UID (UIDAI)

UID (Unique Identification Number) is a recently finalized initiative by the Government of India to create and manage a centralized identification system for all the adult citizens and residents of India which can be utilized for a variety of identification purposes. Nandan Nilekani former co-chairman of Infosys has been appointed as the head of Unique Identification Authority of India and will have a ministerial rank. He has decided to step down from the board of Infosys Technologies

The UID system is being considered since last 6 years, but it gained traction only after the 26/11 attacks on Mumbai

The ID system is likely to be a 16 digit numeric string in order to accommodate the count of billion-plus citizens of India and ones that will be born in future. The card is likely to have a 16kb or 64kb storage chip embedded. Adding a photograph and biometric data would be planned progressively

The ID is fundamentally being prepared to identify Indian citizens so that better security can be provided by identifying illegal immigrants and terrorists. However, the real power of the ID is in its ability to provide ease of identity establishment to Indian citizens when accessing a variety of governmental and private-sector services

The likely benefits of the new ID system to the citizens will be as below:
1) Subsidies on food, energy, education, etc to people who are entitled to receive them.
2) Opening bank accounts
3) Getting new telephone, mobile or internet connections,
4) New light or gas connections
5) Getting a passport
6) The same card may act as a driving license and store your traffic violation records
7) It may act as your electoral card
8) Family genealogy may be traced

The Government had allocated Rs 100 crore in the interim Budget which has revised with 120 crors in General Budget to startup this project.[5] The overall cost estimated for the project is likely to be in excess of Rs 10,000 Crors. However if we believe as per ‘Frontline’ magazine the government in India has a guesstimate of somewhere around Rs 1.5 lakh crore for UID project.

In the first phase, the UID will be issued to people living in the coastal villages of Andhra Pradesh, Gujarat, West Bengal, Kerala, Goa, Karnataka, Tamil Nadu, Maharashtra and Orissa. The Union Territories of Puducherry, Andaman & Nicobar Islands, Dadar and Nagar Haveli as well as Lakshadweep shall also be covered in the first phase. The first lot of cards is expected to be delivered by early 2010.

However as per Nandan Nilkani Karnataka will be the first state to receive registration and UID cards.

The Unique Identification Number (UID) scheme, which is expected to roll out the first number in 12-18 months, however, will not confer on anyone any rights, including citizenship, Unique Identification Authority of India.
At the begging UID will be voluntary by choice but it will be mandatory by function, because you have to produce this every time when you will want any value added services like
"When you to get a passport, they will say where is your UID number, when you go to get a driving licence, they will say where is your UID number, when you go to tax, they will say where is your UID number, you go to open a bank account, they will say where is your UID number. Sooner or later you will have to get your UID number,"

In the coming years, all the above mentioned documents will start displaying the UID number, which proposes to weed out duplicate identities in the system, and hence the "number will become pervasive and ubiquitous. It will become embedded in all these documents."

"It is not mandatory but more applications will make it a prerequisite. So sooner or later your life becomes simpler if you have the number."
As par UIDAI, talks are already on with various agencies and ministries and that "everybody is ready to partner with us on this and use our UID number in their database.
UID will also help to check black money and result in higher tax collections as it will become difficult to have duplicate accounts.
"Once the bank accounts start having the UID, then you can't keep unaccounted money in the banking system. UID will sort of act as a check on keeping black money and all that. It will also strengthen security,
As per Nandan Nilkani it will take "years and not one day" for the entire process to change. He said about 600 million of the about 1.2 billion population will be covered under the project in the next five years.
However it is not mandatory for anybody either service provider like banks to ask for this details it will depend on the body who manage it to make UID compulsory like in case of Bank it is RBI who will decide when UID will be included in KYC norms.
But it is true that almost all agencies have full support with UIDAI and everyone is in plan to make it compulsory as and when they will see green signal from UIDAI.

New Direct Tax Code

On August 2009, Finance Minister Pranab Mukherjee unveiled the Direct Taxes Code Bill, 2009, to be introduced in Parliament later this year.
If enacted, the Bill will not only change the amount of tax you will pay and how but will also transform how you invest, borrow and spend your money. The finance minister successfully managed to make good his promise made during his 6 July Budget speech -- of ushering in a new direct tax code within 45 days.
Unlike his rather insipid Budget proposals, this time Mukherjee has brought in a transformational blueprint of a new tax system, the analysis of whose impact can only make jaws drop.
If one were to describe the system in short, it has tried to simplify the way you will be taxed while taking away most tax-breaks that ultimately complicated yours and the government's life.
Among other things, the Code attempts to provide stability in 'rates of taxes' by bringing them within its own fold.
At present, the tax rates come under the Finance Bill and, thus, are open to change every Budget. Any amendments in the rates of taxes as mentioned in the Code would call for amendments in Parliament, which cannot happen on a regular basis.
The unveiling of the Direct Taxes Code will be followed by public debates before Parliament debates it. It will not be before financial year 2011-12 that this tax code will be put in place, if passed by Parliament.
Even as experts examine the finer details of the revolutionary proposals of the new tax code, we have enough information to make you aware of the impending radical changes in your personal finances.

Income Tax Rate for Individual
for an individual, annual incomes up to Rs 1.60 lakh (Rs 160,000) would be tax-exempt, a 10 per cent tax rate would be applicable for incomes between Rs 1.60 lakh and Rs 10 lakh (Rs 1 million), 20 per cent for income between Rs 10 lakh and Rs 25 lakh (Rs 2.5 million), and 30 per cent for income above Rs 25 lakh.
All this will mean significant tax savings when the Code comes into force.
The present income slabs are much narrower and the tax liability is significantly higher.
Says Vikas Mallan, chief financial officer, Unicon Financial Intermediaries, "Under the proposed Direct Taxes Code, the slabs have been significantly enhanced to take into account realistic income levels."
The hand that taketh away
If generosity marks the changes in income tax slabs, its absence marks other areas. Says Sanjay Grover, tax partner, Ernst & Young, "Currently exempt allowances and benefits such as leave travel assistance and medical reimbursements would be fully taxable under the Code."
There's more grief in store for tax-saving junkies. Prepare to sing a requiem for the existing tax benefit for interest payment on home loans with an annual limit of Rs 1.5 lakh (Rs 150,000) per individual.
This critical driver of the recent real estate boom will be withdrawn if the Direct Tax Code Bill is implemented. But if you have rented out your home that you don't occupy, you will continue to get the existing tax break for unlimited tax deductions for interest payments on loans taken to acquire it.
At the same time, removal of deduction for house rent allowance (HRA) has been proposed.

New Direct Tax Code doesn't distinguish between short- and long-term capital gains.New code: How your investments will be taxed
New code: How your investments will be taxed
New code: How your investments will be taxed
New code: How your investments will be taxed
New code: How your investments will be taxed
New code: How your investments will be taxed
New code: How your investments will be taxed

In fact, the new Code proposes to implement a critical recommendation of previous tax reform panels, which suggested that the contribution and return of all investments be made tax exempt with maturity proceeds being taxable -- an exempt-exempt-tax or EET system.
Like other investments, this proposal will impact your stocks and equity mutual fund (MF) investments. At present, in case you sell units of equity-oriented MFs after a year, you do not need to pay any capital gains tax. But if the Direct Tax Code is implemented, you will need to pay tax when you sell your MFs -- be it equity or debt.
The gains get added to your income and taxed as per your income slab. However, in case of gains made after one year, the Code will allow you the indexation benefit before adding the gains to your income. Indexation is a facility offered by the income tax laws to adjust your security's cost price for inflation over the years.
This enables you to inflate your cost price in order to reduce the difference between your selling price and cost prices.
This is done because it is typically presumed that the price you paid for acquiring an asset years back is worth much more today because of inflation. The lower this difference, the lower is your tax liability.
The Code may have done away with the numerous tax breaks, but it still provisions for tax-saving investments and guess what the limit has gone up to? It is Rs 3 lakh (Rs 300,000) per annum.
But the trick is that you will be permitted to invest only in certain options -- Public Provident Fund (PPF), Employees' Provident Fund, life insurance, superannuation funds and National Pension System (NPS), besides claiming for children's tuition fee expenses.
This simply means no more tax breaks for National Savings Certificates, Senior Citizens Savings Scheme, tax-saving bank fixed deposits and equity-linked savings schemes (ELSS) of MFs.
Argues Ajay Seth, senior director (legal & compliance), Max New York Life Insurance, "Adopting the exempt-exempt-tax model that has been proposed will imply that savings above Rs 3 lakh be taxed twice, at the time of making the contribution and again on maturity on the full amount, including the principal."
While Outlook Money's all-time favourite PPF continues to be a permitted tax-saving investment, it loses some sheen as its maturity proceeds will become taxable.
"This will change the way people look at PPF, which has, so far, always enjoyed tax-free returns," says Veer Sardesai, a Punebased financial planner.
The message is clear: You can get tax breaks for retirement savings or educational expenses. The existing tax breaks for health insurance, with the existing annual limits of Rs 15,000 and Rs 20,000 for senior citizens, as well as those for interest repayment for educational loans and notifi ed donations continue in the new regime too.
When considered in the backdrop of growing retirement periods and the high cost of retirement living, educational and healthcare costs, this exception to the general rule of erasing tax exemptions makes a lot of sense.

Tax Planning for Salary Employee

Tax alert! Don't invest your allowances

Salaried executive receive various types of allowances from their employers. As per the Income Tax Act some allowances are exempted, others are liable to income tax.
For example, conveyance allowance, helper or attendant allowance, daily allowance and uniform allowance are some of the allowances that are completely exempt from income tax in the employee's hands.
Typically, these allowances are not even added to the employee's income. Generally, once the employee gives a declaration to his employer that he has fully spent the allowance, the matter is considered closed.
However, it is often observed that many employees make investments out of such tax-free allowances. A question now arises whether the investments made by an employee out of the tax free allowances will cause any problem with the income tax authorities.
The answer is yes.
It should be remembered that tax-exempt allowances would be exempted only to the extent they are fully spent for the purpose for which they are granted.
For example, if you receive conveyance allowance of, say, Rs 4,000 per month, you are supposed to spend the entire amount on conveyance. You are not supposed to save any money out of his conveyance allowance.
If you save some part of the allowance, you are then liable to pay income tax on the amount you save and invest in any of the movable or immovable assets.
Maintaining bills and vouchers in respect of the expenditure is not that important; what is most important is that there should be adequate withdrawal of funds to meet the expenditure on the particular head for which allowances were so received or recovered from the employer.
If there is a lapse on the part of the employee in withdrawing the appropriate amount for expenditure relating to the allowance, the onus then is on the taxpayer to explain as to how the relevant expenditure was met.
For example, if an employee received, say, a helper allowance of Rs 4,500 per month, deposited the same in his bank, and did not make any withdrawal for meeting the expenditure on a helper or attendant, then he is liable to be taxed on this allowance because no money was apparently spent by the employee in incurring expenditure on helper or attendant, etc
It might be possible that the employee would have given a certificate to his employer merely stating that the entire amount was fully spent by him towards payment for a helper or attendant.
If, however, an actual scrutiny of the bank account and other connected tax papers reveals that no portion of the allowance was spent by the employee -- and there was no other source available with the employee to prove the incurring of the expenditure -- the entire allowance amount received would become taxable in the hands of the employee.
Thus, any investment made by the employee out of the unspent allowance would be treated as unexplained investment and would be added to his total income. This type of addition by the Assessing Officer would also attract penalty.
To avoid any such problem, salaried employees should ensure that the allowances received from the employer are fully spent for the purpose for which they are provided. This is possible by making specific withdrawal for meeting the particular expense representing a particular allowance.

This situation would also be true in respect of allowances that are otherwise not fully exempted but are exempted based on actual re-imbursement.
Let us say an employee were to receive Rs 6,200 by cheque from his employer on account of reimbursement of medical expenses incurred by him. This cheque of Rs. 6,200 is deposited in the bank account of the employee and the employee does not withdraw this money and consequently makes investments out of his bank balance then the Assessing Income Tax Officer will be within his rights to bring to tax this amount of Rs 6,200, although the employer might not have made any addition to the taxable salary income.
To avoid such unpleasant surprises it is recommended that there should be specific, or at least adequate, withdrawal for meeting expenses in respect of the designated allowance and reimbursements received by a salaried employee from his employer.
It would be even better if specific withdrawals were made from the bank account for specific purposes. In case there is no such specific withdrawal, nor any evidence available with the employee to substantiate that he has actually incurred the expenses in respect of the various allowances and reimbursements, it would then be incumbent on the employee to give satisfactory explanation and answer to the Assessing Officer at the time of income tax assessment as regards the source of funds for meeting the expenditure in respect of the allowance received.
If, for example, you received certain gifts during the year and incurred expenditure from out of the gifted amount towards meeting the expenses, then a proper explanation should be accorded to the income tax department.

Salaried employees often face such problems in the case of house rent allowance received from the employer. It is a well-known fact that house rent allowance is not exempted from income tax unless you have actually paid the rent.
Suppose an employee receives a house rent allowance of Rs 5,000 per month and lives in a house, which is owned by his wife. He informs his employer that he has made payment of Rs 5,000 per month to the landlady, who happens to be his wife. A receipt to this effect signed by the wife is given to the employer.
Now the employer within the framework of income tax law grants tax exemption of deduction in respect of the house rent allowance paid to the employee, but a glance at the bank account of the employee reveals that in fact he did not pay the rent amount to his wife and that the house rent allowance received from his employer was actually deposited in his bank and, subsequently, utilized to purchase certain shares of new issues of a company.
Thus, the employee made investment in the stock market out of the house rent allowance so received by him from his employer. In this situation the income tax department will bring to tax the entire house rent allowance so received by the employee because the expenditure was actually not incurred.

To pre-empt such complications, and consequential additions to the tax in the case of salaried executives, it is recommended that you should prepare a 'cash flow chart' containing a summary of all the receipts during the year comprising different allowances and, likewise, on the other side there should be details with regard to the expenditure incurred under various heads.
If the Assessing Officer were to question as to how the expenditure was met in respect of particular allowance received, you can then easily substantiate your case by referring to this cash flow statement.
And although it is not legally compulsory to furnish a cash flow chart, it might be worthwhile if such a cash flow statement is enclosed with the income tax return.
In conclusion, salaried executives should be very careful with regard to making investments especially out of their tax-free allowances and reimbursements.
They should ensure that the tax-free allowances they receive are actually spent. If not spent, the amount should be brought to tax. Thus, if any investment is made out of unspent tax-exempt allowances, etc. not only would you have to pay tax on that amount, but also possibly penal interest and penalty.

What is subprime crisis? How it caused financial mayhem?

Sep 2008 Global Financial Market has experience worst economic crisis in its entire economic history.
Although there are many reasons responsible for bringing world to the doorstep of financial crisis, the main cause of this financial disaster is sub-prime loan.

So what is sub-prime loan? And why has it cause global panic? If it is related to US housing sector why it affected Indian and other global market?

Let first understand what is subprime loan?
Subprime loan is loan which is not prime loan
Now what is prime loan?
Prime loan is a loan where we follow all terms and condition without compromising in ant terms and condition specified by central bank like RBI in India
Prime loan sanctioned at prime lending rate.
Few example of Prime loan is
KPC compliance
Income Proof
Title ship clearance ect.

Hence a loan sanction with compromise with such terms and condition will called subprime loan.
Subprime loan is very risky but return is high. It simple more risk more rewards due to which in US many lenders has started this business to make quick money.

Now let understand how subprime affects US and globe?

It all started with American dream of sophisticated and luxurious living standard
Housing accommodation is first on that list.
So he started seeking housing loan to give shape of his dream, but there is one problem he don’t have good credit ratings hence he failed to get prime loan. Since his credit is not well enough no banks were ready to sanction his housing loan.

But before American dream fade away, another American enter in to the market they are known as financial institution, who has good credit rating and are ready to take some risk.

Hence they planned one new business opportunity, whit the help of good credit rating they get huge bank loan and then divided that loan amount in to small small peace, and gave that to many American as housing loan at much higher rate then what they have to pay to bank against of their loan.

These higher rates is called subprime rate. The loan by second American to first American is called Prime Loan. And this loan market is called subprime housing loan market.

Now what is Subprime Crises?
All financial institution who has lend subprime loan i.e. Second American, there were knowing that default ration will be high so they hedge their ex-poser, so that in case of default still they will get funded by hedge fund.
But second American doesn’t stop there; it doesn’t wait for principal and interest of subprime loans to be repaid, so that it can repay its prime loan to banks.

So what this financial institution does?
They went for securitization.
Securitization is a way of conversion of these in to financial security which either issued at discount or bears some interest.
During securitization following person come in the picture
Special purposes Vehicle
Credit rating Company

Hence in order to make quick money, much financial institution (Second American) issued this kind of securities which is highly risky.

And how investor of such security is gets paid – this is through the principal and interest received from borrower of subprime loan as a monthly installment.

Financial Institution repays its prime loan from banks from the money that it get by selling of those security to the investor and everyone live happy ever after, as it seems.

But its not like, all subprime loan sanctioned at floating rate, floating rate is a rate which is not fixed as interest rate go up floating rate will also go up. And as floating interest will go up monthly EMI of subprime loan will also go up.

In that time US interest rate has increase significantly due to which monthly EMI of subprime loan also increase. which hit subprime borrower hard.

As we know lot of them was with unstable income and with poor credit rating, thus they default.
Once more and more subprime borrower start defaulting payment to investor )who has purchase securitized security) has stopped resulting huge loss.

Problem start because US keep interest rate too low for very long time which encourage American to go for subprime housing loan to purchase bigger and better home.

As US economy was doing well that time, every day housing price touching new high due to huge demand.

The crisis began with the bursting of the United States housing bubble

Slow US economy, high interest rate, Unrealistic real state price, high inflation together led to fall stock market, negative growth rate, job loss, lock of liquidity, negative sentiment, halt in new jobs and default.

Due to above subprime borrower start defaulting since they was not able to repay such huge monthly EMI.

Due to this all financial institution was not getting return of their investment. Because the mortgage based security is almost worth less

The moment it was found that these financial institutions is failed to manage risk, panic spread. Investor found that they hardly able to get some money on security that these institution has sold to them. This cause many wall street’s pillar to crumble.

As the default kept rising these institution could not service loan (which they have taken from bank for issuing subprime loan). Hence they started asking for credit from other financial institution which also stops their support as assets value was keep decreasing day by day due to falling real estate market.

The problem worsen because these institution easily securities these security and once securities assets does not exist in balance sheet.

Hence institution does not take in to consideration of loan going bad. Because risk will immediately passed to investor who has purchase these security.

Another advantage of securitization is money comes immediately, means institution no need to wait for long time of EMI.

Because of this in a harry of making quick money once they finish with one cycle of they immediately another cycle of getting prime loan then distribution it in small piece of subprime loan and then securitization and repayment of these loan to bank. This time with much bigger amount, hence amount increased as they enter with each new cycle.
Given the fact that institutions giving out the loan did not take the risk, their incentive was in just giving out the loan. Whether the individual taking the home loan had the capacity to repay the loan or not, wasn't their problem.
Thus proper due diligence to give out the home loan was not done and loans were extended to individuals who are more likely to default.
After borrowers started defaulting, it came to light that institutions giving out loans in the sub-prime market had been inflating the incomes of borrowers, so that they could give out greater amount of home loans.
And so the story continued, till the day borrowers stop repaying. Investors who bought the financial securities could be serviced.

Well, that still does not explain, why stock markets in India, fell? Here's why. . .

Institutional investors who had invested in securitised paper from the sub-prime home loan market in the US, saw their investments turning into losses. Most big investors have a certain fixed proportion of their total investments invested in various parts of the world. So
Once investments in the US turned bad, more money had to be invested in the US, to maintain that fixed proportion.

In order to invest more money in the US, money had to come in from somewhere. To make up their losses in the sub-prime market in the United States, they went out to sell their investments in emerging markets like India where their investments have been doing well.
So these big institutional investors, to make good of their losses in the sub-prime market, began to sell their investments in India and other markets around the world. Since the amount of selling in the market is much higher than the amount of buying, the Sensex began to tumble.
The flight of capital from the Indian markets also led to a fall in the value of the rupee against the US dollar.

Any other reason, apart from sub-prime crisis?

Of course! Sub-prime crisis alone could not have caused such mayhem, although it is to blame for the beginning of the end.

This crisis is spreading from sub-prime to prime mortgages, home equity loans, to commercial real estate, to unsecured consumer credit (credit cards, student loans, auto loans), to leveraged loans that financed reckless debt-laden leveraged buy outs, to municipal bonds, to industrial and commercial loans, to corporate bonds, to the derivative markets whose risk are indeterminate, etc.

It has been a total systemic failure that has its roots in the US real estate and the sub-prime loan market.

Good Time to Bye Home

Everyone dreams of owning a home, a place which is your own and where you can be yourself. Are you wondering whether this is the right time to buy your home? We get you some answers on this here. Read on to find out more.
There are mixed views regarding the real estate sector. While some reports indicate an increase in volumes and prices, some indicate a situation where the supply has far outstripped the demand. As per a leading business daily, nearly 40 per cent of the affordable housing projects are left unsold.
Recap
FY09 proved to be a tough one for real estate sector with conditions not being conducive for both buyers and sellers. Lower demand due to slowdown in the economy and deferment of purchase plans by customers led to pricing pressures.
Prices had declined in the range of 30 to 50 per cent during FY09. This coupled with higher interest rates and lower disbursement of loans by banks due to rising delinquencies further increased the problems. As we all know, the real estate sector is sensitive to movements in interest rates. The demand is higher when the interest rates are lower as the EMIs will be lower and vice-versa.
Recent scenario
An upside cycle, but not really at the crest itself. Until recently, the market observers felt that the sector was a sinking ship but thanks to the support by the Reserve Bank of India, the housing sector in India is experiencing an increase in demand (though not at its peak), as seen in the last couple of quarters.
In fact, the State Bank of India, the largest player in the Indian banking space, has decided to extend its 8 per cent home loan scheme till March 31, 2010, just a day before it was due to expire.
Other players in the space, particularly public sector players have followed suit with their own share of attractive loan schemes. Even private banks are focusing on the housing loan space due to low credit off take by corporates.
The developer is also targeting the housing sector with strong focus on affordable segment as well as a gradual shift to ensure delivery and promotion of previously launched projects at more attractive prices.
According to some developers, the buyers are back! The disbursal of home loans for new registrations has seen a 20 per cent surge this quarter against the previous quarter. According to an IIFL report, in Mumbai, prices are up 25-40 per cent from the bottom in early 2009, while in NCR, the corresponding figure is 15-20 per cent.
As far as the pricing of property is concerned, sellers (builders) have a key role to play here. During the downturn, property rates fell to the tune of 30-50 per cent depending on the area on account of twin factors- fall in demand and need for cash by builders. With the balance sheet of real estate companies becoming stronger on account of restructuring, and money increasingly becoming available through QIPs and even bank loans, builders will resist fall in property rates.
In fact, in several areas, rates are inching upwards. For example, in Mumbai, vacancy levels have fallen to about 12 per cent from 14 per cent in second quarter of CY09, even though supply has shown a spurt. This has reduced the overall available stock in the city. The rentals have become stable. If demand continues, then we expect rentals to strengthen going forward
India's GDP grew by an impressive 7.9 per cent in the September quarter, the fastest in the last one-and-a-half years. The economic activities like construction (6.5 per cent YoY), real estate and business services (each 7.7 per cent YoY) also reported strong growth numbers during the second quarter of FY10. This gives an indication of some pick up happening in across sectors.
Though the demand from commercial space still is cautious, the rentals of retail space have stabilised in most of the country. As per Cushman & Wakefield retail report, mall vacancy has shown a marginal increase from 17.3 per cent in the second quarter (April to June) to 17.5 per cent in the third quarter (July to September).
Further, as per the report, the retail sector is expected to see a demand of around 43 mn sq ft, mostly concentrated in the tier I and II cities. The demand for the hospitality sector is expected to be around 690,000 room nights between 2009-2013. Also with IT sector seeing an improvement in the coming quarters, the demand is expected to inch higher.
On the interest rate: With recession woes looking to end and strong growth witnessed across sectors, the chances of the RBI raising interest rates in the future are higher. Further, with higher liquidity and poor monsoons, inflation concerns are evident. Though in the dawn of abrand new year, with the economy brightening up, the interest rates could only go up from here.
What should one do?
While this may sound as an apt opportunity for buyers to capitalise on the prevailing low rates of interest by striking a deal, several considerations need to be made with regards to money. Being a long-term investment, one must definitely check if he/she can afford the long term loan repayments.
Also, consideration to a stable job, provision for contingencies and personal finances should be looked into before buying the dream house.
If one buys a 500 sq ft flat in Navi Mumbai at a cost of Rs 3,500 per sq ft, the total cost would be Rs 17, 50,000. At an 8.5 per cent interest for 15 years, the interest rate would be Rs 13,51,940.
If the prices go up to Rs 5,500, the cost jumps by 57 per cent to Rs 27, 50,000. Thereby one pays the interest of 21, 24,400.
So if one has the fund resources to tap into and feel they can avail the attractive interest rates at this point in time, then by all means they should go for their dream home now, putting it off for later could mean parting with more money.

Individual /Employee Tax Planning

I am writing this to address working professional tax related questions.

Just a few months before year ending, I have been attacked with some complicated tax related issues by my friends. Hence thought let put some healthy and relevant tax planning tools in my blog for my internet user friends.

Take a look at the various tax saving tools available and their significance in your personal finance life.

Section 80C of the Income Tax Act gives tax benefits in the form of reduction in taxable income up to Rs 100,000 (Rs 1 lakh) per year. Of the investments in Section 80C, Includes

ULIPs (unit-linked insurance policies)
ELSS (equity-linked savings schemes) Which are tax saving mutual funds that have a 3-year lock-in period. Could be considered by investors with a long-term (above 7 years and 3 years, respectively) investment horizon
EPF (employees provident fund) is unavoidable for the salaried employee, so it becomes an automatic investment.

Term insurance by choice is must to protect family from unseen or unwanted situation that gets the tax benefit. But very few families in India have one.
Other savings instruments like PPF (public provident fund), postal deposits are better when not invested for tax purposes as the returns are very low for their long lock-in periods.
Principal component of the housing loan repayment is a positive inclusion in Section 80C. But when this component is included in the space of Rs 100,000 (Rs 1 lakh), it becomes relatively small.

For Detailed list please refer to
http://law.incometaxindia.gov.in/TaxmannDit/Displaypage/dpage1.aspx?md=2&typ=cn&yr=2009&chp=211

House Rent Allowance (HRA)
Upto 40 per cent (50 per cent in case of the metros) of the basic pay or actual HRA received or rent paid above 10 per cent of basic pay, which ever is lesser, is exempt from income as the house rent allowance.
Sometimes we see payslips with HRA equal to 100 per cent of the basic. There is not much benefit here. Please talk to your HR manager on whether you can have some flexibility to design your pay subject to the same CTC (Cost to Company).

Conveyance Allowance
This is an allowance that is still set at the archaic Rs 800 per month levels.

Leave Travel Allowance (LTA)
There is flexibility now in the way LTA is to be processed. We do not have to submit the bills to the company to claim it. That looks like good news. However, the hitch is that the income tax department can ask for the original bills at its discretion.
This can be claimed only two times in a block of 4 years. Retain your bills. Ensure that what you claim is what you 'actually' spent.

Section 24 - Housing Loan Interest Component
There is a benefit of reduction in taxable income up to Rs 150,000 per year for the interest component of the housing loan. Though there is considerable reduction in the taxable income, it should be remembered that this cash flow is a negative cash flow that does not add to one's wealth.
When we shell out Rs 150,000 the maximum tax benefit that we get is probably 30 per cent (at the highest tax slab). This is Rs 45,000 in the form of tax benefit.
If you had paid the tax instead, you may have lost Rs 45,000 but would have been able to invest or use Rs 105,000 the way you wanted to. By only thinking of saving the tax you actually lose out on paying as interest an additional Rs 105,000.
The other angle to this is that the interest component of the loan keeps decreasing as the year’s progress, thus negating the benefit of tax savings too in the latter years

Other Allowance
Child education is one other component that gets this benefit.
Sodexho Food Copan of Rs 1300 per month.
Medical Reimbursement of Rs 15000 Per annum
Uniform allowances of Rs 15000 Per annum.
This all allowance is a kind of facility provided by employer which is exempted under head of income from salary, hence if you are not getting this allowances you can speak to HR department of your company and ask for these facility which help you in your tax planning.

Creating Wealth Using Tax Breaks
Investments like long-term investments in ULIPs (please do not take the sales agent's view of investing for 3 years), ELSS, pension plans like the EPF and New Pension Scheme give us the benefit of tax savings and also wealth creation.
Please do not borrow to invest in tax saving products unless it is an interest-free loan from friends. The tax benefit may not be as high as the interest rate charged by the bank or your friendly neighborhood financier.
A house can be a wealth only when it is paid up in full. Technically it is an asset in the banks' account till we pay out the last EMI (equated monthly instalment). Please do not take up a housing loan for the apparent tax benefit that it gives as it is highly negative on the wealth creation front. The HRA also becomes taxable if your house is in the same town as your office.
Make use of the tax breaks judiciously in the right spirit of investment and savings and not merely to avoid paying tax!