Financial Cocktail Samosas: Bitesized money morsels for YOU, 12/08/2020

Financial Cocktail Samosas_ Bitesized money morsels for YOU, 12_08_2020

You’ve sold a house – how to save tax on the capital gains?

If you are among those lucky people who have made a fortune by selling an ancestral house or property that was bought long back, be ready for the pain of paying large tax on the fortune. But, wait a bit! Hope you know that there are legal ways to avoid tax on capital gains by reinvesting capital gains amount in a residential property or capital gains bonds (called CGB or the 54EC bonds) within a stipulated time. 

Of course, considering how real estate has moved in the past seven years and the future outlook, you should buy a residential property only if you need one for self-use. 

Capital Gains Bonds, where you can invest the capital gains of up to Rs 50 lakh in ainancial year, appear to be a great alternative – you invest in them now, get some yearly interest and 5 years later, you get your invested amount back with no more tax to be paid. But remember, from 1st August 2020 onwards, the CGB bonds rate of interest has reduced from 5.75% to 5% per annum. Other deterrents are a lock-in period of five years and tax on the interest earned. 

So, before investing in a property CGB, just have a discussion with your financial planner – many-a-times it makes more financial sense to pay tax on the capital gains and invest the remaining amount in some other better paying and more liquid instruments.

Cheque payment procedure is becoming more secure

Many of you might be using internet or phone banking services for bank related transactions, surpassing the previously-ubiquitous cheque. Till now, when you issued a cheque to someone, the bank most-likely did not intimate you when that cheque got presented for clearance, increasing chances of a fraud happening. But soon even payment by cheque could become more secure.

Banks are planning to introduce a facility called ‘Positive Pay’ mechanism for their customers. Under this facility, you are required to share details of issued cheque, like Cheque Number, date of issuance, name of the person or entity in favour of whom cheque issued and amount along with an image of both sides of the cheque online. 

The cheque will only get cleared after cross verifying the physical cheque with the information shared by you with the bank through ‘Positive Pay’ mechanism. In case of mismatch, the cheque will not get cleared. This facility will be available only for cheques above Rs 50,000. ICICI Bank has already made this facility available to its customers and others are expected to follow soon.

Do you know that you can get a loan against your mutual fund investments or other securities?

Yes, you can get a loan against your mutual fund investments or, for that matter, even against investments in shares, life insurance policies, public provident funds, most of the bonds and so on. But hold on – just because this facility is available, it does not mean that you need to take a loan against them, if you need one.

Leveraging your investments to raise quick funds may sound good, but it comes at a high transaction cost and interest rates. Besides that, there are prepayment penalties and other rules and regulations imposed on you that you need to follow.

You may argue that such loans typically charge a lower interest rate compared to personal loans or credit card outstanding, as they are backed up by an asset. But there may be situations when liquidating your assets may make more sense than taking a loan against them. So, if you are having any such dilemma, weigh all the available options and their pros and cons before taking a decision. Still in doubt? Consult your trusted financial advisor.

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