NPS vs Mutual Fund

 

 

NPS vs MF

 

Retirement planning is an important part of any one’s  personal money management.

 

Two most important options while creating Retirement Corpus are

 

1.NPS (National Pension Scheme)  and

2. Equity Mutual Fund

 

Please note that retirement corpus can not be created in day 1. It is a Long term process and requires time and patience.

 

 

NPS : Many people have subscribed to NPS  simply because his friends have subscribed and they know it is a govt scheme so it will be risk free. Please note that NPS is not risk free and  does not guarantee protection of your Principal and/or return. Returns are earned by market parameter coz corpus of NPS also invests in Capital Market.

 

National Pension Scheme – The NPS is a contributory pension system where the subscriber contributes to the fund over their working life and at retirement draw the corpus so created to buy an annuity that will provide regular income in retirement.  It is open for any individual of age range of 18 to 65 years. Minimum Lock in period is 15  years but if you enter at 65 years age you can exit after 3 years.

 

The eligible subscribers to the NPS are allotted a 12-digit unique Permanent Retirement

Account Number (PRAN) on registration with the NPS . All activities of the subscriber, such as  contributions, investments, withdrawals, personal information modifications, etc are recorded under the PRAN. The PRAN is portable across employers and locations, whether in the government sector, private sector or self-employed. Means if you change your employer your PRAN is not changed.

 

How NPS earns returns : Fund is managed by professional Fund Managers . They invest your money in Capital Market as per your selection of Life Cycle Fund.

The scheme is under PFRDA (Provident Fund Regulatory Authority), established by Govt of India,  and there is good protection system through NPS Trust, Trustee Bank , POP (Point of presence) , CRA (central Record Keeping Agency), etc.

 

 There are  3 life cycle funds  you can choose while subscribing to NPS

 

1.    Conservative Life cycle fund : This is for them who wants to take low risk in their capital , so such fund invests  your money less in equity and more in bonds and govt securities to earn returns. Returns are comparatively low as risk is low.

2.    Moderate Life Cycle Fund : This is for those subscribers who wants to take moderate risk so such fund invests 50% of your money in Equity , 40% in corporate bonds and 10 % in Govt security . Returns are moderate

3.    Aggressive Life Cycle Fund : This is for those who wants to take more risk and earn high returns. 75% of your money is invested in Equity.

 If you do not exercise your option Moderate Life cycle fund is chosen as default .

If you are young and has long retirement Period choose Aggressive Life cycle Funds , coz long term investment can tolerate ups and down of market more effectively .

 

 

Mutual Fund : Mutual Funds are regulated by SEBI , established by Govt of India. Any person can purchase MF , there is no age limit , no Demat Account is needed for MF. On Investment,  a Portfolio number is allotted , that is proof of purchase. One can purchase from any agent or directly from an APP . There are two registrar for MF , one is CAMS (Computer age Management System) other is KARVY . All Fund houses are either regulated by CAMS or KARVY .You can see your investments in CAMS app or Karvy App , no matter from which agent your have purchased.

 

Both NPS and MF invest your money  in capital market , so which one is better .

 

NPS : Under NPS your money is invested in 3 asset classes , Equity , Corporate Bonds and Govt Security . How much your money is invested in each class , depends on which life cycle model you have opted while subscribing NPS , if you have choosen Conservative Model only 25% of your money is invested in Equities . Since Equities gives highest earning , and since in this model your allocation is less in Equities , return will also be less, Risk is also less.

 

MF : There is no restriction in allocation of Fund in Equities , Bonds etc. You can buy pure equity Fund like ELSS (Equity Linked Saving Scheme) or buy Hybrid Fund where Equity , and Debt funds are mixed. Return in ELSS fund is far superior then NPS

 

Pros n Cons :

 

1.    In NPS investment tenure is long usually 15 years , you cant withdraw your money once invested ( though there are some restricted withdrawal allowed) . But in MF you can withdraw any time though there are some penalty if you withdraw before 1 year . ELSS has lock period of 3 years. So MF has higher liquidity

2.    You compulsory has to invest minimum  40% of your accumulated fund to buy an annuity on exit from  NPS. This annuity will provide you pension. Only 60% you can withdraw as lumpsum . MF has no such restrictions.

3.    under NPS Pension scheme once choosen can not be altered or changed later. Amount of pension is also fixed for whole Life time . It means there is no protection from inflation. In MF with SWP option you can choose your amount of monthly regular income and can increase or decrease any time or even stop to let your corpus grow more.

4.    Tax Benefit , Greatest benefit of NPS was Tax benefit . There was additional Rs. 50000 investment allowed apart from Rs.1.50 under 80C. so if you are under 30% tax bracket you immediately get a Tax benefit of Rs.15000 on an investment of Rs. 50000 . It is 30% return in a year , which is modest return .. Most people  invests in NPS just to take Tax benefit.

 

However after introduction of New Tax Regime , all rebates were neutralized and any income above 15 Lakh has no effect in Tax . whether you claim rebate on saving  or not . So now NPS is not a Tax heaven for investment .

 

Which One you should Choose :

 

On Historical Analysis , it has been seen that 15 years NPS generates around 8 to 9% CAGR (compounded Annual growth rate)  while MF has given superior returns of  20% CAGR over same period.

 

A Rs.10000 SIP PM  in Equity MF over a period of 10 years will generate around Rs. 33 lakh on an investment of Rs. 12 lakh , this is because SIP has Averaging and Compounding benefit quality .

 

After Exit from fund you have 33 lakh in hand , if you opt SWP you can withdraw Rs. 21000 PM as monthly income for life time and your investment will also keep growing and in another 5 years it can definitely become 35 Lakh even after drawing 21k PM

 

A SIP of 10000 PM in NPS over same period  can generate atmost Rs.18 lakh . This is because maximum exposure to equity is only 75% of your fund and this keep being reduced by 3% every year as per rule.  Out of Rs.18 Lakh minimum 40%  (Rs. 720000) to be used  to buy annuity , which can give you a pension of maximum Rs.7000 PM . Remaining Rs.10.80 lakh you can withdraw as lump sum and invest in another MF which may give you a monthly income of Rs.8000 pm , if SWP opted. So total monthly income will be Rs.15k under NPS as against Rs.21k in MF . Also your Rs. 720000 invested to buy annuity will never appreciate and remain fixed.

 

Now from Tax point of view  Rs. 7000 received as pension from NPS will be fully taxable , but income received as SWP from MF is taxable as Capital gain component and not whole Rs.21000 .Also first 1 Lakh as capital gain is tax exempt as Long Term Capital gain  . So from Tax point of view also MF investment and drawing monthly income via SWP score higher over NPS.    

 

Conclusion :

 

You can choose a mix of both . Invest 20-30% of your SIP amount in NPS and rest in Equity Oriented MF 

@Ajit Kumar Singh

All about Non Refundable Loan

 

All about NON REFUNDABLE LOAN

It is also known as  Reverse Mortgage Loan (RML) , in funny word it is the loan that you NEVER have to pay back during your life cycle . Looks crazy … every one will be attracted to such loan which one will  never have to pay back during his life time , is not it???  And  in fact it is true..

Reverse Mortgage Loan (RML) is a Scheme developed by the National Housing Bank (NHB) to help Senior Citizens (persons above the age of 60 years) to avail of periodical payments from a lender bank against the mortgage of his/her house while remaining the owner and occupant of the house. The borrowers are not required to service the loan during their lifetime and, therefore, do not make monthly repayments of principal and interest to the lender.

Why it is called Reverse Mortgage Loan :

In normal mortgage loan , borrower has to pay back to lender bank periodically in the form of EMI . But in Reverse Mortgage Loan , it is lender (not borrower) who pays periodically to borrower  so it is called Reverse Mortgage Loan.

Why it is given and how lender protects its interest??

If a Senior Citizen (age 60 and above) has self acquired , self occupied house but very meager income like annuity , pension etc to support himself or/and dependent , he can mortgage his house to bank and bank will start giving Cash at regular interval to him to support his expenses . He does not have to pay back to bank during his life time or his spouse life time to bank. The ownership of house will remain with owner . even after his death ,spouse will continue to get regular income from Bank , on the death of both , bank will have a charge on that house . Legal heir will get the house paying all charges to Bank.(Lender)

Benefits of Reverse Mortgage Loan     

Income Supplement: Enables house-owning Senior Citizens having inadequate income to meet their financial needs for renovation/repairs to house, medical & other personal purposes.

Retaining ownership: The borrower continues to retain ownership of the house.

Social Security: In the absence of social security for Senior Citizens, RML serves as a partial substitute.

No Repayments: A borrower does not have to repay a RML during his or her lifetime or till such time he or she continues to stay in the house.

Freedom and Flexibility: Amount availed under a RML may be utilized for any purpose other than investing in shares, real estate, trading etc.

Eligibility

Must be Senior Citizen , having self acquired house (any where –urban or rural) . The house should be self occupied also.

House built on agriculture land has  however restricted eligibility. Commercial property however is not considered for such loan.

 Purpose :

Loan can be taken for any purpose like daughter’s marriage,children education, house renovation or upgrading or any personal work other than reinvesting in share or security market, real estate, trading , speculative work .

Loan Amount & Interest Rate :

Factors like borrower’s age, status of property like location, valuation etc decides the Loan amount and interest to be charged thereon. Interest rate is same as normal home loan in the range of 6.9% to 9.50 % floating rate  with some processing fee . No guarantor is required.

Period

Such loan is Paid for a maximum period of 20 years or till death of borrower whichever occurs early.

Repayment :

Borrower does not require to pay back the loan during his life time or till he ceases to stay in that house. However borrower is free to repay the loan early as per his/her financial situation..

Taxation :

Periodic money received from Bank is not your Income but a form of loan so there is no tax implication on such loan .

@Ajit Kumar Singh

Taxability of Income after death of Tax payer

 

Taxability of Income after death of Tax payer

 

During the deadly pandemic COVID-19  (even in normal time) , lots of person expired and his/her legal heir finding it difficult to understand how to file income  tax returns of the deceased person .

Unfortunately Income tax dept is not so kind or sympathetic towards bereaved family , and it is mandatory for  legal heir to file his Tax return .

 

The whole details are available in section 159 of the Income Tax Act, 1961 (Act). According to section 159 of the Income Tax Act, 1961 (Act), if a person dies, then his legal representatives shall be liable to pay any sum which the deceased would have been liable to pay if he had not died, in the similar manner and to the same extent as the deceased.

 

 

This article is for the benefit of such person  and explains step by step the process.

 

First estimate if the deceased person has any taxable income during the financial year. If no, relax & forget the whole article/procedure.

 

If deceased person had taxable income, calculate the income upto his date of death . This income tax return will be filed under deceased person’s PAN , means it is his income.

For example if a person expired in Dec 20, estimate his income for 9 months only.

Income received after his death will be treated under two separate views :

 

Intestate View (ie Without a will)

 

Income of deceased person
It is important to note that all the income which is accrued or received from beginning of the financial year till the date of demise will be considered as the income of the deceased person and will be filed under his PAN.

 

 Tax on any income accrued or received from the assets that are inherited from the deceased will be borne by the legal heir himself. This would mean that after receiving the inheritance, any income accrued or received from the asset will be considered as the legal heir's own income and taxable under legal heir PAN.

However Money or property received by legal heirs by way of inheritance shall not be reported in income-tax return because Section 56(2)(x) does not apply to inheritance.

 

It is advisable for the legal heir to surrender the PAN card of the deceased person after submission of his last income-tax return and payment of tax dues or receipt of a refund if any. If any refunds are due on the name of the deceased person it is advisable not to close down the bank accounts of the same person. Especially if that person whose name is mentioned as the primary person in the books of income tax. Indeed, if there is a common account with the legal heir then it should not be an issue. 

 

How to file the IT return on behalf of the deceased IT Payee?

 

1) The first step is to get the Legal Heir Certificate. According to a law below documents, are considered as valid.

Legal Heir Certificate issued by a court.

Legal Heir Certificate issued by local revenue authorities.

Surviving family member certificate issued by local revenue authorities.

The registered WILL.

The family pension certificate, issued by State/Central Govt.

 

2) Calculate the income of the deceased (exactly like an individual calculation and there is no change in this process). Before proceeding further, collect the below details as a proof.

Collect all bank statements of a deceased IT payer.

Collect Form 16 and 16a.

This collection of bank statements and the Form 16 or 16A makes sure to tally the income.

Match with 26AS,TIS & AIS of deceased member.

 

3) Get the notarized affidavit for filing IT return on behalf of a deceased.

So documents required for filing IT Return on behalf of the deceased are as below.

a) Copy of Death Certificate

b) PAN Card copy of deceased

c) PAN Card of the legal heir (with self-attested)

d) Legal Heir Certificate

e) Notarized affidavit

 

Scan all above documents for uploading purpose.

 

4) Once you completed above steps then you have to file IT Return. There are two types to file. One is online and another is offline.

 

 

ONLINE PROCEDURE

Logon to Portal https://www.incometax.gov.in/iec/foportal/​  and go to my account to register yourself as a legal heir.

Go to the ‘My Account’ menu located at upper-left side of the page > Click 'Register as Representative'

Select the ‘Request Type’ as ‘New Request’ and Select the ‘Category to Register’ as ‘Deceased (Legal Heir)’ > Click ‘Proceed’

Provide the necessary details and upload the documents which I mentioned above.

Click on SUBMIT tab. The request will be sent to e-Filing Administrator.

 

e-Filing Administrator approve or disapprove after going through the details.

 

Notification will be sent to the registered email id of the legal heir.

Based on documents submitted IT Department allow you to file the IT return into two categories. One is a temporary legal heir. Because legal heirs failed to submit the legal heir certificate mentioned above. Such temporary legal heir can access the portal and upload the ITR/Forms, but unable to access all other services like add CA to submit audit forms (other than ITR) on behalf of the deceased.

 

The permanent legal heir (the one who submitted the valid legal heir documents) can file ITR/Forms or view status. He can use the portal exactly like an individual taxpayer. He can view Status of Income Tax Return/Forms, ITR-V Acknowledgment and other filing status of e-Filed, Returns/Forms in respect of the deceased or can also view the status of the request under My Request List menu, post Login.

Once, after approval of the application by e-Filing Administrator, legal heir can file IT return on behalf of deceased using legal heir login.

 

The legal heir should add his PAN Card in the verification part of IT form, validate, and generate xml of the return.

 

OFFLINE PROCEDURE

 

The legal heir must visit the concerned assessing officer (AO). Submit the documents,. After verification, AO will approve to file the IT return. Once the legal heir gets the approval, then he can file the return on his own or can take the help of tax experts. The name should be mentioned as “late (name of deceased) through legal heir (name of the person filing)”.

Overall, the process is not so simple and requires help of expert. If any member faces any issue , he /she can contact us .

 

FAQ :

I received some property / money after death of my husband , is it taxable in my hand:

 

Answer :  you are class 1 legal heir of your deceased husband.

Anything received either under a Will or as legal heirs is is treated as inherited. Since there is no inheritance tax here in India , so the money received by you on death of your husband is fully tax free in your hands without any limit. Since the money received by you as legal heir is not an income, you are not required to disclose the same in the ITR to be filed by you. However please note any income generated from such inherited property will be taxable in your hand.

 

 

 

Who is legal heir ??

 

Spouse is always treated as class 1 legal heir.

 

According to succession laws if a Hindu male dies without a will, the father is not his immediate legal heir.

 @Ajit Kumar Singh

 

All about 26AS, AIS & TIS

 

All about 26AS, AIS &  TIS

 

All of us who file Income Tax Return know what is 26AS. It is summery of Tax paid during a Financial year under your PAN by different deductors like your Employer , Bank, Investment companies etc. In most cases it  correctly mentions total Tax paid during a FY under your PAN , however it does not mention detailed financial transactions done under your PAN .

 

The Income Tax Department, on November 1, 2021, launched a new statement for taxpayers called the Annual Information Statement (AIS). The new AIS provides the taxpayer with details of most digital financial transactions carried out by him/her during a financial year (FY).
The AIS contains more information than what is available in a taxpayer's Form 26AS.

 
Here is all you need to know about AIS and how it is different from Form 26AS.

What is AIS?

The AIS is a comprehensive statement containing details of financial transactions done by you and reported by various entities (mostly financial institutions) to the tax department during an FY. This includes receipt/income from different sources such as salary, interest etc. or sale or purchase of securities such as equity shares, mutual funds, bonds etc. For instance, any sale or purchase of shares or mutual fund units or dividend or interest received will be  reflected in the AIS.

 

AIS is divided into two parts: Part A and Part B. Part A contains general information such as PAN, masked Aadhaar number, name of taxpayer, date of birth etc. Part B contains comprehensive information of TDS, TCS, Specified financial transactions, payment of taxes, tax demand and refund and other information.

What is TIS

Along with AIS, the income tax department also introduced the Taxpayer Information Summary (TIS). This is a simplified way of viewing the information from the AIS. As per the income tax department press release, "TIS shows the processed value (i.e. the value generated after deduplication of information based on pre-defined rules) and derived value (i.e. the value derived after considering the taxpayer feedback and processed value). If the taxpayer submits feedback on AIS, the derived information   in TIS will be automatically updated in real-time. The derived information in TIS will be used for pre-filling of Return .

 

Before filing your Tax Return , first ,you should carefully go through your AIS and note down all transactions and match with your Form16 and modify your Income statement carefully before filing Tax Return .  However  if you discover any error in your TIS or AIS, then you need to get it corrected in the AIS, which will be simultaneously corrected in TIS as well in real-time. It is important to check the AIS and give your feedback. In case there is an error and you have not given feedback requesting correction, then it may be assumed that the information reflecting in AIS is correct and the income tax department may ask you to explain the mismatch between the income tax return filed by you and the inform ..

How to download AIS from the e-filing website.

Step 1: Login into your account on the government's e-filing portal at www.incometax.gov.in.

Step 2: Under the 'Services' tab, select 'Annual Information Statement (AIS)'. A pop-up will appear on your screen. Click on 'Proceed'. You will be redirected to another website.

Step 3: On the web page tab that opens, select 'AIS'.

Step 4: You will have to select either of the two options: Taxpayer Information Summary (TIS) or Annual Information Statement (AIS). It will also show the financial year for which AIS is being downloaded, your PAN and name.

Step 5: Select the download Arrow on the AIS box. A pop-up will appear asking you to select the format for downloading AIS. The statement can be downloaded in PDF format and JSON utility.

Once downloaded , open the PDF file. The PDF is password protected. The password to access the downloaded PDF is a combination of your PAN and date of birth. For instance, if your PAN is AAAAA0000A and your date of birth is January 1, 1991, the password for the PDF will be AAAAA0000A01011991.

After opening please go through the statement carefully and see that there is no mismatch in your draft return and AIS.

 

@Ajit Kumar Singh