Wednesday, 31 May 2017

Things To Know About Capital Gains When Selling Property

Reselling is one of the best ways to make a profit. Properties, gold, stocks, etc. are thus are excellent investment options. However, talking particularly about properties, when you sell one at a price higher than what you bought it at originally, you incur a gain, which is technical terms is called a "capital gain". Or, in other words- when you make a profit by selling off a property, it is called a "capital gain". Now, since this type of profit is non-recurring, unlike fixed deposit investments, mutual funds, etc. the taxation is calculated differently for it. There are certain things which you must be aware of if you are going to sell a property. But first things first:
What is a Capital gain?
Any profit that is gained through the selling of properties, bonds, shares, gold, etc. is called a capital gain. It can be of two types- short term and long term capital gain. The amount of time you have held an asset determines whether the gain is a short term one or a long term one.
Short Term Capital Gains
Generally, if you sell off your property within 3 years, then the profit gained is called Short Term Capital Gain(STCG). Here is the gain formula simplified for you:
Short term capital gain = Selling price of the property – (cost of purchase of property + cost of renovations made(if any) + any other expense incurred on the sale or transfer of the property)
Long term Capital Gains
if you sell off your property after owing it for more than 3 years, then the profit gained is called Long Term Capital Gain(LTCG). Here is the gain formula simplified for you:
Long term capital gain = Selling price of the property – (indexed cost of purchase of property + indexed cost of renovations made(if any) + any other expense incurred on the sale or transfer of the property)
Net profit= LTCG- Exemption (if availed) u/s 54 or 54EC or 54F
 What is Indexation?
As you must have noticed, when it comes to long term capital gains, indexation comes into action. The capital gain has to be calculated using indexed prices, rather than the base prices. But what is indexation anyway? Well, indexation is used to calculate the price of your property adjusted for inflation. To understand it better, consider an example. Say, about 10 years ago, you could have bought a cup of coffee for 5 Rs. However, today the price of the same cup of coffee has gone really high. This is due to inflation. With time, the purchasing power of your money reduces. So, when you are selling a property after several years, you have to calculate the price that you would have to pay for the same property today, and not the price you bought it at originally.  
Tax Exemptions on Capital Gains
The government of India provides a variety of tax exemptions that you can claim for the capital gains you make on the selling of your property. Here are some of them that you can consider:
·         As per Section 54 of Income Tax Act you can claim tax exclusion on profit earned if that total profit sum is used for buying another house. To avail this tax exclusion you must either purchase a new home in two years after selling the property, or build a new property within three years after selling.
·         If you are selling an agricultural land that doesn't come within the limits of a civic body then the profit made on it is not taxed
·         You can also avail tax exemption if you are going to invest the capital gain in a small scale or medium scale business. However, you must buy all the tools and machinery that you will need for manufacturing in six months after the sale of the property.
Before you sell any property it is important to learn how capital gains, and associated taxation work. Only then you can make maximum gain, and avail tax benefits. Taking the help of a professional also helps, especially when it comes to calculating accurate prices.

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Thursday, 25 May 2017

Things You Should Know About Personal Loan Disbursal Process

Personal loans are extremely popular due to their multi purpose nature. For instance, you can get a personal loan for buying a house or a car, or even for paying your medical bills. The interest rates on personal loans may be somewhat high than other types of loans, but they can be really helpful when you need a large sum of money at once.
For those who have never taken personal loans or rather any kind of loans usually have several doubts regarding the same. If you are also one of these people, then the following points will help make things clear:
Actual Disbursed Amount
You will almost never get the full loan amount that you apply for in a personal loan. This is because the lender levies multiple kinds of charges and taxes such as processing fees, service tax, etc. before finally disbursing the money.
Mode of Payment
The standard mode of loan amount payment is either through a banker’s cheque or a demand draft. Your lender may send it (whichever it is) or you could also collect it from the bank branch.
Sometimes a lender may also send the money to your account directly through a wire transfer.
Add-on Offers
Lenders, when selling personal loans may also pitch add-on products such as accidental plans and try to rope you in by telling things such as you don’t have to pay anything upfront for the facility, etc. However, these add-ons can greatly increase your EMIs depending on their nature and variety. Thus, you must think twice before giving a nod. Usually, you don’t need such add-ons so it’s alright to say “no”.
Loan Costs
You would think that the principal amount and interest rate are all that you have to deal with when you get a personal loan. However, that’s not true. There are a few other major fees that you must know about:
Processing Fee:  Almost every bank charges a processing fee on a loan, which could be anywhere between 1% to 2% of the loan amount. Alternatively, some lenders charge a flat processing fee. At any rate, you would want to take that into account before signing the papers.
Prepayment Fee: Many people don’t know about the prepayment fee, mainly because it comes into the picture very late in the loan term. The prepayment fee is the fee for repaying a loan sooner than the actual term completion. So, say you sold a house and now have enough money to repay your loan in full, which is a good idea as you will save a lot of money on interest. However, you may have to pay a prepayment fee for this.
There are some banks though, that don’t charge a prepayment fee which is why it’s best to confirm it with yours.
Late Payments
Although late payments usually attract penalties, there is one more thing you should be worried about, which is CIBIL score calculation. Every single late loan payment damages CIBIL score, which is why you must make sure that you always pay on time. By missing EMI deadlines repeatedly, you can jeopardize your credit report itself and lead to a poor credit score calculation.
Fixed Interest and Floating Interest
The interest rate applied on a personal loan can be of two types- fixed and floating. In the case of the former, the interest rate remains the same until the completion of the loan term. However, in the case of the latter, the interest rate can vary throughout the loan term as it’s based on the market fluctuations. So, if you want to minimize financial risk then you can stick with a fixed interest rate, but if you feel the interest rates may drop in the near future then floating interest rate is better.

Personal loans, just like other kinds of loans must be obtained only after due consideration. It’s also important to get to know the basics so that you know how the calculations are done, and how your money will be spent. Failing to do the homework can easily lead to a financial crisis and will damage your credit score too.  

Thursday, 18 May 2017

Want to Join 800+ Club? These are the Secrets of People with High Credit Score

If you have been neglecting your CIBIL score all this time now, then you must take control immediately. While it’s not impossible to improve CIBIL score it comes at a huge cost, which is why it’s best to build an excellent score before it’s too late. With a high credit score, not only you will be able to enjoy attractive interest rates on loans and credit cards, you can also have the peace of mind that you can get financial support from your bank whenever you need.
The Credit Information Bureau of India Limited (CIBIL) provides credit scores ranging from 300 to 900. Generally, a CIBIL score higher than 650 is considered good. However, if you are a perfectionist and willing to go an extra mile, then you can surpass 800 and build a rather outstanding credit report.
The following are the top secrets of the people with near-perfect credit scores:
Most credit bureaus, including CIBIL, give big importance to the payment frequency of the credit users. In fact, many times it takes just one missed payment to cause a damage of as much as 50 to 100 points.
Credit savvy people understand how important it is to pay their bills and EMIs on time, which is why they go out of their way to ensure that the payments are made prior to the deadlines.
If your score is not increasing despite a lot of effort then try becoming punctual with your loan EMIs and credit card bills. Once you have started paying one bill after another on a timely basis you can easily observe an impetus to your CIBIL score.
Credit Mixing
Most people think that the key to building a high CIBIL score is never missing payments and using credit cards responsibly. However, there is a secret that only smart credit users are aware of, which is the importance of credit mixing.
If you want to give your credit score a big boost in the easiest way possible, then just diversify your credit portfolio. In other words- if your credit report is based on just one personal loan or a home loan then you can get a credit card or two.
If you are already using credit cards and have a personal loan under your name, then you can also take a mortgage if you need. The key is gaining experience with a variety of credits. That being said, you still need to repay your debt responsibly. Otherwise, there is no point in using multiple credit cards when you can’t keep up with the bills.
Credit Utilization Ratio
The credit utilization ratio may sound technical or complicated, but it’s rather simple to understand and not to mention- matters a lot for your CIBIL score.
Credit utilization ratio is the ratio of the combined credit limit on your credit cards and the actual utilization of that credit by you. So, if you have two credit cards with Rs. 50,000 credit limit on each (thus, total= 1lakh) and you are spending about Rs. 40,000 every month using them, then your credit utilization ratio would be 40%.
If you want to improve score fast and go beyond the 800 mark, then you must keep your credit utilization ratio small. It’s best if it’s kept below 30%.
Accounts Closing
When it comes to increasing credit scores you must be very careful when planning to close any credit card or bank accounts. This is because the length of credit history can make a big difference in the equation. If you have a really old credit card that you have been using responsibility, and paying its bills on time then closing that account can put a major dent in your credit score. Thus, if you really have to it’s better to close a rather recent account.

Aspiring to go past the 800-points mark is not a death-wish, but that doesn’t mean it’s easy as well. If you will remain patient and take all the right steps, then achieving a near-perfect score is very much possible.

Friday, 12 May 2017

Pros and cons of prepaying a home loan

The wish of buying a dream home becomes a reality when you get a home loan of your choice. Home loans are essential types of loan in which both banks and consumers are interested in. Being the long term loans, they stay in your CIR for longer period of time, significantly affecting your credit worthiness.
So, when you plan a home loan it is advisable to read the terms related to prepayment option along the interest rate and loan duration.
Whether you apply for HDFC home loan, SBI home loan or the one from PNB, all banks offer you prepayment option. Sometimes banks charge 2-3 % of fee for opting for prepayment in the middle of the loan tenure.
The prepayment of loan is a win-win situation for you as it would improve your credit score and you would get rid of a debt sooner. While for the bank, it would entail an added burden of finding out another client to lend the amount being credited to them before the anticipated time. They might even discourage you to opt for prepayment option and thus many lenders choose to levy a fee or penalty for the same.
So, let’s weigh down the pros and cons of prepayment of home loans so that you could now if you need to prepay your current home loan.
The Pros:
When you go for prepayment, you get rid of debt early. It improves your credit score and you regain the power of availing credit again. So you get more financial flexibility as you repay.
Next, prepayment of a home loan is basically an investment option. Let’s understand this with a simple example.
Mr Subodh Gupta has a home loan of Rs 12 lakhs at interest rate of 10 percent per annum for 10 years. Every month he pays 10,000 of EMI. After paying EMIs for first 12 months, he receives an annual bonus of Rs 1 lakh this Diwali. He has an option to either keep it in a bank account, invest somewhere or have a fixed deposit. Each of these option will fetch him between 6-8 % interest rate.
However if he decides to prepay, he is cutting the principal amount for larger interest and yield greater benefits. So he decides to pre-pay the loan. His remaining loan principle would be 10 Lakh and 10 % on lakh would be 1 Lakh of interest. Had he not opted for prepaying the dues, his pending interest would have been 10 % on 11 lakh which is 1 lakh and 10 thousand. So he has saved 10% (Rs 10,000) interest by repaying.
So, by prepaying the loan one can either choose to reduce the duration of the loan or reduce EMI. In the above example, by retaining the same EMI, Mr Subodh would reduce the loan duration for 1 year.
However if he has other expenses to fund, he should choose to reduce the EMI. This way loan would run for the same duration but additional saving per month on EMI can be used to fund the other short term expenses.
Thus by prepaying the loan you basically plan other credit lines and add to your financial sturdiness.
The Cons
With home loans you avail certain tax benefits under Section 24(b) and Section 80EE.By prepaying the loan, you may miss those benefits. You get tax deduction up to Rs 1.5 lakh per annum. So it is advisable to make partial prepayment and keep availing these benefits at the same time.
If you use all of your cash or savings by prepaying, you may end up sucking up funds for emergency. Thus, prepayment should be an option and not the necessity for you.
Being lesser expensive loans than other loans, you should prepay other expensive loans first.
Many banks levy penalty on prepaying so you should check out the impact of those charges on your loan before making the decision.
Things to keep in mind when you plan the prepayment:
Never prepay the entire loan amount. You only need to pay out till the time you save on interest amount on the loan.
As cutting on to the interest is your basic aim of prepayment you should plan the pay out in the early stage of the loan.
When you want to prepay, the bank would ask you submit certain documents such as ID, address, and income proof. So be prepared with all the required paper work.

Last but not the least, you should use a Home Loan Prepayment Calculator before making the decision.

Friday, 5 May 2017

Things You Must Know Before Starting EMI on a Credit Card

The main motive of every business is to maximize profits, which is done by maximizing the sales. However, consumers don’t always have the kind of money they need for big purchases such as motorbikes and home entertainment systems. To help these customers, and themselves in the process, the banks offer EMI schemes on their credit cards, often when they have tie-ups with certain companies.
An EMI purchase allows you to buy the product of your choice with your credit card, and you can pay the full price in small instalments over a certain period of time such as 6 months or 9 months etc. On the surface, this arrangement certainly seems convenient and affordable. However, is it actually true? Is there no catch at all?
Well, they say when something seems too good to be true, it is. In other words, yes, EMI purchases have certain extra costs that you must be wary of. Thus, if you are going to buy something with an EMI scheme, make sure you are aware of the following things:
First things first, let’s talk about the different types of costs that you have to bear in an EMI scheme. These are:
The Cost of Interest
Let’s say you want to buy an iPhone worth Rs. 80,000. Since you can’t afford to pay the full amount in one go, you decide to purchase though the EMI scheme. You contact the seller and they tell you that you can purchase the phone with a 6 month EMI plan after making a down payment of Rs. 8,000. You think you will be paying the EMIs at Rs. 12,000 each. However, in reality the actual EMI could easily be Rs. 12,500 or more. This is because in EMI scheme you have to pay interest apart from the base price. 
Extra Costs
Apart from the interest rate, many credit card companies also charge a processing fee when you make a purchase with an EMI scheme. It is usually a small percentage of the full transaction amount. However, when the cost of the product is high then even the processing fee can be huge. For instance, to buy home entertainment system of Rs. 1.5 lakhs you will have to pay Rs. 1500 as processing fee (assuming the rate is 1%).
 Pre-closure Fine
If you decide to pay the full remaining amount of a product under EMI scheme before the completion of the total number of EMIs then you may have to pay a fine called the pre-closure fine. Usually it ranges between 2% to 3% of the outstanding principal amount.
 If you want to make the most of EMI scheme offered by credit cards companies then pay heed to the following tips:
·        Shorter Tenure: Since most EMI purchases come with high interest rates, it is best to choose shorter tenures. This is because you will have to pay less interest this way.
·         Reading T & C: Make sure you go through the terms and conditions set by your credit card provider. It is possible that you may not need to pay pre-closure fine, which can be good for you if you decide to repay the EMIs before the actual due date.
·        Pick a Good Time: Credit card companies and sellers both often roll out interesting offers during festive seasons such as Diwali, Christmas, etc. They may offer zero interest EMI purchases, or purchases with processing fees, etc. Thus, it’s best to buy during such times.
When you buy using your credit cards, there is one more thing you should be really careful about, which is your CIBIL score. The way you handle your credit directly affects your CIBIL score. Thus, be sure to pay your EMIs on time and avoid defaulting at all costs.

Having a good CIBIL score is important if you want to get loans easily and at low interest rates in the future. A good CIBIL score also gives you a peace of mind. So, use your credit cards wisely, and make purchases only when truly necessary.