It's critical to establish financial stability and develop wise saving practises in the fast-paced world of today. Having a strong base of finances is crucial whether you're saving for an unforeseen event, making retirement plans, or chasing a long-awaited goal. However, presenting proof of income when trying to preserve money may appear superfluous or cumbersome to some people, especially those with irregular income or low financial resources.
In the recent notification issued by The Indian government now requires investors in post office programmes and those investing more than Rs. 10 lakhs to show documentation proving their financial stability. In order to avoid misuse for terrorist financing, stronger KYC and PMLA compliance criteria have also been applied to all investments in Post Office schemes or those engaging in money laundering.
The Department of Post has instructed Post Office representatives to gather income verification for specific categories of modest savings screen investors. The announcement was made on May 25, 2023. The agency noted that the circular was published in response to changes made to the Know Your Customer (KYC), Anti-Money Laundering (AML), and Combating the Financing of Terrorism (CFT) standards.
The customers have been categorised on the basis of the risk involved. High-risk customers are required to provide proof of money that is being invested, apart from commonly followed KYC norms.
Following are the bases for the level of risk involved:
Low Risk:
Where the customer opens an account or applies for purchase of certificates or applies for credit of maturity/prematurity value of any existing savings instruments with an amount of up to Rs.50,000
And balances in all accounts and savings certificates does not exceed Rs 50,000.
Medium Risk:
Where the customer opens account or applies for purchase of certificates or applies for credit of maturity/ prematurity value of any existing savings instrument with an amount exceeding Rs 50,000 but up to Rs 10 lakh
And balances in all accounts and savings certificates does not exceed Rs 10 lakh
High Risk
Where the customer opens an account or applies for purchase of certificates or applies for credit of maturity/ prematurity value of any existing savings instrument with an amount exceeding Rs 10 lakh
And balance in all accounts and certificates does not exceed Rs 10 lakh.
The accounts relating to Politically Exposed Persons (PEPs) residing outside India shall fall under High-Risk Category.
PEPs are those individuals who are or have been entrusted with prominent public functions by a foreign country, including the Heads of States/Governments, senior politicians, senior government or judicial or military officers, senior executives of state-owned corporations and important political party officials
Documents Accepted as a source of funds
A copy of a document identifying the source of money used to make investments must be submitted by the customer in accordance with the circular. The source of funds can be verified with any of the following papers:
Bank or Post Office Account Statement, which shows where the money came from
any income tax return from one of the previous three fiscal years that simultaneously ties the investment to the gross income
Will, letter of administration, sale deed, gift deed, or succession certificate
Any other record that details the source of funds or income
Apart from asking for proof of money source for certain investors, all categories of customers/investors (irrespective of their risk categories) are required to produce the following documents to do the investment:
Two current passport-size photos, or three in the case of BO. A picture of each joint account holder should be provided in the case of a joint account.
ID attestation: PAN and Aadhaar
Aadhaar or PAN numbers can both be used as address evidence. Any officially valid document, such as a passport, driver's license, voter ID card, utility bills (not older than two months), etc., should be presented if these two documents do not include the current address.
Keep in mind that the investor must self-attest the documents. All joint depositors must provide identification and proof of address when opening a joint account. A document demonstrating that the depositor is a recipient of any government program is required for basic savings accounts.
The circular further states that re-KYC is required based on the client risk. The re-KYC is required every two, five, and seven years for high-risk, medium-risk, and low-risk consumers, respectively.
Any request for a credit of maturity value into an existing savings account from a depositor or holder of a certificate should only be granted after verifying that the savings account in question was opened with the proper KYC documentation and applying the risk category in accordance with the balance in the account following the credit of maturity value. According to the circular, if a new savings account is formed to credit maturity value, it should be guaranteed that the KYC documents are obtained based on the maturity value being credited into the account and are of the appropriate risk category.
Let’s discuss the need of providing evidence of income for modest savings accounts and how doing so can promote sound money management.
Building Credibility and Trust:
When interacting with financial institutions like banks, credit unions, or lenders, you can build credibility and trust by providing proof of your income. You can demonstrate that you have a dependable source of income and the means to pay back any loans or debts by supplying proof of your income. By building a foundation of trust through this verification procedure, institutions are able to provide you with better terms, interest rates, or even customized savings solutions.
Establishing Budgeting and Planning:
Careful budgeting and planning are essential for saving money. It is simpler to accurately examine your financial condition once you have proof of income. You may create reasonable savings goals and invest your money accordingly if you are aware of your monthly or yearly earnings. You can better understand your financial capabilities and plan your spending and saves by having proof of your income.
Accessing Financial Services:
Having documentation of your income gives you access to a range of financial services that can help you reach your savings objectives. For instance, some organizations only provide investment options or specialized savings accounts to people with proof of income. These accounts might provide better interest rates, more features, or even awards that might hasten the growth of your money.
Building a Credit History:
For future financial endeavors like getting a mortgage, getting a loan, or even renting an apartment, having a good credit history is essential. You contribute to developing a healthy credit profile by routinely supplying evidence of income and handling your money wisely. Your financial stability is demonstrated by this history, which makes it simpler to obtain loan choices and long-term financial goals of greater significance.
Planning for Retirement:
Having proof of income can still be extremely important in long-term financial planning, even while tiny amounts may not immediately contribute to huge retirement funds. Understanding your current income, estimating your future wages, and calculating how much you will need to save to maintain your lifestyle after retirement are all part of retirement planning. The ability to assess your predicted retirement income precisely and make the necessary modifications to guarantee a comfortable retirement is made possible by proof of income.
SMALL SAVINGS LEADS TO HUGE INVESTMENTS AND GREAT RETURNS
PRESENTED BY mytaxpro.in
BHARTI BHARDWAJ
https://www.mytaxpro.in/
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