Equity Investment: Show Proof With These Simple Steps

Equity investment, also known as capital contributions, refers to money invested in a business in exchange for shares of ownership in the company. When documenting equity investment, it is important to specify whether the investment is in the form of equity or debt, as this will impact the tax implications and the required documentation. For example, in the case of an equity investment in a corporation, the corporate share registry should reflect the cash contribution and the number of shares received, while a debt investment is typically evidenced by a promissory note. The specific documentation required will depend on factors such as the type of business entity (LLC, partnership, corporation, etc.), the structure of the investment, and the terms of the investment. It is also important to note that investments themselves—including stocks, bonds, and mutual funds—do not qualify as proof of funds for mortgage purposes.

Provide proof of funds letter from your bank

A proof of funds letter is a document that demonstrates a homebuyer has the cash to cover purchase costs. It is often required when buying a house, to show the seller that a prospective buyer has enough ready cash to cover purchase costs outside of a mortgage, such as the down payment and closing costs.

If you are using a mortgage to buy a house, a proof of funds letter is used to demonstrate that you have the assets to cover the escrow, down payment and closing costs. It is also used to show that you have the funds to cover the full cost of the property if you are buying a house outright with cash.

A proof of funds letter is a formal document from your bank or financial institution. It should be signed by authorised personnel and include the following:

• Details of the bank, including name, address, and contact information
• An official statement from the bank verifying the individual’s financial status
• Money market account details
• Balances in savings and checking accounts
• A financial statement certified by the bank
• An online banking statement
• The individual’s name
• Details of the individual’s accounts and dates when they were opened
• A list of all the individual’s debts, balances, loans, and obligations
• The average balance in all accounts over the past six months

To obtain a proof of funds letter, you can apply for a proof of funds verification from your bank. Some banks have an online form to fill out, while others may require you to come into a branch. It usually takes no more than a week to receive the letter.

Show a certified financial statement

A certified financial statement is one way to show proof of equity investment. This method involves getting an audit by an accountant, who will then sign off on the statement. This option is often used when buying a house and can be an alternative to simply providing a bank statement, which may include sensitive personal information.

A certified financial statement is one of several ways to show proof of funds. This proof can also be demonstrated through a letter from a bank or financial institution, which states the exact amount of accessible or liquid funds available to an individual or entity. This letter should include the name and address of the bank, an official bank statement, the total balance of funds in all accounts, the balance of funds in checking or savings accounts, the signature of an authorised bank employee or notary, and the date that the funds were in the account.

The proof of funds document is necessary for large transactions, such as buying or selling real estate, to ensure that the buyer has the necessary capital to complete the purchase. It is often requested by the seller to validate the buyer's ability to purchase the property before taking it off the market. It may also be required when applying for a mortgage, as the lender will want to ensure that the buyer can finance the transaction.

It's important to note that proof of funds only applies to liquid assets, which can be easily withdrawn from savings or checking accounts. Investments, such as stocks, bonds, mutual funds, life insurance, or untapped equity, do not qualify as proof of funds when applying for a mortgage. However, homeowners can open a home equity line of credit (HELOC) and use that equity as proof of funds.

Submit a shareholder's agreement

A shareholders' agreement is a document that outlines the rights and obligations of shareholders in a company. It is an agreement among the company's shareholders that describes how the company should be operated and ensures that shareholders are treated fairly. The agreement also includes information on the management of the company and the privileges and protection of shareholders.

The agreement typically includes the following:

• A preamble that identifies the parties, such as the company and its shareholders.
• A list of recitals, which are the rationale and goals for the agreement.
• Details on the optional versus mandatory buying-back of shares by the company if a shareholder gives up their shares.
• A right of first refusal clause, which gives the company the right to purchase a selling shareholder's securities before they sell them to an outside party.
• A notation of a fair price for shares, which can be recalculated annually or via a formula.
• Information on the issuance and transfer of shares, including any restrictions on transferring shares and pre-emptive rights for current shareholders to purchase shares to maintain ownership percentages.
• Provisions for minority shareholders, such as requiring that certain decisions must be agreed upon by all shareholders.
• Details on the running of the company, including the appointment and removal of directors, the frequency of board meetings, and decision-making processes.
• Rules around share sales and transfers, including who shares can be transferred to, on what terms, and at what price.
• Dispute resolution procedures to be followed in the event of disagreements between shareholders.

It is important to note that a shareholders' agreement is optional and not all shareholders may be required to sign it. However, new shareholders will typically be required to sign a deed of adherence, which is a legal document binding them to the existing shareholders' agreement. This allows new shareholders to be added without creating a new agreement each time.

Provide proof of tax declaration

Providing proof of tax declarations is a necessary step for individuals, particularly those who are salaried, to ensure accurate tax deductions by their employers. Here are some detailed steps and guidelines on how to provide proof of tax declarations:

Understand the Need for Proof of Tax Declarations

Employers are legally required to calculate and deduct income tax from their employees' salaries every month. Employees can avail of tax deductions through various exemptions and deductions, but these must be supported by proper evidence. As per the CBDT circular, the employer is responsible for collecting this evidence to ensure accurate Tax Deducted at Source (TDS) calculations.

Timing of Submission

At the beginning of each financial year or when joining a company, employees are typically required to submit an "Income Tax Declaration" or "IT Savings Declaration" form. This form outlines the employee's projected investments, expenses, and deductions for the upcoming financial year.

Then, towards the end of the financial year, usually in the last quarter, employees must provide documentary proof or "Investment Proofs" for the declarations made earlier. This proof is essential for the employer to calculate the tax to be deducted in March and ensure compliance with tax regulations.

Types of Proof of Tax Declarations

The types of proof required will vary depending on the specific investments and deductions claimed. Here are some common documents that may be requested:

• Life insurance premium slips
• Passbook copy of Public Provident Fund (PPF)
• Home loan statement reflecting the principal amount
• Mutual fund statement
• Children's tuition fee receipts
• National Savings Certificate (NSC) certificate
• Tax-saving fixed deposit (FD) receipt
• Rent receipts and rental agreements
• Donation receipts
• Medical bills and reimbursement forms
• Travel tickets for Leave Travel Allowance (LTA) claims

Consequences of Not Providing Proper Proof

Failing to provide proper investment declarations and proof can result in several repercussions for employees:

• A higher amount of income tax may be deducted if investments are not correctly reported.
• If the actual investments differ from those declared, the employer may still deduct a higher amount of tax.
• There may be a refund or additional tax payable when filing income tax returns due to discrepancies between declared and actual investments.
• Certain exemptions, such as LTA and medical reimbursements, may not be considered if proof is not provided timely.

Best Practices for Employers

Collecting and verifying investment proofs can be a complex task for employers. Here are some recommended practices:

• Set a specific window for proof collection, typically one to two months during the last quarter of the financial year (e.g., December to January or January to February).
• Communicate the important dates and requirements to employees clearly and in advance.
• Verify the authenticity and eligibility of the submitted proofs.
• In case of missing or incomplete documents, recollect the necessary information from employees.
• Utilize software solutions to streamline the proof collection and verification process, reducing manual effort and potential errors.

Submit proof of insurance premium receipts

To show proof of equity investment, you will need to submit various documents as proof of your income and investments. This is a long and tedious process involving paperwork and attention to detail. Here are the steps you need to take to submit proof of insurance premium receipts:

Firstly, it is important to understand the context in which you are submitting proof of insurance premium receipts. Are you submitting these receipts as part of your income tax filings, or are you submitting them to secure a loan or mortgage? The specific documents you will need to submit may vary depending on the context.

If you are submitting proof of insurance premium receipts for income tax purposes, you will need to provide these documents to your employer to help you earn tax benefits. You will need to submit the annual premium receipts from your insurer to your employer to take advantage of tax deductions. This is applicable for premiums paid towards life insurance, health insurance for yourself, your spouse, or dependent children, and medical expenditures for yourself, your spouse, children, or parents who are senior citizens. It is important to note that tax deductions are limited to annual premiums up to a certain amount, and the specific amount may depend on the type of insurance, the mode of payment, and the prescribed limits outlined in the Income Tax Act.

Additionally, you may need to submit other investment proof documents, such as ELSS Mutual Fund investment certificates, Public Provident Fund deposit receipts, rent receipts for House Rent Allowance (HRA), and housing loan documents. These documents will help you claim and optimize your tax benefits.

On the other hand, if you are submitting proof of insurance premium receipts to secure a loan or mortgage, you will need to provide these documents to the lender or financial institution. This is often required when purchasing a home to ensure that you can finance the transaction. In this case, you may need to submit a proof of funds letter, which includes details such as the name, address, and contact information of the bank, an official statement verifying your financial status, and account balance information.

It is important to keep in mind that the specific requirements may vary depending on the lender or financial institution, so it is always a good idea to clarify with them beforehand. Additionally, maintaining a disciplined approach to collecting and submitting your investment proofs ahead of time can help avoid delays and ensure a smooth process.

Frequently asked questions