Which is better to build retirement corpus? Details here


PPF vs NPS: Public Provident Fund or PPF is one of the limited risk-free investment tool that can yield higher average rate of inflation as PPF interest rate today is 7.10 per cent per annum. While PPF is completely a debt instrument, National Pension System or NPS scheme is a mix of both equity debt where an investor can choose up to 75 per cent equity exposure on one’s investment. According to tax investment experts, if an investor is in no mood to take any risk, then opening a PPF account is better option whereas an investor who is ready to take some risk, NPS account would be a suitable option for such investor.

Speaking on PPF vs NPS investment; SEBI registered tax investment expert Jitendra Solanki said, “If an investor has zero risk appetite, then PPF is suitable for such investor as it is 100 per cent risk-free one can remain assured about one’s PPF return whereas NPS scheme is mix of both equity debt investment. So, an investor who is ready to take some risk should go for NPS scheme as it would yield more in comparison to PPF in long term.”

PPF vs NPS: Income tax benefits

Jitendra Solanki said that both PPF NPS allow income tax exemption in investment up to 1.50 lakh under Section 80C of the income tax act. However, in NPS, there is additional income tax rebate available under Section 80CCD. Under Section 80CCD, a taxpayer can claim tax benefit on up to 50,000 invested in one’s NPS account in single financial year. So, if an investor is ready to take some risk, should invest in NPS ahead of PPF as it would allow him or her to claim an additional income tax benefit on up to 50,000 investment other than 1.50 lakh under Section 80C.

PPF vs NPS: Interest rate

Speaking on expected return in PPF NPS; Kartik Jhaveri, Director — Wealth at Transcend Capital said, “In PPF, interest rate is announced on quarterly basis compounded on yearly basis. So, PPF interest rate is subject to change on quarterly basis whereas in NPS account, the investor has option to choose one’s equity exposure. One can choose up to 75 per cent equity exposure in NPS account. So, one’s investment in PPF is 100 per cent debt investment whereas one’s NPS investment is a mix of debt equity. If an investor chooses 60 per cent equity exposure 40 per cent debt exposure, in that case equity investment is expected to yield at least 12 per cent per annum in long term whereas debt exposure may yield 8 per cent in long term. So, net NPS interest rate expected in 40:60 debt-equity ratio is 10.40 per cent (7.20 in equity 3.20 in debt exposure). Thus, compared to PPF account, one’s retirement corpus will grow 3.30 per cent faster in NPS in long term.”

Jhaveri said that if an investor keeps debt-equity exposure in 50:50 ratio, in that case NPS return would be 10 per cent in long term, which is still 2.9 per cent higher from current PPF interest rate of 7.10 per cent.

PPF vs NPS: Which is better

So, PPF is suitable for those investors who have zero risk appetite. However, if an investor is ready to take some risk, NPS is better as it gives around 3 per cent to 3.30 per cent higher return. Apart from this, NPS account holder can claim income tax benefit on up to 2 lakh investment in single financial year whereas this benefit in PPF is capped at 1.50 lakh on a single fiscal.

However, tax investment experts maintained that it’s risk-appetite of the investor that would decide which investment tool is better not the return in long term as both have the capacity to beat the average rate of inflation, which falls around 5-6 per cent in long term.

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Monthly SIP you need to accumulate ₹11 crore by age 50


Mutual fund calculator: Vijay Kumar Virnave is a 25 year old professional whose take home salary is around 40,000 per month he has no loan to repay. He is looking for an investment tool that can help him accumulate around 11 crore when he turns 50 years. However, he don’t want to invest in direct stock market.

Speaking on whether Vijay’s investment goal is viable; Kartik Jhaveri, Manager — Wealth at Transcend Capital said, “As the investor has no economic burden like any kind of loan repayment, it is possible to accumulate 11 crore in next 25 years but it would require some pun. Since, the investor is not in mood to invest in direct stocks; systematic investment plan (SIP) in equity mutual funds category is the only other option that can deliver the kind of return that will help investor accumulate 11 crore in next 25 years. However, to keep the monthly SIP at lowest levels, annual step-up has to be adopted.”

Asked about the annual step-up that would enable an investor to accumulate 11 crore in 25 years; Jitendra Solanki, SEBI registered tax investment expert said, “Normal practice is to maintain 10 per cent annual SIP step-up, but here the investment goal is highly ambitious hence, 15 per cent annual step-up would be safe.”

On how much one can expect to get in return after investing in equity mutual funds for 25 years; Jitendra Solanki reminded 15 x 15 x 15 rule of mutual funds that says that one can expect 15 per cent return on one’s equity mutual fund investments for 15 years. So, in the case of 25 years time horizon, one can expect around 15 per cent return on one’s money, said Solanki.

Mutual fund return calculator

Assuming 15 per cent annual return after continuously investing for 25 years maintaining 15 per cent annual SIP step-up, SIP calculator suggests that one needs to start with monthly SIP of 12,000. This will help an investor accumulate around 11 crore in next 25 years.

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Photo: piggy SIP calculator

Asked about the mutual fund SIP plans that can yield 15 per cent return in 15 years; Vinit Khandare, CEO & Founder at MyFundBazaar India Private Limited said, “Depending upon the risk appetite of the investor, he or she can choose small-cap, mid-cap or large-cap fund.”

Vinit Khandare of MyFundBazaar listed out the following mutual fund SIP plans that may hold well for those investors who want 15 per cent return on mutual funds investment in long term:

Small-cap Fund: SBI Small Cap Fund – Regular Growth.

Mid-cap Fund: Aditya Birla Sun Life Mid Fund – Plan – Growth Regular Plan.

Large-cap Fund: HDFC Top 100 Fund – Regular Plan – Growth.

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How you may save 10% tax on long term capital gains by March 31


The new tax laws on crypto other digital assets will come into effect from 1 April 2022. However, there is no mention of cryptocurrency sales being taxed in Budget 2022 for the current fiscal year. Now, the question arises of how the gain up to March 31, 2022, will be treated as the new provisions will be applicable from FY 2022-23. There could be two views of this situation as there is no clarity in the Budget in this regard.

What the experts are saying

Most experts agree on one view that is there is a lack of clarity on this. According to one viewpoint, gains realised before March 31, 2022, can be classified as long-term capital gains taxed at a rate of 20% after deducting costs. According to another viewpoint, tax should be paid at a rate of 30% because there are no particular provisions in the legislation in this regard, tax can be paid according to the newly proposed law.

As per one expert view, you will have to pay less tax on capital gains, if the booking is done till 31 March 2022 as from 1 April, a flat 30% tax would be payable on these.

“The applicability of 30% tax will be starting from 1st April booking earlier will drastically reduced tax burden, to be exact 10% reduced tax rate till 31st March, as 20% is still on the large. The capital gain from crypto gain is not a new term but the government is giving a certain relief to the current booking of long term crypto gains if one would that before the 31st March 2022. However, we are still away from a proper clarification on the final taxation how it will be done this may create a much larger confusion than prevailed earlier,” said Amit Gupta, MD, SAG Infotech.

Another expert said that the 30% tax proposed in Budget 2022 on these gains needs to be paid even in the current fiscal to avoid any litigation.

“To avoid future litigation, we believe that tax should be paid at a rate of 30 per cent. The government is also anticipated to provide essential clarification in this regard, “said Pramod Chandrayan, Co-Founder & CTO, FinMapp.

“Holding is the best strategy to generate considerable wealth in the crypto market, which is extremely volatile not friendly for retail investors with a short term view. Now that the Government has decided to tax over the crypto gain @30 %, it will be interesting to know how the Crypto gains will be taxed in the running fiscal year as there is no blueprint for the same,” he added.

As per one expert view, to keep things simple any capital gains over crypto which was held for more than 36 months then sold can be taxed @ 10–15 % considering these provisions are already there for other asset class, but if the gains are made from short term holding, it can be taxed @ 20–25 % which may resonate well with the crypto investor. Taxing less for long-term holding will be a welcoming move as it will promote a healthy investing discipline among crypto investors help them generate considerable corpus which can indirectly be a good contribution to our nation’s economic growth. The more people will make money out of long-term investing the more they will give back to the nation through taxes.

While presenting Budget 2022-23, Finance Minister Nirmala Sitharaman said that the transfer of digital assets, including crypto non-fungible tokens (NFTs), will be subject to a 30% tax. Furthermore, all transfers of such assets will be subject to a 1% tax deducted at source (TDS). Even gifting such assets will result in a 30% tax.

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Can housing society levy fees amount other than non-occupancy charges when sub-letting a flat?


I let out a flat in a society, which passed a resolution in the recently conducted general body meeting to levy 10,000 as shifting charge whenever a flat is given on leave & license under “any other charge”. Is this charge as per housing society by-law?

The direction given by Registrar’s office says “Non-occupancy charge should be 10% of the service charge no other charges are levied as non-occupancy charge” which is not helpful in giving guidance clarity to an individual with a grievance. Please guide us. 

– Name withheld on request

No, the levy of Rs. 10,000/- (Rupees Ten ThousOnly) as shifting charges under the caption “Any Other Charge” whenever a flat is given on leave license to a licensee is illegal contrary to the Model Bye-Laws of a Co-operative Housing Society Ltd. (“Model Bye-Laws”). There is no provision under the Model Bye-Laws to charge shifting charges as sought to be done in the present case.

By-Law No. 65 of the Model Bye-Laws enlists the charges that a society is entitled to collect from the members of the society towards outgoings establishment of its funds. Bye-Law No. 65(k) specifically provides for Non-Occupancy Charges as one of the charges to be paid by a member in case of sub-letting of flats etc. However, Bye-Law No. 65 does not provide the quantum of charges to be levied in respect of the various charges mentioned therein including that of Non-Occupancy Charges.

Non-Occupancy Charges are charges levied upon a member who does not reside in the society premises the flat is vacant or let out or given on a license basis. Under Bye-Law No. 43(c) of the Model Bye-Laws, Non-Occupancy Charges are to be paid in accordance with the circular issued by the Government of Maharashtra the Commissioner of Co-operation from time to time. Further, such Non-Occupancy Charges cannot be levied if the flat is occupied by the immediate family of the member as defined under the Maharashtra Co-operative Societies Act, 1960 or the Model Bye-laws.

Accordingly, the Government of Maharashtra has issued a circular dated August 1, 2001, capped the Non-Occupancy Charges at 10% of the service charges (excluding Municipal Corporation/ Municipal Taxes) levied by the society. The circular came to be challenged by a few Co-operative Housing Societies Ltd. before the Hon’ble Bombay High Court which has upheld the same.

Thus, a member whose flat is vacant or is let out or given on a license basis is liable to pay any amount that does not exceed 10% of the services charges levied by the society on all the members of the society as by way of Non-Occupancy Charges the society cannot charge any further charges under the category/ caption “Shifting Charge” whenever the flat is let out or license basis.

Aradhana Bhansali is partner, Rajani Associates. 

(Queries views at [email protected])

 

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How to claim section 80EED benefit buying home in FY23


Income tax calculator: In Budget 2021, Union Finance Minister Nirmala Sitharaman had extended income tax benefit under Section 80EED till 31st March 2022 that allowed first time home buyers to claim income tax exemption on up to 1.50 lakh home loan interest payment in one’s home loan EMI, provided the house property is priced below 45 lakh. But, this benefit hasn’t been extended in Budget 2022 that means new first time home buyers will have to pay more income tax from next financial year. However, if a taxpayer is mulling to buy home in net financial year, he or she can still avail this income tax benefit while filing one’s income tax return in next fiscal. What the home buyer need is to get its loan approved in current financial year buy home in next financial year.

Speaking on how a home buyer can still avail income tax benefit under Section 80EED of the income tax act, Mumbai-based tax investment expert Balwant Jain said, “While ITR filing from next fiscal, a taxpayer won’t be able to claim income tax benefit under Section 80EED of the income tax act as this benefit ends on 31st March 2022. However, in case, a taxpayer is mulling to buy its dream home next fiscal, it still has a chance to avail this benefit of income tax exemption on 1.50 lakh home loan interest payment in one financial year.”

On how an income tax payee repaying home loan EMI can claim the benefit next financial year, when the benefit ends in current fiscal year, Balwant Jain said, “The benefit is still available till 31st March 2022. So, if a taxpayer is planning to buy its dream home in next financial year, it needs to apply for a home loan right now get sanction letter before the end of this financial year i.e. before 31st March 2022. Having home loan sanction letter within the given period of the benefit, one would be able to claim income tax benefit even if they buy their home after some time but within the given validity period of the approved home loan.”

Balwant Jain said that the idea would work for first time home buyers only the house property price has to be below 45 lakh.

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