a few extra
bucks, think again. Informers are liable to be prosecuted under Section 182 of the Indian
Penal Code if the allegations prove to be false.

Once the Income Tax Department is satisfied that they have a genuine case of tax
evasion, the information is passed on to the Director of Investigation who can then
authorise a search.

In the course of a raid, if officials discover illegal foreign exchange or ascertain that
money has been siphoned off into overseas banks, the relevant information is passed onto
the Foreign Exchange Regulation Act (FERA) officials. Incidentally, raids can be
conducted under various Acts. The most common being the Income Tax Act, the Central
Excise and Salt Act, and FERA. The only difference is that while you can't be arrested
during a raid under the Income Tax Act, you enjoy no such advantage in the other two.

What the process entails

It starts as a wake-up call with the tax sleuths knocking at your door as early as 6:00 am
so that they have the luxury of spending the entire day at your place. Not a great way to
start the day. For you, i.e. Also, you certainly can't tell them to come back later or refuse
to let them in, lest you want to land up in jail.

Now that you are forced to greet them (they never come alone), have the presence of
mind to ask for a warrant of authorisation and check to see if it is actually issued in your
name: for, maybe it is your neighbour they are actually after. Convinced that it is you
they have set their sights on, check out the credentials of the search party and then
introduce them to each and every one at your house. If you have guests, they too have to
be introduced. And don't try packing them off because nobody is allowed to leave once
the tax authorities come calling. After the introductions, ask two witnesses over. Make
sure they are not the gossipy folks next door or else the entire neighbourhood will hear of
your plight by that evening.
Then starts the grilling. Don't try to use the line: "I won't talk without my lawyer
present." The law does not require your lawyer to be present. Try to be as honest as
possible. Questions will vary from how much you earn, what your monthly expenditure
is, how many people you support, how much of money is currently on the premises, do
you have any gold or valuables at home, and do you possess a bank locker. If you are not
sure of an answer, say so.

Then comes the crucial part when they may just decide to tear your house apart. Here,
you can't do a thing except watch. And when you see them rip your Shyam Ahuja
furnishings in the hope of finding dollars stashed in the mattress, or tear down the wall-
paper in a bid to find a hollow in the wall, you can cry your heart out. Of course, you
have the option of ignoring them and going right ahead with your day. Do you need to
eat? No one can stop you, though chances are you would have lost your appetite by then.
Their's, nonetheless, is whetted. They may follow you into the kitchen and check jars,
bottles and cupboards to see if anything interests them, and they wouldn't be looking for
food. There is no room in the house that is not accessible to the raid party.

Since all your statements will be recorded along with the entire proceedings in what is
called a 'panchnama,' read them carefully before you and the independent witnesses sign
it. If the authorities want to seize any 'evidence', you can't stop them. But they can only
take books and belongings of the person named in the warrant. They will make a list of
these articles which will have to be signed by you and the two witnesses.

Whew! They've finally gone. Now get on the phone and call your lawyer and chartered
accountant. Then write to the officer who authorised the search requesting for a copy of
the warrant as well as reasons and the statements recorded.

And, if the tax boys found nothing incriminating, you can challenge the action of the
department and file a writ petition to get the raid declared null and void. However, in case
you were thinking of nailing down any particular officer, forget it. The income tax
officials have immunity under Section 293 that states that they cannot be sued if nothing
is found during a raid.

Your rights and duties

Your duty: You cannot stop them from entering your house.
Your right: Check for a sealed warrant of authorisation in your name and with your
address signed by the commissioner or senior commissioner.

Your duty: Introduce everyone in your house.

Your right: Ask the members of the search party to introduce themselves. The person
heading the team should be of the rank of officer or inspector. Frisk them before the
search to ensure that they don't plant any 'evidence' when they are raiding your premises.
Your duty: Refrain from making any calls to anybody, including your lawyer. A call is
only permitted to your doctor or for an ambulance, in case you end up getting a heart
attack during the proceedings.
Your right: You can call two independent witnesses to be present during the proceedings
and when statements are being recorded.

Your duty: Allow them to seize account books, cash, jewellery, ornaments, antiques,
property papers, documents, bullion, valuables and any other article which they feel is
incriminating. They can also keep them in a cupboard and seal it.
Your right: All documents, books and belongings taken by the authorities will have to be
returned within 180 days, except for a specifically recorded reason that has the approval
of the commissioner.

Your duty: Answer each and every question put forth to you.
Your right: To get a copy of any statement before it is used against you in prosecution
proceedings.

What happens then

Now you have to file a special return for search proceedings. A notice estimating your
undisclosed income will be served and tax at the rate of 60 per cent will be imposed. The
notice will specify when you have to pay up (15 to 45 days) with an interest of 2 per cent
per month imposed on delayed payments. If you state that you have an undisclosed
amount of Rs 10,00,000 but the tax authorities figure it out to be Rs 20,00,000, then you
pay a penalty that could be as high as three times the difference of Rs 10,00,000. Failure
to furnish such a return can you three months imprisonment under Section 276 CC of the
Income Tax Act.

Do you need to file a return?

Larissa Fernand

Trying to figure out if you need to file a return? Need to know if you fall under the 'one-
by-six' scheme? Want to know what a PAN is? Read on.

Understanding the 'one-by-six scheme'?

Section 139 (1) of the Income Tax Act, 1961, requires every individual, whose total
income exceeds the maximum amount which is not chargeable to tax, to file a return.
That means, only those individuals whose annual income is less than Rs 50,000 are
bypassed. However, if the person fulfills any of the conditions mentioned below, he is
obligated to file a return.

• Ownership/ lease of a motor vehicle

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

If an individual is 65 years old or more, and not engaged in any business or profession, he
is not subject to immovable property and telephone conditions.

When does a salaried individual have to file his return?

A salaried individual has to file his returns on or before June 30 of the relevant
assessment year. If a person fails to file his return of income by that period, he can file a
belated return under section 139 (4) of the Income Tax Act, at any time before one year
from the end of the assessment year or before the assessment is completed, whichever is
earlier.

If you are not filing the return or belated return within the time allowed, you will be
treated as an assessee in default, irrespective of the fact that TDS is deducted from your
salary.
Not furnishing a return of income is not a crime, but attracts penal interest and penalty
under section 234A and 271F of the Income Tax Act, 1961.

Who needs a Permanent Account Number?

That bring us to the Permanent Account Number (PAN). The latter is an alphanumeric
combination of 10 characters allotted by the Income Tax Department and issued in the
form of a laminated card. The PAN is ultimately meant to supplant the General Index
Register (GIR) Number which is currently in use.
An individual would have to be in possession of one, if he fulfills the criteria mentioned
below.

• An assessee whose income exceeds Rs 50,000

• An individual carrying on a business or profession whose total sales, turnover or
gross receipts are (or are likely to exceed) Rs 5,00,000
• An individual who is required to furnish a return of income for income derived
from property held under trust or other legal obligation wholly for charitable or
religious purposes
• If you fall under the one-by-six scheme where it is mandatory to file a return
How should one apply for the PAN?
So you figured that you do need a PAN. The procedure for application of one is quite
simple. Obtain Form No 49A from the Income Tax office and fill it up. You will have to
submit it at the ward where you will be assessed since PAN applications are to be made to
the assessing officer having jurisdiction to asses the applicant. Don't forget to submit with
two black-and-white photographs along with the applcation.

When do I have to quote the PAN?

When filing your returns, in all 'challans' for payment of direct taxes and in any other
correspendence with the Income Tax authority. There are other transactions too which
need the PAN to be quoted.

• Sale or purchase of immovable property valued at Rs 5,00,000 or more

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

What should I do if I have not yet received the PAN?

In all cities, there is a central office in the Income Tax Department which is in charge of
allotting these numbers. You will have to approach that cell. You can start by contacting
the public relations officer of the Income Tax Department and ask for the address of the
PAN cell.

A duplicate PAN card can be issued when the PAN card has been lost or misplaced. This
could be when the assessee has not received the PAN card from the department, even
after the department has despatched it or there is an error in the PAN card issued to the
assessee owing to wrong or incorrect information furnished by the assessee/applicant
while filling Form 49A or due to subsequent change of name or other details.

In case of reported loss of PAN card by the assessee, a copy of the First Information
Report (FIR) filed with the police should be obtained before processing the request for
issue of a duplicate PAN Card.

In case the assessee claims that the PAN Card, despatched by the tax department, has not
been received, an affidavit to this effect may be obtained from the assessee for providing
a duplicate PAN Card.

Assume you made the PAN application in one place, say new Delhi, and then got
transferred on business to another city, say Bangalore. Since you had made an application
while you were in New Delhi, the official letter intimating the PAN will be sent by the
Income-tax Department to your New Delhi address.
Since you will be filing your returns in Bangalore, it would be advisable for you to write
a letter to the PAN Cell, Bangalore, intimating to them the fact that you have already
applied for the PAN at New Delhi and that now you are going to be assessed at
Bangalore.
Attach a photocopy of the said application to the letter and request them to allot the
number to you.

An individual must intimate his assessing officer as to any change in the name, address or
the nature of the business on the basis of which the PAN was allotted.

Which form is relevant when filing your returns?

There are two factors that go into determining the applicable form for filing your return
of income. One is the type of income that comprises your total income. The second is
your net total income for the year.
To be more precise, you may determine the form applicable to you from the following:

FORM: 2A or 2D ['Saral']
SOURCE OF INCOME: All income except business income.
INCOME LIMIT: Net total income should not exceed Rs 2,00,000 during the year.

FORM: 3 or 2D ['Saral']
SOURCE OF INCOME: All income except business income.
INCOME LIMIT: Total income for the year is above Rs 2,00,000.

FORM: 2 or 2D ['Saral']
SOURCE OF INCOME: Total income includes business income.
INCOME LIMIT: No limit

You can get these forms from any Income Tax office falling under the jurisdiction of the
area in which you stay, you may even get these forms from some specialised stationery
shops. After ascertaining the form applicable to you, you shall have to fill the relevant
details on the form.

Also see: Facts on filing of returns

L&L fee fixed

The Maharashtra government decided to do away with the stamp duty imposed on
Leave and Licence (L&L) agreements and impose instead a registration fee.

Registration of L&L agreements continues to be mandatory along with a registration

fee of Rs 1,000 for municipal corporation limits and Rs 500 for outside of it.
This fee will be irrespective of the size and cost of the property or the purpose of its
use.

Transfer formalities in a co-operative society

Jyoti Dialani

So you own a flat (or office or, maybe, even a shop)in a co-operative housing society.
And you decide to sell it. Or, maybe, just transfer it on someone else's name.
Execution of the agreement is just part of the procedure. There are lots of other
procedures to follow.

• A member who desire to transfer his flat in the society has to give 15 days'
notice to the secretary of the society. This has to be done in a prescribed form
whereby he has to state his intention for doing so.
• A committee meeting will then be called and this shall be placed before them.
It will then be decided whether the member is eligible to transfer his shares
and interest in the society.
• If the committee finds that the member is not eligible to do so, the committee
shall direct the secretary to inform the member about the same.
• Whatever be the decision of the committee, the secretary is bound to convey
this information to the member within three days of the decision of the
committee.

If the seller is given the go-ahead signal, here are the formalities to be followed:

• Submission of an application for transfer of his shares and interest in the

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

• The secretary scrutinies applications carefully. Any

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

Documents involved in transfer

Jyoti Dialani

When submitting your application to the secretary of the co-operative housing

society in the event of selling your apartment (or transferring it to another person),
make sure you have all the documents in order.
Here is a list documents which the transferor/transferee must verify and submit
alongwith the application.

• Notice of Intention of a member to transfer his shares and interest in the

capital/property of the society

Rule 24 of the Maharashtra Co-operative Societies Rules, 1961 states that the
member has to give a 15-days notice in writing, addressed to the secretary of the
society stating his intention to transfer the flat/shop/office in the society to the
proposed transferee. This notice has to be written in the prescribed form, containing
the name of the transferee and also the consideration for sale.

• Letter of Consent of the proposed transferee for the transfer of the shares and
interest in the capital/property of the society from the transferor to him.

According to Rule 24 (1)(b) of the Maharashtra Co-operative Societies Rules 1961,

the proposed transferee has to give a letter to the secretary of the society giving his
consent to the proposed transfer of the shares and interest of the transferor member
of the society to him.

• Application for transfer of shares and interest in the capital/property of the

society, to be given by the proposed transferor (being an individual).

Bye-Law No 40(d)(i) requires the proposed transferor to make an application to the

secretary of the society in the prescribed form, for transfer of the shares. Details
such as share certificate number, the distinctive numbers of the shares held by him,
the flat number and area should be included. This letter has to state that the
liabilities due to the society by the tranferor have been fully paid and that he will
discharge any other liabilities that may become due until the transfer is approved.

In this letter the transferor is required to state reasons for the transfer and he is also
required to state that the shares/interest in the society have been held by him for a
period of not less than one year.

• Declaration by the transferor for not holding an immovable property

exceeding 500 sq metres in any urban agglomeration.

Bye-Law No 40(d)(ix) imposes upon the transferor of the flat/shop/office in a society

to submit a declaration on Rs 20 stamp paper stating that he does not hold any land,
whether vacant or otherwise exceeding 500 sq metres in area, anywhere in any
urban agglomeration, mentioned in the Urban land (Ceiling and Regulation) Act,
1976. It must also contain details like names of the transferor and transferee, flat
number and area of the flat intended to be transferred.

• Declaration by the transferee for not holding an immovable property

exceeding 500 sq metres in any urban agglomeration.

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

• Undertaking by the proposed transferee to use the flat for the purpose for
which it is purchased.

Under Bye-Law No 19(iv), the proposed transferee has to submit an undertaking on

a Rs 20 stamp paper to use the flat to be purchased by him for the purposes
mentioned in the letter of allotment issued to him under Bye-Law No 78(a). The
purpose as mentioned in the letter of allotment may be specified as residential,
commercial etc.

• Undertaking by the proposed transferee or by any of his family members, who

is owning any plot/house/flat in thearea of operation of the society, to dispose
off the same

Under Bye-Law No 19 (vi), the proposed transferee has to furnish an undertaking on

a Rs 20 stamp paper to dispose off the house,plot or flat, already owned by him or
by any of the members of his family, and located in the area of operation of the
society.

This undertaking must also state that he shall dispose off the said plot/flat/house
within a period of six months from the date of transfer of the flat in the society to
him.

• Undertaking by a prospecture member having no independent source of

income (if applicable).

If the proposed transferee is a non-earning person (he has no independent source of

income), he is required under Bye-Law 19(v), to submit an undertaking on a Rs 20
stamp paper to discharge the liabilities to the society.

• Certified copy of the agreement

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

• Share certificate in original

Original share certificate in the name of the Transfer or has to be submitted.

• Copy of stamp duty receipt

Proof of payment of stamp duty in the form of copy of receipt issued by the stamp
authorities.

• Copy of Registration Receipt

Certified true copy of registration receipt evidencing payment of Registration fees,

issued by the Sub-Registrar of Assurances within whose jurisdiction the Society falls.

• Copy of possession letter

A copy of the letter issued by the transferor to the transferee, stating that the
transferee has been put in vacant, peaceful and physical possession of the flat, has
to be submitted.

• Letter to the electricity department of the body governing electricity supply

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

• Letter to the society in respect of the donation given by the transferor

If the transferor is giving a certain donation or voluntary contribution to the society,

he has to submit a letter to the secretary of the society that he is giving the amount
of donation as a voluntary contribution towards the Common Amenities Fund and
also that he has instructed his accountant to effect the same as a voluntary
contribution in his books of account.

• Certified copy of the Power of Attorney

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

• Indemnity Bond-cum-Affidavit by the transferee

The transferee has to submit an indemnity bond-cum-affidavit on a Rs 100 stamp

paper giving certain declarations that the he shall abide by the society's rules and
bye-laws and to regularly pay the bills of the society, not cause any
nuisance/annoyance to the neighbouring flats, not to use the flat for commercial
purposes and not to give the flat on a leave and license basis. The purchaser also
undertakes not to carry out any illegal changes/alterations/ structural modifications
in the flat purchased by him.

The flat purchaser is also advised at the time of transfer, to submit a nomination
form as required under Bye-Law No 34. This nomination form should carry details
such as the share certificate number and distinctive numbers of the shares held by
him, the flat number and the area of the flat.

By submitting this form, the member nominates a person/persons, to whom the

shares and interest in the society held by him, shall be transferred in the event of his
death.

Please note that there are different formats of nomination forms in respect a case of
single nominee and that of more than one nominees. Also the nomination form has
to be attested by two witnesses.

A buyers' market
Aparajita Saha
Home is where the heart is, or so they say. But actually purchasing one (a home,
that is) relies on more practical factors such as low interest rates, attractive and
competitive home finance packages and great tax incentives. And, believe it or not,
the home buyer actually has all these factors in his favour.

Interest rates on home loans have never been lower. Real estate financers are
bettering one another with their respective loan packages and services. The
government has redefined its role from being a provider to that of a facilitator. Real
estate prices have bottomed out. Builders are pulling up their proverbial socks and
improving their act.

That leaves the consumer faced with one issue: to buy or not to buy? Let's see if we
can answer that one.

Property aspect
Where prices of property are concerned, Pranay Vakil, chairman, Knight Frank (real
estate consultants) advocates making a purchase. "Reasonable prices and a balance
between the construction and land cost make it a good time to buy a house," he
opines.

Around four years ago, the real estate market witnessed a crash in prices.
Consequently, potential buyers adopted a wait-and-watch strategy. However, a lot of
them who had been sitting on the fence are convinced that this is the right time to
make a move simply because of the reasonable and stable prices.

Have property prices bottomed out? Unlike the stock market where the sensex acts
as a barometer, the real estate market lacks a scientific index to measure property
prices. Hence, it is not possible to answer that question candidly. The biggest
hinderance to developing an index and monitoring it is the lack of transparency in
transacted prices. The 'black' component in the price makes it difficult to develop and
utilize an index.

Added to this are other problems such as the lack of a base for statistical estimates,
lack of published data, unavailability of dependable data and the absence of macro-
figures make index construction very difficult.

In spite of the absence of a scientific and reliable index, experts feel that real estate
prices are at their lowest best now and can go only in one direction - upwards. "The
volatility with respect to prices has subsided. In fact prices are going to increase in a
steady manner due to the spurt in demand," feels Rajiv Jamkhedkar, manager, retail
assets, personal banking, HSBC.

According to real estate observers, property prices have come down by almost 35
per cent in the last four years indicating that probably the market has bottomed out.
Mathru Prasad, assistant vice president, GIC Housing Finance Ltd (GIC), is of the
opinion that the "pricing policy has undergone a change. Earlier prices would be
based on what the traffic could bear. Now it's far more reasonable as prices consist of
the cost and a certain profit level. Property prices have leveled out."

Yet another point in favour of purchasing accommodation under the present

circumstances is that builders are far more flexible now. The reasons for this are
simple. "Supply has been greater than demand. It's only recently that demand is
catching up. There is competition among the builders to attract consumers," feels
Prasad. This has forced builders to becomes more professional and competitive.
Adding to this, Jamkhedkar says, "Competition forces developers to give value to
customers. Consumers now get ready property as well as quality. This has increased
consumer confidence who are more certain of getting a good deal."

"Builders are offering a lot more quality, service and value for money than they did
earlier. They have introduced international features and raised their standards to
benefit the consumers. The recession has brought about professionalism in the
construction business," says Raymond Dastoor, deputy general manager, marketing,
GESCO Corporation Ltd.

The financials
Interest rates, which are a prime determinant while purchasing real estate, are also
at an all time low. Interest rates were around 17-18 per cent six-seven years ago.
Today we see a substantial drop to 12-13 per cent. In fact, these are the lowest rates
being witnessed in the past 22 years.

Hence the trend of thought that with interest rates touching such a low, they can
only rise. There is not definite answer on this front. Suresh Chandnani, assistant vice
president, ICICI, chooses to be cautious and says, "It is difficult to say whether
interest rates have levelled out or if they will fall further or rise, but they are at a low
right now."

Last but not least, what should ultimately convince the buyers is the presence of a
large number of flexible and attractive loan packages, each of them striving to be as
competitive and alluring as possible. Real estate financers are emphasising on
qualitative aspects such as service that assign utmost importance to the consumer.

Free insurance, waiver of prepayment dues, extended tenure of loans and flexibility
with respect to loan repayment are just some the features used to lure consumers.

The government has adopted an encouraging stance, inducing an increasing number

of people to go in for self-owned houses. Budget 2000-01 raised the tax deduction
on interest on house loans for self-occupied houses from Rs 75,000 to Rs 100,000.
Consequently, a number of housing finance players recorded a surge in the number
of disbursals. Mahesh Shah, manager (communications), HDFC, states, "If an
individual belonging to the highest income bracket avails of a loan, he can save Rs
34,500 per year."

To put it in a nutshell: the consumer never had it so good!

So back to our question: to buy or not to buy?
The verdict: Go for it!

A checklist before you buy property

Larissa Fernand
Buying land? It can turn out to be quite problematic if you don't tread carefully. For
starters, make sure that the title is clear or else claims on your land will result in years of
litigation. The moment the land is yours, fence the entire area to prevent encroachment.
Simultaneously arrange for security to prevent any illegal occupation.

Once you start developing your property, you may be faced with a whole new range of
issues. Getting hold of basic amenities like plumbing, water and electricity may prove
problematic. Of course, if you have purchased agricultural land, the government may not
permit any construction on it.

In fact, extreme care should be taken when buying agricultural land since the terminology
is different and so are the local laws. For example, one person may own the land while
another the crops. This will cause a problem regarding possession of land. Always ask for
a copy of the plan approval by the Town and Country Planning Board or any other similar
authority before buying vacant land.

That brings us to an apartment under construction. This one will be cheaper than an out-
right purchase of one ready for occupation. But do check for the commencement
certificate for full work and make sure that all the titles are clear. Construction should
have commenced with at least two slabs completed. Make sure that there is sufficient
work going on at the site.

As far as a readymade apartment is concerned, you have to check the finish of the flat:
flooring, painting, amenities, switches, windows, doors, permanent fixtures, plumbing
and common area finishes. If you take a housing loan, then the actual repayment of the
loan commences after the housing finance company makes the final disbursement. Until
the final disbursement is made from the housing finance company to the real estate
developer, the consumer has to pay a pre-EMI rate of interest.

So if construction is delayed, then the final disbursement too is delayed and the buyer
loses out by paying more pre-EMI. This problem will not arise in the case of a ready
apartment where repayment starts immediately.

If nostalgia and sentiment are pushing you towards buying an old home characterized
with its Gothic architecture, hold on. Chances are that the government might have
categorised it as a heritage property.

Grade I constructions are those that have a historical value and no changes in
construction are permitted on the structure. These are usually held by the government and
not available to the general public. You might be eyeing a Grade II or III structure. Under
these categories, repairs and modifications are permitted with the approval of the
authorities. Limited interior changes and repairs are permitted under Grade II while
alterations (including design and reconstruction) are permitted under III though they have
to match the original plan.
Jyoti Dialani

Imagine you want to sell your apartment. At long last, you manage to zero in on a
buyer who is ready to offer what you want. And then, you find that the co-operative
society wants a 'fee' to allow you sell your own apartment.

Now, imagine yourself as the buyer. You just manage to cough up hard-earned
money to buy that apartment and then you realise that the society wants a transfer
fee. In both the instances, you are bound to be furious.

Welcome to the controversial issue of the legality of a transfer fee demanded by a

co-operative housing society. This fee is an amount charged by the society to the
person selling his apartment or the person buying an apartment in the society.

At the time of transfer, the transferor is requested to give a letter to the society
stating that he is giving the donation as a voluntary contribution towards the
common amenities fund, maintenance fund or major repairs fund, and that he has
instructed his accountant to reflect the same as a voluntary contribution in his books
of accounts.

So, is this fair?

If the society has adopted the Model Bye-Laws, it has to follow the provisions
contained therein. Model Bye-Law No 40(d)(v) of co-operative housing societies as
approved by the commissioner for co-operation under the Maharashtra Co-operative
Societies Act, 1960 provides for payment of a transfer fee of just Rs 50 by the
transferor-member to the society.

Also, sub-clause (vii) of the Model Bye-Law No 40(d) provides for a payment of
premium at a rate to be fixed by the general body meeting not exceeding 2.5 per
cent of the difference between the book value of the flat and the price realised by the
transferor on a transfer of flat or Rs 25,000, whichever is less.

It also imposes restrictions on accepting an amount exceeding Rs 25,000, whether

by way of donation or otherwise, unless it is paid voluntarily by the member.

However, today the transfer fees are not restricted to an amount of Rs 25,000. It
fact, there are no guidelines for societies to follow. The amount is fixed by passing a
resolution at a special general body meeting of the society. It is paid at a fixed rate
per square foot or as a lump-sum. And, make no mistake, this amount could be
huge.
Let's talk about legality
So, while it is legal to pay transfer fees, is it legal to demand huge amounts from a
buyer or seller? Let's see what the law says on this issue.

In the case of The Poona Hindu Middle Class Co-operative Housing Society Ltd v/s
Sudhakar Gopal Palsule before the Maharashtra State Co-operative Appellate Court,
Bombay (Pune Bench), it was held that any donation demanded by the society in
excess of what was permitted by the bye-laws, if such bye-laws are not amended, is
illegal.

In another case of (1989) CTJ 319, Ramana Co-operative Housing Society Ltd v/s S
D Chittar, Bombay, before the Maharashtra State Co- operative Appellate Court,
Bombay, it was held that the society had no right to charge transfer fees in excess of
the provision of Re 1 under the bye-laws and that the member had a right to demand
the money back with damages in the form of interest. This is applicable in the case
of a society which has not adopted the model bye-laws. Such a society can recover a
maximum transfer fee of only Re 1 at the time of transfer of a flat. It should be
clarified that this amount shall remain the same, regardless of the area of the flat
transferred and it is not Re 1 per sq ft, but only Re 1 fixed.

It is clarified that The Maharashtra Co-operative Societies Act and Rules do not
provide for any right to the society allowing it to charge transfer fees in addition to
the Re 1 as prescribed by the bye-laws when the member intends to transfer his
property in the society in favour of a third party.

In fact, The Bombay High Court went a step further in holding that the resolution
fixing transfer fees, even if passed by the general body of the society, would have no
over-riding effect and binding on the members, if it is not approved by the Registrar
and, even if approved, it would be totally illegal.

What can you do?

Unfortunately, despite these rulings, today no transfer can be effected without
conceding to the demand of transfer fees by various societies, which has become an
accepted norm. Of course, if you want to protest, you are free to take this issue to
court.

Larissa Fernand

Cash payment decreases your capacity to borrow

If the seller gives you a quote of Rs 1.5 million and you opt for a loan to finance the
deal, most housing finance companies will put up just 85 per cent of the amount.
That means Rs 2,25,000 will be your look out.
Now, if the seller insists that Rs 3,00,000 come in as cash with just Rs 1.2 million on
cheque, then you will have to put up Rs 4,80,000 since the housing finance company
will finance just 85 per cent of Rs 1.2 million which amounts to Rs 1.2 million. This is
excluding all the documentation fees for the loan.

It is possible to reverse the transaction

Should a problem arise whereby you can't go ahead with the deal, then you can
cancel the entire transaction for a fee. If you have been dealing in cash, there is
obviously no record and you may end up forfeiting the entire amount. The
undeclared amount is usually given upfront with the booking amount but with no
record that the money has changed hands.

Undeclared cash transactions involve larger capital gains tax

Let's assume that you buy property worth Rs 1.5 million. Years down the road if you
decide to sell it for Rs 2 million, then capital gains will be calculated on Rs 5,00,000.
If the seller had insisted that you declare the transaction as just Rs 1.2 million, then
the capital gains, when you decide to sell, will be calculated on Rs 8,00,000.

A huge undeclared amount can get the tax men sniffing at your door
Let's say that you have set your sights on this palatial apartment in a prime location
in Mumbai offering you a fabulous view of the sea. It's going to set you back by Rs
10 million. The hitch: the seller has no intention of declaring Rs 2 million to the
authorities. So the papers are drawn up for Rs 8 million.
Section 37(I) of the Income Tax Act states that properties where the transaction cost
is Rs 7.5 million or more (Mumbai), Rs 5 million (Delhi), Rs 2.5 million or more
(Calcutta, Bangalore, Chennai, Ahmedabad, Pune) and Rs 2 million and above (other
cities) is to be brought to the notice of the income tax department.
If the authorities feel that the property has been undervalued, then they can auction
it to the nearest bidder. On record, since you have just paid Rs 8 million, that is all
that will be reimbursed. You lose the balance Rs 2 million which you have already
paid to the seller.

Larissa Fernand

Totally ecstatic about buying your new home? After all, you are getting fairly good
bargain for 2,000 sq ft of area. Don't mean to be a kill-joy, but, can you tell me how
the area is defined?
Is it carpet area? If not, is it 'built-up' area or 'super-built up' area? What's the
difference, you ask? Quite a bit.

With no common criteria for measuring constructed space, the quote could be on the
basis of any of the above three concepts. Of course, it goes without saying that there
is no universally acceptable definition of these terms too.

Generally speaking, the carpet area is defined as the actual area within the walls of
your house. To demonstrate, if you had to lay out a carpet, how much area would it
require? That's the carpet area for you.

Built-up area goes a step further and it includes the carpet area as well as the area
of the inside walls.

Super-built up or the sale area is the most comprehensive and includes a

proportionate share of the lobby, staircase, outside corridor and elevator. In some
cases, the terrace is also included in this. The total area of all these divided by the
number of apartments in proportion to the size is how this calculation is done.

This break up is extremely essential as builders can place anywhere from 60 per cent
to 80 per cent of the super built area as carpet area. That means, if the quote is on
2,000 sq ft, the carpet area could be anywhere from just 1,200 sq ft to 1,600 sq ft.
If this break up is not mentioned in the agreement, demand that the builder mention
it in the sale deed.

Larissa Fernand

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

WHAT THE AGREEMENT MUST INCLUDE

Exact lease period

•

Deposit amount

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

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

Monthly rent

Names of people permitted to reside on the premises

Whether premises are to be used for residential purposes or otherwise

Car parking

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

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

Other than a security deposit, if a deposit is taken against non-payment of

telephone or electricity bills, the exact amount should be stated
 •

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

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

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

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

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

CHECKLIST FOR THE LANDLORD

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

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

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

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

Check the credentials of the client and ask for references

All agreements should be in writing

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

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

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

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

Do not extend license periods by a supplementary document; draw a fresh

agreement

CHECKLIST FOR THE TENANT

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

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

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

Society objections: A no-objection certificate, or NOC, from the society

permitting the lease of the apartment

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

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

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

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

Making money on Leave & License

Larissa Fernand

You have a vacant apartment. But, you will never rent it out. After all, what if your tenant
decides not to vacate and makes your apartment his own. That's why tenancy has been
put on the backburner and L&L is now the most popular option.

A Leave & License agreement does not give the occupants any ownership rights. The
agreement only permits occupancy for a specific timeframe which could range from 11
months to 33 months. Should he refuse to vacate, the matter can be brought before the
Competent Authority who will then take action.

A lease, on the other hand, generally refers to a plot of land and has a much longer
timeframe which could extend to 99 years. Where a lease is concerned, the occupant can
sub-lease it to a third party (if permitted in the lease deed), a right not given in the case of
L&L.
A rental is shunned by landlords as the issue of permanent occupation often causes
problems. With no definite timeframe, the tenants often refuse to relocate and claim
tenancy rights. If the matter is taken to court, it is dragged on for years.

Is permission required?

If it is an apartment, permission of the society is needed. Some housing societies insist

that the licensee (the person you have leased your apartment to) becomes a nominal
member of the society. It is not as frightful as it sounds. Unlike an ordinary member, the
nominal member has no voting rights, is not eligible to become a committee member and
cannot be appointed as a society representative.

So what's the logic? In case he decides to play tough and refuses to vacate, apart from the
apartment owner filing a suit, the society can also do so in the co-operative court. If it is a
company, then suits can be filed under the Companies Act.

Getting your money's worth

The most lucrative deals can be got by letting out your apartment to a company looking
for residential space for its employees. If you are lucky enough to own an apartment in a
building used for commercial purposes or situated in a commercial area, then you can
offer it for office space.
However, corporates are extremely finicky when hunting for space. The Money Channel
has listed some of the criteria they consider necessary. While your premises may not
fulfill all the criteria, at least satisfying most of them should suffice.

What companies consider when taking office space

• How well connected it is to the public transport system?

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

What companies consider when taking residential space

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

Fixing a quote for L&L

There are two ways to make money on L&L: investing the refundable security deposit
and earning a monthly income. Let's assume that according to the market value of the
property, the cost to the tenant should be Rs 3,00,000 for 11 months. You, as a landlord,
will make more money if you take a lower deposit and a higher rent. Here is the range
within which you can negotiate with the licensee (person you are leasing out the premises
to).

Deposit by tenant (Rs) 1,00,000 1,25,000 1,50,000 1,75,000 2,00,000

Rent by tenant
18,182 15,909 13,636 11,364 9,090
(Rs/month)
1,00,000 + 1,25,000 + 1,50,000 +
Cost to tenant for 11 1,75,000 + 1,25,000 2,00,000 + 1,00,000
2,00,000 = 1,75,000 = 1,50,000 =
months 3,00,000 3,00,000 3,00,000
= 3,00,000 = 3,00,000

Bank offers 8% p.a. on Rs 7,333/ 11 Rs 9,166/ 11 Rs 11,000/ 11

Rs 12,833/ 11 months Rs 14,666/ 11 months
deposit months months months
Total earning for 7,333 + 9,166 + 11,000 +
12,833 + 1,25,000 = 14,666 + 1,00,000 =
landlord at end of 11 2,00,000= 1,75,000 = 1,50,000 =
1,37,833 1,14,666
months (Rs) 2,07,333 1,84,166 1,61,000

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

HOME | MONEY | PERSONAL FINANCE | REAL ESTATE

April 17, 2000

- Banking
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- NRI Larissa Fernand
- Real Estate
- Taxation
- Travel What's in a name? If it is property that is the subject of discussion, then
it's all in the name.

Naming a person as the owner of a house is one decision that requires

careful thought. And, once done, it may be virtually impossible to revert
that decision.

Listed below are the various options available that will take care of the
inheritance factor.

Individual ownership
There is one sole owner who calls the shots. No one else's permission or
signature is required to sell (or even lease or rent).
While this leaves no room for conflict, it might turn out to be a problem
if you reside in a different town. You can take care of this issue by
handing over the power of attorney to a neighbour, relative or friend to
deal with any property matter that might crop up.

Where succession is concerned, it all depends on who the individual

wishes his/her successor to be. Of course, you have to make this clear in
your will.
In the absence of a will, the various personal laws based on religion will
come into force. Get in touch with your lawyer to understand the
various implications of each law.

Christians, Jews and Parsees come under the Indian Succession Act.
Buddhists, Jains and Hindus come under the Hindu Succession Act. The
Muslim law is further divided depending on the various sects but a
common feature is that the owner can pass on only one-third of his
property. The balance goes in accord with the Muslim law.

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

Larissa Fernand

Real estate is an aspect of personal finance that touches virtually each individual's life. At
some point in your life, you may decide to buy a house or sell the one you have.
Incomplete documentation can mean big trouble.

Agreement of sale:
All important information regarding the sale is recorded here, such as the area, apartment
number, cost of the apartment, mode of payment, tenure of payment and date of
possession.

Title deed:
A title deed in your name indicates that the property is indeed yours. And if you ever
decide to mortage your property for a loan, you will need to give the original title. Should
you sell the property, retain a copy of the sale deed. In fact, every original document
concerning the legal title of the property has to be handed over to the new owner. But
don't do so unless you make photocopies of each and every single one of them. This will
help you in calculating your long-term capital gains.

If the property is sold in parts then do not submit the original sale deed. Since you bought
the entire property in one lot and are disposing it in parts, you need not surrender this
document. It will suffice if you just hand over certified and true photocopies of the
original purchase deed to the new buyers.

Letter attesting ownership of property:

There have been innumerable instances where property has been mortgaged by the seller.
And the seller has not informed the buyer that he has taken a loan against the property. To
make sure that you are not conned, ask for two documents to set your doubts at rest.

The first is the original title deed. If the property is mortgaged, he will not have this in his
possession. The second is the letter attesting to ownership of property. This one is usually
given when buying land or when the amount being transacted is large. In other cases, the
buyer's lawyer will need to check up on his own. He can do this by either asking the
society or going to the registrar of assurance's office (the registrar will know if the
property is mortgaged). Later on, if you ever decide to mortgage the property, you will
need the original title and this document.

Certificate attesting payment of income tax dues:

If the seller is an income tax defaulter, he can be legally prevented from selling his
property. The tax officials can debar him from selling the property until all dues are
settled. The seller needs to obtain a document from the IT Department stating that he
does not it any dues. Obtaining it should not take more than a week to 10 days.

Memorandum of understanding:
If you are unable to make the entire payment upfront, you will need to format a
memorandum of understanding which will state all the conditions as to when the
payments are to be made. Make sure that the period as well as the amount owed is
recorded correctly since this will be the one document that can prove how much you owe
the selling party.

Form 37I:
In case the value of the property is more than Rs 75,00,000 (Mumbai), Rs 50,00,000
(Delhi), Rs 25,00,000 (Calcutta, Chennai, Bangalore, Ahmedabad, Pune) and Rs
20,00,000 (Chandigarh, Jaipur, Cochin, Trivandrum, Nagpur, Faridabad, Gurgaon,
Gaziabad, Noida, Kanpur, Patna, Lucknow, Bhubhaneshwar, Cuttack, Coimbatore,
Madurai, Hyderabad, Surat, Indore, Baroda, Bhopal), government permission is needed
to transact a sale. This document has to be filed by both the buyer and seller, and the
entire procedure will take around three months excluding the month in which it is filed.

Stamp duty:
Since stamp duty is levied by state governments on all real estate agreements, it varies
from state to state. The amount is dependent on the purchase price that is shown in the
agreement of sale. For example, in Maharashtra, a purchase valued at Rs 10,00,000
would invoke a stamp duty of Rs 38,750. For amounts exceeding Rs 10,00,000, the duty
is 8 per cent of the amount plus Rs 38,750. Stamp duty is to be paid at the time of
registration.

Registration:
Registration refers to the recording of the contents of a document with a Registering
Officer appointed by the state government. The registration of the agreement has to be
done after a fixed period of time from the due date of execution. The date and amount to
be paid for registration varies between states. The deadline in Maharashtra is four months
from the date of execution and the fees are 1 per cent of the amount with a maximum of
Rs 20,000.

Fard:
Where a purchase of agricultural land is concerned, all details regarding ownership,
quantity of land, mortgage of land, if any, and details on who is cultivating the land is
mentioned in a document called Fard. Obtain the latest copy of Fard from the seller. Once
the sale deed has been executed in your favour, apply for a new Fard in your name after
meeting the concerned Patwari of the area. Make sure that the new Fard contains your
name as the owner and cultivator.
Coping with the pink slip

Larissa Fernand

Yes. We are actually talking about what you should if you do get sacked. Most people
don't think much about it till it happens. And then, they are too shocked to react. In
case you have landed in such a spot, read on.

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

Getting out of debt

Larissa Fernand
You can't figure this one out. All you seem to do is service your loans and pay your
bills. You are in a debt trap and you want out. Hopefully these tips will show some
light at the end of the tunnel.

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

Larissa Fernand

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

• Is your income insufficient to clear your debt?

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

The first step is to Get out of debt. Once that is done, follow these tips on How to
start saving. Finally, be disciplined. The trick is in opting for investments which keep
going only if a particular amount is constantly fed into it.

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

Saving for a home

Earlier: • Getting ready for retirement

Previously, Rohit Sarin analysed how an individual at three different stages of his
life can plan for his retirement. This time around, he tackles another financial goal
which virtually everyone faces: house purchase.
We will restrict this analysis within the following parameters:

• House purchase at the age of 40

• Balanced risk appetite
• Estimated current value of the property stands at Rs 2.5 million

CASE I

Assumptions in the case of the 25 year-old....................

• Existing savings for house purchase: Nil

• Percentage of loan to part-finance house purchase: 25%
• Annual return on debt funds: 12 per cent
• Annual return on equity funds: 20 per cent
• Annual rate of inflation: 8 per cent

Which lead to....................................

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

In figures, the complete 15-year plan translates to..............

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

CASE II

Assumptions in the case of the 30 year-old....................

• Current existing savings towards purchase of home: Rs 100, 000

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

Which lead to....................................

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

In figures, the complete 10-year plan translates to............

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

CASE III

Assumptions in the case of the 35 year-old....................

• Existing savings for house purchase: Rs 200,000

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

Which lead to....................................

• Recommended debt to equity ratio of 50:50. For this, a mix of debt and
equity based funds should be selected.
• Estimated current value of the property of Rs 2.5 million would inflate to Rs
36,73,320 after 5 years.
• The value of current investment would grow to Rs 4,02,271.
• Therefore, the target to mobilise after 5 years would be Rs 32,71,049.
• This would be part financed by a loan to the extent of 25 per cent which is Rs
8,20,000.
• Therefore, the net amount to save in next 5 years would be Rs 25,51,049.
 • With a debt to equity mix of 50:50 the person needs to begin with a total
monthly investment of Rs 24,150. This monthly saving/contribution would
keep on increasing every year.

In figures, the complete 5-year plan translates to..............

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

Getting ready for retirement

Earlier: • Getting started

Rohit Sarin

In the previous piece we saw that identifying goals is a first step in financial
planning. Taking that as a lead, we have taken case studies of three individuals of
varying ages: 25, 30 and 35.
One common criteria being their goals:

• House purchase at the age of 40

• Finance of child's education at 45
• Finance their child's marriage at 55 years
• Retirement at 55 years

With the assumption that all of them share a balanced risk profile, here is how they
should plan for their retirement.

CASE I

Assumptions in the case of the 25 year-old....................

• Current Monthly Expenses: Rs 10, 000

• Monthly contribution to PF: Rs 1,500
• Annual estimated increment: 10 per cent
• Annual return on PF: 11 per cent
• Annual return on debt funds: 12 per cent
• Annual return on equity funds: 20 per cent
• Annual rate of inflation: 8 per cent

Which lead to....................................

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

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

Equity Debt
Cumm.
Year No. Fund Fund Total Yearly Income
Balance**
(Rs) (Rs)
2000 1 86 57 143 1,713 133 1,846
2001 2 94 63 157 1,884 417 4,147
2002 3 104 69 173 2,073 768 6,988
2003 4 114 76 190 2,280 1,200 10,468
2004 5 125 84 209 2,508 1,727 14,703
2005 6 138 92 230 2,759 2,367 19,829
2006 7 152 101 253 3,035 3,139 26,002
2007 8 167 111 278 3,336 4,066 33,404
2008 9 184 122 306 3,672 5,175 42,251
2009 10 202 135 337 4,044 6,500 52,795
2010 11 222 148 370 4,440 8,074 65,308
2011 12 244 163 407 4,884 9,940 80,133
2012 13 269 179 448 5,376 12,149 97,658
2013 14 296 197 493 5,916 14,756 118,330
2014 15 325 217 542 6,504 17,829 142,663
2015 16 358 238 596 7,152 21,441 171,256
2016 17 394 262 656 7,872 25,683 204,811
2017 18 433 289 722 8,664 30,657 244,132
2018 19 476 318 794 9,528 36,481 290,140
2019 20 524 349 873 10,476 43,290 343,906
2020 21 576 384 960 11,520 51,242 406,669
2021 22 634 422 1,056 12,672 60,520 479,861
2022 23 697 465 1,162 13,944 71,334 565,139
2023 24 767 511 1,278 15,336 83,927 664,402
2024 25 844 562 1,406 16,872 98,579 779,853
 2025 26 928 619 1,547 18,564 115,612 914,029
2026 27 1,021 680 1,701 20,412 135,399 1,069,839
2027 28 1,123 748 1,871 22,452 158,368 1,250,659
2028 29 1,235 824 2,059 24,708 185,015 1,460,382
2029 30 1,358 906 2,264 27,168 215,909 1,703,460

CASE II

Assumptions in the case of the 30 year-old....................

• Current Monthly Expenses: Rs 20, 000

• Monthly contribution to PF: Rs 2,000
• Annual estimated increment: 10 per cent
• Annual return on PF: 11 per cent
• Existing PF balance: Rs 100,000
• Annual return on debt funds: 12 per cent
• Annual return on equity funds: 20 per cent
• Annual rate of inflation: 8 per cent

Which lead to....................................

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

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

Equity Debt Cumm.

Year No. Total Yearly Income
Fund Fund Balance**
2000 1 870 870 1,740 20,878 1,552 22,429
2001 2 957 957 1,914 22,965 4,847 50,241
2002 3 1,053 1,053 2,105 25,262 8,911 84,414
2003 4 1,158 1,158 2,316 27,788 13,883 126,085
 2004 5 1,274 1,274 2,547 30,567 19,923 176,575
2005 6 1,401 1,401 2,802 33,623 27,219 237,418
2006 7 1,541 1,541 3,082 36,986 35,987 310,391
2007 8 1,695 1,695 3,390 40,680 46,478 397,549
2008 9 1,865 1,865 3,729 44,748 58,982 501,279
2009 10 2,051 2,051 4,102 49,224 73,837 624,340
2010 11 2,257 2,257 4,513 54,156 91,432 769,929
2011 12 2,482 2,482 4,964 59,568 112,217 941,713
2012 13 2,730 2,730 5,460 65,520 136,709 1,143,943
2013 14 3,003 3,003 6,006 72,072 165,508 1,381,523
2014 15 3,304 3,304 6,607 79,284 199,305 1,660,112
2015 16 3,634 3,634 7,268 87,216 238,897 1,986,225
2016 17 3,997 3,997 7,994 95,928 285,200 2,367,353
2017 18 4,397 4,397 8,794 105,528 339,272 2,812,153
2018 19 4,837 4,837 9,673 116,076 402,328 3,330,557
2019 20 5,320 5,320 10,640 127,680 475,767 3,934,004
2020 21 5,852 5,852 11,704 140,448 561,198 4,635,650
2021 22 6,438 6,438 12,875 154,500 660,473 5,450,622
2022 23 7,081 7,081 14,162 169,944 775,717 6,396,283
2023 24 7,790 7,790 15,579 186,948 909,373 7,492,604
2024 25 8,568 8,568 17,136 205,632 1,064,246 8,762,482

CASE III

Assumptions in the case of the 35 year-old....................

• Current Monthly Expenses: Rs 30,000

• Monthly contribution to PF: Rs 2,500
• Annual estimated increment: 10 per cent
• Annual return on PF: 11 per cent
• Existing PF balance: Rs 300,000
• Annual return on debt funds: 12 per cent
• Annual return on equity funds: 20 per cent
• Annual rate of inflation: 8 per cent

Which lead to....................................

• Recommended debt to equity ratio of 50:50. For this, a mix of debt and
equity based funds should be selected.
• Estimated current value of monthly expenses of Rs 30, 000 would inflate to
Rs 139,829 per month on retirement after 20 years.
 • To generate such an amount of regular income Rs 1, 67, 79, 446 would need
to be invested in financial instruments giving a steady annual return of 10 per
cent.
• About a third of this would be financed through accumulated PF balance which
would have grown to Rs 56, 37, 516.
• Therefore, the balance amount of Rs 111,41, 930 would need to be saved
over a period of 20 years.
• With a debt to equity mix of 50:50, the person needs to begin with a total
monthly of Rs 4,927. This monthly saving/contribution could keep increasing
every year.

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

Equity Debt Cumm.

Year No. Total Yearly Income
Fund Fund Balance**
2000 1 2,464 2,464 4,927 59,129 4,394 63,523
2001 2 2,710 2,710 5,420 65,042 13,727 142,292
2002 3 2,981 2,981 5,962 71,546 25,238 239,075
2003 4 3,279 3,279 6,558 78,701 39,319 357,095
2004 5 3,607 3,607 7,214 86,571 56,427 500,093
2005 6 3,968 3,968 7,936 95,228 77,090 672,410
2006 7 4,365 4,365 8,729 104,750 101,922 879,083
2007 8 4,801 4,801 9,602 115,224 131,635 1,125,941
2008 9 5,281 5,281 10,562 126,744 167,051 1,419,736
2009 10 5,810 5,810 11,619 139,428 209,125 1,768,289
2010 11 6,390 6,390 12,780 153,360 258,957 2,180,606
2011 12 7,029 7,029 14,058 168,696 317,822 2,667,124
2012 13 7,732 7,732 15,464 185,568 387,188 3,239,880
2013 14 8,506 8,506 17,011 204,132 468,753 3,912,765
2014 15 9,356 9,356 18,712 224,544 564,474 4,701,783
2015 16 10,292 10,292 20,583 246,996 676,605 5,625,384
2016 17 11,321 11,321 22,641 271,692 807,745 6,704,821
2017 18 12,453 12,453 24,905 298,860 960,885 7,964,566
2018 19 13,698 13,698 27,396 328,752 1,139,471 9,432,789
2019 20 15,068 15,068 30,136 361,632 1,347,465 11,141,886

Achieving your financial goals

Larissa Fernand
That is something you don't manage to do. You start saving with a particular aim in
mind but then something else comes up and there goes the little piggy bank. Maybe
you are saving, but don't really know what you are saving for. Follow these steps to
help you achieve your financial goals.

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

Whacky ways to save

Larissa Fernand
A little imagination can work wonders. Yes, but just how imaginative can you be with
your savings? Well, here are 10 points to get your creative juices flowing.

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

Larissa Fernand
Ah! The convenience of Internet banking. You can access details of your account any
time of the day, or night for that matter. Who's to bother with a trip to the bank? You can
operate from your home or office and, maybe, even from a cybercafe.

But before you do decide to opt for Internet banking, make sure that the services offered
match your expectations. Broadly, there are four areas on which you should focus on:
services offered over the Net, transfer of funds, account history and security.

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

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

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

Security
How many login attempts are permitted before the password is disabled? Can you pre-set
an activity period if your terminal is left unattended? For example, you are accessing
information on your account but some urgent work cropped up and you left your terminal
unattended. After, say 5 minutes or 10 minutes or maybe even more, will access
automatically get terminated? Everytime you log in, will the last date and time of login be
displayed?

Besides hardcore banking, keep an eye open for other facilities as well. Does the bank
offer free Net access for a fixed number of hours, can you customise your account. ICICI
Bank offers to nickname your accounts to avoid remembering detailed account numbers.
Can your balance be monitored and a message sent in case it drops below a particular
level?
In the future, banks plan to introduce e-broking services online and set up shopping
portals so that the money will be directly debited from the customer's account,
eliminating credit card security problems.

For starters, you can take a look at the demo offered by various banks on their sites. See
which one you are most comfortable with. Here are the banks which you can check out:
ICICI Bank (www.icicibank.com), HDFC Bank (www.hdfcbank.com), Global Trust Bank
(www.globaltrustbank.com), IndusInd Bank (www.indusind.com), UTI Bank
(www.utibank.com) and Federal Bank (www.federal-bank.com).

Way back in 1995, when Security First Network (SFN) set the first pure
Internet bank amid a lot of sniggering, critics sat down to write its obituary.
However, a year later, Booz Allen & Hamilton came out with a North
American internet banking survey where the figures made a strong case
for Internet banking.

By way of costs, the survey stated that Internet banking is the cheapest
form of delivery. Here is how they estimated the cost of transactions to be:
$1.07 (full service branch), $0.54 (phone banking), $0.015 (PC banking)
and $0.01 (Internet banking).

Last month, Grant Thornton LLP, an accounting and management

consulting firm, released its seventh annual banking survey. Based on a
response of 638 North American banks, here are some of the findings:

· By the end of this year, 78 per cent will have a Web site, up from 55 per
cent at the end of 1999.

· Currently, 17 per cent of all banks say they offer Internet banking
services and another 47 per cent expect to offer them by the end of this
year.

· Internet banking services to be introduced by the end of 2000 include the

ability to monitor account balances (55 per cent), transfer funds between
accounts (54 per cent), pay bills (46 per cent), and apply for loans (37 per
cent). Only 8 per cent will allow customers to make electronic trades
through brokerage accounts.

· 28 per cent of all banks cite both Internet portal Web sites and Internet-
based banks as competitive concerns.

· Within the next three years, 89 per cent of banks will offer home banking
via an interactive Web site, 87 per cent will offer electronic bill payment,
and 75 per cent will offer online loan applications.