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Of tax woes and the NPS as an investment option

Author: Administrator Account/Wednesday, February 24, 2010/Categories: Ask the Finapolis

Of tax woes and the NPS as an investment option

National Pension Scheme
I want to invest in National Pension Scheme (NPS). It’s in limelight after the Union Budget 2015-16 announced additional benefit of Rs 50,000 beyond Section 80/C for tax saving purpose. Please advice is it prudent to invest in NPS. Also, when I can start withdrawal from NPS?
– V Swamy, Secunderabad

Under the new rules, a subscriber who has contributed for at least 10 years will be allowed to withdraw up to 25% of the contribution for specific purposes, including children’s higher education or marriage, construction or purchase of first house and medical treatment of self, spouse, children or dependent parents. The medical treatment is only for 13 critical illnesses and life threatening injuries sustained in an accident. An investor can withdraw three times during his tenure in the scheme but there should be a gap of at least five years between each withdrawal. However, this gap will not apply in case the withdrawal is for a medical treatment.  


Transfer of Savings
I am working in India since last two years. Now I am leaving back to my country and will transfer my savings back. I want to know, is there any special tax I will have to pay on the transfers?
– Julia S, South Africa

Since you’ve been working in India for two years, it is assumed that you must have paid your Income Tax for all the income that you have earned in India. Please remember that even though you are a citizen of South Africa, any income which is earned by you in India shall be taxable in India. This income may have been earned by working or by providing services in India and this income is taxable in India irrespective of your citizenship or residential status.This payment may also be subjected to TDS (Tax Deduction at Source) in India.If your total income is less than the minimum exempt income (Rs 2,50,000 for FY 2015-16), you can get a refund of this TDS by filing an Income Tax Return in India.
If you have made any capital gains or earned money which has not been tax accounted for before you move back home, you will have to do that.If there is an accumulated amount which you wish to repatriate to your native place, you may have to file Forms 15 CA and CB with the Income Tax Authorities in India, depending on a host of factors. I would recommend you to contact a good Chartered Accountant (CA) and get it sorted out if you feel there are likely to be any issues in this regard.

Income Tax
Do I have to pay inheritance tax or some other tax on amount received after demise of my father?                    
– Sunil Vanwari, Kota

There is no concept of inheritance tax in India, unlike most other developed countries where it is also referred to as the ‘Death Tax’! If you inherit anything from your father after his demise, there is no tax to be paid by you.

Universal Account Number
Recently, my employer has given me my Universal Account Number (UAN) which it says remains unique to each employee and there is no need to break or transfer PF. Is it true? What are the benefits of UAN and what needs to be done when one changes one’s job?
– Javed Khan, Mumbai

What your employer has told you is correct since all your past and future PF accounts get linked to your UAN now. UAN is a 12-digit number allotted to each Employee Provident Fund member by the Employee Provident Fund Organization (EPFO) which gives him control of his EPF account and minimises the role of employer. All employees will now have only one UAN which will never change. When you change a job and your new employer gives you a member ID, it will also get linked to your UAN.  It is like having multiple savings bank accounts which are tied to your single PAN numbers.


Benefits of UAN are many. Earlier, transferring EPF account from one employer account to another was a tedious process. But the UAN will do away with this need. All you have to do is furnish your UAN and KYC details to new employer. Secondly, at present any request for EPF withdrawal has to be signed by your previous employer and then sent to the EPFO. There would be no need for transfer requests as money lying at your previous account would automatically get transferred to your new account once your present employer verifies your KYC details. Thirdly, every month when you and your employer contribute to your EPF account, you will receive an SMS alert from the EPFO.

This will be similar to the SMS alerts you receive every time your bank account is credited or debited. You can even check your total balance by downloading the EPF passbook. Lastly, there will be better utility of the employee pension scheme. Earlier, due to the tedious process of transfer of fund from one account to another, members preferred to withdraw their EPF money. When you withdraw your PF money, you also withdraw the fund contributed to Employee Pension Scheme. This affects the pension that you ultimately receive after retirement. With UAN, your EPF money along with that under EPS is automatically transferred. Transferring the money instead of withdrawing will result in better pension money when you require it most.

PPF
Recently I was told that I should make investment regularly in PPF because this account cannot be attached. Please tell me what this means
– RuchiTalwar, Thane

What you’ve been told is correct. Since the PPF account is a scheme meant for social security, government has given it this immunity that no court can attach your PPF account. Thus, the amount in a PPF account cannot be attached under any court order with respect to any debt or liability of the account holder, even if she defaults. This is the biggest safety government has given to this account. However the government can recover tax from the PPF account if the situation arises. Also, wife or husband can claim maintenance from the PPF account.

Investment
Is this a good time to invest in market given than the market is daily tanking or jumping and not showing any steady movement?
– Praveen V, Nagaur

Markets have always gone down and come up, and vice versa. This volatility is what gives you their good returns in the long-term. If they were to be flat, or steady as you’ve mentioned, they would only give you fixed income type of returns. Their volatility is the risk-premium that you pay. If you’re looking at short term returns, the premium paid may or may not pay back. If you show the patience that is typically required of such investments, it will almost always pay off in the long term – you are likely to get very good tax-efficient returns. Hence, get into the equity only if you are comfortable with an investment with such a profile. 

If you want to get into equity but do not like the volatility, get into Systematic Investment Plans (SIPs) of a portfolio of good equity mutual funds with long term aim and get on, unmindful of the short term market gyrations. Do review the funds and re-balance the portfolio for asset allocations typically twice or thrice a year.

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