GoI circular on Air travel(15/12/2009)

TDS AT A HIGHER RATE ON ALL TRANSACTIONS NOT HAVING PAN PROVISION TO COME INTO EFFECT FROM 1ST APRIL 2010

A new provision relating to tax deduction at source (TDS) under the Income Tax Act 1961 will become applicable with effect from 1^st April 2010. Tax at higher of the prescribed rate or 20% will be deducted on all transactions liable to TDS, where the Permanent Account Number (PAN) of the deductee is not available.  The law will also apply to all non-residents in respect of payments / remittances liable to TDS. As per the new provisions, certificate for deduction at lower rate or no deduction shall not be given by the assessing officer under section 197, or declaration by deductee under section 197A for non-deduction of TDS on payments shall not be valid, unless the application bears PAN of the applicant / deductee. 

            All deductors are liable to deduct tax at the higher rate in all transactions not having PAN of the deductees on or after 1^st April 2010. In order that there is no dispute regarding quoting / non-quoting of PAN or accuracy thereof, the law requires all deductees and dedutors to quote PAN of deductees in all correspondences, bills, vouchers and other documents sent to each other.  All deductors are, therefore, advised to intimate their deductees to obtain and furnish their PAN so as to avoid TDS at a higher rate. All deductees, including non-residents having transactions in India liable to TDS, are advised to obtain PAN by 31^st March 2010 and communicate the same to their deductors before tax is actually deducted on transactions after that date.

            The procedure for obtaining PAN is simple, inexpensive and quick. Application for PAN can be filed in Form 49A to National Securities Depository Ltd. (NSDL) or Unit Trust of India Investor Services Ltd. (UTIISL) or their intermediaries. Non-residents can apply through the local embassy / consulate of India. Applications can also be filed, paid for or tracked online through the Internet on the following web-sites:-

http://incometaxindia.gov.in/

https://incometaxindiaefiling.gov.in/portal/index.jsp

http://www.tin-nsdl.com/

http://www.utitsl.co.in/

            The Central Board of Direct Taxes (CBDT) has issued Notification No.94/2009 relating to taxation of perquisites / profits in lieu of salary and Circular No.1/2010 for the guidance of tax dedutors for salaries. These documents are available on the department’s web site at http://incometaxindia.gov.in/

Setting up of National Knowledge Network (NKN)

The Cabinet Committee on Infrastructure has accorded in principle approval for the establishment of the National Knowledge Network (NKN) to be implemented by the NIC.

BACKGROUND:

One of the important recommendations of the National Knowledge Commission (NKC) is to inter-connect all knowledge institutions trough high speed data communication network. This would encourage sharing of knowledge, specialized resources and collaborative research.

The Government’s decision to set up such a National Knowledge Network was announced in 2008-09. An initial amount of Rs.100 crore was allocated to the Department of Information Technology, Ministry of Communications and IT for the establishing the NKC. A High Level Committee (HLC) was also set up to coordinate and monitor the establishment of the NKN.

Implementation strategy and targets :

The architecture of the NKN will be scalable and the network will consist of an ultra-high speed Core (multiples of 10Gbps and upwards). The Core shall be complemented with a distribution layer at appropriate speeds. The participating institutions can connect to the NKN at speeds of 1 Gbps or to the distribution layer through a last mile connectivity bandwidth.

The NKN will provide nation-wide ultra high-speed backbone/data-network highway. Various other networks in the country can take advantage of this ultra high-speed backbone, with national and international reach to create independent and closed user groups.

The NKN will have about 25 core Point of Presence (PoPs) and 600 secondary PoPs. It will connect around 1500 Institutions. The physical infrastructure (setting up of core network) is expected to be completed in a span of 24 months.

Major impact :

NKN will enable scientists, researches and students from diverse spheres across the country to work together for advancing human development in critical and emerging areas. NKN will catalyze knowledge sharing and knowledge transfer between stakeholders seamlessly – that too across the nation and globally. NKN is expected to encourage a larger section of research and educational institutions to create intellectual property. NKN would enable use of specialized applications, which allow sharing of high performance computing facilities, e-libraries, virtual classrooms and very large databases.

Health, Education, Grid Computing, Agriculture and e-Governance are the main applications identified for implementation and delivery on NKN. Applications such as Countrywide Classrooms will address the issue of faculty shortage and ensure quality education delivery across the country. The crux of the success of the Knowledge Network is related to the education related applications, databases and delivery of services to the users on demand.

Current status of Initial Phase:

In the initial phase a core Backbone consisting of 15 Points of Presence (PoPs) have been established with 2.5 Gbps capacity. Around 40 institutions of higher learning and advanced research have already been connected to the network and 6 virtual classrooms setup.

APPROVAL FOR INCREASE IN THE NUMBER OF JUNIOR RESEARCH FELLOWSHIP (JRF) THROUGH CSIR-UGC NATIONAL ELIGIBILITY TEST (NET)

The Cabinet  approved the implementation of the proposal for increase in the number of Junior Research Fellowship (JRF) through CSIR-UGC National Eligibility Test (NET) in the country.

            The main objective of the JRF-NET is to identify, through this national competitive examination, those talented students who could be enrolled for Ph.D. programmes in specific science domains, across India’s scientific and academic institutions and also to identify those who fulfil the eligibility criteria for employment as lecturers across various academic institutions.

            The brief details of the proposal are:

            Increase in the Junior Research Fellowship (JRF) through CSIR-UGC National Eligibility Test (NET) by two fold over the Tenth Plan period.  During the Tenth Five Year Plan a total of about 6000 young students benefited by availing CSIR-JRF through NET.  In the Eleventh Plan CSIR proposes to increase the number by two fold.

            The total cost of providing fellowships for about 12000 students in the Eleventh Plan is estimated at Rs.444.34 crore.

            The proposed increase in intake of JRF-NET fellowships with the attractive remuneration would help in attracting talented youth to take up scientific research as a career and help address the issues related to shortage of scientific manpower in the country.

            The biggest beneficiaries of this programme would be the University system and scientific institutions across India as they shall be able to attract bright minds for their scientific programmes/research.  It will also benefit students from all over the country who are keen to take-up scientific research as a career.

The programme will be implemented by Human Resource Development Group of the Council of Scientific & Industrial Research, which conducts National eligibility Test (NET) across the country in 25 cities and at 125 exam centers.  A total of about 12000 students would be benefiting through JRF-NET in the Eleventh Five Year Plan.

BACKGROUND:

Recognizing the need to identify and nurture young scientific talent who could be enrolled for Ph.d. programmes across India’s scientific institutions.  Council of Scientific & Industrial Research (CSIR) started in 1983 a research fellowship scheme as a national responsibility.  This was a unique step to fulfil India’s growing ambition to become a scientific & technological power house.  In 1989, NET was recognized by UGC as pre-qualification for Lectureship and was renamed as CSIR-UGC National Eligibility Test for Junior Research Fellowship and Eligibility for Lectureship.  Since 1990, NET is being conducted twice a year in the month of June and December.

NET exam is held across the country in 25 cities and at 125 exam centers in five subject areas viz. Life Sciences, Chemical Sciences, Earth Sciences, Physical Sciences and Mathematical Sciences.  Selection is made through two paper system.  Currently more than 1,50,000 students have been writing the NET exam each year.  The CSIR-NET has established an enormous credibility in the country and it has become a bench mark for selecting candidates for pursing Ph.D. programme, appointment either as a lecturer or a project research fellow or for employment in various R&D organization all across the country.

In the recent times serious concern has been expressed by educationalist, scientists, policy markers etc. over declining interest of students to take up careers in basic sciences.  There has been an emphasis on enlarging the pool of scientific manpower to contribute towards S&T development in the country which is the reliable benchmark to become a developed nation.  In order to achieve this goal focused efforts are required to be made to identify and nurture bright young students who can take up scientific research as a career.  The present programme is one such focussed effort in this direction.

Vacancies in CWG

CVC update on Negotiation with L1

DEPARTMENT OF SCIENTIFIC AND INDUSTRIAL RESEARCH YEAR END REVIEW - 2009

The Department of Scientific and Industrial Research (DSIR) is a part of the Ministry of Science and Technology with the mandate for indigenous technology promotion, development, utilization and transfer. The primary endeavour of DSIR is to encourage industry to increase their share in country’s R&D expenditure, support small and medium industrial units to develop state-of-the art globally competitive technologies of high commercial potential, catalyze faster commercialization of lab-scale R&D, enhance the share of technology intensive exports, strengthen industrial consultancy & technology management capabilities and establish user friendly information network to facilitate scientific & industrial research in the country.

DSIR implements the Plan scheme “Technology Promotion, Development and Utilization (TPDU) Programme” apart from coordinating the activities of two autonomous bodies, namely Council of Scientific and Industrial Research (CSIR), Consultancy Development Centre (CDC) and two public sector undertakings, National Research Development Corporation (NRDC) and Central Electronics Limited (CEL).

1.                   Technology Promotion, Development and Utilization (TPDU) Programme

The specific components of the scheme are:

Ø                   Industrial R&D Promotion Programme

Ø                   Technology Development and Demonstration Programme

Ø                   Technopreneur Promotion Programme (TePP)

Ø                   Technology Management Programme

Ø                   International Technology Transfer Programme

Ø                   Consultancy Promotion Programme

Ø                   Technology Information Facilitation Programme

           

1.1               Industrial R&D Promotion Programme

Around 80 new in-house R&D units and Scientific and Industrial Research Organisation (SIROs) were recognized during 2009. Incentives and support measures provided under the scheme contributed a great deal in enhancing the R&D expenditure by recognized in-house R&D units of industry. The fiscal incentives for promotion of industrial R&D were continued during the year.

1.2               Technology Development and Demonstration Programme (TDDP)

The programme aims at catalyzing and supporting activities relating to technology absorption, adaptation and demonstration including capital goods development, involving industry and R&D organizations. Under the scheme, projects for absorption and up-gradation of imported technology as well as development and demonstration of new and improved technologies are supported.

Another programme is envisaged to promote social/scientific entrepreneurs; to promote technology based start-ups, to build eco-system towards sustainable living and to create new jobs in manufacturing sector in the area of waste to wealth.

1.3               The Technopreneur Promotion Programme (TePP)

The programme aims to tap the vast innovative potential of the citizens of India. The activities under TePP include providing financial support to individual innovators having original ideas and convert them into working models, prototypes, etc. The TePP network has been strengthened with establishment of 28 TePP Out Reach Centers (TUC). Around 80 new projects of independent innovators were supported under TePP scheme during the year 2009.

1.4        Technology Management  Programme

The programme aims to enhance knowledge and skills in the efficient management and transfer of technology. Its activities effectively supplement other programmes/activities of the Department in the attainment of technological excellence. Specific programmes have been targeted towards enhancing technology management capability in industry, R&D institutions, academic institutes and other establishments. This is helping the promotion and effective utilization of emerging technology management methodologies, and in bringing about better industry-institute inter-linkages through networking of industrial units with different academic institutions and State bodies in various States.

 

1.5        International Technology Transfer Programme

The Programme aims to promote international technology transfer and trade including exports of technologies, projects, services and hi-tech products. A variety of activities have been undertaken under the Programme to catalyze technology transfer and trade, involving Indian industries, R&D establishments, institutions and consultancy organisations. These have ranged from Reports, Compendiums and Newsletters on technology export potential, Workshops and Awareness-cum-Training Programmes, Technology Exhibitions, etc.

1.6        Consultancy Promotion Programme

The main objective of Consultancy Promotion Programme is to promote and strengthen consultancy capabilities for domestic use and export requirements. It also aims to develop sector specific consultancy capabilities and provide door step consultancy services to SMEs by setting up consultancy clinics in various SME clusters.

1.7        Technology Information Facilitation Programme

The TPDU Programmes need a strong back up support of information services. Recognizing this, a component on “Technology Information Facilitation Programme (TIFP)” has been included in the TPDU Programmes.  The projects under TIFP aim at developing appropriate endogenous information capacities to support R&D activities, production of local content and capture of indigenous knowledge base, promotion of information and knowledge networking thus facilitating flow and sharing of information resources.

2.         E-Governance in DSIR

Under the e-Governance initiative of Government of India, a cell has been created in the Department to implement a comprehensive programme to accelerate e-Governance through Information Technology at all levels of Government to improve efficiency, transparency and accountability. Under the programme, Computers with online connectivity are provided to all the officers for automating various activities and Department’s website: http://www.dsir.gov.in is continuously updated.

3.                   National Research Development Corporation (NRDC)

The Corporation was established in December 1953 as a company, under Section 25 of the Companies Act to commercialise the Research and Development outputs of publicly funded R&D institutions as well as to promote the growth of indigenous technology.

NRDC has signed more than 350 technology transfer license agreements in the last 10 years, resulting in premia and royalty earnings of Rs 30 Crores. It has a database of over 2,000 technologies and it is in contact with more than 1,000 active licensees. It provides value addition to technologies through angel funding / consultancy / market survey / filing patents / basic engineering design package / feasibility reports. It has signed a number of MoUs with African and South East Asian countries for technology co-operation and transfer of technology. It has recently set up a Centre for Demonstration and Promotion of Technologies in Cote d’Ivoire.

During 2009, NRDC organized 3 women entrepreneurship programmes, 3 entrepreneurship development programmes in the North-East and 10 IP awareness programmes. It carried out upgradation of technology for 3 rural clusters viz. sericulture, coir and milk dairy cluster. Further, NRDC developed basic engineering design packages for 14 technologies. NRDC was also involved in development of economic activities for anganwadi centers in Madhya Pradesh.

4.                   Central Electronics Limited (CEL)

CEL’s operations can be broadly grouped into three areas, viz.  solar photovoltaics (SPV), strategic electronics and railway electronics.  CEL is the pioneer and a leading manufacturer of SPV cells, modules and systems and Railway Safety Signaling Equipment. In the field of strategic electronics, CEL is the only indigenous manufacturer of phase control modules, which is a key element of phased array radars.

CEL has signed agreements with Mali for supply of solar equipment and with Sudan for solar cell manufacturing line. It has commissioned a facility for manufacture of SPV modules up to 250 Wp. It has developed 40 deflection point multi-section digital axle counter. It obtained type approval of piezo generator for heat fuse 551 from Sweden and subsequently executed a order from ordnance factory. Activities carried out by CEL during 2009 include: Development of Solid State Block equipment; Development of Automatic Equipment Identification System; Creation of infrastructure for Technology Absorption and Commercialization of Security System; and Expansion of manufacturing capacity of Phase Control Modules (PCMs) to produce 30,000 to 40,000 Nos. per year.

5.                   Consultancy Development Centre (CDC)

The CDC was approved as Autonomous institution of Department of Scientific & Industrial Research (DSIR) in December 2004. Over the years, CDC has concentrated mainly on development of human resources, providing computerized data/information services, and strengthening of technological and managerial consultancy capabilities including promoting consultancy exports. CDC is also Secretariat of the Technical Consultancy Development Programme of Asia and the Pacific, (TCDPAP), a programme supported by DSIR for promoting consulting capabilities including consultancy and service exports in the Asia Pacific.

Recently, CDC launched e-coaching mode for MS programme. It held discussions on model accreditation grading and ranking system for consultants in India and took new initiatives in the area of safe drinking water.  Activities proposed by CDC during 2009 include: Establishment of CDC-TCO consortium; Technology Consultancy Centers for CSIR rural technologies; Education / training/ capacity building of consultancy capabilities; and Course development for institute of consultancy management.

Other RBI latest FAQ's

(1) Dec 14, 2009 NEFT System
(2) Nov 27, 2009 Collection of Instruments
(3) Dec 14, 2009 Electronic Clearing Services
(4) Dec 14, 2009 Indo-Nepal Remittance Facility scheme.

RBI FAQ on Speed clearing

Speed Clearing

Banks as part of their normal banking operations undertake collection of cheques deposited by their customers, some of which could also be drawn on non-local bank branches. Such cheques are called outstation cheques. In order to facilitate faster collection of outstation cheques, the Reserve Bank of India started a special clearing styled “Speed Clearing” by leveraging the core-banking-solutions implemented in banks. In the interest of better public awareness, the following FAQs on Speed Clearing have been prepared. Question 1 What is Speed Clearing? Answer Speed Clearing refers to collection of outstation cheques through the local clearing. It facilitates collection of cheques drawn on outstation core-banking-enabled branches of banks, if they have a net-worked branch locally. Question 2 Why Speed Clearing? Answer The collection of outstation cheques, till now, required movement of cheques from the Presentation centre (city where the cheque is presented) to Drawee centre (city where the cheque is payable) which increases the realisation time for cheques. Speed Clearing aims to reduce the time taken for realisation of outstation cheques. Question 3 What was the process followed by banks for collection of outstation cheques before the introduction of Speed Clearing ? Answer A person who has an outstation cheque with him deposits it with his bank branch. This bank branch is called the Presenting branch. The cheque is sent for collection to the city where it is payable / drawn called Destination centre or Drawee centre. The branch providing the collection service at the Destination centre is called the Collecting branch. On receipt of the cheque, the Collecting branch presents it in local clearing to the Drawee branch or the Destination branch. Once the cheque is paid the Collecting branch remits the proceeds to the Presenting branch. On receipt of realisation advice of the cheque from the Collecting branch, the customer’s account is credited. This, in short, is the process of Collection. When a cheque is accepted on a collection basis by a bank, it credits the customer’s account only after realisation of its proceeds. Alternatively, in the absence of a collection arrangement at the Destination centre, the Presenting branch will send the cheque directly to the Destination branch for payment. On receiving the proceeds from Destination branch, Presenting branch credits the customer’s account. Question 4 How long does it take for getting credit of an outstation cheque sent on Collection basis? Answer Generally, it takes around a week to three weeks time depending on the drawee centre and collection arrangements to get outstation cheques realised on a Collection basis.  Question 5 How does the Local Cheque Clearing work? Answer In Local Cheque Clearing in 66 major centres, cheques are processed at the Clearing Houses on mechanised sorters, using Magnetic Ink Character Recognition (MICR) technology. Local Clearing handles only those cheques that are drawn on branches within the jurisdiction of the local Clearing House. Generally, the distance between the Clearing House and the participating branches is defined, taking into account the local transportation and communication facilities as the cheques have to physically move to and from the Clearing House.  For example, for a cheque to be processed in Local Clearing in Mumbai, both the presenting and drawee branches should be situated within the jurisdiction of the Clearing House in Mumbai. Question 6 How does the Speed Clearing work? Answer Banks have networked their branches by implementing Core Banking Solutions (CBS). In CBS environment, cheques can be paid at any location obviating the need for their physical movement to the Drawee branch. The concept of Speed Clearing combines the advantages of MICR clearing with that of CBS. Cheques drawn on outstation CBS branches of a Drawee bank can be processed in the Local Clearing under the Speed Clearing arrangement if the Drawee bank has a branch presence at the local centre. Question 7 When will the beneficiary get funds under Speed Clearing? Answer As on date, the local cheques are processed on T+1 working day basis and customers get the benefit of withdrawal of funds on a T+1 or 2 basis. 'T' denotes transaction day viz. date of presentation of cheque at the Clearing House. So, the outstation cheques under Speed Clearing will also be paid on T+1 or 2 basis. Question 8 Which are the centres where Speed Clearing is presently available? Answer Speed Clearing is currently available in 66 MICR centres. Question 9 What are the charges for cheques cleared through Speed Clearing? Answer Presenting branches are currently permitted to levy charges at a rate not exceeding Rs.150 per cheque (inclusive of all charges other than Service Tax) for cheques of above Rs. 1 lakh presented through Speed Clearing. No charges are payable for cheques of value up to Rs. 1 lakh. Question 10 How is Speed Clearing an improvement over collection basis? Outstation cheque collection through collection basis takes around one to three weeks time depending on the drawee centre. Under Speed Clearing, it would be realised on T+1 or 2 basis viz. within 48 hours. Further customers need not incur any service charge for collection of outstation cheques (value up to Rs. 1 lakh) in Speed Clearing which they may have to incur if such cheque is collected under collection basis. Question 11 How will a customer know whether a cheque can be cleared in Speed Clearing? Answer For facilitating customers to know CBS status of a branch, some of the banks  stamp / print 'CBS' on the cheque leaves. Account numbers (if length of account number is more than 10 digits) printed on the cheque leaves may give a broad indication regarding CBS status of the branch. Further customers may refer to the list of Speed Clearing-enabled bank branches hosted on the website of the Reserve Bank of India under the link http://www.rbi.org.in/Scripts/bs_viewcontent.aspx?Id=2016. Question 12 What type of cheques can be presented in Speed Clearing? Answer Cheques having transaction codes 10, and 11 and 13 which are drawn on CBS-enabled bank branches are eligible for being presented in Speed Clearing. Government cheques and Demand Drafts are not eligible for collection under Speed Clearing. DISCLAIMER: The FAQs have been prepared for the general awareness of customers regarding collection of outstation cheques through Speed Clearing. Customers may contact their bank branches for further details.

RBI FAQ on Home Loan

1. For what purposes can I seek a first time home loan? You can generally seek a first time home loan for buying a house or a flat, renovation, extension and repairs to your existing house. Most banks have a separate policy for those who are going for a second house. Please remember to seek specific clarifications on the above-mentioned issues from your commercial bank. 2. How will your bank decide your home loan eligibility? Your bank will assess your repayment capacity while deciding the home loan eligibility. Repayment capacity is based on your monthly disposable / surplus income, (which in turn is based on factors such as total monthly income / surplus less monthly expenses) and other factors like spouse's income, assets, liabilities, stability of income etc. The main concern of the bank is to make sure that you comfortably repay the loan on time and ensure end use. The higher the monthly disposable income, higher will be the amount you will be eligible for loan. Typically a bank assumes that about 55-60 % of your monthly disposable / surplus income is available for repayment of loan. However, some banks calculate the income available for EMI payments based on an individual’s gross income and not on his disposable income. The amount of the loan depends on the tenure of the loan and the rate of interest also as these variables determine your monthly outgo / outflow which in turn depends on your disposable income. Banks generally fix an upper age limit for home loan applicants. 3. What is an EMI? You repay the loan in Equated Monthly Installments (EMIs) comprising both principal and interest. Repayment by way of EMI starts from the month following the month in which you take full disbursement. (For understanding how EMI is calculated, please see annex). 4. What documents are generally sought for a loan approval? In addition to all legal documents relating to the house being bought,  banks will also ask you to submit Identity and Residence Proof, latest salary slip ( authenticated by the employer and self attested for employees ) and Form 16 ( for business persons/ self-employed ) and last 6 months bank statements / Balance Sheet, as applicable . You also need to submit the completed application form along with your photograph. Loan applications form would give a checklist of documents to be attached with the application. Do not be in a hurry to seal the deal quickly. Please do discuss and seek more information on any waivers in terms and conditions provided by the commercial bank in this regard. For example some banks insist on submission of Life Insurance Policies of the borrower / guarantor equal to the loan amount assigned in favour of the commercial bank. There are usually amount ceilings for this condition which can also be waived by appropriate authority. Please read the fine print of the bank’s scheme carefully and seek clarifications. 5. What are the different interest rate options offered by banks? Banks generally offer either of the following loan options: Floating Rate Home Loans and Fixed Rate Home Loans. For a Fixed Rate Loan, the rate of interest is fixed either for the entire tenure of the loan or a certain part of the tenure of the loan. In case of a pure fixed loan, the EMI due to the bank remains constant. If a bank offers a Loan which is fixed only for a certain period of the tenure of the loan, please try to elicit information from the bank whether the rates may be raised after the period (reset clause). You may try to negotiate a lock-in that should include the rate that you have agreed upon initially and the period the lock-in lasts. Hence, the EMI of a fixed rate loan is known in advance. This is the cash outflow that can be planned for at the outset of the loan. If the inflation and the interest rate in the economy move up over the years, a fixed EMI is attractively stagnant and is easier to plan for. However, if you have fixed EMI, any reduction in interest rates in the market, will not benefit you. Determinants of floating rate: The EMI of a floating rate loan changes with changes in market interest rates. If market rates increase, your repayment increases. When rates fall, your dues also fall. The floating interest rate is made up of two parts: the index and the spread. The index is a measure of interest rates generally (based on say, government securities prices), and the spread is an extra amount that the banker adds to cover credit risk, profit mark-up etc. The amount of the spread may differ from one lender to another, but it is usually constant over the life of the loan. If the index rate moves up, so does your interest rate in most circumstances and you will have to pay a higher EMI. Conversely, if the interest rate moves down, your EMI amount should be lower. Also, sometimes banks make some adjustments so that your EMI remains constant. In such cases, when a lender increases the floating interest rate, the tenure of the loan is increased (and EMI kept constant). Some lenders also base their floating rates on their Benchmark Prime Lending Rates (BPLR). You should ask what index will be used for setting the floating rate, how it has generally fluctuated in the past, and where it is published/disclosed. However, the past fluctuation of any index is not a guarantee for its future behavior. Flexibility in EMI: Some banks also offer their customers flexible repayment options. Here the EMIs are unequal. In step-up loans, the EMI is low initially and increases as years roll by (balloon repayment). In step-down loans, EMI is high initially and decreases as years roll by. Step-up option is convenient for borrowers who are in the beginning of their careers. Step-down loan option is useful for borrowers who are close to their retirement years and currently make good money. 6. What is monthly reducing balances method? Borrowers benefit more from a loan that's calculated on a monthly reducing basis than on an annual basis. In case of monthly resets, interest is calculated on the outstanding principal balance for that month. The principal paid is deducted from the opening principal outstanding balance to arrive at the opening principal for the next month and interest is computed on the new, reduced principal outstanding. In case of annual resets, principal paid is adjusted only at the end of the year. Hence, you continue to pay interest on a portion of the principal that has been paid back to the lender. 7. How does tenure affect cost of loan? The longer the tenure of the loan, the lesser will be your monthly EMI outflow. Shorter tenures mean greater EMI burden, but your loan is repaid faster. If you have a short-term cash flow mismatch, your bank may increase the tenure of the loan, and your EMI burden comes down. But longer tenures mean payment of larger interest towards the loan and make it more expensive. 8. What is an amortization schedule? This is a table that gives details of the periodic principal and interest payments on a loan and the amount outstanding at any point of time. It also shows the gradual decrease of the loan balance until it reaches zero. (See annex) 9. What is pre-EMI interest? Sometimes loan is disbursed in installments, depending on the stages of completion of the housing project.  Pending final disbursement, you may be required to pay interest only on the portion of the loan disbursed. This interest called pre-EMI interest. Pre-EMI interest is payable every month from the date of each disbursement up to the date of commencement of EMI. However, many banks offer a special facility whereby customers can choose the installments they wish to pay for under construction properties till the time the property is ready for possession. Anything paid over and above the interest by the customer goes towards Principal repayment. The customer benefits by starting EMI payment earlier and hence repays the loan faster. Please check with your banker whether this facility is available before availing of the loan. 10. What security will you have to provide? The security for a housing loan is typically a first mortgage of the property, normally by way of deposit of title deeds. Banks also sometimes ask for other collateral security as may be necessary. Some banks insist on margin / down payment (borrowers contribution to the creation of an asset) to be maintained / made also. Collateral security assigned to your bank could be life insurance policies, the surrender value of which is set at a certain percentage to the loan amount, guarantees from solvent guarantors, pledge of shares/ securities and investments like KVP/ NSC etc. that are acceptable to your banker. Banks would also require you to ensure that the title to the property is free from any encumbrance. (i.e., there should not be any existing mortgage, loan or litigation, which is likely to affect the title to the property adversely). 11. What precautions do you need to take if you are purchasing a property that is not a newly built one? Ensure that the documents being provided to you are not colour photocopies. Check the internet for other modus operandi to fraud and ensure clear title to the asset. Seek advice only from authentic sources such as your bank. Get the no encumbrance certificate to find the true title holder and if it is mortgaged to any financier. Obtain all tax papers to ensure that all documents are up to date. 12. What should be your strategy in dealing with the banks? Give yourself comfortable time. Do not hurry your purchase or loan in any case. Shopping around for a home loan will help you to get the best financing deal. Shopping, comparing, seeking clarification and negotiating with banks may save you thousands of rupees. a) Obtain information from several banks Home loans are available from mainly two types of lenders--commercial banks and housing finance companies. Different lenders may quote you different rates of interest and other terms and conditions, so you should contact several lenders to make sure you’re getting the best value for money. Find out how much of a down payment you are required to pay, and find out all the costs involved in the loan (including processing fees, administrative charges and prepayment charges levied by banks). Knowing just the amount of the EMI or the interest rate is not good enough. Similarly, ask for information on loan amount, loan term, and type of loan (fixed or floating) so that you can compare the information and take an informed decision. The following is some important information that you will require. i) Rates Ask your lender about its current home loan interest rates and whether the rate is fixed or floating.  Remember that when interest rates in the economy go up so does the floating rates and hence the monthly re-payment. If the rate quoted is a floating rate, ask how your rate and loan payment will vary, including the extent to which your loan payment will be reduced when rates go down by a certain percentage. Ask your lender to what index your floating home loan is referenced / linked and the periodicity of updation of that index. Also ask your bank whether the index is internal or external and how and where it is published. Ask about the loan’s annual percentage rates (APR). The APR takes into account not only the interest rate but also fees and certain other charges that you may be required to pay, expressed as a yearly rate. Banks are obliged to reveal the APR if requested for by the customer. ii) Reset Clause Check the reset clause, especially in the case of fixed interest rate loan as the rates will not be fixed throughout the tenure of the loan. iii) Spread/Mark up Check if the margin in the case of the floating rate is fixed or variable. The rate of interest you have to pay will vary accordingly. iv) Fees A home loan often requires payment of various fees, such as loan origination or processing charges, administrative charges, documentation, late payment, changing the loan tenure, switching to different loan package during the loan tenure, restructuring of loan, changing from fixed to floating interest rate loan and vice versa, legal fee, technical inspection fee, recurring annual service fee, document retrieval charges and pre-payment charges, if you want to prepay the loan. Every lender should be able to give you an estimate of its fees. Many of these fees are negotiable / can be waived also. Ask what each fee includes. Sometimes several components are lumped into one fee. Ask for an explanation of any fee you do not understand. Also, remember that most of these fees are perhaps negotiable! Do negotiate with your bank before agreeing to a particular fee. See how the all inclusive rate compares with the all inclusive rates offered by other banks. While planning your finances, don't forget to include the costs of stamp duty and registration. v) Down Payments / Margin Some lenders require 20/30 percent of the home’s purchase price as a down payment from you. However, many lenders also offer loans that require less than 20/30 percent down payment, sometimes as little as 5 percent .Ask about the lender’s requirements for a down payment and also negotiate with him to reduce the down payments. b) Obtain the best deal Once you know what each bank has to offer in terms of rates, fees and down payments, negotiate for the best deal. Ask the lender to write down all the costs associated with the loan. Then ask if the bank will waive or reduce one or more of its fees or agree to a lower rate. Do make sure that the bank is not agreeing to lower one fee while raising another or to lower the rate while raising the fees. Ask for clarification in case you do not understand any particular term. All banks are obliged to explain the most important terms and conditions of the home loan in detail. Once you are satisfied with the terms you have negotiated, please do obtain a written offer letter from the lender and keep a copy with you. Read the offer letter carefully before signing. 13. Can you repay your loan ahead of schedule? Is pre-payment of loan allowed? Yes, most banks allow you to repay the loan ahead of schedule by making lump sum payments. However, many banks charge early repayment penalties up to 2-3% of the principal amount outstanding. Prepayment penalty may vary according to the reasons and source of funds - if you obtain a loan from another bank for pre-payment the charges are usually higher than when you pay from your own sources. However, you may credit more than your EMI amount into your loan account on a periodic basis and bring down your interest burden as and when funds are available with you. Most banks do not charge a pre-payment penalty if you deposit more than your EMI payable on a periodic basis. Please check such stipulations while availing the loan. 14. What are Switch over charges/ balances transfer charges? When other banks reduce the interest rate, you may prefer to close your account with the bank with whom you are banking, to avail of the loan from the bank offering reduced rates of interest. You have to pay pre-payment charges for doing so. In order to ensure that their customers do not approach other banks for availing reduced interest rates, banks allow customers to switch over from a higher interest loan to a lower interest loan by paying a switch over fees which is lesser than the pre-payment charges. Generally switchover fee is taken as percentage of the outstanding loan amount. Keep up-dating yourself on various changes in the home loan market. Visit the branch, discuss with the officials to get the best out of any changes in the home loan scenario. 15.  Do you get a tax benefit on the loan? Yes. Resident Indians are eligible for certain tax benefits on both principal and interest components of a loan under the Income Tax Act, 1961. Under the current laws, you are entitled to an income tax rebate for interest repayment up to Rs. 1,50,000 /- per annum. Moreover, you can get added tax benefits under Section 80 C on repayment of principal amount up to Rs. 1,00,000 /- per annum. 16. What are the minimum standards that banks are required to follow when they sell you a home loan? At the time of sourcing the loan, banks are required to provide information about the interest rate applicable, the fees / charges and any other matter which affects your interest and the same are usually furnished in the product brochure of the banks. Complete transparency is mandatory. The banks will supply you authenticated copies of all the loan documents executed by you at their cost along with a copy each of all enclosures quoted in the loan document on request. A bank cannot reject your loan application without furnishing valid reason(s) for the same. 17. What do you do if you have a grievance? If you have a complaint against only scheduled bank on any of the above grounds, you can lodge a complaint with the bank concerned in writing in a specific complaint register provided at the branches as per the recommendation of the Goiporia Committee or on a sheet of paper. Ask for a receipt of your complaint. The details of the official receiving your complaint may be specifically sought. If the bank fails to respond within 30 days, you can lodge a complaint with the Banking Ombudsman. (Please note that complaints pending in any other judicial forum will not be entertained by the Banking Ombudsman). No fee is levied by the office of the Banking Ombudsman for resolving the customer’s complaint. A unique complaint identification number will be given to you for tracking purpose. (A list of the Banking Ombudsmen along with their contact details is provided on the RBI website). Complaints are to be addressed to the Banking Ombudsman within whose jurisdiction the branch or office of the bank complained against is located. Complaints can be lodged simply by writing on a plain paper or online at www.bankingombudsman.rbi.org.in or by sending an email to the Banking Ombudsman. Complaint forms are available at all bank branches also. Complaint can also be lodged by your authorised representative (other than a lawyer) or by a consumer association / forum acting on your behalf. If you are not happy with the decision of the Banking Ombudsman, you can appeal to the Appellate Authority in the Reserve Bank of India. REVERSE MORTGAGE LOAN 18. What is reverse mortgage loan? What is my eligibility and how I will get back the title deeds? The scheme of reverse mortgage has been introduced recently for the benefit of senior citizens owning a house but having inadequate income to meet their needs. Some important features of reverse mortgage are: A homeowner who is above 60 years of age is eligible for reverse mortgage loan. It allows him to turn the equity in his home into one lump sum or periodic payments mutually agreed by the borrower and the banker. The property should be clear from encumbrances and should have clear title of the borrower. NO REPAYMENT is required as long as the borrower lives, Borrower should pay all taxes relating to the house and maintain the property as his primary residence. The amount of loan is based on several factors: borrower’s age, value of the property, current interest rates and the specific plan chosen. Generally speaking, the higher the age, higher the value of the home, the more money is available. The valuation of the residential property is done at periodic intervals and it shall be clearly specified to the borrowers upfront. The banks shall have the option to revise the periodic / lump sum amount at such frequency or intervals based on revaluation of property. Married couples will be eligible as joint borrowers for financial assistance. In such a case, the age criteria for the couple would be at the discretion of the lending institution, subject to at least one of them being above 60 years of age. The loan shall become due and payable only when the last surviving borrower dies or would like to sell the home, or permanently moves out. On death of the home owner, the legal heirs have the choice of keeping or selling the house. If they decide to sell the house, the proceeds of the sale would be used to repay the mortgage, with the remainder going to the heirs. As per the scheme formulated by National Housing Bank (NHB), the maximum period of the loan period is 15 years. The residual life of the property should be at least 20 years. Where the borrower lives longer than 15 years, periodic payments will not be made by lender. However, the borrower can continue to occupy. From FY 2008-09, the lump sum amount or periodic payments received on reverse mortgage loan will not attract income tax or capital gains tax. Note- Reverse mortgage is a fixed interest discounted product in reverse. It does not take into account the changes in interest rates as yet. Important – This part is fine printed to help you practice reading the fine print. The loan agreement documentation runs into nearly 50 pages and its language is complex. If you thought everyone signs the same agreements with the bank, where is the need to read? You are not taking an informed decision. If you thought somebody would have pointed this to me if there was any problem, then maybe they did but you could not read or listen to it. Think again! Borrowers' and lenders' rights may not be expressed clearly in a transparent manner in all the loan agreements. The home loan agreement may not be provided to you in advance so that this could be read and understood before you sign the agreement. Every method may be used to delay handing over a copy to the borrower in sufficient time. Some areas you may focus are a) check the “reset clause” incorporated by some banks in their home loan agreements that allows them to change the interest rate in the future, even on fixed rate loans. Banks may set their reset clauses for 3 or 2 year intervals.  They say a lender cannot have an agreement that a fixed rate is set for the entire tenure of 15 to 20 years as this will cause an asset-liability mismatch. Talk to your bank. b) Please seek clarifications on the term “exceptional circumstances” (if stated in the loan agreement) under which loan rates can be unilaterally changed by your bank. c) A common person thinks that default ideally means non-payment of one or more loan installments. In some loan documentation it can include divorce and death (in individual case) and even involvement in civil litigation or criminal offence. d) Does the loan agreement say that disbursement of the loan may be made directly to the builder or developer and in the case of a ready-built property to the vendor thereof and/or in such other manner as may be decided solely by bank? It is the borrower whose original property papers are retained with the bank, so why disburse to the builder. Possession of property has been  delayed in some cases when the cheque was issued in the name of the builder and the builder refused to pay delay penalty to the borrower e) Does the agreement enable assignment of your loan to a third party?  You take into account reputation and credibility of the bank before entering into a loan agreement with it. Are you comfortable with third party takes over or should you also be allowed to move your home loan from one bank to another in that case? Look for ambiguous clauses and discuss with the banker. Some agreements say changes in employment etc. have to be informed well in advance without quantifying the term “well in advance”. f) In one case the loan documentation says “issuance of pre-approval letter should not be construed as a commitment by the bank to grant the housing loan and processing fees is not re-fundable even if the home loan is not processed”. This is never ending it seems. The above are only indicative instances of what has been observed / reported/ indicated by various sources. However, our main objective was to get you into the habit of reading the fine print. If you have read this, you would have understood the importance of reading fine print in any document and we have achieved our objective. I only wish I could have made the print smaller as in the real cases. ANNEX EXAMPLE OF EMI CALCULATION (PURE FIXED LOAN) Amount of Loan 1,000,000.00 Annual Interest Rate 15.00% Number of Payments 120 Monthly Payment 16,133.50 Number Payment Interest Principal Balance 0 1,000,000.00 1 16,133.50 12,500.00 3,633.50 996,366.50 2 16,133.50 12,454.58 3,678.91 992,687.59 3 16,133.50 12,408.59 3,724.90 988,962.69 4 16,133.50 12,362.03 3,771.46 985,191.23 5 16,133.50 12,314.89 3,818.61 981,372.62 6 16,133.50 12,267.16 3,866.34 977,506.28 7 16,133.50 12,218.83 3,914.67 973,591.62 8 16,133.50 12,169.90 3,963.60 969,628.02 9 16,133.50 12,120.35 4,013.15 965,614.87 10 16,133.50 12,070.19 4,063.31 961,551.56 11 16,133.50 12,019.39 4,114.10 957,437.46 12 16,133.50 11,967.97 4,165.53 953,271.93 13 16,133.50 11,915.90 4,217.60 949,054.34 14 16,133.50 11,863.18 4,270.32 944,784.02 15 16,133.50 11,809.80 4,323.70 940,460.32 16 16,133.50 11,755.75 4,377.74 936,082.58 17 16,133.50 11,701.03 4,432.46 931,650.12 18 16,133.50 11,645.63 4,487.87 927,162.25 19 16,133.50 11,589.53 4,543.97 922,618.28 20 16,133.50 11,532.73 4,600.77 918,017.51 21 16,133.50 11,475.22 4,658.28 913,359.24 22 16,133.50 11,416.99 4,716.51 908,642.73 23 16,133.50 11,358.03 4,775.46 903,867.27 24 16,133.50 11,298.34 4,835.15 899,032.12 25 16,133.50 11,237.90 4,895.59 894,136.52 26 16,133.50 11,176.71 4,956.79 889,179.73 27 16,133.50 11,114.75 5,018.75 884,160.98 28 16,133.50 11,052.01 5,081.48 879,079.50 29 16,133.50 10,988.49 5,145.00 873,934.50 30 16,133.50 10,924.18 5,209.31 868,725.18 31 16,133.50 10,859.06 5,274.43 863,450.75 32 16,133.50 10,793.13 5,340.36 858,110.39 33 16,133.50 10,726.38 5,407.12 852,703.28 34 16,133.50 10,658.79 5,474.70 847,228.57 35 16,133.50 10,590.36 5,543.14 841,685.43 36 16,133.50 10,521.07 5,612.43 836,073.00 37 16,133.50 10,450.91 5,682.58 830,390.42 38 16,133.50 10,379.88 5,753.62 824,636.81 39 16,133.50 10,307.96 5,825.54 818,811.27 40 16,133.50 10,235.14 5,898.35 812,912.92 41 16,133.50 10,161.41 5,972.08 806,940.83 42 16,133.50 10,086.76 6,046.74 800,894.10 43 16,133.50 10,011.18 6,122.32 794,771.78 44 16,133.50 9,934.65 6,198.85 788,572.93 45 16,133.50 9,857.16 6,276.33 782,296.59 46 16,133.50 9,778.71 6,354.79 775,941.81 47 16,133.50 9,699.27 6,434.22 769,507.58 48 16,133.50 9,618.84 6,514.65 762,992.93 49 16,133.50 9,537.41 6,596.08 756,396.85 50 16,133.50 9,454.96 6,678.54 749,718.31 51 16,133.50 9,371.48 6,762.02 742,956.30 52 16,133.50 9,286.95 6,846.54 736,109.75 53 16,133.50 9,201.37 6,932.12 729,177.63 54 16,133.50 9,114.72 7,018.78 722,158.85 55 16,133.50 9,026.99 7,106.51 715,052.34 56 16,133.50 8,938.15 7,195.34 707,857.00 57 16,133.50 8,848.21 7,285.28 700,571.72 58 16,133.50 8,757.15 7,376.35 693,195.37 59 16,133.50 8,664.94 7,468.55 685,726.82 60 16,133.50 8,571.59 7,561.91 678,164.91 61 16,133.50 8,477.06 7,656.43 670,508.47 62 16,133.50 8,381.36 7,752.14 662,756.33 63 16,133.50 8,284.45 7,849.04 654,907.29 64 16,133.50 8,186.34 7,947.15 646,960.14 65 16,133.50 8,087.00 8,046.49 638,913.64 66 16,133.50 7,986.42 8,147.08 630,766.57 67 16,133.50 7,884.58 8,248.91 622,517.65 68 16,133.50 7,781.47 8,352.03 614,165.63 69 16,133.50 7,677.07 8,456.43 605,709.20 70 16,133.50 7,571.37 8,562.13 597,147.07 71 16,133.50 7,464.34 8,669.16 588,477.91 72 16,133.50 7,355.97 8,777.52 579,700.39 73 16,133.50 7,246.25 8,887.24 570,813.15 74 16,133.50 7,135.16 8,998.33 561,814.82 75 16,133.50 7,022.69 9,110.81 552,704.01 76 16,133.50 6,908.80 9,224.70 543,479.31 77 16,133.50 6,793.49 9,340.00 534,139.31 78 16,133.50 6,676.74 9,456.75 524,682.56 79 16,133.50 6,558.53 9,574.96 515,107.59 80 16,133.50 6,438.84 9,694.65 505,412.94 81 16,133.50 6,317.66 9,815.83 495,597.11 82 16,133.50 6,194.96 9,938.53 485,658.58 83 16,133.50 6,070.73 10,062.76 475,595.81 84 16,133.50 5,944.95 10,188.55 465,407.26 85 16,133.50 5,817.59 10,315.90 455,091.36 86 16,133.50 5,688.64 10,444.85 444,646.51 87 16,133.50 5,558.08 10,575.41 434,071.09 88 16,133.50 5,425.89 10,707.61 423,363.48 89 16,133.50 5,292.04 10,841.45 412,522.03 90 16,133.50 5,156.53 10,976.97 401,545.06 91 16,133.50 5,019.31 11,114.18 390,430.88 92 16,133.50 4,880.39 11,253.11 379,177.77 93 16,133.50 4,739.72 11,393.77 367,784.00 94 16,133.50 4,597.30 11,536.20 356,247.80 95 16,133.50 4,453.10 11,680.40 344,567.40 96 16,133.50 4,307.09 11,826.40 332,741.00 97 16,133.50 4,159.26 11,974.23 320,766.77 98 16,133.50 4,009.58 12,123.91 308,642.85 99 16,133.50 3,858.04 12,275.46 296,367.39 100 16,133.50 3,704.59 12,428.90 283,938.49 101 16,133.50 3,549.23 12,584.26 271,354.23 102 16,133.50 3,391.93 12,741.57 258,612.66 103 16,133.50 3,232.66 12,900.84 245,711.82 104 16,133.50 3,071.40 13,062.10 232,649.72 105 16,133.50 2,908.12 13,225.37 219,424.35 106 16,133.50 2,742.80 13,390.69 206,033.66 107 16,133.50 2,575.42 13,558.07 192,475.58 108 16,133.50 2,405.94 13,727.55 178,748.03 109 16,133.50 2,234.35 13,899.15 164,848.89 110 16,133.50 2,060.61 14,072.88 150,776.00 111 16,133.50 1,884.70 14,248.80 136,527.21 112 16,133.50 1,706.59 14,426.91 122,100.30 113 16,133.50 1,526.25 14,607.24 107,493.06 114 16,133.50 1,343.66 14,789.83 92,703.23 115 16,133.50 1,158.79 14,974.71 77,728.52 116 16,133.50 971.61 15,161.89 62,566.63 117 16,133.50 782.08 15,351.41 47,215.22 118 16,133.50 590.19 15,543.31 31,671.91 119 16,133.50 395.90 15,737.60 15,934.32 120 16,133.50 199.18 15,934.32 0.00 Loan amount x rpm x  (1+pm)                                       (1+pm) rpm= interest per month (rate of interest per year/12) n= number of installments NB: If you have a fixed budget towards EMI you can arrive at loan amount by changing the other variables such as by reducing the rate of interest or by increasing the tenure of loan. This can also be arrived at through EMI calculator by a trial-and-error approach.