The Union Budget 2014-15 has talked about retirement saving products and in the process created confusions
The maiden budget of Narendra Modi-led National Democratic Alliance (NDA) government mentions on page 12 that that there would be a “uniform tax treatment for pension and mutual fund linked retirement plans”. However, neither the actual budget speech of Arun Jaitley, the finance minister nor the Finance Bill 2014 makes any mention of it. Similarly, there is confusion on the applicability of tax benefits for private sector employees who have invested in New Pension System (NPS) schemes.
When it comes to retirement saving options, few look beyond the options such as the Public Provident Fund (PPF) and the Employee Provident Fund (EPF). However, investing in these products alone may not be adequate for savers. Those who are active in their financial planning for retirement or those who are coaxed by agents or distributors often consider retirement or pension plans of mutual funds or insurance products or equity linked savings schemes (ELSSs). Some may even invest in the schemes of the NPS. For them, the FM has created a lot of confusion.
While there is a mention of ‘Uniform tax treatment for pension fund and mutual fund linked retirement plans’, no one is clear about what he really meant. Put it down to shoddy work by the officials in the finance ministry, who as usual have no truck with the savers and their issues.
There are just two such retirement-oriented schemes from mutual funds right now: Templeton India Pension Plan and UTI Retirement Benefit Pension Fund. Both these schemes offer investors a tax benefit (up to Rs1.5 lakh, raised from Rs1 lakh earlier) as notified under section 80C of the Income Tax Act, 1961. Would such the tax benefits be extended to NPS?
At present, there is a total limit of Rs1.5 lakh (raised from Rs1 lakh earlier) up to which you can claim deduction under Section 80CCD (1) (for your own contribution towards NPS account) that is included in your 80C limit. Deduction under 80CCD (1) will be allowed only if you invest in Tier-1 NPS which puts severe restrictions. If your employer is contributing on your behalf, under Section 80CCD (2), you can avail of an additional tax benefit for your employers contribution. This is over and above the Rs1.5 lakh limit (raised from Rs1 lakh earlier) of Section 80C.
Under Section 80CCD (2) if an employer contributes 10% of the basic salary plus dearness allowance to the NPS account of an employee, it gives excellent tax benefit to the employee. The best part is that such contributions are not included in the exemption limit that you can avail under Section 80C and the employer can show his contribution as deduction from the business income under Section 36 I (IV) A. Therefore, can employers opt for retirement plans of mutual funds for employee retirement contributions and gain the same benefit as that of the NPS? No one knows.
The Securities and Exchange Board of India (SEBI) at its board meeting in February 2014 discussed the need for restructuring of tax incentives for mutual funds schemes. One of the proposals was to introduce Mutual Fund Linked Retirement Plans (MFLRP), a pension fund similar to the currently available NPS, EPF and PPF. “MFLRP is envisaged to give them (EPF, PPF and NPS investors) a good alternative for parking their retirement savings,” mentions a SEBI paper on ‘Long Term Policy for Mutual Funds in India’. Yet, even after the budget proposal, SEBI and mutual funds remain mum on the introduction of these schemes.
Commenting on the budget proposal, A Balasubramanian, chief executive of Birla Sun Life Mutual Fund says, “This has opened up the retirement investment space for mutual funds. It can become a 401(k) (of India).”
However, fund companies are still waiting for additional details on how this scheme would work. There is a no clear framework on how the plan would work. Would it be according to that outlined by SEBI in its board meeting this year? Or would it be something different altogether? Nobody even knows the FM is at all considering MFLRPs.
NPS tax benefits for private sector employees
The applicability of Section 80 CCD for private sector employees investing in a pension fund has been a much-discussed issue. Private sector firms were allowed to enrol employees into the scheme from 1 May 2009. However, a condition of joining service on or after 1 Jan 2004 for claiming deduction under section 80CCD was intended only for public sector employees. The latest budget has amended the wordings of the condition so that even private sector employees who have joined service before 1 Jan 2004 can claim deduction for NPS contributions under section 80CCD.
How would this impact private sector employees who’ employers contribute on their behalf to the NPS scheme? Industry experts have different views. Some are saying the section was reworded to bring clarity and thus would have no implication for private sector employees who have claimed deduction under this section earlier. Others have the view that, private sector employees, employed before 1 January 2004 would have wrongly claimed a tax deduction, according to the exact wordings, they would not be eligible for a tax deduction under this section. The contributions made by them would be construed as wrong deduction of tax. Only an official statement would clear this confusion.
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Online scams and frauds have targeted and defrauded many Indians into losing upto $870 million to the scamsters in the last year alone
Two separate surveys with different objectives released almost simultaneously, reveal how susceptible Indians are to cyber fraud and email scams. The first report, by Ultrascan Advanced Global Investigations, shows that India is increasingly being targeted by such frauds, and $870 million has gone out of India because of, what they call the "advance fee frauds (AFF)" scams (better known as the Nigerian Fraud or Lottery Scam ). The second report, titled “Cybercrime Survey 2014” by KPMG, polled senior corporate officials. The KPMG report says, “Of the 170 participants from across India, an overwhelming 89% of the respondents said cybercrime has emerged as a major threat.”
The KPMG report polled corporates and as such, the results are focussed on the issues faced by corporates vis-a-vis cyber crime. It states that, about 51% perceive themselves to be an easy target for cyber attacks due to the nature of their business. Out of these 51%, about 68% respondents claim that they monitor their cybercrime threats on a daily basis. 49% of the respondents said they experienced cybercrime in the last one year. This number was at 11% 2 years ago, which indicates that the number of cybercrime incidents in India has been on rise.
About 45% of the 170 senior executives polled by KPMG said that cyber crime had caused financial loss and a slightly higher 48% said they had suffered a disruption in their business process. These are considerably high numbers and serve to highlight the urgent need for businesses to build defences against cyber crime. Another important number the report highlighted was that 58% of the respondents saw the Financial Services sector as most prone to cyber attacks, this would agree with the kind of effects that these attacks seem to be having as described above. A final worrisome number that the report brings out is that 47% of the attacks involved both internal and external employees.
The Ultrascan report on the other hand focuses on individuals who have fallen prey to cyber crime. It says says, “Where hundreds of thousands of Indians are falling mainly for low-end job and (student) visa scams. Chinese are falling for simple lottery scams perpetrated from Europe and C.O.D. (cash on delivery) scams perpetrated from Africa.” The report said the in India, poverty stricken citizens were being used to create fronts by opening bank accounts, registering companies with the chambers of commerce.
At $870 million, India was fourth in the list of countries which were monetarily most afffected by AFF scams. First was the US at $2.3 Billion, followed by China ($1.7 Billion) and third place was the UK ($1.2 Billion). India was the fourth worst affected, inspite of the fact that internet penetration in the country is still quite low compared with other nations on the list. If this trend continues, with rising internet users, the number of Indian victims of such scams will rise with as much speed.
In the recent BRICS summit in Brazil, Prime Minister Narendra Modi, has also raised the issue of cyber crime in the context of overall security. While it is encouraging to see the government take cognizance of this menace at such a high level summit, ground level steps, financial education, technical literacy etc are yet to begin. Among the possible defences against cyber crime, KPMG suggests that technology and such tools are one thing, but, the first line of defense is increasing awareness about such crimes that may affect breach in companies. For both corporate and those like the AFF, mere technological defenses won't do. The AFF type of scam (also known as the Nigerian Prince scam) goes back to the 19th Century. The only thing that has changed is the medium, while the method remains the same. The only credible defence against this and other such scams could be better awareness and wider literacy of financial matters.