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Possibly, all of the budget summaries floating around the print and digital media, talked about how adverse it (budget recommendations) is to the working class, the employees of an organization, citizens like me and probably you. While I partially agree with some of the statements made, one of the (highly) argumentative benefit that I see is from the initial call-out to tax the lump sum withdrawal of one’s Provident Fund over and above 40% of the corpus. 
 
Pensions is a topic close to my heart. Part of my work while with Invest India Micro Pensions was trying to get the underprivileged into a habit of contributing towards their retirement. The organization’s top ranks, individuals who contributed towards architecture of the New Pension Scheme imparted a lot of knowledge too. Owing to these learnings, this school of thought believes that there needs to be a fundamental shift in behavioural patterns, among Indians, towards retirement savings. 
 Let’s first try and understand what the new recommendation is – Mr. Jaitley, the Finance Minister, very clearly mentioned that he is taking measures towards moving to a pensioned society. He deliberated that the Provident Fund withdrawals as a lump sum above 40% of the corpus (includes both employees and employers contribution and a fixed compounded interest set by the <keyword id="6372438" type="ORGANIZATION" weightage="20" keywordseo="EPFO">EPFO</keyword> --Employer Provident Fund Organization) will be taxed. 
 
Let’s try and get to bed with this idea, why would the finance ministry of a soon-to-be-aging country want to tax the savings of a hard working employee over-and-above all the income tax he/she has already paid? Now read the above recommendation again. The Ministry’s real intention is to only tax the lump sum withdrawals, and NOT the entire savings. It is quite simply the stick approach being used to cultivate a behavior, an attitude towards financial independence in the non-income years and a point of view to use the saving for the purpose it was saved. 
 
Pensions as a subject in India is more often than not, disregarded. We tend to cozy up with the idea of cosmic karma, where a working class hero (read parents) spent on their kids till they start earning, kids in turn indebted to spend on the parents when they stops earning. While all the emotion in this is absolutely spot on, the practicality isn’t. India as a nation has to move towards saving for their retired years, the government would rather take the blame of forcing good behavior over having thousands of aged financial-dependents with no one to depend on. 
 
While an incentive to annuitize, than a fine to withdraw lump sum, would have been a populist recommendation, we should not fret the tax to improve our behavior, it should be welcomed as a strategy for a better tomorrow, for the government and for us. 
 
(The article is authored by Aashim Joy, who is an Employee Benefits Actuarial consulting with a private company) 
 
(Image: Indiatimes)

Jaitley is right about taxing the lump sum withdrawal
from your PF

New Delhi, Apr 9 () The government is planning to allow subscribers of the Atal Pension Yojana (APY) for a partial withdrawal from employees' contribution as the current lockdown to battle Covid-19 has crippled the monetary power of workers in the unorganised sector. The government circular would be out in a day or two for adding Covid-19 as one of the conditions for partial withdrawal from pension fund by APY susbscribers, Pension Fund Regulatory and Development Authority of India (PFRDA) Chairman Supratim Bandyopadhyay told ."In our regulation, we already have an enabling provision of partial withdrawal for specific purposes such as life threatening kind of emergency, or some kind of critical illness and the likes. There we have done a classification that it should include Covid-19 also," Bandyopadhyay said.He said PFRDA has requested the finance ministry for enabling this provision."May be today or tomorrow this circular will be out," said the chairman of the pension fund regulatory body.He said as in case of other contingencies of partial withdrawal, the limit of withdrawal has been kept same at 25 per cent of the fund accrued of employee's contribution of the pension amount. As on March 31, 2019, the number of APY subscribers was 2.11 crore. The total number of subscribers under APY and NPS stood at 3.47 crore.PFRDA runs two flagship pension schemes -- APY and NPS (National Pension System).While the NPS caters to the central and state governments alongside autonomous bodies as well as individual taxpayers, APY is largely targeted for workers in the unorganised sector.India's majority workforce is employed with this sector which is facing hardship due to the lockdown. Bandyopadhyay said there is unlikely to be any disruption in terms of PF contribution from NPS subscribers. With regard to large and medium corporates also PFRDA is not seeing any kind of disruption, however, there may be some challenges with respect to small corporates. But, he also clarified that since the PFRDA schemes are flexible in nature as there are no due dates to make contributions, one can add funds to pension accounts at any time during a fiscal year.Individuals, salaried or self employed, can also subscribe to the NPS scheme wherein investment of up to Rs 50,000 a year is allowed tax free. KPM KPM ANUANU

Govt to allow Atal Pension subscribers for partial withdrawal from PF fund amid COVID-19 :PFRDA

While the <keyword id="6360789" type="ORGANIZATION" weightage="80" keywordseo="Modi-Government">Modi government</keyword> is allaying perceptions of tax terrorism among foreign investors and projecting a pro-poor stand to counter opposition allegations, a peculiar clause in the <keyword id="123776" type="ORGANIZATION" weightage="80" keywordseo="Finance-Bill">Finance Bill</keyword> can undo its efforts as it brings the retirement <keyword id="25450" type="UNKNOWN" weightage="80" keywordseo="savings">savings</keyword> of millions of workers under the <keyword id="6354751" type="COMPANY" weightage="80" keywordseo="Income-Tax">income tax</keyword> net, even if they earn as little as Rs 2,120 a month. 
 
To put that in perspective, the annual income threshold above which personal income tax is payable isRs 2.5 lakh or about Rs 21,000 per month. 
 From June 1, workers' retirement savings exceeding Rs 30,000 will be taxed at 10.3% or the maximum marginal rate of 30.6% if they leave the employees' <keyword id="45028" type="ORGANIZATION" weightage="80" keywordseo="Provident-Fund">provident fund</keyword> before completing five years of service. 
 Tax will be deducted at the highest rate from the provident fund account balances of such employees who don't have a PAN card, used to identify taxpayers, according to the new Section 192A introduced in the Income Tax Act. Even those with a PAN card who save a higher amount and pay income tax will need to refile their past tax returns where deductions were claimed against <keyword id="45027" type="ORGANIZATION" weightage="80" keywordseo="EPF">EPF</keyword> contributions. 
 Alarmed officials in the <keyword id="60977" type="ORGANIZATION" weightage="80" keywordseo="PF">PF</keyword> office said that 90% of the Employees' Provident Fund Organisation's 8.5 crore-plus members don't have PAN cards and would end up paying an "exorbitant and unfair" tax on their savings. The <keyword id="6372438" type="ORGANIZATION" weightage="80" keywordseo="EPFO">EPFO</keyword> board chaired by labour and employment minister Bandaru Dattatreya took up the issue with the <keyword id="47209" type="ORGANIZATION" weightage="80" keywordseo="Finance-Ministry">finance ministry</keyword> last month. 
 However, officials said there is no move yet to reconsider the issue, in contrast to the alacrity with which the <keyword id="25455" type="ORGANIZATION" weightage="80" keywordseo="finance">finance</keyword> ministry announced a review of new I-T return forms that sought details of foreign travel and attracted severe flak. 
 "A vast majority of EPF members may not have a PAN card. The charging of income tax in respect of such members at the maximum marginal rate will be exorbitant and unfair," <keyword id="6567698" type="ORGANIZATION" weightage="80" keywordseo="Central-Provident-Fund">Central Provident Fund</keyword> Commissioner KK Jalan noted in a missive to the labour ministry on the issue last month. 
 
Drawing a parallel between another provision in the Finance Bill that makes quoting of PAN necessary for purchasing jewellery overRs 1 lakh, the PF department has asked for 'the same logic' to be applied to EPF members so that workers are not subject to unnecessary hassles. 
An EPF account is mandatory for all employees earning up to Rs 15,000 per month (raised recently fromRs 6,500 per month) in firms employing over 20 workers. As per the law, 24% of an employee's salary is diverted to her or his PF account as a social security net for old age. 
 
The Rs 30,000 threshold set in the Finance Bill for deducting tax from the PF balance implies that tax would be payable on contributions of as little as Rs 508 to the EPF every month for up to 59 months. The retirement savings of those earning over Rs 2,120 a month could be taxed at 30.9% if they don't have a PAN card. 
 
"The EPFO provides social security to employees who are mainly from the lower income strata of the society. In majority of the cases, the yearly income of these employees would be less than the exemption limit prescribed in the Income Tax Act and therefore, may not be required to pay tax at all," Jalan pointed out, adding that the Rs 30,000 tax-free limit on such PF balances is 'too low'. 
 
Unlike banks that deduct income tax at 10.3% on interest income of over Rs 10,000 earned from fixed deposits, the provisions for taxing PF accounts envisage taxing the principal amount (EPF contributions) as well as the interest earned (annual dividend credits). In cases where a depositor hasn't shared his PAN card details with the bank, such interest income is taxed at 20.6%. 
 
In contrast, the finance ministry has asked the EPFO to levy the highest possible tax rate for those who don't hold PAN cards, if their accumulated PF savings are Rs 30,000 or more. Once tax is deducted from those who don't have a PAN card, they are required to submit different forms to the income tax department (Forms 15G, 15H and 60). 
 
"Filling such forms would add to woes of EPF subscribers and more so when it is the avowed policy of the present government to move towards an era of paperless offices," Jalan wrote in his letter to Labour Secretary Shankar Aggarwal, pleading for the matter to be taken up with the finance ministry, "keeping in view the financial interests" of workers.

Spoiler Alert: Now your PF withdrawal before 5 yrs will be taxed at 30.6%, savings to take a hit

Relief for those who wanted to draw out their premature <keyword id="45028" type="ORGANIZATION" weightage="80" keywordseo="Provident-Fund">provident fund</keyword> (PF) withdrawals of Rs 30,000 or more as the <keyword id="47209" type="ORGANIZATION" weightage="80" keywordseo="Finance-Ministry">finance ministry</keyword> is reconsidering its Budget provision to tax such withdrawals, even as the 2015 Finance Act has been notified and deduction of tax at source from PF accounts settled before five years of service, comes into force from June 1. 
 

	The finance ministry might issue a directive to put the implementation of this clause in the Finance Act on hold or raise the Rs 30,000 trigger for tax deductions from PF accounts, a senior official said. "The government is mulling two options to hold back the implementation of this tax, after the PF office pointed out that it would be unfair to tax retirement <keyword id="25450" type="UNKNOWN" weightage="60" keywordseo="savings">savings</keyword> of people whose income is less than the personal <keyword id="6354751" type="COMPANY" weightage="80" keywordseo="Income-Tax">income tax</keyword> threshold of Rs 2.5 lakh," the senior official told the Economic Times. 
	 

	Meanwhile, the PF department has ordered all offices to be ready to deduct tax from all premature PF claims settled from June 1 as the decision is expected by the end of this month. 
	 

	"Tax will be deducted at 10% if members submit their PAN card details and at the maximum marginal tax rate of 34.608% if a member fails to submit PAN. Only in cases where a member submits Form 15G or 15H, no tax will be deducted," the official said. 
	 

	Form 15G is a self-declaration document for individuals having non-taxable income, while Form 15H is a similar declaration by senior citizens (over the age of 60 years). However, these forms won't be accepted as a valid defense for avoiding tax deductions in case of PF accounts with balances of Rs 2.5 lakh (for those with no taxable income) and Rs 3 lakh for retirees. According to the Employees' <keyword id="122254" type="ORGANIZATION" weightage="80" keywordseo="Provident-Fund-Organisation">Provident Fund Organisation</keyword> (<keyword id="6372438" type="ORGANIZATION" weightage="80" keywordseo="EPFO">EPFO</keyword>), no tax will be deducted if the PF savings are transferred to another PF account. 
	 

	Moreover, no tax would be deducted on their PF withdrawals in special cases. If an employee had to leave service due to bad health or other factors beyond their control such as a slowdown or shutting down of the employer's business, no tax will be deducted. 
	 

	Personal income tax is payable for those earning Rs 2.5 lakh or more annually. An EPF account is mandatory for all employees earning up to Rs 15,000 per month in companies having over 20 workers. As per the law, 24% of an employee's salary is diverted to her or his PF account. 
	 
	(Image: Indiatimes)

Relax! The govt won't tax you just yet for withdrawing your PF before 5 yrs

After the salaried class expressed their discontent over tax on PPF scheme, the government has finally withdrawn the proposal. 
 
The government said the PPF will not be taxed on withdrawal and only the interest that accrues on contributions to employee provident fund made after April 1 will be taxed while principal will continue to be tax exempt. 
 
Revenue Secretary Hasmukh Adhia said, “The principal amount will not be taxed and will continue to remain tax exempt on withdrawal. What we have said is 40 per cent of the interest accrued on contributions made after April 1 will be tax exempt and its remaining 60 per cent will be taxed." 
 
Adhia said that no part of PPF will be taxed and the present scheme of investment up to Rs 1.5 lakh in a year will continue to be tax exempt. PPF on withdrawal will continue to be out of the tax ambit. 
 
(Image: Thinkstock)

Confusion no more! PPF stays on tax exemption list

To rebuild its image that was lost because of some controversial decisions, authorities at retirement fund body Employees' Provident Fund Organisation (EPFO) has decided to give it a brand makeover. 
 
The first thing that <a href="http://www.businessinsider.in/Your-PF-will-now-earn-interest-even-if-your-employer-has-stopped-contributing-to-it/articleshow/51599478.cms">EPFO</a> would get would be a tagline, so that it can brand itself. This would be followed by a brand ambassador, so that people can connect to it. 
 
A senior labour ministry official told ET that the idea behind these changes is to ensure that EPFO becomes a household name, and can come of use to everyone. "Many of our subscribers who are poor workers are not aware of the benefits like the pension, provident fund and even the deposit-linked insurance scheme under EPFO besides several new initiatives undertaken in the last two years. Hence we aim to reach out to the last mile subscriber," the official said. 
 
In the next step of this brand makeover, <a href="http://www.businessinsider.in/Finance-Ministry-lowers-proposed-PF-interest-rate-to-8-7-for-the-first-time/articleshow/51980004.cms">EPFO</a> will also get all its 120 offices renovated, in a bid to make them all look similar to the State Bank of India buildings, with logo and signages installed on their facades. 
 
Some brand experts believe that these initiatives are being taken to handle the negativity that some <a href="http://www.businessinsider.in/Criticism-over-taxing-EPF-forces-Jaitley-to-re-think-his-decision-final-decision-during-Budget-debate/articleshow/51224503.cms">controversial decisions</a> in the past have brought to the body’s image. These decisions included tax on <a href="http://www.businessinsider.in/New-PF-withdrawal-norms-put-on-hold-till-July-31-after-protests/articleshow/51896279.cms">withdrawal of PF money</a> and <a href="http://www.businessinsider.in/PF-withdrawal-deadline-pushed/articleshow/51894892.cms">restriction on the withdrawal</a> of the employers' contributions. 
 
<a href="http://startcompanyindia.com/wp-content/uploads/2014/02/pf.jpg">Image source</a>

The Provident Fund Office going in for a change of image, will also hire a brand ambassador

10 best tax-saving investments

<ul><li>G-20 finance ministers, central bank and FM Sitharaman to meet on Apr 15 to discuss eco revival post COVID-19. </li><li>Employers will have to show donations made by employees from their salary to the PM-CARES fund in Form 16 TDS certificate. </li><li>Retirement fund body <keyword id="6372438" type="ORGANIZATION" weightage="20" keywordseo="epfo">EPFO</keyword> on Friday said it has settled 1.37 lakh provident fund withdrawal claims worth ₹ 280 crore. </li><li>About 15 million people face job losses in India's exports sector following cancellation of over half of the orders.</li></ul>Following are the top business stories of April 10: G-20 finance ministers, central bank Guvs to meet on Apr 15 to discuss eco revival post COVID-19 Finance Minister Nirmala Sitharaman and RBI Governor <keyword id="6359111" type="PERSON" weightage="20" keywordseo="Shaktikanta-Das">Shaktikanta Das</keyword> will on April 15 participate in the meeting of the G-20 countries to discuss the way forward in supporting the economy after the COVID-19 pandemic. ADB assures USD 2.2 bn support package to India for COVID-19 response Asian Development Bank (ADB) President Masatsugu Asakawa on Friday assured Finance Minister Nirmala Sitharaman of USD 2.2 billion (about Rs 16,500 crore) support to India in its fight against the COVID-19 pandemic. Donation by employees to PM-CARES fund through employer to reflect in Form 16 TDS certificate Employers will have to show donations made by employees from their salary to PM-CARES fund in Form 16 TDS certificate, the Income Tax department has said. Enough stock of hydroxychloroquine in India: Govt The government on Friday said that there is enough stock of hydroxychloroquine in the country and it is taking all steps to ensure that there is no shortage of the drug in the domestic market. EPFO settles 1.37 lakh PF withdrawal claims worth around ₹280 cr to ease lockdown woes Retirement fund body EPFO on Friday said it has settled 1.37 lakh provident fund withdrawal claims worth ₹ 280 crore to provide relief to subscribers during the lockdown. ICICI Lombard, Go Digit, Flipkart join hands to offer Covid-19 health insurance ICICI Lombard, Go Digit General Insurance and Flipkart on Friday said they have joined hands to offer health policies related to Covid-19. India to export hydroxychloroquine only to foreign governments and not to pvt companies: Sources India will export anti-malarial drug hydroxychloroquine, high in demand globally, only to foreign governments and not to private companies, as the product is under prohibited or banned category of exports, sources said. Exports sector may witness 15 million job losses, increase in NPAs: FIEO About 15 million people face job losses in India's exports sector following cancellation of over half of the orders and gloomy forecast for global trade due to the Covid-19 pandemic, exporters' body FIEO said on Friday. Petrol pump operators seek financial support as losses mount on falling fuel sales With <keyword id="1754604" type="PERSON" weightage="20" keywordseo="coronavirus">coronavirus</keyword> eviscerating demand, petrol pump operators on Friday said per pump sales have fallen to less than one-tenth, leading to heavy losses in establishment and employee cost. Coronavirus deteriorates Air India finances but airline manages to keep afloat, says chief Air India chief Rajiv Bansal on Thursday said that the "crippling effect" of coronavirus has further plummeted the airline's finances to a "precarious" position but despite that, it has managed to keep afloat. Truckers demand relief package from govt as lockdown leaves them in limbo With the livelihood of about 1 crore truckers in peril due to the lockdown, transporters on Friday urged the government for an immediate relief package for the transport sector. Independent dir kingpin of corp governance; can't remain in 'cosy club': Srinivas Asserting that steps have been initiated to develop a strong cadre of independent directors, Corporate Affairs Secretary Injeti Srinivas has said such people should not be part of a "cosy club" as they are key to corporate governance. Pre-monsoon sowing of kharif crops begins; paddy acreage up 27% Amid COVID-19 lockdown, pre-monsoon sowing of kharif crops has begun across the country with paddy acreage 27% higher at 32.58 lakh hectare so far as compared to last season, according to the agriculture ministry. Foreign exchange reserves decline USD 902 mn to USD 474.66 bn The country's foreign exchange reserves declined by USD 902 million to USD 474.66 billion in the week to April 3 due to a fall in foreign currency assets, according to the latest data from the <keyword id="6354335" type="COMPANY" weightage="20" keywordseo="reserve-bank-of-india">Reserve Bank of India</keyword>. Covid-19 cripples ₹2,000-crore Jalandhar sports industry With Covid-19 lockdown resulting in a complete halt of trading activities, barring some essential commodities, the over Rs 2,000-crore sports industry of Jalandhar is having a harrowing time as the current situation has forced sport goods manufacturers to defer orders. SEE ALSO: <a href="https://www.businessinsider.in/india/news/punjab-extends-lockdown-till-may-1-after-a-sudden-spike-in-covid-9-cases/articleshow/75082965.cms" data-type="tilCustomLink">Punjab extends lockdown till May 1 after a sudden spike in COVID-19 cases</a> <a href="https://www.businessinsider.in/topic/coronavirus">Coronavirus News and Updates</a> <a href="https://www.businessinsider.in/india/news/how-to-check-coronavirus-symptoms-at-home/articleshow/74960334.cms">What are the Coronavirus symptoms and how to check for them at home</a>

From 15 million job lost in exports sector to government seeking proof of PM-CARES donations - here's all the headlines you may have missed today

<div class="image-container float_right" style="width:400px"><div class="image"></div><a href="http://www.facebook.com/pages/ZENON-TAVERNA/51939736466?ref=ts&amp;id=51939736466&amp;sk=photos_stream">Zenon Taverna/Facebook</a></div>There's a lot of anger and confusion coming out of <keyword id="6373843" type="COUNTRY" weightage="60" keywordseo="Cyprus">Cyprus</keyword>. 
Over the weekend, European leaders announced a surprise bailout package for the country, which would include a tax on cash deposits.
We now know that banks will be closed <a href="https://www.google.com/url?sa=t&amp;rct=j&amp;q=&amp;esrc=s&amp;source=web&amp;cd=1&amp;cad=rja&amp;ved=0CDgQqQIwAA&amp;url=http%3A%2F%2Fwww.bbc.co.uk%2Fnews%2Fbusiness-21823432&amp;ei=_Y5HUYeqFbe14APF-YGYDQ&amp;usg=AFQjCNEjuSC78gvk4ZsReCpjVsGGEsuK2w&amp;sig2=8Fx1O6ilfLMCJS-BXeoreA&amp;bvm=bv.43828540,d.dmg">until Thursday</a>, which has the potential to create a slew of other problems.
We reached out to Elena and Theodora Papageorgiou, who run the Cypriot restaurant <a href="http://zenontaverna.com/index.php">Zenon Taverna</a> in Astoria, <keyword id="124338" type="CITY" weightage="60" keywordseo="Queens">Queens</keyword>, to learn what their relatives in the Cyprus cities of Larnaca and Agia Napa are experiencing.
They claim their relatives were already being told they couldn't withdraw funds before the bailout announcement.
While their family has enough to make it through the week, they fear what will happen once banks reopen.
Most of all, they are outraged by the indiscriminate way rich and poor alike will suffer under the terms of the bailout.
Here's a transcript of our Q&amp;A, edited for clarity: 
BUSINESS INSIDER: What's the current situation like in Cyprus?
PAPAGEORGIOU FAMILY: When my mother spoke to [her relatives] a few days ago, they told them that they weren't able to withdraw any money from the banks. I think everyone knows the banks being closed is temporary, and although they use credit cards down there, a lot of people, especially the old generation still use mainly cash, and maybe visit the banks 1 time every 1-2 weeks. I think the panic is more from outrage that their money is going to be taken, than the fact that they need money right now for their day to day expenses.
BI: How will your family in Cyprus be affected?
PF: Certain people in my family will be affected more than others. My grandparents are well into their 80s and are refugees (IDPs) from (Turkish-) occupied territory since the invasion of 1974. Their accounts are on the smaller side and unfortunately, their financial situation is not being considered in this, as well as other refugees and the older generation. Their only income is their pension, which is not much to begin with and has already been reduced. As for my cousins, aunts/uncles, they are already suffering. The job market has taken a drastic hit and many are already without a job. By taking away from their savings, and no additional income coming in, they are going to fall into an even worse situation.
BI: Do you think the bailout will improve the country's economic situation?
PF: If done properly, the bailout may help. Unfortunately, the chances of a debt being paid back are very slim, and the recent closing of the banks have brought people's movements and spending to a standstill. Once the banks reopen, I am pretty sure everyone is going to race to try and remove as much money as possible. The way the bailout has been proposed, it seems it will lead to the destruction of the people because it will make it impossible for the country to ever come out on top.
BI: What do you think needs to be done long-term to fix the country's finances? 
PF: There is no easy answer to this question because any and all solutions will have consequences. Having discussed this issue with Cypriots here in the states, many people have said they would voluntarily give some money if it would help the country. Although it is difficult to say how much money can be raised this way, it would be voluntary and people wouldn't feel like their hand was forced and their government was trying to steal their money. This may be impractical though, I'm nowhere near an economist so I can only really say based on what I heard and what I've been discussing with fellow Cypriots. If a loan can be taken that wouldn't cripple the country or make them vulnerable and in debt for the rest of the foreseeable future, this is would be ideal.
Also, it would be nice if we aren't hearing that our president was forced into agreeing to terms that are in no way agreeable. I'm sure there is a lot we don't know, and we will never find out about, but it would be good if for the first time in Cyprus' history, the EU, our government, and any other governments involved thought about their population and the well being of the older generation, in addition to the rest of the citizens.
Note: I also think its important in this not to forget the the political problems of the island. When talking about finances, the occupation of the island is quickly forgotten, but this is the reason so many people are struggling. Many people were unable to recover after the invasion and make back the fortune they had pre-invasion. 
The decades of hard work from our ancestors was all lost in the invasion, and now they are left with the little they were able to acquire while rebuilding their lives from absolutely nothing, while trying to survive with their families. Adding this to the current economic problems, and people are devastated all over again.

CYPRIOT FAMILY: This Bailout 'Will Lead To Destruction Of The People'

You are in a good job, earn a fat salary and have a bright future. Yet, none of this is evident when you look at your <keyword id="25450" type="UNKNOWN" weightage="40" keywordseo="savings">savings</keyword>. This is because young people often find it difficult to save in the initial years of their careers. Studies reveal that discretionary spending can be as high as 18-20% of the income for young people. A 2011 study by Assocham revealed that almost 35% of the urban youth spend up to Rs 5,000 a month on clothing alone. This is one of the reasons most young people have such low savings. 
 “Gen Y focuses on their EMIs, but ignores their <keyword id="159805" type="COMPANY" weightage="80" keywordseo="SIPs">SIPs</keyword>. They want to splurge on the latest smartphones and the newest cars but not save for their future,” says Sudipto Roy, business head, Principal Retirement Advisors. 
 
Discipline and self-regulation are the cornerstones of a successful investment plan. We know it is difficult to salt away money when everyone around you is spending as if there is no tomorrow. There is tremendous peer pressure and even the most level-headed youngsters can stumble. Our cover story this week looks at 8 secret mantras that can help transform a spendthrift into a saver. 
 
MANTRA 1: SAVE BEFORE YOU SPEND 
 Many people are not able to save enough because they don’t have anything left after all their expenses. Their financial equation is: Income - Expenses = Savings. Legendary investor <keyword id="6358963" type="PERSON" weightage="40" keywordseo="Warren-Buffett">Warren Buffett</keyword> offers a simple solution. He says the equation should be changed to Income - Savings = Expenses. Instead of saving what is left after expenses, you should spend what is left after you are done with your savings for the month. 
 
We know controlling expenses is easier said than done. However hard you may try, there will be some expense that will gobble up the surplus and prevent you from saving. The solution lies in automating your savings. 
 If you give an ECS mandate to your bank for an SIP, the money will automatically flow into your mutual fund even before you can withdraw it. Ideally, the savings should flow into an investment option that does not allow easy withdrawals. This is one of the reasons that make the <keyword id="45028" type="ORGANIZATION" weightage="40" keywordseo="Provident-Fund">Provident Fund</keyword> such an effective tool for long-term savings. Every month, the employee’s contribution is deducted from the salary and deposited into his PF account. The money keeps growing till the person retires. He can access the corpus before retirement only in certain circumstances. 
 
MANTRA 2: WAIT BEFORE YOU SPLURGE 
 
The urge to buy something you like can be overwhelming. Easy financing options and plastic money prevent an individual from distinguishing his wants from his needs. Whenever you want to buy something expensive but not essential, follow the 30-day rule. Just postpone the purchase by 30 days. 
 
During that period, think hard whether you really want the item. At the end of the month, if you still want to buy it, go ahead and purchase it. However, if the item was not really essential, you will get over the urge to buy and will probably junk the idea. 
 
This simple rule works very effectively in case of gadgets, apparel, footwear and accessories. It’s also not very difficult to follow because you don’t actually deny yourself the item. You merely postpone the purchase by a month. As a fringe benefit, you also get to research the item over the next 30 days. 
 
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There is another guideline that can help you know the difference between wants and needs. The 30-minute rule says that if you are unlikely to use an item for a least 30 minutes a day on average, you should not buy it. The fancy coffee maker is really no use if you take it out once a month. Of course, this rule is only for gadgets and appliances and should not apply to other essential household items. 
 
MANTRA 3: AVOID USING PLASTIC MONEY 
 
Credit and debit cards are essential because an increasing number of our financial transactions take place online. However, plastic can be dangerous in the hands of a reckless spender. Studies show that even normal people tend to overspend if they use a credit card for a purchase. If they have to make the payment in cash, they will feel the pinch more. Since the credit card user only signs on the slip, the full impact of the purchase is not felt. 
 
To suppress the shopaholic inside you, leave your debit and credit cards behind when you go to the mall. Take cash instead. Mumbai-based IT professional Vaibhav Pandya (see picture) has followed this simple rule for the past 6-7 years and seen his savings shoot up. He says paying cash makes him think twice before he makes a purchase. 
 
 
Experts recommend some extreme measures for serious shopping addicts. Some say you should just note down the card details and then cut the card into pieces so that you can’t use it anymore. Others suggest you keep the card in a paper sleeve and stick pictures of your kids or spouse on it. You will be reminded of the other goals you may be jeopardising when you swipe the card for an unnecessary purchase. 
 
“Keep in mind that every craving sets you back when it comes to reaching your long-term goals,” says P V Subramanyam, financial trainer, Iris. One bizarre idea is to literally freeze your card inside a block of ice. It won’t damage the card, but the user will have to wait for the ice to melt before he can access it. However, we believe the average spender won’t have to resort to such extreme measures. Just keeping the card in a safe place instead of carrying it around in the wallet is good enough. 
 
MANTRA 4: START SMALL TO SAVE BIG 
 
At the beginning of your career, your income is not very high. In many cases, there is a very small investible surplus after the expenses. Still, this does not hold you back from saving. Delhi-based Sanjay Koul (see picture) was not able to save much in his initial years of earning because his income was low and there were too many financial responsibilities. 
 
 
Yet, he managed to put away a small amount every month. For a young investor, the low quantum of investment is more than made up by the long period available for the money to grow. The magic of compounding ensures that even a small sum grows into a gargantuan amount over the long term. The investment can be scaled up as the income grows in the coming years. Turn to page 18 to know how even a modest investment of Rs 3,000 a month in an option that gives a conservative 8.5% can balloon to over Rs 1.5 crore in 30 years if you just keep increasing the investment by 10% every year. 
 
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However, it is difficult for the average investor to maintain the discipline required for this approach over a long period of time. Mutual fund investors start SIPs but don’t enhance the amount every year. Ulip investors pay the same premium year after year without any top-ups. Investors in recurring deposits and fixed deposit don’t even have the option to increase their investment in the same account. 
 
MANTRA 5: DON’T BE PRESSURED TO SPEND 
 
Everybody’s financial situation is different. Just because your colleague has bought a new car or booked a flat in a fancy location does not mean you should follow suit. Bangalore-based Rajesh Prasad (see picture) learnt this early in his career. “When I started working, there was a lot of peer pressure to go out and splurge. However, my father and senior colleagues advised me against blowing away my entire income,” he says. 
 When it comes to big-ticket items like cars and houses, do the math carefully before committing expenses. For instance, the total cost of ownership of a car is much higher than the price quoted by the dealer. You also have to include the cost of fuel, insurance, servicing, spares and repair. There are a few rules for buying a car. The price of the car should not be more than 60% of your annual household income. The <keyword id="6357050" type="COMPANY" weightage="40" keywordseo="EMI">EMI</keyword> should not be more than 15% of your monthly income or 30% of your investible surplus after expenses. 
 
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Besides, a new car should be used for at least 8 years for complete return on investment. Similarly, assess how much you really need the new smartphone before upgrading. 
 
MANTRA 6: LEVY LUXURY TAX ON YOURSELF 
 
The intention of this article is not to make you deny yourself the very luxuries that you have worked hard to attain. Every now and then, you need to treat yourself to some as well. 
 
Pune-based Vikas Mathur (see picture) has found a novel way to boost his savings everytime he spends. No, we are not talking about credit card reward points here. Every time Mathur indulges in some discretionary spending, he socks away an equal amount for his savings. If a dinner and movie with the family costs him Rs 2,000, another Rs 2,000 is put into savings. 
 
 
There is another advantage of this rule. The luxury tax that Mathur levies on himself helps him get over the guilt of spending on discretionary items. 
 
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MANTRA 7: DON’T SPEND TO DE-STRESS 
 
For many people, spending can be therapeutic. It is a way to unwind after a stressful day and gives the person a sense of control. However, the aftermath of this de-stressing can be even more stressful if it burn a big hole in your wallet. Worse, if the bills you pile up remain unpaid, it will hurt your credit score. 
 “Use your credit card wisely. If you use more than 30% of your total available credit card limit, it will affect your credit score adversely,” says Nitin Vyakaranam, Founder &amp; <keyword id="5645" type="POSITION" weightage="40" keywordseo="CEO">CEO</keyword>, ArthaYantra.com. 
 
Do you also frequently head to the mall and pick up stuff to fight depression and anxiety? Get a grip on the situation and look for healthier (and less costlier) alternatives to unwinding. When you feel overwhelmed by the urge to go on a shopping spree, go for a stroll in the park or do some light exercise. This will act as a distraction and ease the urge to spend. 
 
MANTRA 8: FIX A BUDGET AND STICK TO IT 
 
This should have been the first mantra, but has been deliberately brought up at the end because Gen Y is put off by the B word. The fact is that setting up a budget is the first step towards prudent financial planning, and it’s not too difficult. Just set a limit for how much you can spend on clothes, travel and movies in a month and stick to your budget. Budgeting also helps you keep tabs on the itsy-bitsy expenses, such as casual shopping for clothes, eating out, gifting, and entertainment. 
 
Most of the time, these smaller items go unnoticed even though they take up a large portion of the total monthly expenditure. In the good old days, financial planners advocated the ‘envelope’ method, where the outlay for each head was put in separate envelopes. 
 
Now you can sign up with a money management portal. These websites aggregate all your finances, from savings bank accounts and credit cards to loan payments and mutual fund SIPs. They help you keep track of your money, alerting you when a payment is due or when you have overspent under a certain head. 
 
 
Must read story: <a href="http://economictimes.indiatimes.com/wealth/savings-centre/analysis/ET-Wealth-Eight-saving-ideas-that-can-cost-you-money/articleshow/36194419.cms">Eight saving ideas that can cost you money</a>

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