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Life is busy(often an understatement).  Bank statements, warranties for household appliances, manuals for all the electronic gadgets bought, bills,  medical prescriptions, medical bills, credit card receipts, ATM slips, credit card statements, bank statements, investment records – they pile up and multiply faster than dirty dishes after a meal. Such stuff usually gets tossed on the table or in a spare drawer. If you are like most people(including me), you have mounds of receipts and papers sitting on a desk or overflowing in the drawer. We don’t realize how much we pay(in money and time) as a result of having our papers in disarray — a late credit-card charge, a lost tax deduction , missing premium date, missing warranty card as Ashok found out.

Why keeping Records are important?

Ashok’s bike which was parked on the road was hit accidentally by a tanker. It got damaged and Ashok found that repairing it would cost a lot of money. So he thought of claiming insurance to lessen his financial burden in repairing the damaged bike. He had bought the vehicles three years back. He then got so busy with his job that he forgot where the insurance policy papers were. Then one weekend he searched his entire room and finally discovered the insurance papers, only to find that insurance policy has lapsed as he had not paid the premium last year. A simple negligence cost Ashok half of his month’s salary.
Note: This example is from book ‘I Can Do Financial Planning’ by Swapna Mirashi. This book is part of Reserve Bank of India’s(RBI) “Project Financial Literacy”. You can read about the book in our earlier post Personal Finance Books For Adults And Young Adults
Paper work is stressful. Not everyone has a Personal Assistant(PA) or an office space to file the mountains of warranties, contracts, documents they need. It’s easy to feel buried under an avalanche of paper and too stressed and guilty to deal with it.
Paper work murphy law

Murphy law on paper work

Financial Records

Following table lists the type of records to keep, what to keep, why and for how long.
Type of record What to keep Reason for keeping How long to keep
Bank Records
List all account numbers with addresses, phone numbers
Bank statements/pass book, deposit slips, cheque books Statements are needed for income tax deductions and proof of important payments Minimum of at least seven years.
Credit card
Names, addresses and phone numbers of issuing companies, card numbers
Credit card receipts and statements Proof of Purchase of items on credit; use of card and payment of balances due can give you a good credit rating From 45 days to seven years
Keep your original receipts until you get your monthly statement; shred the receipts if the two match up.Keep the statements for seven years
Loans You should keep a record of any loans you may have, such as student, car, home equity loans. When the loan is paid off, you can throw the documentation away, retaining only the final statement that shows the loan paid in full.For reference for credit rating Till the loan is paid and then permenantly
Housing records Some of documents related to your own house:o Title to your home
o Deed of purchase
o Mortgage contract
o Sales contract
o If you inherit property, keep an assessment of the fair market value of the property.o Lease/rental agreemento Improvement receipts,o utility deposit receipts,o mortgage payments

o property tax records

Improvements you make on your house, as well as expenses in selling it, are added to the original purchase price or cost basis. This adds up to a greater profit (also known as capital gains) when you sell your house. Therefore, you lower your capital gains tax. From six years to permanently
Keep all records documenting the purchase price and the cost of all permanent improvements — such as remodeling, additions and installations.Keep records of expenses incurred in selling and buying the property, such as legal fees and your real estate agent’s commission, for six years after you sell your home.
Receipts and bills Proof of payment. Proof of value on insurance claims Proof of payment. For charge accounts— if they are tax deductible; proof of value on insurance claims. Keep credit card receipts until bill is paid; keep larger item receipts while items are in your possession
Locker Inventory Information for yourself and family members Until you close the locker.
Investments Statement of mutual funds, stocks, bonds, FDs, dividends receipts etc Reference for completed transactions.You need the purchase or sales slips from your brokerage or mutual fund to prove whether you have capital gains or losses at tax time. Until you sell
Income tax related Tax deducted at Source (TDS),
Filed returns/tax paid
tax exemption documents, Form 16, Form 16A, Form 12 B
Verification of taxes paid At least seven years
Insurance policies Policy, Receipts of Premium paid. Along with your homeowner’s insurance policy, you should also keep a list and pictures of your possessions to provide to the insurance company in the event of a fire. For claiming insurance Till the insurance is applicable.
Income/Employment Record Salary slips, Provident Fund slips, Experience certificate, For reference Atleast one year to permanently:
Salary slips atleast till Form 16 is made available.
Medical bills Bills An amount of Rs.1250/- per month or Rs.15,000/- per annum is exempt for income tax which can be paid as the medical allowance to the employee. Atleast a year till reimbursement
Appliances Instructions and Warranties For claiming repair or replacement. Throw the warranty documents away upon expiration.

Personal Records

Most personal papers are important to keep and inconvenient to replace. Examples of personal papers with links to information about them at india.gov.in are:

Other personal papers which one may need to keep are Separation and Divorce documents, Adoption papers etc.

Our article When you lose your wallet, Credit Card, PAN Card, Driving License discusses it in detail.

Please scan your documents and upload them on the net, so that you can access them when required.

Records for income tax purpose

If you pay income tax you then your income tax return can comes into the scrutiny by random search. Quoting from FAQ on income tax website

What is the mechanism by which the department checks the correctness of my return of income? Would I be given an opportunity to present my views during the course of such verification?

Based on information available with the department a small percentage of returns are picked up for verification. This process is called scrutiny. You will be given full opportunity to put forth views and evidence to support your claims.

Am I required to keep a copy of the return filed as proof and for how long?
Yes. Since legal proceedings under the income tax act can be initiated up to six years prior to the current financial year, you must maintain such documents at least for this period

Your income tax return can comes into the scrutiny by random search. Scrutiny is the process of selecting some income-tax returns and examining them closely by calling for extra information and seeing if the details furnished are correct. It is an audit of the income-tax return filed by the taxpayer to assess his real tax liability. Quoting from 2007 article on labnol.org

The time limit for taking up a return for scrutiny is within one year from the end of the month in which the return is filed. For instance, if the return is filed on July 28, 2006 then the scrutiny notice can be served on the assessee upto July 31, 2007. The serving of the notice on assessee is important. If such notice is issued on July 29, 2006 but is received by assessee after July 31, 2007, it is not a valid notice. There is a penalty of Rs.10,000 for each failure to comply with the notice.

Tax officers can call with any/all of the following documents with him/ her:.

  • Bank pass book or statement of all bank accounts.
  • Credit card statements if any
  • Details of the family members living with him/her.
  • Details of the loan borrowed from the bank or any other sources such as relative or any organization.
  • Any gift details
  • Household expenses and the drawings
  • Saving details
  • Any membership
  • Details of vehicle purchased or held
  • Accommodation details owned/rent, if rent agreement
  • Details of donation paid
  • Details of assets and liabilities
  • Children education details
  • Electricity expenses details
  • Any foreign travel details

So please keep above mentioned financial records for atleast 7 years.

Benefits of record keeping

Whether you want to get your current finances in order or you wish to plan your financial future, a proper record keeping is the step to start with. Knowing where important papers are located, and being able to find them easily, can be the difference between money lost or gained. Lets checkout some benefits of record keeping
  • Records provide evidence of financial transaction – repayment of loan, depositing money in bank account, purchase of an asset. This is specially important in case any discrepancy arises over it.
  • Less time preparing income tax returns. No running around at last moment looking for the TDS certificates(Form 16A) or mutual fund statements for capital gains.
  • Get insurance compensation, retrieve stolen or lost items if your house or apartment is burglarized or destroyed.
  • In the event of death, injury or an emergency, obtaining insurance or claim (warranty card in case of damaged goods) or settling an estate reducing some stress for loved ones.
  • Records also help in evaluating past and planning future spending. It helps you to
    • Track your money : where it comes from (income) and where it goes (expenses)
    • Provide an easy reference to you wealth – assets (savings, investment, insurance etc) and liabilities ( credit card debt, home loan, educational or vehicle loan)
    • Organize financial activities like: budgeting, saving, investment.

Are you sold on record keeping? But then what kind of papers/records you should keep and for how long.

Quotes on paper work

Don’t get overwhelmed..it’s time to take a break. Some  quotes that we found on paper work are:

I have so much paperwork. I’m afraid my paperwork has paperwork.” ― Gabrielle Zevin

We can lick gravity, but sometimes the paperwork is overwhelming.” Werner von Braun

I love being a writer. What I can’t stand is the paperwork – Peter De Vries

Documentation is like sex: When it is good, it is VERY good; and when it’s bad, it’s still better than nothing at all.

Conclusion

It is wise to periodically review your important papers. Creating a system, reducing paper clutter and regularly having secure document shredding done for the records that you do not need makes your life easy. Having an organized system for your financial records will save you and your family time and aggravation in the future.

Treat your paperwork like your best friend—it will save you from stress in the future.

How do you manage your paper work? Is your paper work up to date? Have you faced any problem because of lost/missing papers? Which records do you feel are a must? For how long do you keep your records? Any mistake or error or incomplete information.

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