I have approval from my employer to withdraw the provident fund amount, but I am getting the message: “PAN not available - TDS deductions at 34%." But my provident fund amount is less than Rs50,000. Is PAN mandatory or can I claim the amount without PAN?
There are a few instances where TDS is not applicable on the withdrawal from Employees’ Provident Fund (EPF), such as: transfer from one account to another account, in case of employer closing down his business or any other reason beyond the control of employee or member of EPF; termination of services due to ill-health of employee or member of EPF; if amount is less than Rs50,000 (earlier it was Rs30,000, which was increased to Rs50,000 from 1 June 2016). If the amount is more than Rs50,000, and period of service is less than 5 years but Form 15G/15H is given along with PAN, then too TDS will not be deducted. Also, if your service period is more than 5 years, then irrespective of PAN update, TDS is not applicable. In your case, as the provident fund amount is less than Rs50,000, TDS is not applicable.
I and my wife are in our early 30s, and jointly earn about Rs2 lakh a month. We want to invest for 7-8 years for purchasing a home, and for about 25 years for our children and retirement. We have PPF investments, EPF, and LIC of about Rs15 lakh. I have fixed deposits of Rs1 lakh and recurring deposits of Rs40,000. Could you advice for those goals?
First, determine the net surplus available for savings. This is a simple task where the key is to understand your cash flows; and the net income over expenses is the amount available for savings and investments. The critical point is expense management and it is good if you plot the expenses for at least for few months to know whether they are in control or if you need to prune the same. Next, understand your risk profile: risk capacity and risk appetite. Prima facie, considering your financial goals and income, risk capacity appears to be in order. It is more about risk appetite: how much risk you can take in your investments. Consider taking a risk appetite test to determine your risk tolerance. These tests ask you questions like: ‘how will you react if the investment made in equity for a long-term goal falls 20% in 6 months of your investing?’ These will help in gauging your risk-taking ability and help you in arriving at an asset allocation for your portfolio. Such tests are available online and many business papers and magazines also carry them.
Subject to above, as all your financial needs are long term, you can consider equity as an asset class for investments. In case there is a short-term goal, then asset classes with lower risk are to be considered. Simultaneously, you should also invest to create an emergency corpus. Here you can consider your fixed deposits and recurring deposits. Remember, asset allocation is important in creating a long-term corpus. Last, you need to have adequate insurance, both for life as well as health, as this goes a long way in ensuring 360º protection.
I want to create an emergency fund with good returns. Is it right to invest in National Pension System (NPS) Tier-2 or Tier-I? Should I go for liquid funds?
—Kr Gaurab Harichandan
NPS Tier-1 is the prerequisite for opening a Tier-2 account. As the Tier-2 account does not carry any lock-in, and is available for withdrawal any time and without any surrender charges, no tax advantage is offered on it. The redemption, if any, will be taxable as ‘income from other sources’. It will be clubbed with your income and will be taxable as per your marginal rate of tax. The Tier-2 account is a voluntary contribution scheme and hence has this flexibility. Here also, you can invest in the 3 categories of investment: equity, government securities and fixed income. And if you want to use Tier-2 as an emergency corpus, then it is a good asset class and is recommended, provided you consider the debt asset class. Equities are not a recommended asset class for emergency fund. If we look at the matrix of investment for emergency corpus, first comes liquidity, followed by safety and the last is returns. Subject to above, you need to determine the asset allocation for this corpus.
Surya Bhatia is managing partner of Asset Managers. Queries and views at firstname.lastname@example.org.