Archive for the ‘Finance’ Category

The new tax slabs

July 7, 2009

Basic exemption for individual tax payers was increased by Rs 10,000 for general tax payers and women and Rs 15,000 for senior citizens (i.e. 65 years and above) by the finance minister on Monday.

The current income tax exemption limit is Rs 1.5 lakh (Rs 150,000) for men, Rs 1.8 lakh (Rs 180,000) for women and Rs 2.25 lakh (Rs 225,000) for senior citizens.

Finance Minister Pranab Mukherjee removed the surcharge on income above Rs 10 lakh (Rs 1 million) for personal income tax payers. The surcharge was levied at the rate of 10 per cent on income above Rs 10 lakh.

In another relief to the tax payers, the minister raised the deduction for maintenance of medical treatment of dependence from Rs 75,000 to Rs 1 lakh. Higher exemption limit will help the taxpayers in meeting the medical needs of dependents.

Meanwhile, he also proposed to introduce Saral-II form to enable the taxpayers to file their returns without difficulty.

The new tax slabs will stand as follows:

INCOME

TAX RATE

For GENERAL taxpayers

Up to Rs 160,000

Nil

Rs 160,001 to Rs 300,000

10 per cent

Rs 300,001 to Rs 500,000

20 per cent

Rs 500,001 and above

30 per cent

For WOMEN taxpayers

Up to Rs 190,000

Nil

Rs 190,001 to Rs 300,000

10 per cent

Rs 300,001 to Rs 500,000

20 per cent

Rs 500,001 and above

30 per cent

For SENIOR CITIZENS

Up to Rs 240,000

Nil

Rs 240,001 to Rs 300,000

10 per cent

Rs 300,001 to Rs 500,000

20 per cent

Rs 500,001 and above

30 per cent

via: http://business.rediff.com/report/2009/jul/06/budget09-the-new-tax-slabs.htm

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The US Dollar

June 26, 2009

Since about 1999, media pundits have been predicting the imminence of two things: breakdown of the US economy and the end of dollar hegemony. The

first has more or less happened now. I have argued earlier in previous articles in this column that, in the long run, demographics will largely determine the economic/political shifts which normally follow major episodes of global recession.

The recent meeting of the G20 called to discuss measures to tackle the current global meltdown, made all the necessary Keynesian noises and, most important, established the need for a continuing multilateral dialogue for economic cooperation.

The second issue regarding the role of the dollar as the principal reserve currency also came in for some discussion with suggestions about the need for a second Bretton Woods conference to reform the global financial architecture. As in the 1940s, the discussion has centred around world liquidity and the dollar’s hegemony.

Joseph Stiglitz is also reported to have made noises about the need to end the primacy of the dollar. While some of these suggestions are certainly politically motivated, it is useful to discuss the economic fundamentals of such issues. After all, even political discussions must be backed by at least some modicum of economic rationality. This is what we will take up in this article.

What determines the dominance of a currency in world trade? Here it is useful to first begin with elementary undergraduate economics. Any currency, domestic or international, must satisfy three criteria: it must serve as a unit of account, medium of exchange and a store of value.

The first implies that people accept valuation in that currency, the second that they should be willing to accept that currency in return for sale of goods and services and the third that people should be willing to hold savings (future demand) valued in units of that currency. What has been the actual experience?

The problem of a unit of account other than gold vexed financial planners after the setting up of the Bretton Woods institutions in the late forties. If currencies were convertible to gold on demand then the world supply of currency would depend entirely on discoveries of new gold deposits.

Since global liquidity could not be allowed to depend on such fortuitous circumstances, the dollar came to be the principal reserve currency (convertible to gold) under the so called ‘gold exchange’ standard. The dominance of the dollar followed the decline of the pound sterling as the dominant currency after the Second World War.

The main circumstance that led to this was the Marshall Plan under which the US became the main supplier of goods and services to reconstruct war ravaged European countries. Since the demand was mainly for US commodities, it was natural that the dollar would best serve as the medium of exchange in international transactions.

Yet, this did not imply that the dollar need also be the unit of account. In fact, as Robert Triffin pointed out, increasing world supply of money depended on increasing US trade deficits and hence something new was needed. This came in the 1960s in the form of the IMF created Special Drawing Rights (SDRs) which became a unit of account in which reserves could be valued.

But, as we have noted, the SDR could never become a real currency as it could not serve as a medium of exchange: barring IMF quota transactions, all other world transactions were dominated by demand for US goods and hence dollars. In addition, the US was the only country willing to become the banker to the world by keeping the value of the dollar fixed in relation to gold (at least till 1971) and hence limiting its flexibility in domestic monetary polices.

That then is the bottom line. As long as countries value the independence of their monetary and fiscal policies the international reserve currency will follow the law of the market: any currency which satisfies the three properties we have noted will be the reserve currency irrespective of political preferences.

The primacy of the dollar comes from the dominance of the US in world production and hence supply of goods and services. Between 1980 and 2007, the US accounted for around 30% of world production (GDP). Since most transactions would thus involve the use of the dollar it makes sense for traders to reduce transaction costs by holding dollars. What about store of value? It is a telling fact that most countries hold dollar-denominated debt indicating their continuing faith in the dollar as a store of value.

When would the dollar’s primacy end? When world production shifts away from the US subcontinent and some other country exhibits the same degree of political stability. Who are the candidates? The euro is one but the share of EU27 in world production has fallen continuously since 1980 and is now around 25%. China? In 2007, China accounted for 6% of world GDP!

However unfortunate it may seem, the dollar is going to be around for some time to come. I am sure Stiglitz knows this.

NRI bank accounts: Some facts

March 29, 2009

Today, there a number of Indians working abroad. Therefore, the banking services catering to the transfer of funds, savings, earnings, investments, and repatriation of Non-Resident Indians have grown tremendously.

Banking laws for NRIs allow for the following deposit schemes, or simply put, accounts with authorized dealers — banks and financial institutions authorized by Reserve Bank of India [Get Quote] to deal in foreign exchange — to be maintained in Indian rupees and in foreign currency:

  • FCNRForeign Currency Non-Resident Account
  • NRE — Non-Resident External Rupee Account
  • NRO — Non-Resident Ordinary Rupee Account

The special features for the above mentioned accounts are:

FCNR Accounts

These accounts are only for term (fixed) deposits with the maturity ranging from one year to three years.

NRE Accounts

NRE accounts are opened in Indian rupees and all foreign exchange deposits received for credit of these accounts are first converted to Indian rupees at the buying rates by the banks.

NRO Accounts

A bank account, held by a person designated as NRI, in India is designated as an Ordinary Non-resident Account (NRO Account).

FCNR Accounts

NRE Accounts

NRO Accounts

Currency used:

Pounds Sterling

US Dollars

Japanese Yen

Euro

Features:

  • Accounts only for term deposits ranging from one year to three years.
  • Principal, as well as interest, earned on these accounts is transferable outside India in the same currency or in other convertible currency.
  • The interest, earned on these deposits, is exempt from Indian Income Tax.

Currency used:

Indian rupees (all foreign exchange deposits received need to be first converted to Indian rupees at the buying rates by the banks)

Features:

  • Withdrawals in foreign currency are permitted provided The Indian rupees in the account are converted to foreign currency at the selling rate. This conversion loss is to be borne by the account holder.
  • Deposits for one year and above carry interest at rates higher than those available to residents in India.
  • Deposits and their interests are free of Indian Income-tax.
  • The entire credit balance (inclusive of interest earned accumulated) can be repatriated (send back) outside India at any time without requiring permission from the RBI.
  • Local disbursement from the accounts can be made freely.
  • Account holders can avail of loans/overdrafts from banks against security of fixed deposits in their NRE accounts.
  • The balances in the accounts are free of Wealth-tax and gifts to close relatives in India are free of any Gift-tax.

Currency used:

Indian rupees

Features:

  • Accounts can also be opened with funds deposited from abroad.
  • As funds in this type of account are non-repatriate, they cannot be deposited abroad to the account holders or transferred to their NRE Accounts without the Reserve Bank’s prior permission.
  • Interest earned on these deposits is not exempt from Indian Income-tax.

Some important facts that you should know about such accounts:

  • NRI accounts cannot be opened/ operated by a Power-of-Attorney holder in India on behalf of the NRI: However, the latter can operate the accounts for the purpose of local payments to be made on behalf of the NRI account holder. The Power-of-Attorney holder is not permitted to make gifts from these accounts and is not allowed to make remittances outside India.
  • NRIs can invest in shares and securities of Indian companies, government securities, etc. NRIs can invest in units of domestic mutual funds and deposits with Indian companies, immovable properties in India, and proprietorship/ partnership concerns in India.
    These investments can be done using a NRO or NRE account. However, an important point to remember is that if you use an NRO account, the funds sourced from any investments cannot be repatriated. This problem is solved by using a NRE account.

via:http://www.rediff.com/money/2009/mar/27perfin-nri-bank-accounts-some-facts.htm

Financial crisis explained…

March 7, 2009
The financial crisis explained in simple terms:
Heidi is the proprietor of a bar in Berlin. In order to increase sales, she decides to allow her loyal customers – most of whom are unemployed
alcoholics – to drink now but pay later. She keeps track of the drinks consumed on a ledger (thereby granting the customers loans).
Word gets around and as a result increasing numbers of customers flood into Heidi’s bar.

Taking advantage of her customers’ freedom from immediate payment constraints, Heidi increases her prices for wine and beer, the
most-consumed beverages. Her sales volume increases massively.
A young and dynamic customer service consultant at the local bank recognizes these customer debts as valuable future assets and
increases Heidi’s borrowing limit.
He sees no reason for undue concern since he has the debts of the alcoholics as collateral.

At the bank’s corporate headquarters, expert bankers transform these customer assets into DRINKBONDS, ALKBONDS and PUKEBONDS.
These securities are then traded on markets worldwide. No one really understands what these abbreviations mean and how the securities are
guaranteed.
Nevertheless, as their prices continuously climb, the securities become top-selling items.

One day, although the prices are still climbing, a risk manager (subsequently of course fired due his negativity) of the bank decides that
slowly the time has come to demand payment of the debts incurred by the drinkers at Heidi’s bar.

However they cannot pay back the debts.
Heidi cannot fulfil her loan obligations and claims bankruptcy.
DRINKBOND and ALKBOND drop in price by 95 %. PUKEBOND performs better, stabilizing in price after dropping by 80 %.
The suppliers of Heidi’s bar, having granted her generous payment due dates and having invested in the securities are faced with a new
situation.

Her wine supplier claims bankruptcy, her beer supplier is taken over by a competitor.
The bank is saved by the Government following dramatic round-the-clock consultations by leaders from the governing political parties.
The funds required for this purpose are obtained by a tax levied against the non-drinkers.
Finally an explanation that is simple yet true . . .

EMI Calculator

March 6, 2009

http://www.rediff.com/money/rediff-emi-calculator.htm


http://www.rediff.com/money/rediff-emi-calculator.htm

6 most common financial mistakes

February 12, 2009

It is indeed a material world. When it comes to spending, the U.S. is a culture of consumption. The result: rising levels of consumer debt and declining household savings rates. But in 2008, this culture was hit hard by economic reality.

According to the Federal Reserve, US household debt grew steadily from the time the Fed started tracking it in 1952. It declined for the first time in the third quarter of 2008. As a result of the credit crisis and ensuing economic recession, savings rates also rebounded. For those who had been living beyond their means for years, it suddenly got a lot harder to make ends meet. And, although the government tends to encourage spending during economic downturn and statistics may lead us to think that overspending is normal, it is often a risky choice.

Here we’ll take a look at seven of the most common financial mistakes that often lead people to major economic hardship. Even if you’re already facing financial difficulties, steering clear of these mistakes could be the key to survival.

Mistake No. 1: Excessive/frivolous spending
Great fortunes are often lost one dollar at time. It may not seem like a big deal when you pick up that double-mocha cappuccino, stop for a pack of cigarettes, have dinner out or order that pay-per-view movie, but every little item adds up.

Just $25 per week spent on dining out costs you $1,300 per year, which could go toward an extra mortgage payment or a number of extra car payments. If you’re enduring financial hardship, avoiding this mistake really matters – after all, if you’re only a few dollars away from foreclosure or bankruptcy, every dollar will count more than ever.

Mistake No. 2: Never-ending payments
Ask yourself if you really need items that keep you paying for every month, year after year. Things like cable television, subscription radio and video games, cell phones and pagers can force you to pay unceasingly but leave you owning nothing.

When money is tight, or you just want to save more, creating a leaner lifestyle can go a long way to fattening your savings and cushioning your from financial hardship.

Mistake No. 3: Living on borrowed money
Using credit cards to buy essentials has become somewhat normal. But even if an ever-increasing number of consumers are willing to pay double-digit interest rates on gasoline, groceries and a host of other items that are gone long before the bill is paid in full, don’t be one of them.

Credit card interest rates make the price of the charged items a great deal more expensive. Depending on credit also makes it more likely that you’ll spend more than you earn.

Mistake No. 4: Buying a new car
Millions of new cars are sold each year, although few buyers can afford to pay for them in cash. However, the inability to pay cash for a new car means an inability to afford the car. After all, being able to afford the payment is not the same as being able to afford the car.

Furthermore, by borrowing money to buy a car, the consumer pays interest on a depreciating asset, which amplifies the difference between the value of the car and the price paid for it. Worse yet, many people trade in their cars every two or three years, and lose money on every trade.

Sometimes a person has no choice but to take out a loan to buy a car, but how much does any consumer really need a large SUV? Such vehicles are expensive to buy, insure and fuel. Unless you tow a boat or trailer, or need an SUV to earn a living, is an eight-cylinder engine worth the extra cost of taking out a large loan?

If you need to buy a car and/or borrow money to do so, consider buying one that uses less gas and costs less to insure and maintain. Cars are expensive. You might need one, but if you’re buying more car than you need, you’re burning through money that could have been saved or used to pay off debt.

Mistake No. 5: Buying too much house
When it comes to buying a house, bigger is also not necessarily better. Unless you have a large family, choosing a 6,000-square-foot home will only mean more expensive taxes, maintenance and utilities. Do you really want to put such a significant, long-term dent in your monthly budget?

Mistake No. 6: Treating your home equity like a piggy bank
Your home is your castle. Refinancing and taking cash out on it means giving away ownership to someone else. It also costs you thousands of dollars in interest and fees. Smart homeowners want to build equity, not make payments in perpetuity. In addition, you’ll end up paying way more for your home than it’s worth, which virtually ensures that you won’t come out on top when you decide to sell.

Living Paycheck to Paycheck
In 2007, the US household savings rate fell below one per cent, but other countries had considerably higher rates of personal savings. For example, the Netherlands, Italy, Norway, Germany and France personal savings rates average 10 per cent or more according, to the OECD Factbook 2005. Clearly it is possible to enjoy a high standard of living without financing it with debt. Countries in Asia boast savings rates of as much as 30 per cent!

The cumulative result of overspending puts people into a precarious position – one in which they need every dime they earn and one missed paycheck would be disastrous. This is not the position you want to find yourself in when an economic recession hits. If this happens, you’ll have very few options. Everyone has a choice in how they live, so it’s just a matter of making savings a priority.

Making a payment vs affording a purchase
To steer yourself away from the dangers of overspending, start by monitoring the little expenses that add up quickly, then move on to monitoring the big expenses. Think carefully before adding new debts to your list of payments, and keep in mind that being able to make a payment isn’t the same as being able to afford the purchase. Finally, make saving some of what you earn a monthly priority.

Tax relief: Here’s what suits you best

February 5, 2009

Now that you have calculated your tax liability for this year, you will know exactly how much you have to save to minimise your tax outgo. You have two choices. If you are short of liquid surplus funds to invest, you can simply go ahead and pay this tax.

Outlook Money strongly recommends that you do not take a personal loan or any other debt to pay off this tax liability. If you have surplus funds and are ready to part with them for a medium- to long-term period (about five years or more), you can choose option two and invest them in the specified Section 80C instruments. The amount you invest will be reduced, up to Rs 1 lakh, from your gross total income.

Apart from long-term savings, the underlying objective of investing in any of the Section 80C instruments is to save your taxes.

Tax is paid on the income left after the amount invested is deducted from the gross total income. Taking an example, investment of the maximum allowed amount of Rs 1 lakh in one or a mix of Section 80C instruments reduces the taxable income by Rs 30,900 and Rs 33,900 if the income tax rate is 30.9 per cent and 33.99 per cent, respectively.

However, the days of merely looking at the tax benefits of tax-saving investments are over. Now, you can, based on your risk profile, choose to invest in products that save tax as well as earn returns.

The Income Tax Act does not treat 80C instruments uniformly, and the taxability of contributions, accumulations and withdrawals differs from one instrument to another.

Investments in a public provident fund (PPF) scheme, for instance, enjoy tax relief in the form of deductions, while the interest escapes the taxman’s axe. The money you get on maturity is not taxable either.

This method of taxation is referred to as ‘exempt-exempt-exempt’ (EEE) since all three stages — contribution, accumulation and withdrawal — are exempt from tax.

On the other hand, contributions to and accumulations in certain products are not taxable, but the amounts received, like periodical pension in a pension plan, are taxable in the year of receipt. Such financial products are governed by the ‘exempt-exempt-tax’ (EEE) method of taxation.

The tax treatment is different for notified tax saving bank fixed deposits (FD), National Savings Certificates (NSC) and Senior Citizens Savings Scheme (SCSS). The investment made in these instruments qualifies for exemption at the time of contribution, but the interest earned is taxed on accrual basis, that is, on each-year basis.

For example, if a notified tax saving bank FD gives a return of 8 per cent per annum, the effective post-tax return would be a mere 5.5 per cent, lower than the inflation rate, for someone paying 30.9 per cent tax. On the other hand, PPF gives a tax-free return of 8 per cent per annum. This return is the same for all tax brackets.

The return that should be examined while comparing tax saving products is the one post-tax, not pre-tax. The returns of tax-free products like and employees’ (EPF) are not pruned by taxes. With the tax scissors not clipping it, PPF’s return stays at 8 per cent per annum for all tax brackets.

We have shown the relative suitability of different 80C products on the basis of their returns for the four tax rates

The relative performance of only one product, SCSS, is not uniform across different tax rates. SCSS scores over in the 10.30 per cent tax bracket as the post-tax return of SCSS is higher at 8.07 per cent than 8 per cent. But beats SCSS on the return parameter for other tax rates. However, that would again change if the senior citizen’s income is less than the minimum taxable amount of Rs 2.25 lakh a year.

Other than the post-tax return, your choice largely hinges on your perception of the risk involved, your financial background and the stage of life you are in. Many young individuals are reluctant to invest in equity-related instruments at the initial stages of their career.

At the other end of this spectrum are investors in their late fifties or even retired people who have embraced the equity culture. Equity had moved unilaterally in the last five years, but we saw a reversal this year. cannot be relied on as an asset class to give good positive returns in the short- to medium-term.

So, while retirees may have had nothing to complain about till January 2008, the story is completely different for people who have retired since.

The question then is: What comprises a portfolio that can stand the test of time and deliver a decent return over a long term?

Too much exposure to equity may skew the risk-reward ratio. A bias towards fixed income instruments, on the other hand, may adversely impact the post-tax and post-inflation return. Risk and return have a close relationship and are important pillars of wealth creation over the long term.

Linking your 80C investments to your long-term financial goals is a recognition of this fact. Liquidity is a crucial factor in all the instruments and, hence, short- and long-term objectives should be clear before you lock your funds in them.

Remember, there is a trade-off in the choice between a market-linked product and an assured return instrument that is not linked to market conditions. The liquidity, returns and safety of your funds should be an integral part of your investment decision.

Hence, it is essential to have a portfolio with a prudent mix of market and non-market products. A portfolio that has an unreasonable bias towards any one of the two categories needs corrective action.

And, therefore, the final choice of instrument categories should, ideally, be based on a combination of factors rather than solely being driven by returns. One instrument by itself cannot help you save tax and provide safe, assured and high return at the same time.

The endeavour should be to build a portfolio that can deliver a decent return with little risk.

The product categories are stacked as per their post-tax return in the adjacent table. Essentially, this gives you an idea which class would be more suitable to you in terms of the actual return in your hand.

The choice of the instrument would further hinge on your risk appetite. The table details three risk profiles: low, medium and high. Under each investor risk category, the products are stacked as per their return and risk profile.

Taxpayers in the low risk category can, for instance, continue their EPF account and then consider any of the products shown. Being averse to risk, it would be better for them to avoid products that invest in equity, such as equity-linked savings schemes (ELSS) and unit-linked insurance plans (Ulips).

Endowment plans would be the best way to take life cover for them. However, taxpayers in the medium-risk category may benefit if they replace life insurance endowment plans with Ulips or ELSS.

Having both an endowment plan and a Ulip would amount to duplication of benefits as both serve the basic objective of providing protection. Investors in the high-risk category should give priority to equity-linked products such as ELSS or Ulips over fixed income products.

Once you have identified products that suit your risk profile, do also consider their holding period. funds diverted towards tax-saving instruments need to be locked in for at least three years, in many cases more. Some products have a lock-in mandate and they should never get money that you feel you are likely to require in this period.

A good mix of medium- and long-term products should be present in your portfolio to help you not just save tax but also fulfil your financial objectives.

Wealth can be created over the long tem only from a decent real rate of return, that is, after taking inflation into account.

Finally, having made your investments and claimed the tax breaks, don’t forget to keep the records and documents of your investments and tax deduction certificates, since you will have to produce them if called upon to do so by the taxman.

Credit Information Bureau (India) Limited – What everyone must know about CIBIL

December 30, 2008

This is the era of high spending. The truth is today people spend more than their grandparents or parents ever did.

Increasing incomes, the desire to own a house in one’s early twenties, the availability of variety in lifestyle and brand choices, a booming economy, a growing number of entrepreneurs, new business establishments, etc, are leading to a tremendous amount of money outflow.

Money rotation is a key factor in a progressive economy and this means there is a lot of lending. In the event of such rapid money outflow from bank coffers, several questions — like how does one keep a tab on all the credit lent, how does one identify defaulters and refrain from re-lending to them — began to crop up.

To seek a solution to these queries, the government of India and the Reserve Bank of India [Get Quote] got together to bring CIBIL (Credit Information Bureau India Ltd) into existence.

Currently banks, financial institutions, state financial corporations, non-banking financial companies, housing finance companies and credit card companies are members of CIBIL.

The idea behind setting up CIBIL is to gather all existing consumer and commercial credit information and pool it in a one-point source, for reference.

As in, an individual or commercial establishment could have accounts in several banks and credit from different lending institutions. All such data can be pulled out at one single point, for a quick reference check on the individual or commercial establishment seeking a loan.

This helps the lender, be aware of the repayment track record of the loan seeker and quickly decide on loan eligibility. According to the nature of the track record, a borrower is given a credit score. A poor credit score will make getting a loan, a difficult proposition for the borrower.

CIBIL acts as weeding mechanism that helps identify poor repayment track records. It helps protect lenders from giving credit to people and establishments who are unlikely to repay what is lent. Even if credit is provided, it is done so at a very high rate of interest, thereby ensuring that the bank is able to recover a considerable sum of money even if a default happens some time into the loan tenure.

On the other hand, if you have an impeccable repayment track record, you can reap benefits from it! Banks provide a lower interest rate for sound credit profiles that have excellent credit scores and such ‘Credit Information Reports’ can work to your advantage.

It also helps lenders and banks quickly process a loan, without wasting valuable time on research and background check on the loan applicant.

Well, this is the brighter side of things. There is a flip side to this, too. As with all mass processing systems that are not dependent on a single source for information, there are quite a few things that could be incorrectly recorded in the credit information reports, which are stored with CIBIL.

Here are a few instances, detailed for your understanding:

Lack of updated info: You might have defaulted on a sum of money, say Rs 12,000 but repaid the sum later, maybe well past the due date for the payment. There could be instances where CIBIL did not get the updated info for its records. This will show up as a default and will affect the calculation of a good credit score.

Confusion of names: There can be thousands of names that are similar in the CIBIL database. Things can go haywire if a person who shares your name has defaulted and all his defaults get recorded in your file.

There was this one instance, which a loan applicant reported. Her name, Anju Jadeja, was confused with Anjum Taneja. Turns out Anjum Taneja passed away tragically in a freak accident, with nobody able to identify her until bank authorities decided to investigate the applicant after CIBIL corrected and ratified Anju Jadeja’s credit report.

Till that point in time, the bank had put down Anjum’s bouncing cheques, as defaults on loan payments in Anju’s credit report. Today, Anju is a relieved woman.

Human input error: The information that goes from the banks to CIBIL on a loan or credit card payment default may have been erroneous due to a simple input error by one of the bank employees.

There was this instance when there was an accidental default of a month overdue payment of Rs 18,000 of one Tanushree Omkar. She cleared it the next month. However, the record that went to CIBI, had two additional zeroes, which made the default amount to Rs 18 lakh (Rs 1.8 million)!

Identity theft: This is the most serious of all causes of errors and can have a disastrous impact on a person’s credit profile.

In recent times, identity thefts are on the rise. Right from a petty shopkeeper who swipes your card several times to sneak in an unofficial payment, to a terrorist who wants to access a billionaire’s account in a remote corner of the world, identity theft is becoming a serious crime that needs to be checked.

If you are a victim of identity theft, like Anupam Shekar was, then it is time to get your financial log in order. Keep track of all the cards that you use or do not use. In Anupam’s case, an impostor had captured his PAN card details using a clever ploy. Anupam recalled that someone had wanted to deliver a mail from his local bank only on the basis of identification and had been examining the PAN card given with great curiosity.

It was then that it struck him that anyone could access his mailbox in the huge apartment complex he resided in. The impostor then went on to open an account with a bank entering all the details he had gathered on Anupam by accessing his mailbox. Anupam did not know for a long time about this until he decided to apply for a new credit card and his bank rejected him outright, labelling him a defaulter. Anupam had to go to great lengths, spending precious time and energy, to clear his name.

Apparently, the impostor had directed all bank communication to another address, got a credit card on that account and spent indiscriminately until the card was locked by the bank due to several defaults on repayment.

The account was frozen but the impostor walked away scot free to scout for his next victim, but not before Anupam Shekar’s credit report was tarnished beyond repair.

Fixing an incorrect CIBIL record

If you need to seek clarifications in your credit report, here are the steps you should follow:

a. Contact the bank that declined a credit card or loan application on the basis of your poor credit score. Ask them for a clarification on the poor credit score and request them to provide the control number for your credit report.

b. The bank will provide you with the control number of the credit report and also share the information on the credit report that is responsible for your poor credit score.

Get in touch with CIBIL by calling their help desk numbers at 1800 – 224 / 245 or +91 22 6638 4600 / 2281 7788 provided on their Web site, http://www.cibil.com/.

You could also drop in an email at info@cibil.com referring your credit report’s control number. When attempting to clarify the information on your credit report, you need to inform CIBIL about the exact nature of the discrepancies in the report that you have been made aware of, by the bank.

The importance of the control number

The control number is a nine-digit unique number that helps CIBIL track an individual’s credit t report from its database.

Banks feed in borrower data and personal information, which the CIBIL systems pool together. The control number is generated when banks pull out your credit report on a requirement basis.

The control number is generated every time any bank or credit institution pulls out a credit report on you. CIBIL requires this number because it enables them to view the exact details that the bank has seen when they drew a report on you. Hence, it is important for you to request the bank to provide you the control number.

Dealing with an uncooperative bank

When the bank is uncooperative you could post a complaint on the bank’s Web site and if the bank does not respond within 15 days, you can register a complaint with the banking Ombudsman, presenting a copy of the complaint posted on the bank’s Web site as proof.

You can either register this complaint through their Web site, http://www.bankingombudsman.rbi.org.in/ or locate the nearest branch office through this link, http://rbidocs.rbi.org.in/rdocs/Content/PDFs/68033.pdf to register your complaint.

Need for direct access to credit reports for borrowers

It is the need of the hour for CIBIL to allow borrowers to access their respective credit reports not only on cases when the information needs to be verified but also as a way for individuals to keep a tab on their money inflow and outflow.

This will help them weed out errors, clarify facts and more significantly, identify impersonations before it is too late.

Managing your finances – Yogesh Chhabria

November 9, 2008

LATELY, I have been thinking a lot about the Lehman crisis. Spending money that they didn't have and going beyond their means is one of the main reasons for their situation today. In fact that is the cause for the current economic crisis in the US.

When I see all this happening, I can only remember the good old days. Then, karz was bad. People looked down upon those who took loans. Parents would not give their daughter's hand in marriage to a man with loans.

But of course, the times have changed now. Everyone I know has a loan. The buzz word is EMI (equated monthly installment). Today, you can buy everything on EMI – a house, a television, an i-Pod. In fact I know of someone who just bought a fancy BMW 3 series on EMI, instead of buying a cheaper car outright with cash. I mostly prefer to take public transport, but then I am an old man with old thoughts!

Anyway, coming back to what caused the crisis. Imagine having Rs 2 lakh in your bank account, no regular income, yet buying a house worth Rs 65 lakh, in the hope of selling it for a higher price. Even if the price of the house fell by just 5 per cent (that is Rs 3 lakh), you will go bankrupt.

This is what Lehman Brothers did; with around USD 20 billion they went and bought assets worth over USD 600 billion. Isn't it suicidal and simply foolish?

I am sure things would have been different, had I been the head of Lehman brothers. But who wants an old conservative man like me to head a complex financial institution.

But there are a few lessons that we can learn:

1. Live a balanced life and avoid overspending.

2. Don't buy things we don't need.

3. Don't buy Branded good's.

4. Don't buy excess Food, Cloths, Cosmetics, Footwear, electronics and Fashion accuracies just think before you buy.

Tip: World still has a lot of growth ahead and the future holds immense opportunities for us. Let us make the most of it and save and invest it wisely instead of wasting our precious little on things we don't need.

5.Try to balance life with work (No one is happy to work in their profession).

6. Don't stress out your self, after work try to do some extra activities like swimming, yoga, walking, running where you can divert your mind from stress.

A thumb rule: Health is more important than money.

7.Try to understand each other (Wife and Husband) in financial matter's and help each other.

Tip: As soon as you get your monthly salary, set aside a fixed amount, usually 35 per cent, for insurance, savings and investments. You can then spend the rest.

8. Not all loans are bad. Loans that are 'need based' (home loans, education loans) can always find a place in your finances against those that are largely 'want based' (Credit cards, personal loans, car loans).

9. Borrow only if repayment is financially comfortable.

A thumb rule: Keep EMIs within 35 to 45 per cent of your monthly income

In that respect, there is one American who I really respect – WARREN BUFFET. He has lived in the same ordinary house for over three decades, drives his own medium sized car and leads an extremely regular 'middle class' life. If that's all it takes for the richest person on earth to be happy, why do all of us need to take extra stress just so that we can get things which aren't even essential? "

Not planned your tax investments yet?

October 20, 2008
During the month of October, most offices circulate an investment declaration form. This form asks the salaried individuals to list out investments, premiums paid for medical insurance and interest payout on housing loan that have either been made or will be made during the financial year 2008-09. Accordingly, companies make provisions to deduct taxes.

However, it has been noticed that many fill this form without having any actual idea about investments they will make and how. And then there is a last-minute scramble to invest to save tax in the month of February or even March. “This is why tax-saving products such as equity-linked saving schemes and unit-linked insurance product have the highest sales in the month of March,” says Vikas Vasal, executive director, KPMG.

According to him, since most people do not realise the importance of planning taxes at the start of the year, they end up stressing their finances at the very last moment. Tax planning needs to be taken care of in the very beginning of the financial year. For instance, if you were to invest Rs 1 lakh in instruments listed under the Section 80C of the Income Tax Act over a year, the monthly outgo is Rs 8,333 a month. And even if you have delayed it till now, starting in October when there are six months still to go, there is a good chance that the planning will be done better.

Equity-Linked Saving Schemes: Over the long term, equity as an asset class does much better compared to other tax-saving instruments. But to get the maximum returns, investments need to be done regularly through the systematic investment plan. The biggest mistake investors make is they put the entire money at one go in March.

As the equity markets are doing quite badly now, investors could enter the market now to get more units. “If the taxpayer invests in ELSS through an SIP, the investment will not only give him more units, but also preserve the actual value of his investments, in case the markets witness a similar turmoil in the future,” says Sajag Sanghavi, a certified financial planner.

Public Provident Fund: Financial planners say that among all the debt-based options available, Public Provident Fund is the best investment avenue. A PPF account gives flat 8 per cent returns on the investment. But the interest is paid between the dates 1 and 4 of every month.

So it makes sense to invest in the early part of every month to earn optimum interest. In fact, instead of putting the entire money at the year-end in March, if there are enough funds, you should invest the upper limit of Rs 70,000 in the beginning of the financial year in April. This way, the money earns interest for the entire year.

What makes PPF even more attractive is that the returns are completely tax-free. The first tenure for a PPF can last for 15 years. It can be further renewed thrice for five months. But the maximum investment allowed in PPF is Rs 70,000 every year.

Housing Loan: This comes under Section 24, where you get benefit on the interest payout up to a limit of Rs 100,000. The principal payout gets benefits under Section 80C up to Rs 100,000. However, in the latter case, the total tax benefit that is available is Rs 100,000 across all the instruments like contribution to company provident fund, contribution to PPF, life insurance premium, NSC and others. In case, the home loan is taken for a second house, the taxpayer is allowed deductions for the entire interest amount.

Others: The other instruments that come under the Section 80C declaration include bank deposits for five years or more and National Savings Certificates. Taxpayers can also claim deductions for children’s fees up to Rs 12,000 per child, for a maximum of two children.