ELSS or PPF?

Nayana is a young banking professional. It's the last quarter of the financial year and she is trying to figure out tax-saving options under Section 80C. Her father has suggested investing in the Public Provident Fund (PPF). However, her adviser recommends investing in Equity Linked Saving Schemes (ELSS) instead.
Her father is worried about this as he has never explored anything beyond PPF. He derives comfort from the fact that it is a fixed income oriented investment, guaranteed by ..

Nayana and her father have to understand that tax-saving investments should not be looked at from a tax saving perspective alone. We are talking about Rs. 1.5 lakh of her hard-earned money, which she has the option of investing year after year. There is no reason not link it to one of her long-term goals like saving for retirement, buying a house and the like.

Investing in a fixed income product like PPF will restrict her returns. With inflation hovering around 6%, her real rate of return is only 2-3% with PPF. Such low returns will prevent any major gains accruing over a long period of time.

ELSS actively invests in the equity markets, with a potential to earn higher returns than traditional savings options like PPF. In fact, if Nayana's father had invested in ELSS instead of PPF 15 years ago, his investments in equity would have grown to Rs. 61 lakh as against Rs. 29 lakh in PPF.

If risk is what Nayana's father is worried about, risk of loss in equity tends to reduce over the long term and tax-saving investments under Section 80C are usually for the long term. Hence, ELSS fits the bill. Moreover, ELSS will effectively be a tax-free investment (EEE) for Nayana
The investment gives deduction up to Rs. 1.5 lakh and both dividend as well as redemption proceeds are exempt from tax. Nayana also gets better liquidity with ELSS' lowest lock-in period of 3 years, should she feel the need to redeem the investment for some reason. To top it all, she can do a monthly SIP, which means every month she invests Rs. 12,500 instead of bunching everything up at the year end.

Therefore, Nayana must refrain from allocating funds towards tax-saving options the way her father did. Instead, she should weigh the pros and cons and aim for more with ELSS, instead of getting stuck with fixed income-oriented investments like PPF 

Here's how an employee can keep track of his EPS amount

An individual switches jobs and usually transfers the Employees' Provident Fund (EPF) balance to the new employer. But what happens to the funds in the Employees' Pension Scheme (EPS) continues to remain a mystery for many. While the PF account number of the new employer shows the transferred EPF balance, what about the EPS money from the previous employer?

Here are a few pointers on how the EPS works and how one can avail it: 

*An employee contributes 12 per cent of his basic salary directly towards EPF. 

*He does not contribute directly towards EPS. 

*Of the employer's share of 12 per cent, 8.33 per cent is diverted towards the EPS, with a cap of Rs 1,250 (earlier Rs 541) a month. 

*When the employee switches jobs, the EPF gets transferred to the new employer, but not the EPS. 

When the employee switches jobs, the EPS contributions stay with the EPFO. 

*The employee has the option to either withdraw the EPS amount or carry it forward to the next job. This, however, depends on the length of his service and his age. 

Less than 10 years in job 

If an employee has not completed 10 years in service, he can either withdraw the EPS amount, or take the 'scheme certificate'. If he is still working, but hasn't completed 10 years, this, however, is not possible. He can apply only after he has quit his job, i.e., before joining another company. 

The option to withdraw or take the scheme certificate has to be submitted by filling Form 10C, which can downloaded here . Recently, the EPFO introduced 'UAN based Form 10C', 

This form can only be used by an individual who has furnished employee details to the existing employer in 'Form 11-New' ( download here ), furnishing the Aadhaar, bank details, and after getting the Universal Account Number (UAN) activated by providing a cancelled cheque with name, account number and IFS Code. Currently, UAN based Form 10C can only be used for withdrawal and not for taking the scheme certificate 

If you have worked for less than six months, the EPS contributions cannot be withdrawn as the EPFO rules say that for those who have not yet completed 180 days in the organisation, the withdrawal benefit is not admissible. One can, however, apply for the scheme certificate. 

The employee won't get the entire contribution (Rs 541/Rs 1,250 a month) back after applying through Form 10C. The amount received will be subject to Table D as below. 

How it works: If the salary at the time of EPS withdrawal after 8 years , by filing form 10C, is Rs 15,000, then the EPS money one receives is Rs 1,23,300 (Rs 15,000 * 8.22). 

Remember, the employee who hasn't completed 10 years and does not wish to withdraw his EPS money, may opt for the scheme certificate as well. 

Scheme certificate 

Form 10C asks you to choose between the scheme certificate or withdrawal benefit along with filing the date of joining and leaving the company. The EPS money can be withdrawn by an employee or it can be carried forward through a scheme certificate while switching jobs. 

If you have taken a scheme certificate, submit it to the EPFO through the new employer. When you leave the job, you will again have to fill Form 10C. The EPFO will add the new number of years in the scheme certificate, showing the cumulative service record and give it back to you through your employer. 

This continues till one reaches the age of 58 and then surrenders the certificate to the EPFO to start getting pension. One may opt for early pension (reduced to that extent) after 50 years provided one has completed 10 years of service. 

More than 10 years of job 

For an employee, the service for six months or more is treated as one year. Therefore, 9 years and six months will be considered 10 years. Once 10 years are completed, the withdrawal benefit stops and one can only take the scheme certificate from the EPFO by filling the same Form 10C 

Time for pension payments 

Pension begins at the age of 58 and for that, one need to fill Form 10-D ( download here ). Let's see how much pension one could get after the hard times of a working life. The pension amount is based on a formula: 

While working, the maximum amount that can go into the EPS of an employee is 8.33 per cent of the employer's share, but the basic pay is capped at Rs 15, 000. So the amount comes to Rs 1,250 each month, i.e., Rs 15, 000* 8.33 per cent. As the EPS funding is capped, the pension that one will get is also capped and is based on the following formula: 

(Pensionable Salary * service period) / 70. 

The pensionable salary is capped at Rs 15,000 and service period at 35 years. Therefore, irrespective of the actual years and the basic salary, the maximum monthly pension would be Rs 7,500. 

To be eligible for pension (for lifetime and then family pension), one has to work minimum 10 years and then keep accumulating service period through scheme certificates. 

How EPS works 

Remember, an employee does not directly contribute towards his own EPS. It's the portion of the employer's contribution that moves into the EPS. An employee contributes 12 per cent of his basic pay towards the EPF account. 

The employer is supposed to match the employee's minimum contribution of 12 per cent. Of this, 8.33 per cent is diverted towards the EPS and the balance of 3.67 per cent moves into the EPF account. In effect, 15.67 per cent of the employee's salary goes into EPF account each month 

Conclusion 

Peanuts for pension, they say and rightly so. With the maximum pension capped at Rs 7,500 a month and not even indexed to inflation, the dependency on it is certainly not possible. From September 1, 2014, the EPS is only for those new members earning less than Rs 15,000. Therefore, new employees whose basic pay is more than Rs 15,000 will not see any diversion of 8.33 per cent (of the employer's share) towards the EPS. For older employees, the diversion will, however, continue.

6 steps to e-filing your income tax return

TEP 1. Register yourself
To e-file your income tax return, you will have you register on the income tax Department's online tax filing site (incometaxindiaefiling.gov.in). You have to provide your permanent account number (PAN), name and date of birth and choose a password. Your PAN will be your user ID.


STEP 2. Choose how you want to e-file
There are two ways of e-filing your income tax return. One is to go to the download section and select the requisite form, save it on your desktop and fill all the details offline and then upload it back on the site. Or you can choose to fill the form online by selecting the quick e-file option.


STEP 3. Select the requisite form
ITR-1: For individuals earning a salary, pension, or income from property or sources other than lottery.
ITR-2: For those earning capital gains. ITR 2A for those owning more than one house but no capital gains.
ITR 3, 4 and 4S: Professionals and business owners.

STEP 4. Keep the documents ready
Keep your PAN, Form 16, interest statements, TDS certificates, details of investments, insurance and home loans handy. Download Form 26AS, which summarises tax paid against your PAN. You can then validate your tax return with Form 26AS to check your tax liability.

If you earn more than Rs 50 lakh, from this year you will have to fill an additional column —"AL" or assets and liabilities. You will have to disclose the value of your assets and liabilities. Assets have to be declared at cost.

STEP 5. Fill form and upload
If you choose to fill the form offline, after you have downloaded the form and filled all the details, click on 'generate XML'. Then go to the website again and click on the 'upload XML' button. You will have to first log in to upload the XML file saved on desktop and click on submit.

STEP 6. Verify ITR V
On submitting your ITR form, an acknowledgement number is generated. In case the return is submitted using digital signature, you just have to preserve this number. If the return is submitted without a digital signature, an ITR-V is generated and is sent to your registered email ID.

The tax filing process is incomplete and ITR is invalid unless your ITR V is verified. You can electronically verify or mail the signed ITR V to the processing centre in Bengaluru within 120 days of filing the return. 

Premature withdrawal of PPF

The Finance Ministry has announced new rules allowing for premature withdrawal of the Public Provident Fund (PPF) account deposit for reasons such as higher education or treatment of serious ailments.

The premature withdrawal will, however, be allowed only after the subscriber's deposit scheme account has completed five years, the ministry said in a notification.

"A subscriber shall be allowed premature closure of his account or account of a minor of whom he is the guardian on ground that the amount is required for treatment of serious ailments or life-threatening diseases of the account holder, spouse or dependent children on production of supporting documents from competent medical authority," the notification said.
Withdrawal will also be allowed if the amount is required for higher education of the account holder or the minor account holder, on production of documents and fee bills in confirmation of admission in a recognised institute of higher education in India or abroad, the notification said.

ITR form which applies to U

The July 31 deadline for individual income tax return filing is knocking on our doors but as you rush to file your return make sure you choose the correct ITR form that applies to you. A correctly filed ITR in a form which is not applicable to you would be treated as defective. You would have to rectify such a defective return which would involve additional time and effort. Here's a guide to help you choose the correct return form which applies to you for financial year 2015-16.

TR-1 or Sahaj
This tax return form is to be used by an individual whose total income for the financial year includes any one or all of the following:-
* Income from Salary/ Pension; or
* Income from One House Property; or
* Income from Other Sources
* Any exempted income

Who cannot use ITR-1
An individual having incomes from sources mentioned above still cannot use this form if any of the following condition is fulfilled in the financial year for which the return is being filed:
* If you have any foreign assets located outside India. Foreign assets include foreign bank accounts, immovable property located outside India, financial interest in any entity located outside India and other assets held abroad for investment purposes (like shares listed on NASDAQ).
* If you have agricultural income exceeding Rs. 5,000.
* If you have income from Capital Gains (except for those which are exempted from tax. Capital gains from sale of equity shares or units of mutual funds(equity schemes) which are sold after one year from date of purchase and on which STT (Securities transaction tax) is charged on sale are exempt.)
* If you have income from Business or profession.
* If you have lottery income or winn ..

ITR-2A

This Return Form is to be used by an individual or HUF (Hindu Undivided Family) whose total income for the financial year includes any or all of the following:-
* Income from Salary/ Pension; or
* Income from multiple House Property; or
* Income from Other Sources (including lottery income and winning from horse races)
* Any exempted income (even if agricultural income is exceeding
Rs 5000).
* NRIs can also file ITR-2A, if applicable.

Who cannot use ITR-2A
An individual or HUF having incomes from sources mentioned above still cannot use this form if any of the following condition is fulfilled in a particular financial year:
* If you have any foreign assets located outside India.
* If you have income from Capital Gains (except for those which are exempted from tax)
* If you have income from Business or profession.

ITR-2
This Return Form is to be used by an individual or a HUF whose total income for the financial year includes any or all of the following:-
* Income from Salary/Pension; or
* Income from multiple House Property; or
* Income from Other Sources (including Winnings from Lottery and Income from Race Horses).
* Any exempted income (even if agricultural income is exceeding Rs 5000).
* Income from Capital Gains
* If you have any foreign assets located outside India.

Who cannot use ITR-2
You cannot use ITR-2 if you have any Income from Business or Profession for the relevant financial year.

ITR-3
This Return Form is to be used by an individual or a HUF who is a Partner in a firm or LLP (Limited Liability Partnership). Further, the form should be used if the total income for the year includes any or all of the following:
* Income from Salary/Pension; or
* Income from multiple House Property; or
* Income from Other Sources (including Winnings from Lottery and Income from Race Horses).
* Any exempted income (even if agricultural income is exceeding Rs 5000).
* Income from Capital Gains
* If you have any foreign assets located outside India.
* If you are partner in a Partnership Firm or LLP and where you only receive interest, salary, bonus, commission or remuneration from such firm. If the partner does not have any income from the firm by way of interest, salary, etc. and has only exempt income by way of share in the profit of the firm, then also he has to  file his return using this form only.

ITR-4
This form is to be filled by Individual/ HUFs only if they have income from a proprietary business or profession.

ITR-4S OR SUGAM
This Return Form is to be used by an individual, HUF and small businessmen who has Presumptive business income along with other income mentioned below:
* Income from Salary/ Pension; or
* Income from One House Property; or
* Income from Other Sources
* If you have any exempted income
* Income from Presumptive Business Income (like CAs, Doctors, Lawyers, small businessmen)

Who cannot use ITR-4S
An individual/HUF/ Small Businessman having incomes from sources mentioned above still cannot use this form if any of the following condition is fulfilled in the financial year for which the return is being filed.

* If you have any foreign assets.
* If you have agricultural income exceeding Rs. 5,000.
* If you have income from Capital Gains (Chargeable to tax), or income from Business or profession.
* If you have lottery income or winnings from race horses.
* If you have income from more than one House property.
* If you have any brought forward loss under House property.
* If you want to carry forward any losses from previous years.