How to reduce interest payments on your credit card bills?

Introduction
Interest rates on overdue credit card bills are extremely high. Most of us avoid building up credit card debt but at time it is unavoidable. There are some ways to reduce the interest burden so that you can pay off your debt faster.

Story
Rahul Khanna mother was hospitalised suddenly and she did not have medical insurance. To cover the expenses in this difficult time, Rahul used his credit card to make a payment to the tune Rs1.75 lacs.  When the bill came due, he was in a fix since he did not have that much cash to pay it off.  So he read the top right hand corner of the fill where it was written “minimum amount due” and he paid that amount.  As the months passed Rahul noticed that his credit card bill was growing each month and it was quite out of control…it was not his spending that had inflated the bill but interest payments on the original bill.

The truth is that credit card interest rates are extremely high i.e. between 36-42% p.a.  However there are some simple ways to reduce your interest payments.

Aim at paying the maximum possible amount each month
Ignore the “minimum balance due” and try your best to pay the maximum amount you can. The longer the period of payment, the more the interest amount will add to your financial burden.

Pay when your salary comes in
Do not wait for the “due date” of the bill, instead make the payment as soon as your salary / income comes in so that you can start reducing your interest payment from that day itself. It will also keep you better budgeted as you will be left with a lower amount for spending.

Do not use that credit card for further purchases
Put that particular credit card away till the payment on it complete. Adding on purchases on it will multiple your interest burden as there is no free credit period available on a card where the payment has been rolled over.

Ask the bank for a lower rate
At times all it takes to reduce the interest burden is to ask the bank. The bank might reduce the interest rate to more manageable level once they see that the customer has a good track record and a valuable customer….so do ask

Take a personal loan
The rate of interest is much lower on a personal loan than what you would pay on the credit card. If you are not able to pay your credit card due, replace the credit card debt with loan products that are cheaper. You can look at personal loans, loan against gold or even loan against property.

Convert to EMI payments
Some banks give option to pay back the dues through Equated Monthly Instalments (EMI). However, if make sure that you do not miss a payment or the rate will revert back to the original one. Banks will offer anywhere between 18% to 24% p.a. to their existing customers when they opt for EMI.

Get Sudycafe's Updates by SMS in your mobile by Following below two Steps: 

1. Download our SmartPhone Application & 

2. Send a SMS, Type: JOIN CASTUDYCAFE & send to 9219592195

. 

Subscribe to Studycafe by Email

Read more »

Payment of interest on overdue public deposits

RBI/2013-14/121
DNBS.PD/CC.No.350/03.02.001/2013-14

July 04, 2013

All NBFCs
Dear Sirs,

Payment of interest on overdue public deposits

Kindly refer to clause (10) of paragraph 4 of Non-Banking Financial Companies Acceptance of Public Deposits (Reserve Bank) Directions, 2007. NBFCs are at times required to freeze the term deposits of customer based on the orders of the enforcement authorities or the deposit receipts are seized by the enforcement authorities.  As doubts have been raised on the payment of interest on such deposit  which have either been seized by the government authorities, and/or have been frozen till further clearance is received by the concerned government authorities, the NBFCs are advised to follow the procedure mentioned below:

1. A request letter may be obtained from the customer on maturity. While obtaining the request letter from the depositor for renewal, NBFCs should also advise him to indicate the term for which the deposit is to be renewed. In case the depositor does not exercise his option of choosing the term for renewal, NBFCs may renew the same for a term equal to the original term
2. No new receipt is required to be issued. However, suitable note may be made regarding renewal in the deposit ledger
3. Renewal of deposit may be advised by registered letter / speed post / courier service to the concerned Government department under advice to the depositor. In the advice to the depositor, the rate of interest at which the deposit is renewed should also be mentioned.
4. If overdue period does not exceed 14 days on the date of receipt of the request letter, renewal may be done from the date of maturity. If it exceeds 14 days, NBFCs may pay interest for the overdue period as per the policy adopted by them, and keep it in a separate interest free sub-account which should be released when the original fixed deposit is released

However the final repayment of the principal and the interest so accrued should be done only after the clearance regarding the same is obtained by the NBFCs from the respective Government agencies.
2. Copy of Amending Notification No. DNBS 258/CGM (CRS)-2013 dated July 04, 2013 is enclosed for meticulous compliance.
Yours faithfully,
(C.R. Samyuktha) 
Chief General Manager

---

RESERVE BANK OF INDIA
DEPARTMENT OF NON-BANKING SUPERVISION
CENTRAL OFFICE
CENTRE I, WORLD TRADE CENTRE,
CUFFE PARADE, COLABA,
MUMBAI, 400 005.

Notification No.DNBS(PD). 258/ CGM (CRS) 2013 dated July 04, 2013

The Reserve Bank of India, having considered it necessary in public interest and being satisfied that, for the purpose of enabling the Bank to regulate the credit system to the advantage of the country, it is necessary to amend ';Non-Banking Financial Companies Acceptance of Public Deposits (Reserve Bank) Directions, 1998';. contained in Notification No. DFC.118/DG(SPT)-98 dated January 31, 1998, in exercise of the powers conferred by Sections 45J, 45K and 45L  of the Reserve Bank of India Act, 1934 (2 of 1934) and of all the powers enabling it in this behalf, hereby directs that the said Directions shall be amended as follows,
In clause (10) of para 4, under the title, ‘Payment of interest on overdue public deposits’, the following may be inserted as clause (10A),
‘(10A) In regard to the payment of interest on such deposit  which have either been seized by the government authorities, and/or have been frozen till further clearance is received by the concerned government authorities, the NBFCs are advised to follow the procedure mentioned below:

1. A request letter may be obtained from the customer on maturity. While obtaining the request letter from the depositor for renewal, NBFCs should also advise him to indicate the term for which the deposit is to be renewed. In case the depositor does not exercise his option of choosing the term for renewal, NBFCs may renew the same for a term equal to the original term
2. No new receipt is required to be issued. However, suitable note may be made regarding renewal in the deposit ledger
3. Renewal of deposit may be advised by registered letter / speed post / courier service to the concerned Government department under advice to the depositor. In the advice to the depositor, the rate of interest at which the deposit is renewed should also be mentioned.
4. If overdue period does not exceed 14 days on the date of receipt of the request letter, renewal may be done from the date of maturity. If it exceeds 14 days, NBFCs may pay interest for the overdue period as per the policy adopted by them, and keep it in a separate interest free sub-account which should be released when the original fixed deposit is released

However the final repayment of the principal and the interest so accrued should be done only after the clearance regarding the same is obtained by the NBFCs from the respective Government agencies.’

(C. R. Samyuktha)
Chief General Manager

Subscribe to Studycafe by Email

Read more »

Interest U/S 234A, 234B 234C

INTEREST U/S 234A: If a return of income is furnished after the due date or is not furnished, the assessee is liable to pay simple interest @1% P.M. or part of a month[1] on the amount of tax payable from due date till the date of filling of return, that means if the annual income tax return not filled within the stipulated time period {i.e. 30^th September for 2012-13 relevant previous year} than interest charged from the mandatory and statutory due date for filling of return till the actual date of filling of return.

IMPORTANT NOTES U/S 234A:

1.        SELF–ASSESSMENT TAX PAID BEFORE THE DUE DATE AND RETURN SUBMITTED AFTER DUE DATE: Interest would not be payable in a case where tax has been deposited prior to due date of filing of Income Tax Return even if the return of income is filed after the due date of furnishing such return.

2.       WHEN ASSESSMENT IS MADE FOR THE FIRST TIME U/S 147: A belated return cannot be submitted after the expiry of one year from the end of the assessment year. If an assessment is made for the first time u/s 147, then the assessee cannot be made liable to pay interest for the period during which it was not possible on the part of the assessee to file return till issuance of notice u/s 148.

3.       INTEREST IN THE CASE OF REASSESSMENT {SECTION 234A (3)}: If return of income is not submitted or submitted belatedly in the course of reassessment proceedings. Interest in such a case is payable by the assessee @1% P.M. for the period of default. The period of default commences on the date immediately following the expiry of time given by notice u/s 148 or 153A and ends on the date of furnishing of return (or on the date of completion of reassessment u/s 147 or 153A where no return has been furnished). Interest is payable on the amount by which the tax on the total income as reassessed exceeds the tax on the total income determined on the basis of the earlier assessment.

INTEREST U/S 234B: Under this section interest is payable as follows:

When Interest is Payable	Amount on which interest is payable	Rate of Interest	Period for which interest is payable
Assessee was liable to advance tax but has not paid.	Assessed Tax {Assessed Tax – TDS/TCS}	Simple Interest @1% P.M. or part of month.	1st day of the relevant assessment year till the date of determination of total income u/s 143 (1) or where regular assessment u/s 143 (3) is made to the date of such regular assessment.
Assessee has paid advance tax but it is less than 90% of the amount payable	Assessed Tax {Assessed Tax – TDS/TCS} – Advance Tax already paid or deposited or deducted	Simple Interest @1% P.M. or part of month.	1st day of the relevant assessment year till the date of determination of total income u/s 143 (1) or where regular assessment u/s 143 (3) is made to the date of such regular assessment.

Note: If an assessee has paid or deposited advance tax more than 90% of the tax payable {90% includes advance tax + tax deducted at source} than no interest will be charged.

INTEREST U/S 234C: Under this section interest is payable if advance tax is not payable in time. Calculation of interest payable is as follows:

For Non-Corporate Assessee {Section 234C (1) (b)}:

When interest is payable	Rate of Interest	Period of Interest	Amount on which interest is payable
If advance tax paid on or before 15th September is less than 30% of Assessed Tax (Tax Assessed – TDS/TCS)	Simple interest @1% P.M.	3 months	30% of Assessed Tax {Assessed Tax – TDS/TCS} – Advance Tax paid till 15th September.
If advance tax paid on or before 15th December is less than 60% of Assessed Tax {Assessed Tax – TDS/TCS}	Simple Interest @1% P.M.	3 months	60% of Assessed Tax {Assessed Tax – TDS/TCS} – Advance Tax paid till 15th December.
If advance tax paid on or before 15th March is less than 100% of Assessed Tax {Assessed Tax – TDS/TCS}	Simple Interest @1% P.M.	1 month	100% of Assessed Tax {Assessed Tax – TDS/TCS} – Advance Tax paid till 15th March.

For Corporate Assessee {Section 234C (1) (a)}:

When interest is payable	Rate of Interest	Period of Interest	Amount on which interest is payable
If advance tax paid on or before 15th June is less than 12% of Assessed Tax (Tax Assessed – TDS/TCS)	Simple interest @1% P.M.	3 months	15% of Assessed Tax {Assessed Tax – TDS/TCS} – Advance Tax paid till 15th June.
If advance tax paid on or before 15th September is less than 36% of Assessed Tax {Assessed Tax – TDS/TCS}	Simple Interest @1% P.M.	3 months	45% of Assessed Tax {Assessed Tax – TDS/TCS} – Advance Tax paid till 15th September.
If advance tax paid on or before 15th December is less than 75% of Assessed Tax {Assessed Tax – TDS/TCS}	Simple Interest @1% P.M.	3 months	75% of Assessed Tax {Assessed Tax – TDS/TCS} – Advance Tax paid till 15th December.
If advance tax paid on or before 15th March is less than 100% of Assessed Tax {Assessed Tax – TDS/TCS}	Simple Interest @1% P.M.	1 month	100% of Assessed Tax {Assessed Tax – TDS/TCS} – Advance Tax paid till 15th March.

INTEREST U/S 244A: Interest is receivable by the assessee on excess amount of Income Tax paid {Income Tax Refund}, @ 0.50% P.M. or part of month thereof, from the first day of the assessment year till the date of grant of the refund.

---

[1]If payment made on 1^st May than the rate of interest must be charged @ 2% i.e. for two months even though on delay for one day only i.e. on 1^st May the rate of interest charged for two months instead of one month. That is called part of a month.

This Article has been posted by CA Prashant Doshi. He Can be reached at prashantdoshi22@gmail.com

Subscribe to Studycafe by Email

Read more »

How to calculate interest on recurring deposits?

Understand Compound Interest To Understand Recurring Deposit Interest

When you create a RD for Rs. 10,000 for 2 years, what you’re doing is depositing Rs. 10,000 with the bank every month for 24 months, and the bank pays you interest on Rs. 10,000 for 2 years compounding it quarterly, then for the next Rs. 10,000 it pays you interest for 23 months, and so on and so forth.

Banks usually compound interest quarterly, so the first thing is to look at the formula for compound interest.

That formula is as follows:

A formula for calculating annual compound interest is:

                           A=P(1+r/n)^nt

Where,

  A = final amount

  P = principal amount (initial investment)

  r = annual nominal interest rate (as a decimal, not in percentage)

  n = number of times the interest is compounded per year

  t = number of years

In your recurring deposit, you use this formula to calculate the final amount with each installment, and at the end of the installments, you add them all up to get the final amount.

Think of RD Installments and Series of Principal Payments

Let’s take a simple example to understand this – suppose you start a recurring deposit for Rs. 2,000 per month for 1 years at 9.75% compounded quarterly. If you were to see this number as a standalone fixed deposit that you set up every month for 12 months, you could come up with a table like I have here. Before you get to the table, here is a brief explanation on the columns.

 Month: First column is simply the Month.                    

 Principal (P): Second column is P or principal investment which is going to be        the same for 24   months,

 Rate of Interest (r): r is going to 9.75% divided by 100.

 1+r/n: In our case, n is 4 since the interest is compounded quarterly, and 1+r/n is rate divided by compounding periods.

 Months Remaining: This is simply how far away from 2 years you are because that’s how much time your money will grow for.

 Months expressed in year: I’ve created a column for Months expressed in a year since that makes it easy to do the calculation in Excel.

  nt: 4 multiplied by how many months are remaining as expressed in year.

  (1+r/n)^nt: Rate of interest raised by the compounding factor.

  Amount (A): Finally, this is the amount you if you plug in the numbers in a row in the compound interest formula.

So, Rs. 2000 compounded quarterly for 1 years at 9.75% will yield Rs. 25295  after 2  years. The last row contains the grand total which is what the RD will yield at the end of the time period.

Read more »