Fwd: FINANCIAL UPDATES - 3rd MAY 2016
LUGI CHENNAITEAM
Often dying without a will – intestate in legal parlance – leaves a family no choice of who gets what. Unless you elucidate your financial, movable and immovable assets and how you wish to distribute them, via a will, you are leaving your heirs to fend for themselves in first determining and then receiving your assets.
Absence of a will could mean battles which could keep all those you wished to receive your assets, say parents, spouse, son or daughter, away from those assets for years together. Also, they would be left to bear additional financial losses in the form of lawyer fees and court charges.
You may have wished to ensure the fulfilment of a plan in distributing your assets. But unless you mention it in a will, a fixed portion is handed over to all the heirs as per the applicable Succession law. The list of heirs can range from the deceased’s mother, father, widow, son, daughter, grandsons, granddaughters, widow of a pre-deceased son or even the widow of a grandson. The complexity increases because remote descendants can legally demand their share. Several litigations stem from this cause.
You may not have wanted any share to be distributed to one or many of them, but once you die intestate you wouldn’t be able to restrict your assets from getting into the hands of those who seldom thought good of you. Note that the special friend, who helped you during testing times and your right-hand man at workplace own no special position in the list of heirs.
If you were under the impression that as you have nominated your kith and kin for your house, bank accounts, insurance, mutual funds and other financial assets, you can do without making a will, you are mistaken. Nomination would purely mean that the person nominated should receive the funds and not own it and is accountable to the person legally entitled to it.
Moreover, barring financial assets and real estate you cannot nominate your prized possessions such as art collections, watches you preserved from the wrath of time. Absence of a will notifying who should they be handed over would mean they have to be sold first and then the required cash distributed.
Your spouse wouldn’t have the time to grieve and relive the memories too if you fail to write a will, especially when the spouse thwarted all possibilities of dealing with financial matters in your presence, instead would have a myriad of numbers and laws to fathom in a short time span. When a person dies intestate, not everything is transferred to the spouse as easily as depicted in films. If the children inherit a share of the house, the spouse will not be able to sell it, rent it out, or even refinance the mortgage without a court order. So, write your will. Don’t let your family say “only if…”
Date: 02-May-2016 Source: The Economic Times.
How and when should you amend your Will
Succession planning of personal assets is essential for protecting you family from legal hassles. Here’s how your Will can keep things simple with periodic revisions and tweaking. Recently, a woman approached the Supreme Court to gain own ership rights of a property. Her late father had named her nomi nee and she fought a long battle for the property with her mother and brother before the apex court ruled in her favour. Successions should not be so complicated.A Will makes matters simpler. But families have been known to fight and challenge Wills too. Estate planning experts say that this is mainly because there are loopholes, overlaps or contradictions in the document, the result of people failing to revise and update their Will periodically. “Relationships and situations change. Your assets and holdings increase and decrease.You should, therefore, review the document every three to four years,“ says Gautami Gavankar, Principal Adviser, Estate Planning, Kotak Mahindra Trusteeship Services. Even if you do not review it often, it is necessary to revise it on certain occasions to avoid legal tangles for your family later. Purchase or sale of assets It’s unlikely that anyone would fight over a silver tea set, but a battle over a 100 square ft space cannot be ruled out. The residual or a future assets clause in a Will ensures that any property that isn’t mentioned in the Will is distributed to the beneficiaries. However, if you want to give a newly-acquired asset to someone specific, you’ll have to revise your Will. If you are selling an asset, it should be recorded and an amendment made. “In case the property is bequeathed to two people, clarify the proportion of ownership and to whom all the property should go to in case of the death of eitherboth of them,“ says Gavankar. If you want your children to have the property but also ensure your spouse’s rights, mention that you want to give absolute right over such property to a specific person subject to a life-interest in favour of any other legatee. Overseas assets should be handled with greater care. While a Will registered in India can cover your assets abroad, you must also check country-specific laws to ensure that local laws do not override your Will. “It is advisable to prepare a separate Will for each country,“ says Jatin Popat, Founder, Willjini Succession Services, a Mumbai-based succession advisory firm. Getting married or divorced For Parsis and Christians, a Will made before marriage is not valid post marriage, unless the individual intended to marry when they made it and the Will states as such. However, if you separate or divorce after making a Will, your Will would remain valid, and that is true for all communities. So, unless you revise the document, your ex-spouse is entitled to a claim on your assets. Moreover, nominations and joint holdings only add to the confusion. A nominee merely acts as a trustee to the assets on behalf of the legal heir. This means that even if your mother or children are the nominees, your spouse can claim your assets by way of the Succession Act. “While altering the Will, in case of marriage or divorce, the nomination in insurance policies and bank accounts should also be simultaneously changed so that the legatees and the nominees of an asset are the same,“ says Gavankar. Also, joint-holding means all holders are equal owners of that property and each owner has a right to bequeath hisher portion of legal right. “Unless you make someone the beneficiary to your portion in the ownership, the law of succession will be adhered to,“ says Popat. Again, nomination will not help at all. Birth of children or grandchildren If the beneficiary is a newborn or a minor, it is advisable to appoint a guardian in the Will who will be authorised as the custodian of the bequeathed property till the child becomes an adult. “Legal guardians have the power to deal with assets. However, ap point a guardian you trust. If the testa tor does not know such a person, it is best to create a trust and appoint a trustee,“ says Popat. It would also be wise to put down the powers, duties and exact role of the trustee in black and white. Death of beneficiary or executor Although it is advisable for your original Will to have a list of `alternate’ beneficiaries, executors and guardians, it is a good idea to review the document, if not amend it, if there is a death. “In case none of the beneficiaries are alive, provisions should be made for distributing the wealth to charity, friends or distant relatives,“ says Gavankar. Amending a Will does not mean writing a fresh one. A codicil will suffice. A codicil is a supplementary document to the Will used to make small and specific changes to the main document. Like a Will, it also needs to be attested by two witnesses and executed in the same manner, to make it legally valid. If the Will was registered, you need to register the codicil as well.
Date: 02-May-2016 - Source: Businessline . -
How to avoid TDS
You can submit form 15G or 15H if your income meets certain criteria Earning more than Rs. 10,000 a year as interest on your bank fixed or recurring deposits? The taxman has the first claim on the money. The bank will cut 10 per cent of the interest as tax and pay you only the rest. But what if you don’t have any tax liability at the end of the year? You will have to wait and claim this tax deducted at source (TDS) as refund while filing your tax return. Ergo: your money is blocked for many months, and then you have to wait some more to get it back. Not nice. Thankfully, the taxman offers us a get-around — in the form of Forms 15G and 15H. Submit one of these to the bank, and voila! — get your interest in full, no tax deducted. Hold your horses though. Not everyone gets this benefit — you have to fulfil some criteria to pass muster. Don’t submit these forms without being eligible — the taxman could haul you over the coals. Who’s eligible? If you are under 60 and want to be out of the TDS tyranny, you need to submit Form 15G to the bank. Besides individuals, Hindu Undivided Families (HUF) can also submit this form. Those aged 60 or more need to give Form 15H; only individuals can submit this form. To be able to give Form 15G, you need to tick two checkboxes. One, your estimated taxable income should not be above the tax exemption limit ( Rs. 2.5 lakh currently). That is, your estimated tax liability for the year should be nil. Also, your aggregate interest income should not be above the tax exemption limit. Here’s an example. Say, you expect Rs. 2.75 lakh as interest and Rs. 1.25 lakh as other income; so, your estimated gross total income for the year is Rs. 4 lakh. If you invest Rs. 1.5 lakh in tax-saving Section 80C instruments, your taxable income will be Rs. 2.5 lakh, the tax exemption limit. Even so, you are not eligible to submit Form 15G since your interest income is higher than the tax exemption limit. Now, consider another scenario: your expected interest income is Rs. 2.5 lakh, other income is Rs. 1.5 lakh and Section 80C investment is Rs. 1.5 lakh. You can submit Form 15G since both your taxable income and interest income do not exceed the tax exemption limit. The taxman gives more leeway to senior citizens. Only one condition here — that of the taxable income not exceeding the tax exemption limit. If so, you can submit Form 15H, even if your interest income exceeds the tax exemption limit (currently Rs. 3 lakh for those between 60 and 80 years of age, and Rs. 5 lakh for those over 80). Say, you are 65 years with estimated interest income of Rs. 4 lakh, other income of Rs. 50,000 and Section 80C investments of Rs. 1.5 lakh. You can submit Form 15H since the estimated taxable income does not exceed the exempt income limit of Rs. 3 lakh. No worries that the interest income crosses the limit. Whom to give? To avoid TDS on bank fixed or recurring deposits, the form 15G or 15H has to be given to every bank branch where the annual interest income from deposits is expected to exceed Rs. 10,000. A branch which does not get the form will deduct tax if the interest exceeds the limit, though you may have given the form to other branches. Make sure to mention the PAN; else, the form will be invalid and the bank will deduct tax at 20 per cent. To make life simpler, the taxman has allowed online submission of the forms to tax deductors from last October. Not just to banks, you can give the forms to some other interest payers too; for instance, to companies issuing bonds. Such entities are supposed to deduct tax at source at 10 per cent if the annual interest payment exceeds Rs. 5,000. From last year, the forms can also be given by persons withdrawing their Employee Provident Fund (EPF) balance before five years of continuous service. In such cases, if the withdrawal amount is Rs. 30,000 or more (Budget 2016 has increased this to Rs. 50,000), the EPF organisation has to deduct tax at 10 per cent. And from June 2016 onwards, TDS on rent receipts can also be avoided by submitting these forms. When to submit? The forms can be given anytime. But it is best to do so early before the first deduction happens. Once tax is deducted, you have no go but to claim it as refund in your tax return. Most banks credit interest to customer accounts each quarter. So, it makes sense to submit Form 15G or 15H by April or May. The forms are valid only for a year; so, you need to submit fresh ones each year.
Date: 02-May-2016 - Source: Businessline -
Don`t forget to nominate
Else your family may not have access to your bank accounts and lockers, after you are gone
The one thing that you must not forget to do every time you open a bank account or a locker is to choose a nominee. Unless you remember to do that, your family won’t have easy access to them after your demise.
A nominee is a person chosen by you as the trustee of your bank account (savings and deposit) and/or locker. The bank transfers the money in your accounts along with the contents of your locker to your nominee, after you are gone.
But, though the nominee is the recipient, he/she is not the owner and is only a trustee who has to distribute what he has received among the legal heirs (can include the nominee too) of the deceased person.
Ideally, you should fill up the nomination form at the time of opening a bank account or locker. But if you have forgotten to do so, you can always choose a nominee even at a later date. The sooner you do it, the better. You can also remove or change the name of the nominee at any point in time.
Once you are no more, the nominee for your accounts and lockers (can be different individuals) will have to submit to the bank the original account holder’s death certificate; and his/her identity and address proof.
After the bank has satisfied itself of the nominee’s identity, it closes the original bank accounts and transfers the money to the nominee’s account or pays it off to him/her. Likewise, the nominee is given access to the lockers.
Bequeathing hassles
If you do not specify a nominee, the bank will transfer the money or allow access to the locker only to your legal heir(s).According to the Hindu Succession Act, in case of a deceased Hindu man, these will include the man’s wife, children and mother.
Your family members will have to prove to the bank that they are indeed the legal heirs for which they will have to submit a succession certificate issued by the court. This can take a few months’ time or even stretch into years if your petition is contested. Several other documents also have to be submitted.
These include the death certificate, the identity and address proof of the legal heirs and document of indemnity signed by all the legal heirs; the latter protects the bank from future litigation by any of the legal heirs.A letter of disclaimer signed by all legal heirs requesting for transfer in the name of one or some of them too, has to be provided.
For instance, if everything is being transferred only to your wife and children, then the letter of disclaimer will serve as an assurance that the deceased person’s mother, who too is a legal heir, has assented to the transfer.
This entire process can take quite some time and cause great inconvenience if your family is in dire need of money.On the other hand, having a nominee can save your family from all the trouble.
Nominee versus legal heir
While having a nominee is of utmost importance, this alone may not always suffice. Let’s understand this with an example of a man with a wife and a son. Suppose the man wants that after he passes away, only his wife should have access to his bank assets, as long as she lives. Then, he can make her the nominee, so that the bank transfers everything to her. But, since the son too is a legal heir, he can approach the court for his share of the bank assets. If the court passes an order in favour of the son, then the mother will have to part with the son’s share.
To ensure that the bank assets go only to the wife, the man must leave behind a will clearly stating so.Alternatively, in this particular example, the man can make his wife a joint holder, with an ‘either or survivor’ option.
This will ensure that the wife continues to have access to the accounts and lockers, even after the husband’s demise. Then, the nominee (who can be the son) comes into the picture only after both the parents pass away.
While having a joint holder helps, it does not mean you shouldn’t specify a nominee. This is because, once all the account holders are gone, the bank won’t allow access to anyone except the deceased’s legal heir.
So, do nominate, but give it careful thought.
While the decision depends on an individual’s situation, the quantum of loan and taxation play an important role. Find out which is the best option for you.
If you have an outstanding home loan, and happen to have just received an annual bonus or any other lump sum payment, should you use it to prepay your loan? Or, should you invest it to meet some other goals? Assess the following conditions to arrive at the right decision.
The first variable to be considered is psyche: some people may not be comfortable with a large housing loan and to reduce their stress they may want to get rid of the loan burden at the earliest. For them, settling the question of how to use their bonus is simple: just pay off the loan. Gaurav Mashruwala, Sebi-registered investment adviser, categorically states: “You should pay off the home loan at the earliest. Several unfortunate happenings--job loss, death of the earning member, serious illness, etc--can cause trouble during the 10-15 year loan period. Treat it as a mind game and not a numbers game.“
Tax benefit is the next variable. If a home loan does not seem like the sword of Damocles hanging over your head, it makes sense to continue with the regular EMI schedule.This is because of the tax benefits that a home loan offers. The principal component of the EMI is treated as investment under Section 80C. The interest component is also deducted from your taxable income under Section 24. The annual deduction in respect of the interest component of a housing loan, for a self occupied house, is limited to `2 lakh per annum. You won’t be able to claim deduction on interest paid above `2 lakh. So, if your annual interest outgo is higher than `2 lakh, it makes sense to prepay the loan, and save on future interest payment. For example, the annual interest on a `70 lakh outstanding loan, at 9.5%, comes out to be `6.65 lakh. After taking into account the `2 lakh deduction under Section 24C, the interest component will fall to `4.65 lakh, and bring down the effective cost of interest from 9.5% to 8.64%, even for the people in the 30% tax bracket.
You can, however, optimise the tax benefits if the loan has been taken jointly, say, with your spouse. “If joint holders share the EMIs, both can claim `2 lakh each in interest deduction,“ says Harsh Roongta, Sebi-registered investment adviser. In case of joint holders, there is no need to prepay if the outstanding amount is less than `40 lakh.
There is no cap on deduction in lieu of interest paid on home loan, if the property is not self-occupied. “Since there is no cap for interest on loan against second or rented out homes, there is no need to prepay it,“ says Naveen Kukreja, CEO and Co-founder, Bank Bazaar. Bear in mind, by prepaying your loan, you may also forego future tax benefits. For instance, if by prepayment, you bring down your outstanding loan amount to `20 lakh, your annual interest outgo for subsequent years may fall below `2 lakh. Thus, you won’t be able to avail of the entire tax-deductible limit and, in such a scenario, prepayment may not be a good strategy. Also, building an emergency fund, if you don’t have one, should take a priority over prepaying the housing loan: “Make sure that you have a contingency fund in place before opt for prepaying your home loan,“ says Roongta.
The third key variable is returns from investment of the lump sum at hand. As a thumb rule, you should go for investment, instead of prepayment, only when the post-tax return from the investment is likely to be higher than the effective cost of the housing loan. For investors in the 30% tax bracket, and whose outstanding home loan balance is less than `20 lakh, the effective cost of loan is only 6.65%. Since there are several risk-free, tax-free debt options such as PPF, Sukanya Samruddhi Yojana and listed tax-free bonds, which offer higher annualised return than this, it makes sense to invest in them.
All the debt products mentioned above are long-duration products. If your risk-taking ability is higher and time horizon is longer, you can consider investing in equities, which can generate better returns “It’s sensible for long-term investors (five year-plus holding period) to go for equities, provided they are savvy and understand the risks involved there,“ says Kukreja.
There are some home loan products that provide an overdraft facility of sorts and help you maintain liquidity. All you have to do is to park the surplus money in these products and not bother with whether it’s a prepayment or not. It’s like prepayment with the option of taking out that money, in case you need it in future for personal use or for investment purpose. The strategy of maintaining the housing loan interest close to `2 lakh per annum can also be managed by these special loan products. And even if you are going to invest, the SIPs can go from this account. “I park my bonus and do SIPs in equity from the loan account,“ says Kukreja. Most banks charge more for these special loan products. “Though the stack rate differential is more, you can bring it down by bargaining with the banks,“ he adds.
I have been holding some shares in India for more than 20 years. I hold a foreign passport with Overseas Citizenship of India. What is the procedure to open a demat account in India to sell these shares? —Philip Pereira
I am assuming these shares were bought by you when you were an Indian citizen residing in India. The answer proceeds on that basis. If you don’t already have an NRO (Non-resident Indian) account with a bank in India, you should open an NRO account with a bank. Choose a bank that can also open a demat account (non-repatriable basis – non-portfolio investment scheme) and can facilitate an online share trading account linked to this demat account.
Once these accounts are opened you can get the physical shares dematerialised and credited to this demat account. Then sell those shares on the stock exchange through the share trading account. The money will be credited to your NRO account. There will be no capital gains tax on sale of equity shares on the stock exchange since they have been held by you for more than 1 year. You can obtain relevant certification from a chartered accountant to enable you to remit the money from your NRO account to your overseas destination subject to a maximum cap of $1 million. You can consult an investment advisor or a stock broking company that can assist you in completing these formalities.
I wish to take policy in my grandson’s name. He is 7, and I would like to gift the policy to him for his future education. I am 68 years old and retired. I understand that the one-time premium paid is eligible for Benefit under Section 80C. The scheme will close on 9th May 2016. Can I avail this benefit as the child’s grandfather?
Unfortunately, the deduction under Section 80C is available only where the concerned investment is in the name of the taxpayer or spouse or any child of such taxpayer. So if the policy is on the life of your grandchild, it will not be eligible for tax benefit. You will need to invest in your own name if you want tax deduction benefits. You will not be able to get a life insurance policy easily or it will be very expensive. Given are suggestions keeping in mind the long-term education needs for your grandchild and tax benefits for investments as well as interest. You can open a new public provident fund account in your own name (if you do not already have a PPF account) and nominate your grandchild as the nominee in the event of your death. Investment in the PPF account will be eligible for tax benefit and interest accrued is tax-free. Continue to make a nominal investment of Rs 500 every year to keep the account active. The return on PPF is better than any insurance policy. In the case of your death, the money will be paid to your grandchild if he has become a major by that time.
If he is still a minor at that time the money will be paid to the person mentioned by you as the guardian. On maturity, after 15 years, you can renew the account for a further period of 5 years each at a time indefinitely.Another option with better liquidity is the 5-year NSC which again you can take in your own name with the grandchild as a nominee. This is a one-time investment without any hassles. The interest accumulated is taxable but is available as a deduction under section 80C in the same year so effectively it is tax-free. In the case of death before maturity, the treatment is similar to PPF above.
On maturity, you can re-invest in a similar instrument available at that time. You might do well to consider that this money is meant for your grand child’s future and you need to protect the investment from the risk of inflation eating into its value. Since the need is after a long period of time, you can consider an investment in equity as well. For holding periods in excess of 10 years, the returns from equity beat inflation with a good margin and improves the value of the investment beyond just inflation. In that case, you can invest in a good ELSS plan and again have your grandchild as a nominee. The investment will be tax deductible in your hands and the returns are tax-free and will be paid to your grandchild on your death.