PAN CARD WOULD BE A NECESSITY FOR ALL INCOME EARNERS '

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Perhaps every citizens by now know that in the recent budget a provision has been incorporated that any persons having invested money in fixed deposit would require to quote the pan number. This provision will be applicable to all persons irrespective of the fact that he or she is not even income tax payers. The banks ar being advised to deduct money if no pan numbers are quoted even by non income tax payers from April next. In case wrong mentionning of Pan card number by depositors there would be 20% deduction of tax, as a penalty.

Till recently Pan card was a necessity for the income tax payers who submit income tax returns annually. now a days pan card is necessary for buying a car, or owning a cell phone number. Now pan card would be necssary for Fix Deposit in Bank even if he not a tax payer.

A few years ago pan card was also necessary whosoever makes foreign travel. Even for those people it was necessary to submit IT returns even if he was non income tax payers.( It was necessary for such person to submit nil return). While submitting nil return he had to quote his pan number. This provision has been abolished a few years back. Now Pan card is required for any kind of financial transaction..

The matter of obtaining a pan card for individual has gained importance now because from now onward for even if a person's total income is less than taxable income and he keeps money in bank's fixed deposit he would be required to have Pan card. This is going to be the law from next April. I would there fore like to recommend all persons having fixed deposit in bank or in Government or non Government organisation to apply for PAN number for his own benefit. What is a PAN CARD ?
I will try to answer like a lay man. The PAN is the abbreviation of Permanent Account Number . Actually this is a unique number allotted to individual or a corporate entity by department of income tax, Government of India. It is more an identification number . The PAN card is a plastic coated/laminated card containing an alphanumeric number, mentioning name, father's name, date of birth, the signature, person's photo and, of course, the PAN number and logo of government. of India and dept. of IT. By default , a PAN number has five letters first, then four digits and then one letter again. The uses of Pan card was for mainly following reasons.

1 Till now, it is mandatory to have one and only one fore every Indian who's income exceeds tax free limit. ( this provision is being changed from next April)
2. It serves as an photo-identity card as an Indian citizen .

With the new change in law pan number become necessary for everyone who has FD account in Bank including a widow who may earn an income of below Rs one lakh ninety thousand.. The threshold limit for payment of income tax for all categories of persons have recently been upwardly revised and most of the retired senior citizen and some of the ladies have become out of income tax net. From next April a widow earning below the threshold limit ,even if she has submitted the form 15 , income tax would be deducted by bank for her fixed saving in bak, in case Pan number is not submitted. In certain case if pan numbers are wrongly quoted, may be due to inadvertence, then tax will be deducted at the double the rate. This is where shoe would pinch for a widow or a lone lady or for a senior citizen. The persons having bank FD etc must be very vigilant if they want to avoid unnecessary deduction of tax and penalty from now onward.



Even this provision would be applicable to ordinary common salary earners also unless he submits pan card number. Many senior citizen never is to apply for pan card thinking that they were beyond the ambit of income tax hence no pan card was required. This was a valid argument till now. But from next April onward if pan card number is not submitted to the Bank or any other other authorities income tax would be deducted on payment of interest.

My humble suggestion is not to panic . There are ample time to apply fopr a pan card. In any case the provision would be applicable from next April only. We have one years time to get organised for a pan number. Having a pan card is very useful and easy. It can be used as a photo identity card also beside using for all financial transaction. This number is actually isued by income tax department to track any financial transaction and also to ensure non evasion of tax by eligible citizen. The pan card is very useful for all the citizens, for our country donot have a Social security number like devlop countries of the world.. The importance of PAN card would continue till unique Identification number is issued by the central Government to each citizen. The project has already been taken up recently. A few persons recently wrote to me asking as to how and where PAN card could be applied?

The Income tax Department has authorised UTI investors services Limited to manage and issue pan card for smooth issuance of the card.. It can be applied on line also through internet ascility for the application form. There is a specific application form and that should be filled up to enable UTI Invetors Services Limted to issue PAN number with phoogtraph. A small fee is also charged for the fascility. The pan card can be issued to NRI also.

There are enough time now and all perons having income out of bank fixed deposit, company fixed deposit and having fixed deposit from any other governmental and non govrnmental organsation should apply for PAN number though they might not be income tax payers. In case they donot take PAN Card and donot submit on time the authorities would deduct income tax at the rate of 10% to 20% at the time of payment of interest in due course. Hence it is recommended that steps should be taken up by all concerned not only to apply and obtain the Pan number but to submit the same to the authrities concerned at the earliest.


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MUTUAL FUNDS ABOLISHES ENTRY LOAD BUT EXIT LOAD DOUBLES

There is a good news for mutual fund investors. From August 2009 there would no entry load for investing in Mutual fund. Earlier whenever,except during the time of New Fund Offer (NFO), entry load amounting 2.% to 2.5% was a must. This amount was deducted, from the money given by investor to the Fund house, at the time of allotment of the units.The account statement reflected the deduction made by the fund house. Now there would be no deduction at all as there would be no entry load. This means If an investor invests Rs10,000/- the entire amount would be invested. Earlier money invested was Rs9800/- only though investor paid Rs 10,000/- So this is the happy news that there would be no entry load from now onward,

But always every good news is followed generally by a bad news. Now the bad news is that there would be now a higher exit load . The exit load was nothing new. It was there already.The exit load was required whenever investor is to take out the amount invested before one year. With the abolition of entry load the fund houses may increased the exit load. Till this year exit load was 1%. of money invested. Now it is understood that exit load have been brought up to 2% depending on amount of investment. A few fund house has already introduced the load as well as the period. in coming month. All others are also expect to hike the period and price.So it would be the responsibility of the investor to think over twice before leaving a fund before the specified time limit. My suggestion would be to read the offer document thoroughly before applying for investment .SEBI has already restrained Fund Houses not to charge varying amount of exit load from unit holders depending on quantum of investment. Earlier big investors were not charged any exit load. From now onward it would not be possible for Mutual fund Houses to give concession to big investors denying the small investors. This is a good step.

Shashikant Dubey,an expert of the mutual fund world, gave me another bad news for the investor. With the new provision of withdrawal of entry load the Mutual fund companies may extend the period of exit load. Up till now the exit load was required if an investor leave before one year. This one year's limitation would now probably be converted into two to three years period. That means once any investor joins a mutual fund he would not be able to leave the fund before two to three years without incurring penalty. Up-till now, these actions have not been taken by any Mutual fund but there is a possibility. Perhaps before publication of this article the confirmed news in this regards would be available.

So from now onward, before entering into mutual fund arena, it would be imperative for investors to read the offer document seriously and find out if there is any provision of exit load has been changed or not. I have again and again mentioned that investment is a serious job and none should enter the world of investment without properly understanding the schemes of investment. One needs to ask as many question to the financial advisor as he desires. The need of a qualified investment adviser would be necessary now, who would be truthful to the prospective investors .


The Entry loads were used by funds to help remunerate the fund distributor who serviced investors. Now, investor will have to separately pay the distributor for his services an amount that investor can mutually fix with him as fair payment for his services. The days of free services will go away from now onward. If you get free service then you should consider your self lucky. It would be like buying of air ticket from travel agent. Earlier no charges were imposed. Now a days travel agent charges money for the service rendered.

Apart from entry loads, there are some accompanying changes in the rules that investor must understand. There are no rules not to re fix the exit load .So the mutual fund companies in their exuberance to earn bqck the loss may impose suitably some charges through the exit load. My suggestion is investor must be aware of these points.So that they do not feel cheated later on. Mutual fund companies would be within their right to re-fix the exit load since there is no legal hindrance to do so.


The provision for enhancement of period of exit may do good to investor also. Because, most of the investors used to exit at the fall of sensex or Nifty. In fact this provision, if implemented, may turn out to be a savior for investor also. They would not be able to redeem immediately after the investment is made with out paying penalty. For the fear of payment of higher penalty at least some investors would keep holding back their investment and ultimately may reap benefit. For example, during the share market crash of January to June last year those investor , who had not taken out their investment and stayed with the fund, have regained their investment to a great extent by now. The increasing the length of exit period may help investors to be a long term player.
Probably, investors would be able to count on zero exit loads provided investment periods are longer than three years. These are early days and it’s possible that exit loads may evolve. Exit loads are going to acquire more importance now and one can expect some standardization across the industry sometime later.

. According some expert of the Mutual fund the way things are shaping up, it looks like fund companies will be paying distributors one per cent up front commission even though there’s no entry load. If the investor exits the fund within a year, then the commission gets compensated from the exit load. In any case, investors now need to be aware of the exit load factor, and stay put for longer period in the fund.


The most important factor from now onward would be to be aware of the churning of investment Though entry load has gone yet distributors may still be getting 1% percent commission. This does not harm investors. But investor must be aware that the motive for churning has not gone. In fact, from the point of view of an unscrupulous distribution organisation, a commission of one per cent instead of three simply means that they have to churn three times as much to earn the same revenues.

Fortunately, SEBI has also given investors a tool to protect themselves against this. Now,Distributors are obliged to reveal to investors what commissions fund companies pay them. They are even obliged to reveal what commissions competing fund companies would have paid them. In the run-up to August , this aspect of the new regulation has received the least attention. However, if investors are to benefit fully, then this transparency could prove to be the most important. What is needed is the education of the investors. The investor must read the documents and be aware of the entire fact and then can take their own decision to invest or not to invest at all. It would be prudent for investors to consult a qualified professional financial adviser for creation of their wealth in a most scientific manner.


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NEW PENSION SCHEME HAS BROUGHT CHEERS TO PUBLIC

At long last the Government of India has announced the new pension Scheme for the general Public on May Day. The new pension was earlier announced for the employees of Government of India only. Now any citizen of India would be able join the scheme and plan their livelihood in old age. This, however, is not the only pension scheme in the country. In fact before this scheme was introduced there were two distinct pension schemes in existence. The first one was from insurance companies and the second one was from Mutual fund Houses. Then why everyone was waiting relentlessly for this plan to be introduced ?
There are few reasons. In India people generally tend to believe the Government more than private sector. Secondly, the new pension scheme is simple and Thirdly it is cost effective and fourthly it would be managed by experts and has incorporated checks and balances so that citizens do not loose heavily when money is required most.

The scheme envisages that in younger age more investment would be made in equity and slowly as the citizens grow older more investment would be diverted to government bonds and fixed deposit of banks etc. This would ensure low volatility. Even with such checks and balances it would not be possible to predict the exact return, as investment would be market- linked. In this connection it would be worth mentioning that employees in the organized sector already have ‘ employees pension scheme’ where employers and employees contribute 8.33% and 3.67% respectively of salary. The return from the scheme is pretty low. The new scheme provides for better return as part of the money would be invested in equity market. However the invested money would be possible to be taken out of the scheme only when citizen reaches the retirement age of Sixty years. Upon retirement 40% contributions of subscribers will be put under annuity scheme to enable them to get monthly pension.Balance can be taken out within 70 years at any time in one or more installments. In exceptional circumstances contributions can be taken out before retirement but 80% money shall have to be put in annuity scheme.

The regulators have classified investment under three categories-E, G, and C from which citizens would be able to choose their portfolio. E class assets means high return and high risk meaning equity participation through index fund. Under the G asset class the investment is restricted to Government bonds etc. Under class C asset investment would be made liquid fund of MF, fixed deposit of banks etc. In case Government employees mere 5% fund could be invested in equity where as in general citizens category at least 50% investment could be made, in stock market. In case citizens want they can leave the investment choice to fund managers. This system would be known as “auto choice”. Who can join the scheme?


Any Indian citizen between 18 and 55 years would be able to subscribe to the schme. At present, only tier-I of the scheme, involving a contribution to a non-withdraw able account, is open. Subsequently tier-II accounts, which permit voluntary savings that can be withdrawn at any point of time, can be opened. But to be eligible to open a tier-II account, you need a tier-I account. To enroll subscribers will need to visit a point of presence (PoP), fill up the prescribed form with the required documents. Once you are registered, the Central Recordkeeping Agency (CRA) will send you a Permanent Retirement Account Number (PRAN), along with telephone and internet passwords. There is no investment ceiling. But the minimum investment limit has been fixed at Rs 500 a month or Rs 6,000 annually. Subscribers are required to contribute at least once a quarter but there is no ceiling on how many times you invest during the year. Subscriber will have to bear a penalty of Rs 100 per year of default and will need to pay it with the minimum amount to reactivate the account. Also, dormant accounts will be closed when the account value falls to zero. A friend asked me is there any guarantee? My reply was No. There is no guarantee since NPS is a defined contribution scheme and the benefits depend on the amount contributed and the investment growth up to the time of exit.
At the moment, the Pension Fund Regulatory and Development Authority (PFRDA) has selected six fund managers — State Bank of India, UTI, ICICI Prudential, Kotak Mahindra, IDFC and Reliance — on the basis of a bidding and technical evaluation process. What happens if someone shift out of the city where he has taken the NPS? The PRAN remains the same and you can access a toll-free number (1-800-222080). The details of your PRAN and the statement of transactions will be available on the CRA website (www.npscra.nsdl.co.in).
According to me the new pension Scheme is a good instrument and people who are professionals and working independently like Journalists ,Advocates, Doctors, Consultants Singers , Artist, and small business persons may find it useful. It is up to individual person and his risk apatite whether to buy share or to subscribe to NPS. We welcome the new scheme, for its risk adjusted profile.



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