Category: Personal Finance

Moratorium, loan recoveries help Indian banks improve GNPA ratio, but will it sustain?

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While the overall lending rates have declined when we look at the headline rates, the transmission is probably slower when we look at various products or risk segments.

India’s banking sector saw its gross non-performing assets (GNPA) come down in the second quarter of this fiscal year. The GNPA ratio of SCBs improved to 7.7% in the quarter ended September against 9.3% in the year-ago period, CARE Ratings said in a report. Although the asset quality of the banks seems to be better, the improvement has come owing to the moratorium offered by the Reserve Bank of India (RBI), recoveries and higher write-offs made by multiple banks. “As per disclosures by banks, the Gross NPAs would have been around 0.5% to 0.6% higher had these (moratorium) accounts been classified as NPAs,” the report said.

Asset quality improves

Among state-owned banks, India’s largest lender State Bank of India (SBI) reported the highest asset quality improvement, with a decline in GNPA ratio to 5.3% in the second quarter of this fiscal year against 7.2% a year ago. SBI accounts for nearly 20% of public sector bank GNPAs. Punjab National Bank (PNB) reported GNPAs at 13.4% against 16.8% a year ago. “Net NPAs also shrank to Rs 2.1 lakh crores in Q2FY21 from Rs 4.5 lakh crores in Q2FY19 reflecting an increase in provision coverage ratio (PCR),” CARE Ratings said. 

Recoveries were better in the fiscal second quarter, helping in improving the asset quality of banks. SBI’s recoveries stood at Rs 4,038 crore, ICICI Bank was at Rs 1,945 crore, followed by Bank of Baroda with Rs 1,642 crore worth of recoveries. “On an overall basis PSBs accounting for 75% share of GNPAs of SCBs have experienced a drop in the GNPA ratio to 9.3% in the quarter ended September against 11.6% in the year-ago period,” the report highlighted. 

Skeletons to be unearthed ahead?

CARE Ratings said that now that the moratorium offered by the banks has been lifted, the after-effect and the impact on the banks’ balance sheets may be witnessed in the latter part of the year and subsequent period. Banks have been ordered to not declare covid-19 related defaults as NPAs until further notice, hence keeping the GNPA ratio lower. However, following this many banks have kept aside extra provisioning for NPAs that may arise in future, making higher provisions in September. 

The report said that in the coming quarters provisions of SCBs are likely to remain elevated on account of the recognition of stressed assets owing to Covid-19 and its disruptions affecting the businesses which could impact the financial performance.

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Barriers to a cashless society in India, BFSI News, ET BFSI

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by Padmini Gupta, CEO and Co-founder rise Fintech

Padmini Gupta, CEO and Co-founder rise Fintech

Despite much-debated demonetisation and the massive stigma associated with cash circulation, currency usage in the Indian economy is poised to hit an all-time high. Currency in the hands of the public is now crossing $26 trillion and given the economic contraction is likely to be around 15% of GDP this year – a record high. ATM withdrawals are back up in October / November this year after suffering a decline in the first half of the year. This is happening at the same time as digital payments are taking off. The number of users of Unified Payment Interface or UPI has nearly doubled in a year, with the number of UPI transactions on apps such as Google Pay or Phone Pe nearing 2.2 billion in November 2020, with a total value exceeding Rs 3.3 trillion.

The case for digital payments
It is a case of two extremes. Despite the astonishing growth of digital payments – cash still accounts for around 70% of all consumer transactions in the country. This is despite all the gains made by UPI and digital payment methods. It’s important to understand that the number of people using UPI in India is still around 150 million, while the number of unique credit card holders is only approximately 35 million. This gap looks even starker if you compare to it the total number of debit cardholders which is around 850 million – clearly highlighting that even though many people can use UPI to transact, they do not. Understanding why requires a view into who still spends in cash in India and what are the barriers to digital payment adoption.

Three barriers to going cashless
The very first being the income barrier. Once you get paid your salary in cash, it becomes exceedingly challenging to digitise that cash and transact digitally. Over 75% of the Indian labour force is employed in the informal sector, and more than 100 million micro-loan accounts are serviced in cash every week. For this stratum of society, if they get paid in cash–they will transact in currency. Once the informal sector workers who are migrants start receiving their salaries in their bank accounts, it will change the face of digital India. Digitising payments would also make it much simpler for individuals to calculate and file their income taxes and for governments to make sure they are being paid.
Building on the momentum, fintech companies in India need to develop a digital ecosystem to facilitate greater access to finance to informal and new-to-bank segments. It is time fintech’s launch new apps digitising the informal sector. Many such apps have already been launched which allows people to share access to their cards or UPI, with their tribe members in a secure, digital and controlled manner is such a game-changer. The first time someone uses UPI is likely to be handheld by a friend or family member and likely transacting on their UPI id or card – rather than creating an account of their own. The app will facilitate activities in the digital market for those who rely heavily on cash, individuals who do not get paid into a bank account and even families of international migrants that receive their remittances in cash and hence spend in cash. The second they were the infrastructure barrier. Another large section of society either lives in low connectivity areas or transacts mainly with merchants who are not comfortable accepting digital payments. This goes back to the point of informal labourer. Suppose your local thela guy or your domestic helper is a migrant who is not necessarily licensed to do this job. In that case, he/ she is unlikely to set up a merchant account to receive UPI payments and will continue to rely on cash payments as a way to transact – both upstream (buying his goods) and downstream (accepting from his customers). Apart from the various government policies, factors that enable going cashless will be the penetration of technology, such as smartphones, e-commerce, and internet access adding to the penetration of banking services, such as online banking, mobile banking, cards, and POS devices.

The last barrier in the motivation barrier and includes both consumers and merchants who have no obstacles to use digital tools, but decide not to for reasons associated either with the comfort of using digital tools or other reasons (like tax avoidance). This is where regulatory efforts like requiring PAN for large cash transactions will drive the adoption of digital tools. However, this is also, where for a section of society – especially elders – where community support and training can play a significant role.

The right environment
The real questions are, how do you circumvent these barriers? By making both top-down supply-side efforts, including regulatory push and bottom-up community-driven push to adopt digital payments. Apart from promising regulatory environment, factors that enable going cashless are the penetration of technology in rural India, such as smartphones, e-commerce, and internet access plus the penetration of banking services, such as online banking, mobile banking, cards, and POS devices. This group demands flexibility in terms of price, mobility, and a low entry threshold. The pandemic has given the slow rise of digital currency a gigantic boost. The shift will be disruptive but is a leap in the right direction. To conclude, we believe that the longer the pandemic will last, the more cashless-friendly the societies will become. COVID-19 has changed people’s behaviour, and this change is likely to be permanent.

DISCLAIMER: The views expressed are solely of the author and ETBFSI.com does not necessarily subscribe to it. ETBFSI.com shall not be responsible for any damage caused to any person/organisation directly or indirectly.



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Banks’ consortium seeks bids to replace concessionaire for Maharashtra road project

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BI then issued a recall notice on June 1, 2018, requiring Supreme Manor to make the payment of the loan to the extent of Rs 160.81 crore as on January 30, 2018.

A consortium of lenders led by Union Bank of India (UBI) on Wednesday sought bids to replace the concessionaire in the four-laning of a road project in Maharashtra.

The current concessionaire is Supreme Manor Wada Bhiwandi Infrastructure, which has defaulted on loans worth Rs 164 crore to UBI.

Edelweiss Finance & Investment has been mandated by UBI to act as a process adviser in the substitution of the concessionaire through the Swiss challenge method.

According to a National Company Law Tribunal (NCLT) order dated August 11, Supreme Manor was given a joint lenders’ forum (JLF) restructuring package.

Nevertheless, its financial position continued to deteriorate and there were irregularities found in the payment mechanism in respect of the recast package.

Thereafter, lenders invoked strategic debt restructuring (SDR), with November 24, 2016, as the reference date. The JLF also gave in-principle approval for change of management outside SDR by invocation of pledged shares.

Consequently, the lenders invoked the pledge on 51% of the shares as part of the exercise of change in management.

The consortium lenders invited bids and selected the one submitted by Kalyan Toll Infrastructure (KTIL) in April 2018. However, in the next JLF meeting held on May 11, 2018, the process advisor informed the members of the JLF that a rating agency had issued a credit opinion of RP5 to the bid submitted by KTIL involving change in ownership into KTIL.

In view of the Reserve Bank of India (RBI) circular dated February 12, 2018, the lenders agreed that the bid involving change in ownership could not be considered for implementation as it did not receive a credit opinion of RP 4 or better. UBI then issued a recall notice on June 1, 2018, requiring Supreme Manor to make the payment of the loan to the extent of Rs 160.81 crore as on January 30, 2018.

“The notice reveals that the account has been classified as NPA (non-performing asset) as per the prudential norms of RBI guidelines with retrospective effect from 24.11.2016,” the order said. It further adds that despite repeated reminders, the borrower failed and neglected to regularise the credit facilities.

Eventually, UBI moved to file an insolvency petition against Supreme Manor.

The debtor in turn moved to quash the petition on the grounds that since the circular dated February 12, 2018, had been held ultra vires the provisions of the Banking Regulation Act, all actions taken under it must be declared null.

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Interview| We need both NBFCs and banks to grow: Rashesh Shah, chairman and CEO, Edelweiss Group

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Rashesh Shah, chairman and CEO, Edelweiss Group

Non-banking financial players have hurtled from one crisis to another. Rashesh Shah, chairman and CEO of Edelweiss Group, in an interview with Malini Bhupta, says the NBFC model will come back. Excerpts:

At a group level how do you see the pandemic impacting your liquidity and what about the balance-sheet strength to deal with the stress?

I think in the last five or six months, we have done a fair amount of balance-sheet strengthening. Our credit book took a big impairment and we took a markdown, which we front-loaded. We also beefed up liquidity and while it is hurting earnings, it is a source of comfort. Across our entities we are holding liquidity for two years. We have `7,000 crore of liquidity at group level. Our overall book is Rs 17,000 crore. We have improved equity in all businesses. We agreed to sell 50% of our wealth business. In our NBFC business, capital adequacy is 24%, in housing finance it is 28% and in ARC it is 38%. Our wealth business has grown at 94% a year and asset management business has doubled in two years. Our general insurance business has grown at 58% this year and the life insurance business has seen positive growth every month this year.

What about build up of stress in your lending businesses?

Our collection efficiency is back to 93-94% against 98% at pre-Covid levels. Out of our Rs 18,000-crore loan book, the share of retail and wholesale is equal. In retail, our collection efficiency is at 94% which is at par with the industry. We have taken a Rs 2000-crore markdown in the wholesale book. Wholesale housing has improved a lot and sales have been the best in 20 years.

NBFCs have been hurtling from one crisis to another. Your view.

IL&FS applied the brakes on the financial sector. It was a huge upheaval. If IL&FS had not happened, we would have been unprepared for Covid. IL&FS was a good break for the financial sector and because of that shock, banks and NBFCs are much stronger than they were two years ago.

Are NBFCs out of the woods?

There was a crisis five months ago and that is over, but the growth challenge remains. The government is doing its bit to increase the share of manufacturing through PLI scheme. We need 12-13% credit growth for the economy to return to growth. The good banks and good NBFCs have similar levels of profitability. The only difference is scale. While NBFCs account for 25% of the credit market, they account for 40% equity in the sector. We need both NBFCs and banks to grow, it is not an either-or situation.

What’s the road map for Edelweiss Group, which also has a non-banking finance company? Do you see Edelweiss becoming a bank?

We have an ambition to continue to build strength in the financial services space. There are three parts to that – one is insurance, then there is capital markets and credit. I do think digital disruption in banking is a big opportunity. At our size it would not make sense to become a bank with branches like it is in the old model because that model works at a scale. Our credit book is Rs 17,000-18,000 crore. We are not near the Rs 50,000-crore threshold. The RBI has also come out with norms for NBFCs to work with banks for origination and to sell loans. The NBFC model will come back. It will not be a balance-sheet model, but one where they occupy niches and specialise in select segments. It will have to be an asset-light model. The fact that the RBI feels NBFCs above a certain size should become a bank is a good thing because if you are Rs 50,000 crore in size, you have to roll over Rs 20,000 crore a year. At that stage, you become systematically important. Between Rs 25,000-50,000 crore, you can be both. But below Rs 25,000 crore, it might be beneficial to be an NBFC.

What’s in store for credit markets after all this turmoil of the last two years?

After the turmoil, there is a rethink on the entire credit ecosystem. Between 1995 and 2000 there were a lot of changes in equity markets. Credit markets will see similar changes. Credit markets will need to have multi-lane highway. We need to think of an infrastructure that is cohesive.

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Report, BFSI News, ET BFSI

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SoftBank‘s Vision Fund is preparing to raise between $500 million and $600 million via an initial public offering of its first special purpose acquisition company (SPAC), U.S. news portal Axios reported on Sunday, citing multiple sources.

SoftBank is said to be preparing for at least two additional SPACs, the report added. A SoftBank spokesman declined to comment.

Reuters reported in October that the Vision Fund was targeting external funding for a blank-cheque company.

Such a move would see Masayoshi Son‘s SoftBank joining the rush for SPACs, shell vehicles that raise money in an initial public offering (IPO) before merging with a privately held company. The vehicles are being using to take a record number of companies public, bypassing the traditional IPO route.

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PayPal faces Rs 96 lakh penalty for violating India’s anti-money laundering processes, BFSI News, ET BFSI

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American online payment gateway giant PayPal has been imposed a Rs 96 lakh penalty by the FIU for alleged contravention of the anti-money laundering law and accused of “concealing” suspect financial transactions and abetting “disintegration” of India’s financial system.

PayPal, which began India operations in November 2017, said it was fully committed to follow due processes and is “carefully reviewing the matter”.

The company has also been charged with “defeating and frustrating” the tenets of public interest and the provisions of the Prevention of Money Laundering Act (PMLA), which aims to keep the country’s financial system safe from economic crimes, terrorist financing and black money transactions.

Calling the contraventions as “deliberate and wilful”, the Financial Intelligence Unit (FIU) in a scathing 27-page order issued on December 17 held the company guilty on three broad counts, the fundamental being its failure to register itself as a “reporting entity” with the federal agency as mandated under the PMLA.

“…I, in exercise of powers conferred upon me under section 13(2)(d) of the PMLA, 2002 impose a total fine of Rs 96 lakh only on PayPal Payments Private Limited which will be commensurate with the violations committed by it,” the order issued by FIU Director Pankaj Kumar Mishra said.

It said that “there is ample evidence of the willful violation of the law and, therefore, PayPal cannot be let off with a penalty that should normally be imposed for minor violations”.

The order directs the company to pay the fine within 45 days and also register itself as a reporting entity with the FIU, appoint a principal officer and director for communication within a fortnight of the receipt of the order.

An appeal against the order can also be made before the Appellate Tribunal of the PMLA within 1.5 months.

A PayPal spokesperson told that it “is fully committed to regulatory compliance.”

“We take our obligations seriously across 200 markets where our payments platform is present. We are carefully reviewing the matter and we cannot comment further at this point,” he said.

This is for the first time that the FIU, an agency under the Union finance ministry, has undertaken punitive action against an online payment system operating in the country like it has done against public, private and cooperative banks in the past for not following anti-money laundering procedures in keeping their financial channels clean.

As per the order accessed by , the legal tussle between the FIU and PayPal began in March, 2018 when the latter asked the company to register as a reporting entity for keeping “record” of all transactions, reporting suspicious transactions and cross-border wire transfers to the FIU and for identifying beneficiaries of these funds.

The FIU analyses and shares these reports with various intelligence and investigative agencies for further action.

As per the order issued under section 13 of the PMLA, PayPal refused the FIU’s directive and hence a show cause notice was issued to it in September last year.

PayPal defended its action and cited Reserve Bank of India guidelines to state that it only operates as an Online Payment Gateway Service Provider (OPGSP) or a payment intermediary in India and is “not covered within the definition of a payment system operator or financial institution and in turn, not covered under the definition of a reporting entity under the PMLA”.

“Therefore, at this time, payment intermediaries, such as PayPal, are not required to register as such with the FIU-India,” it said in its reply to the agency.

PayPal also stated that it has “submitted” to the RBI its decision to cease domestic payment aggregator business in India before June next year.

The FIU, however, rejected its claims and said PayPal was very much involved in handling of funds in India, is a “finanical institution” and hence qualifies to be a reporting entity under the PMLA.

“The business model offered by PayPal clearly indicated that it not only acts as an intermediary but actively undertakes money transfer operations…

“PayPal undertakes to settle an online transaction by moving money from the customer’s account (issuing bank) to the merchant account, which ultimately transmits funds to the merchant’s bank account (acquiring bank) when the transaction is finalised,” the order said.

It added, “By virtue of enabling payment system for its users by way of credit card, debit card, money transfer operations, PayPal is functioning as a payment system operator and is therefore deemed to be a reporting entity…”

The order said while the company “defies” the process in India, its parent company in the US – PayPal Inc. – reports suspicious transactions to the American FIU and also to similar agencies in Australia and the UK.

Sharing of suspicious transaction reports by PayPal was “crucial” in enabling FIU to share such information with Indian law enforcement agencies and by refusing to register it was “not only concealing suspect financial transactions but is also abetting in the disintegration of India’s financial system” and posing “enhanced risk to the financial system of India”, the order said.

It noted that if PayPal’s contention was accepted, the objective of the anti-money laundering law would be rendered “redundant” and other such entities “will find some reason to technically escape being categorised as one (reporting entity) and frustrate the very purpose and object of the PMLA”.



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DHFL lenders likely to meet again this week to discuss bids

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DHFL had total assets amounting to Rs 79,800 crore as of March 2020, as per its annual report.

By Ankur Mishra,

The committee of creditors (CoC) of Dewan Housing Finance Corporation (DHFL) is likely to meet again this week to discuss bids submitted by the suitors, sources close to development told FE. Lenders had earlier met on Friday & Saturday and sought few clarifications from Oaktree Capital and Piramal Enterprises which needs to be responded to by Monday.

While Oaktree Capital had offered a total of Rs 36,646 crore, Piramal Enterprises had offered Rs 35,550 crore for DHFL’s entire book. Adani Properties had submitted a total bid of Rs 33,110 crore for the company.

FE had reported earlier that Piramal Enterprises was offering to pay Rs 1,054 crore more as cash upfront than Oaktree capital in the latest round of bidding. Piramal Enterprises has offered to pay Rs 12,700 crore, while Oaktree is willing to make a cash payment of Rs 11,646 crore. Adani Properties has offered a cash payment of Rs 10,750 crore in its bid.

While Oaktree has offered to pay Rs 21,000 crore of debt over seven years, Piramal Enterprises has said it will pay Rs 19,550 crore in 10 years. Adani Properties has offered to convert Rs 19,110 crore into debt, payable in 7 years.

CoC, had earlier, called for fresh bids, without opening those submitted in the third round after the National Company law Tribunal (NCLT) stayed the resolution proceedings on a petition filed by the National Housing Bank (NHB). Later, the CoC agreed to consider bids submitted in the third round, even as there was an option to improve their offers in the fourth round of bidding.

The admitted claims of financial creditors from DHFL are at Rs 87,120 crore as on September 10. State Bank of India is the lead creditor with claims of Rs 10,083 crore, followed by Bank of India which has claimed Rs 4,126 crore. Among others, Canara Bank has claimed Rs 2,682 crore while National Housing Bank (NHB) has claimed Rs 2,434 crore. DHFL has been undergoing insolvency proceedings at the NCLT in Mumbai since December 3.

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Embedding a gender focus across financial inclusion efforts in the Indian banking sector remains crucial, BFSI News, ET BFSI

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Over the past six years, India has made significant strides in widening the scale and impact of its financial inclusion efforts. Owing to the Government of India’s initiative to provide a bank account to every household, under the Pradhan Mantri Jan Dhan Yojana (PMJDY),an estimated 80% of Indians presently own a bank account .

But while ownership of Jan Dhan accounts improved remarkably (from 35% in 2011 to 80% in 2017), usage of these accounts continues to remain low. To increase engagement with Jan Dhan’s vast customer base, banks must focus on increasing awareness, reaching out to them via relevant communication and distribution channels, but most importantly, they must acknowledge the potential of women customers as the key lever to household financial empowerment and prosperity.

Low-income women customers are among the most important segment as they form a majority (nearly 55%) of the entire Jan Dhan portfolio . But according to Findex 2017only 33%of women actively use their accounts. This is also because many financial products simply don’t work for women. In the absence of disaggregated data, institutions don’t often realize that women have unique needs and gender neutral policies may be limited in providing solutions tailored to their needs.

Relooking at the financial inclusion agenda with a gender lens has the power to accelerate India’s banking sector’s efforts towards the objective. Data proves that when products are created with women’s specific needs in mind, men are just as or even more interested .Data also shows that any inclusion effort that focuses on women results in better conditions for children, household nutrition, and for the larger community . Women’s increased control over household finances leads to more investment in children and has a positive impact on economic growth. Overall, full, and sustainable financial inclusion of women could have a great impact on the reduction of both poverty and income inequality levels.

How banks can embed a gender focus across financial inclusion efforts

To start with, India’s banking sector needs to understand the unique needs and preferences of its Jan Dhan women customers and design for them. To engage women, banks need to understand their barriers and provide women reasons to proactively engage with the bank. For example, women regularly save small amounts of money, but use informal methods due to habit and convenience. Similarly, a pilot with a large public sector bank found that the promise of an overdraft (linked to small frequent savings) acted as a strong motivator to nudge this behaviour change .

But to understand these differences, it is important for financial service providers to collect and act on sex-disaggregated data in order to understand women customers, and their unique needs, better. Going a step further, regulators can play a crucial role by encouraging, or if needed mandating, sex-disaggregated data collection and usage by FSPs and policymakers.

Secondly, it is important to develop an outreach strategy for the Jan Dhan women customer base that increases their awareness of account benefits and welcomes her. Women customers need to understand how using their Jan Dhan account can benefit them; they need to see the value in changing their established habits of using informal banking methods. Women also find banks unfamiliar and perceive them not be relevant for their small savings. Awareness of savings benefits, low cost micro-insurance, access to overdraft, etc.in the Jan Dhan account is also low among women customers. One of the biggest challenges for the banking sector is to be able to reach women customers directly and through usage of alternate channels. This makes SMS, WhatsApp videos, word of mouth, local community influencers even more important. A sector wide awareness drive supported by government could go a long way in addressing these awareness gaps and provide a boost to financial inclusion.

Finally, India’s banking sector needs to nurture Banking Correspondents as strategic channel partners to deepen the engagement with the Jan Dhan customer base–especially with women. Women prefer transacting at local Banking Correspondent (BC) points because of either proximity or because they trust them .Furthermore, women BCs are natural relationship managers and are better able to deepen banking engagement. In addition, even though 55% of the customer base is female, less than 10% of BCs are women. Banks need to transform this last mile channel into relationship managers who can nudge customers to start small savings in their accounts and cross-sell products that address their needs. Creating a cadre of women banking correspondents will help banks deepen customer engagement beyond transactions and improve the engagement rates of their women customer base.

The road ahead

The Government of India is steadily leading the way for banks to address financial inclusion with a deliberate gender focus. In a revolutionary move announced in March 2020,itundertook a Direct Benefit Transfer (DBT) of INR 500 per month for three months (April2020 to June 2020) targeting women customers under the Pradhan Mantri Garib Kalyan Yojana. The objective of the government was to bolster financial security to the most vulnerable sections of Indian society – low-income women – as payments to women customers further ensures that the money is used for basic household needs5.

As we enter 2021, there is tremendous opportunity for banks to take these efforts beyond mere government cash benefits and embed a gender specific approach to address the needs of the 225 million women Jan Dhan customer base. Building women’s leadership in regulatory organizations is equally important to ensure representation for the cause at senior level and enable a favourable environment at the intersection of leadership development and women’s financial inclusion.

Pallavi Madhok, Senior Solutions Specialist and Ajit Agarwal, Product Manager, Advisory Services at Women’s World Banking)

(The blog has been authored by Pallavi Madhok, Senior Solutions Specialist and Ajit Agarwal, Product Manager, Advisory Services at Women’s World Banking)

DISCLAIMER: The views expressed are solely of the author and ETBFSI.com does not necessarily subscribe to it. ETBFSI.com shall not be responsible for any damage caused to any person/organisation directly or indirectly.



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What tax deductions are allowed on pension income

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I would like to know whether a senior citizen is eligible for the following I-T deductions from his/her pension income: i) deduction under Section 80C – ₹ 1.50 lakh ii) deduction of FD interest– ₹ 50,000 iii) deduction of NPS contribution– ₹ 50,000; total deduction– ₹ 2.50 lakh. A senior citizen having a pension of ₹7.5 lakh per annum will not be required to pay any income tax after deduction of ₹.2.5 lakh mentioned above. Can you please clarify whether the above understanding is correct or not?

Subramanian

As per the provisions of Section 80A under Chapter VIA of the Income-tax Act, while computing total income, an assessee is eligible to claim deductions under Section 80C to 80U of the Act (subject to the conditions and eligibility of the respective sections). Accordingly, you shall be eligible to claim eligible deductions under Sections 80C, 80TTB (against interest earned on deposits, up to maximum of ₹50,000) and 80CCD(1B) for NPS contribution (up to maximum of ₹ 50,000).

Further, for FY2020-21, though the minimum amount not chargeable to tax is ₹2.5 lakh, a resident individual is eligible to claim rebate under Section 87A of the I-T Act if his/her total income (after deductions) does not exceed ₹ 5 lakh. Hence, a resident individual having total income after eligible deductions up to ₹5 lakh need not pay any tax.

However, in your case, the income earned is pension income of ₹7.5 lakh. Total deductions of ₹2.5 lakh as mentioned in your query, includes a deduction of ₹50,000 which is available only on interest on deposits (Section 80TTB) and not against pension income. Hence, deduction under 80C and 80CCD(1B) shall only be eligible against the pension income subject to the fact that you have made eligible contributions / payments for various schemes for such a claim.

However, on the presumption that your pension income is received pursuant to your employment (and is not a family pension/from a pension investment plan), the same shall be taxable as ‘Salary’ income and you shall be eligible for a standard deduction of ₹ 50,000 against such pension income.

I have applied for home improvement loan from Indian Bank for painting, damp prevention masonry work, etc. I was told that I can claim deduction under Section 24 and others of the Income tax Act for interest up to ₹1.5 lakh for self-occupied property. Please advise on the amount of deduction allowed for renovation of self-occupied property of senior citizens under current tax laws

Sushovan Sen

I understand that you own and occupy the house property. As per Section 24(b) where a self-occupied property has been acquired, constructed, repaired, renewed or reconstructed with borrowed capital, the taxpayer may claim a deduction of the interest payable on such borrowed capital/loan of up to ₹30,000.

Considering the painting, damp prevention, masonry work type as repairs, renewal, you shall be eligible to claim deduction of up to ₹30,000 on account of interest payment on such loan.

Please note that for loans taken on or after April 1, 1999 for acquisition or construction of a property and where such acquisition or construction is completed within five years from the end of the financial year in which loan is taken, total amount of ₹2 lakh is allowed as deduction.

Since this is a self-occupied property, any deduction claimed would result into loss under the ‘House Property’, which shall be eligible to be set-off against any head of income in the same year. Any excess, shall be allowed to be carried forward and set off only against house property incomes for next 8 assessment years following the AY in which the loss had occurred.

The writer is a practising chartered accountant.

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The ABC of power of attorney

Personal Finance

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There is invariably a lot of legal paperwork in property transactions – be it selling, buying or leasing. And there are situations wherein one or more persons are unable to come in person and sign documents at the registrar’s office. This is where a Power of Attorney (PoA) comes in handy to complete the legal process.

What is PoA?

A PoA is a legal document that authorises someone designed to act on behalf of you (principal). The terms are governed by the Contract Act and the Power of Attorney Act.

There are three types of PoA that are useful for property-related actions. A general PoA is used to nominate one or more persons (called “attorneys”) to manage the property – buying, selling, developing, renting as well as obtaining licences and permissions as needed.

You can also limit the powers granted by specifying the purpose and/or a period of validity. This special PoA can be instead in place of general PoA to authorise for a particular transaction and/or time-frame.

An irrevocable PoA (also known as durable PoA) is similar to a general or specific PoA for the purpose intended. But the difference is that it cannot be unilaterally revoked by the principal. All the parties to the PoA must agree to terminate it.

How do you execute a PoA?

A PoA for property-related actions must state the brief acknowledgment of title and description of the property. The declaration of the intention and reasons for executing the PoA must be given. The details of identities of the principal and the attorney and their present addresses must be provided. The PoA must be printed on non-judicial or e-stamp paper, signed and dated. The stamp paper value is typically ₹100, but may vary based on the State in which it is executed.

To be legally valid, the document must be registered with a sub-registrar after being signed by two witness. The registration fee varies, based on different factors. For instance, in Tamil Nadu, the registration fee for general PoA is ₹1,000 if it is in favour of family members and ₹10,000 for others.

If the PoA is executed outside India, there are some additional requirements. The PoA should be printed on the right stamp paper in India and sent to the non-resident. This needs to be notarised by the Indian Consulate with witness signatures. The PoA must be registered in India within three months of execution.

What are the risks with PoA?

A general PoA grants lots of rights and hence must be used with caution. Especially in case of an NRI, it can permit the attorney to perform finance-related actions, not just relating to property but also others such as recover debts, open/operate bank accounts, attend to legal matters, file tax returns. As there is potential for misuse, you must choose someone trustworthy and the PoA must clearly mention what actions are allowed and what must not be done.

PoA in place of sale deed ?

A PoA is instrument for convenience and not a way of transferring any right, title or interest in property. There have been many cases where the seller granted an irrevocable PoA on the property for a consideration (often cash), without registering change of ownership – to avoid paying stamp duty and registration charges. This is not legal and the Supreme Court has held that the earlier owner will be considered the title holder. A general PoA cannot be held as a basis for record mutations (name transfer) in municipal or revenue records.

States such as Maharashtra consider PoA related to property when assigned to non-relative equivalent to a sale. For example, while there is a nominal fee if the PoA is assigned to close relatives, the stamp duty for other cases is the same as that on the sale of property.

The person holding the PoA only acts as an agent on behalf of the original property owner and the buyer must ensure that owners are kept in the loop. For example, in case there are multiple owners, there must be separate PoAs for each of them. The PoA holder cannot receive payment in their name (even if authorised by the owner) and sale amount must be paid to the owners in proportion to their ownership.

How do you revoke a PoA?

A PoA becomes void if the person who assigned the right passes away or annuls it. The first step to revoking is to issue a public notice and then register a cancellation deed at the sub-registrar’s office. The registered cancellation deed must be given to the person assigned the rights, as well as lawyers or other with whom the PoA was earlier shared.

The author is an independent financial consultant

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