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Avneet is a diligent investor who makes all his investment decisions with utmost care. Of late, he has noticed that many costs associated with investments are eating into his returns. Avneet wants to know what are the costs he should be aware of and how he can avoid losing money.

To start with, Avneet must realise that considering the costs related to his investments are integral to the decision making process. This is because costs incurred as
and commissions eat into the final returns. Over the long term, this can have a significant impact on the value of his investments.
He must remember that costs he bears include those where he makes a direct payment and also those that are inbuilt into investments such as mutual fund expenses. The other cost that is likely to be overlooked is the penalties imposed on investments. Charges on delayed payments or early withdrawals from investments also impact the returns.
He must not let the investments’ performance alone dictate his attitude to costs. What may seem like a small charge when investment returns are good may be a big drain when performance dips. Avneet must consider all the visible and invisible costs carefully and make sure they are justified before committing. Withdrawing later may be difficult and expensive.
High cost can be justified only if the investment is consistently generating much higher returns. Avneet can avoid penalties by automating the operational aspects and making sure that his portfolio has adequate provision for his liquidity needs so he does not have to exit an investment by paying high charges. Additionally, he must question every time he is adviced to sell an investment he is holding and invest in a new one, as churning also translates into higher costs.
Avneet must use service providers who link the fees to transactions and not charge an annual fee or flat fees. Flat charges work well only if the number of transactions are high enough to apportion the costs. Hence, being aware of the impact of costs on his investments and assessing the costs related to each investment before committing will ensure that his money works in his interest.

(The content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.)
(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of
Q1. If there are deductions that are not reflected in your form 16 , can you claim them while filing your return?
1No you cannot
2Yes , it can be claimed if you are eligible for the same
5Next Quiz:Income Tax Return Quiz

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Hidden costs to consider before making an investment decision

The minimum amount required to open the
Sukanya Samriddhi Yojana
), a government backed scheme targeted towards a
girl child
and her financial needs, has been reduced.

According to PTI, the Sukanya Samriddhi Account can now be opened with a minimum deposit of Rs 250 which was Rs 1,000 earlier. Also, in subsequent years, the minimum of Rs 250 needs to be deposited each year as against Rs 1,000 earlier. A maximum of Rs 1.5 lakh can be deposited during the ongoing financial year.
How to open a SSY accountA Sukanya Samriddhi Account can be opened in any authorised post office branch or branches of commercial banks. Generally, you can open a Sukanya Samriddhi Yojana in banks where you can open a Public Provident Fund (PPF) account.
The account opened any time after the birth of a girl till she turns 10, will remain operative for 21 years from the date of its opening or till the marriage of the girl after she turns 18.
To know about important watch outs before investing in it, click here.
Operating the accountA depositor can open and operate only one account in the name of the girl child under the Sukanya Samriddhi Account Rules, 2016. To meet the requirement of her higher education expenses, partial withdrawal of up to 50 per cent of the balance is allowed after she turns 18.One can't open two accounts for one girl. Deposits in the account can be made till the completion of 15 years, from the date of the opening of the account. For a 9-year-old, deposits have to continue till the child turns 24. Between the ages of 24 and 30 (when the account matures), the account keeps earning interest on the balance.
Interest rate earned The government fixes interest rates on a quarterly basis based on the G-sec yields. The interest rate spread that the SSY enjoys over the G-sec rate of comparable maturity is 75 basis points.
The interest rate since its launch is as follows:
From April 1, 2014: 9.1%
From April 1, 2015: 9.2%
From April 1, 2016 -June 30, 2016: 8.6%
From July 1, 2016 -September 30, 2016: 8.6%
From October 1, 2016-December 31, 2016: 8.5%
From July 1, 2017- December 31, 2017: 8.3%
From January 1, 2018 - March 31, 2018 : 8.1%
From April 1, 2018 -June 30, 2018: 8.1%
From July 1, 2018 -September 30, 2018: 8.1%
Interest at the rate, to be notified by the government, compounded yearly will be credited to the account. The interest will be calculated for the calendar month on the lowest balance in an account on the deposits made between the close of the 10th day and the end of the month.
To know more about SSY, click
here and to know How to open a Sukanya Samriddhi Account, click here.  

Minimum investment limits lowered in Sukanya Samriddhi Yojana

A report recently said that
Basic Savings Bank Deposit Accounts
) are being converted into a regular savings accounts for those have exceeded their withdrawal limits.

The report prepared by Ashish Das, an IIT Bombay professor, says, "design anomalies" are prompting bankers to overcharge BSBDA customers in violation of the Reserve Bank of India's (RBI) extant regulations. "The moment a 5th debit transaction is done by the customer in a month, these banks without explicit and voluntary consent of customers are unilaterally converting the BSBDA into a regular savings account, requiring high minimum balance and associated service charges," the report said.
Although the rules allow banks to convert BSBDA into a regular account or charge a penalty if the withdrawal limits are not met, the objective of the banking regulator for inclusion banking may be hit.
All banks are mandated by RBI to offer such a facility to those looking to open a bank account. However, be aware of the restrictions in the account to avoid financial dejection.
A BSBDA scores over a regular savings account primarily because it does not require a minimum balance (MAB) to be maintained. Not maintaining the required MAB in one's regular savings account, which varies from bank to bank, could attract a penalty, while in BSBDA there is no such compulsion regarding account balances.
Although the BSBDA is a zero-balance savings account, it comes with restrictions.

Although there is no limit on the number of deposits that can be made in a month, the maximum withdrawals per month is limited to just four. This includes withdrawals from ATMs and other modes like RTGS, NEFT, clearing, branch cash withdrawal, online transfer, standing instructions, equated monthly instalments (EMIs) etc. It is, however, left to the banks to decide whether they want to offer additional withdrawals free of cost or to charge a fee.
What do you get in a BSBDAYou don't have to maintain a minimum average monthly balance and no minimum amount is required for opening the account. The interest rate will be the same as that on the regular savings account. RBI rules do not put restrictions on deposits or withdrawals from this type of account, neither does it have any transaction limits.
You, as an account holder, will get the ATM-cum-debit card and the passbook facility. All regular features including deposit and withdrawal of cash at bank branches as well as ATMs, cheque book facility (payable at par or multi-city) and online funds transfer will be available in the account. These facilities will be provided without any charges. BSBDA account holders can open fixed deposits and recurring deposits.
To know more about BSBDA and who should opt for a BSBDA, click

Here are the watch outs

The Reserve Bank of India (
) has made it mandatory to mention the name of the person on the front of the
demand draft
while purchasing it at a bank branch. At present, the DD form only asks for the name of the entity or person in whose favour it is to be prepared.

According to the RBI's notification, "in order to address the concerns arising out of the anonymity provided by payments through demand drafts and its possible misuse for money laundering, RBI has decided that the name of the purchaser be incorporated on the face of the demand draft, pay order, banker's cheques, etc., by the issuing bank. These instructions shall take effect for such instruments issued on or after September 15, 2018."
In the past, RBI has taken several other initiatives to avoid money laundering. Already, any remittance of funds by way of demand draft above Rs 50,000 had to be effected by debit to the customer's account or against cheques and not against cash payment. However, mention of name was not required even there. Now, even for DD above Rs 50,000 the name is required.
RBI's earlier measuresBanks have to ensure that drafts of small amounts are issued by their branches against cash to all customers irrespective of the fact whether they are having accounts with the banks or not. Banks should not refuse to accept small denomination notes from the customers (or non-customers for issuance of the drafts).
RBI has also been taking measures to bring down the incidence of frauds perpetrated through bank drafts built into the draft form itself. All superscriptions about validity of the demand draft need to be provided at the top of the form.
Duplicate draft, in lieu of lost draft, up to and including Rs 5,000 may be issued to the purchaser on the basis of adequate indemnity. Thereafter, banks should issue duplicate demand draft to the customer within a fortnight from the receipt of such request. Further, for the delay beyond this stipulated period, banks were advised to pay interest at the rate applicable for fixed deposit of corresponding maturity in order to compensate the customer for such delay.  

RBI moves to plug money laundering avenue

By Uma Shashikant We were out shopping when the store assistant began to shower disproportionate attention on a fellow shopper, who was simply dressed and quiet in demeanor. She decided quickly, bought a few very high value items and left the store. Piqued, we asked the assistant how he figured among so many shoppers which one was rich. His answer was simple: She did not care to look at or be interested in anyone else in the shop, but focused only on the goods.

A growing body of research says the rich tend to display distinct behaviour that can be mostly characterised as mean. Since much of this behaviour is implicit and subconscious, calling them out or nudging them to correct it can actually make it better. In a world where income inequalities are only rising, and where amassing money is an avowed objective pursued without a tinge of regret, it might make sense to pause and ask if we are turning out to be rich and somewhat soulless.
Paul Piff at the University of California, Berkeley, ran a series of experiments to observe how those who have more money behave in a given situation, compared to those with less. He found that players in a rigged game of Monopoly that awarded them twice the money as their opponent, and let them roll both dices, began to display behaviours that were dominant, loud and aggressive. They moved their coins around the board with a thud, ate more of the free snack, and spoke loudly.
At the end of the game, they attributed their success to their strategy and skill, completely sidestepping the fact that they entered the game with privilege. Researchers explain that the rich tend to rationalise their advantage, and believe that they deserved it. They pursue their self-interest and moralise greed easily. The misuse of power and privilege and growing unethicality in societies is increasingly seen as arising from such attitudes.
Pia Dietz and Eric Knowles studied how social class differences influence how we process information. They confirm the simple perception of our store assistant. Poorer people are more likely to notice, engage with, pay attention to and empathise with other humans, compared to the rich. How relevant others are to our goals and motivation is what drives our interaction with others. With wealth and privilege comes independence. The poor on the other hand view others as potentially rewarding, threatening or worth paying attention to. Dietze and Knowles call this the motivational difference.

The lack of empathy and compassion in the rich as compared to the poor is also well documented. In an experiment, the rich took twice the amount of candies meant for kids as compared to the poor! Micheal Kraus of
Yale University
who specialises in the study of hierarchies, points out that the poor are likely to more accurately judge the emotions of other persons; make more accurate inferences about such emotions; and have higher empathic accuracy as compared to the rich. The rich are not very good at reading emotions of the others and lack empathy and compassion. This deficit stems primarily from their lack of dependence on others.
Wealth also clouds moral judgment and triggers the propensity to cheat or break the law. A study of the attitude of car owners showed that more expensive cars were more likely to block and cross other cars, and less likely to yield to pedestrians who had the right of way. The rich paid lower taxes, and were more prone to evade taxes and hide their wealth; the rich were more likely to adopt questionable accounting and business practices and sidestep ethical practices; and the rich were more likely to use their powers to perpetuate illegal and unlawful activities.
Igor Grossman proposes the idea of wise reasoning, a pragmatic approach to problem solving that is influenced by life experiences and social contexts. It considers the perspectives of others, recognises the likelihood of change, understands how a conflict will unfold and sees the need for compromise and seeks conflict resolution. Grossman’s research shows that the rich have a lower tendency for wise reasoning as compared to the poor.
Privilege can create a sense of entitlement The rich worry more about how other view them, and are likely to consistently blame others for things going wrong. One of the reasons for poor quality personal, family and romantic relationships among the rich as compared to the poor is the former’s inability to apply themselves with flexibility, empathy and open mindedness when faced with uncertainties in personal relationships. The poor seem more willing to compromise or change their positions.
Rich does not equal mean, and that is not what research points out. There are implicit biases that develop as one becomes wealthy, and self-awareness, nudges in the right direction, and greater social engagement with eclectic groups are all steps to keep the negative tendencies in check. Not all rich can be grouped in one stereotypical class either—there are various psychological classifications of the inheritors, the first time rich, the altruists and the firmly grounded wealthy folks.
The moral corrosion that wealth seems to encourage stems from a subconscious sense of entitlement and a distinctly different code of conduct and norm that privilege creates in the mind of the rich. The ancient philosophers and thinkers who bemoaned the pursuit of wealth might have had these corrosive effects in mind when they called upon the rich to donate and give away their wealth; or asked societies to focus on need rather than greed.
While we rejected the socialistic model for its romanticised view of a shared society that did not create the incentives for wealth creation, we are now staring at the income inequalities created by the capitalistic model and its consequences on our morality, ethics and societal harmony.
Many suggest charity as a great way to address this issue. But there is evidence that the poor are more generous than the rich. The intergenerational wealth transfer from the baby boomers that is now underway is seen as the single largest inheritance event that will produce too many privileged rich with possibly the behavioural limitations we just listed.
What will we do with all the money we have is a question we all have to answer with an open heart and mind. Indulging the next generation and passing it on need not be the default option.
(The writer is Chairperson, Centre for Investment Education and Learning.)

(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of

Why poor people tend to be more generous than the rich

The Current peak rate of income tax is at near historical lows.
The Current peak rate of income tax is at near historical lows.
You don’t pay any
on your
annual income
up to Rs. 2.5 Lakh whereas your grandparents started paying tax at an annual income of just Rs. 80,000 (present value of Rs. 1,500 income exemption limit in 1949-50) which means,
income level has gone up three times.


There are only three tax slabs today unlike up to 11 in the past


All these countries except Pakistan have higher per capita income than India. But many provide better social security like healthcare, unemployment & pension benefits

Arun Jaitley makes history with his 2017 Budget

Leaving a mark

18 Jan, 2017
From presenting the Budget on February 1 to breaking a 92-year-old tradition by merging Railway Budget, this year's Union Budget will leave a mark among the public for a long time. Click next to know more about this Budget's many firsts.

February 1

1 Feb, 2017
Budgets are normally announced on the last working day of February. But this year, it has been advanced by a month to February 1.

One Budget

1 Feb, 2017
Suresh Prabhu can relax. There won't be a separate railway budget. In fact, it will be merged with Jaitley's budget, ending a 92-year-old practice of a separate budget for the country’s largest transporter.

Economic Survey

1 Feb, 2017
Economic Survey, a snapshot of the state our country is in, will be out on the first day of the budget session, which is January 31.

Paperless budget

1 Feb, 2017
This is the first time that the finance ministry is going paperless for the Budget. There will be no hard copies of the circulars. All the important documents will be submitted through Union Budget Information System (UBIS). Saving trees, right?
Q1. What are the different ways of filing ITR?
1You can file it in paper form
2You can file it electronically and then submit the verification of the return in return using ITR-V
3You can file it electronically using your digital signature
4You can file it electronically under electronic verification code
5All of the above
5Next Quiz:Income Tax Return Quiz

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You are paying less income tax than your grandfather. Find out how.

MUMBAI: Indian
transacting with related parties such as foreign parents or group companies may find themselves badly hit with the proposed transfer pricing provisions and also those relating to thin capitalisation, as it would result in a higher
income tax
(I-T) outgo. A fresh slew of litigation arising from these issues cannot be ruled out.

In simple words, if there is an upward transfer pricing adjustment made to the income of an Indian company that has earned such revenue through transactions with its parent or group companies (known as related parties), then the quantum of such addition needs to be brought back to India within a stipulated time. Else, it will be treated as a loan given by the Indian company , which will attract a notional interest charge and a tax on such interest income. Proposed thin capitalisation rules have restricted the amount of interest that can be claimed if loans are taken from related parties. This is because interest is allowed to be deducted from profits resulting in an I-T arbitrage.
The proposed transfer pricing rules can be illustrated.For example, Company A, based in Bengaluru, provides software development services to its US parent. It operates on a cost plus 10% margin (say Rs 110 is reimbursed by parent for its services). The transfer pricing officer says the profit margin should be higher at 20%. Company A, if it accepts this upward adjustment, currently has to pay tax on the additional Rs 20. This adjustment is called primary adjustment.
The Budget proposals provide that Company A and US parent will need to record this primary adjustment if it exceeds Rs 1 crore in respective books of accounts. This recording is called a secondary ad justment. However, if the Indian company does not accept the adjustment made by transfer pricing authorities and opts for litigation, secondary adjustment does not apply . Vijay Iyer, transfer pricing leader at EY says: “If the amount relating to the primary adjustment is not repatriated to India by the foreign related party within the time limit (yet to be prescribed), it shall be treated as a loan given by the Indian company . A notional interest on such loan will be computed. If the taxpayer does not invoice and collect the sum, interest may continue to accrue.“ Hitesh Gajaria, chartered accountant and transfer pricing specialist, points out that the unintended adverse consequences and the possibility of double taxation.
“Such notional interest will be taxable income in the hands of the Indian company , on which it would pay tax at 30% plus surcharge and cess. The US parent may not face any deduction, either for the upward adjustment (Rs 20 in the illustration) or the notional interest -both of which it would record in its books. It is not clear how the Indian company or the transfer pricing official would be able to influence what the US parent would record in books of account. The proposed income tax amendment may need to be harmonised with India's foreign exchange regulations, under which cross-border loans are tightly governed.“
Transfer pricing, thin capitalisation decoded
Transfer pricing in essence calls for an arm's length pricing between related parties. Thus, if Company A, which is a captive in India, provides software development to its parent in the US, the price it charges needs to be at arm's length (the same price it would charge to third parties). Transfer pricing provisions ensure that revenue is properly captured in the source country (which in this case is India). Thin capitalisation rules by limiting the amount of interest that can be claimed as a tax deduction if loans are from related parties deter income tax arbitrage. This is because interest is allowed as a deduction for computing taxable profits. A company is said to be thinly capitalised when the level of its debt is much greater than its equity capital. TNN
(This article was originally published in The Times of India)

India Inc: Budget impact: New arm's length norms, interest restrictions will hit India Inc

Corporate restructuring
is a common practice.
or shares are transferred by one company to another group company for various
reasons. Such a transfer can even be done by way of a ‘gift’, which mitigates tax liability. It is this mode that the
proposals now seek to plug.

Currently, taxation of gifts as an anti-abuse provision is restricted to receipt of money above Rs 50,000, immovable property or specified movable property, without consideration or for inadequate consideration by individuals and HUFs. The cash or value of the gift is taxed in the hands of the recipient as ‘income from other sources’. Firms, limited liability partnerships or private companies are covered only if the gift is of unlisted shares. Now the scope has been enlarged — a new section covers all gifts to private and listed companies.
“Tax tribunals and courts have in the past examined group restructuring under a gift mechanism and in several instances have held that no capital gains tax arose. Thus, Company A could transfer its shareholding in its wholly owned subsidiary (Company B) by way of a gift to another group company (Company C). There would be no capital gains on such transfer. Post the restructuring, Company B would then be the subsidiary of Company C. Such restructuring took place for many business reasons — such as hiving off of an activity carried out by the subsidiary or for enabling a group entity to raise funds, as the transfer would result in a strong valuation,” explains Sudhir Kapadia, tax head at EY India.
“For capital gains to apply, there must be a transfer, whereas in this arrangement it was a gift. Second, the computation mechanism for arriving at capital gains also failed as the shareholding in the subsidiary was transferred without consideration,” adds Kapadia.
Vipul Jhaveri, tax leader at Deloitte, says, “When it comes to public companies, typically transfer will be done at fair value because there are public shareholders. For closely held companies, any kind of business reorganisation which is not done at fair value could now be under the scanner.”
Ajay Rotti partner, Dhruva Advisors, says, “The earlier provisions had left out trusts that were being used for corporate restructuring. Now, corporate restructuring that involves gifting assets or shares to a family trust will be impacted.”
(This article was originally published in The Times of India)

Budget impact: Gifts of shares, assets in corporate restructuring now taxable