How Does 2017-18 Budget Affect You

Hemant Beniwal
-
8
How Does 2017-18 Budget Affect You

The Union Budget, 2017 was presented on February 1st unlike the past when it was presented at the end of February. This time the Railway Budget is merged with the Union Budget.

The finance minister, Arun Jaitley presented the Union Budget.

Impact of Budget on Your Tax

  • The FM said that we are a non-tax compliant country and the burden falls on the honest taxpayers.
  • The tax rate on income between Rs. 2,50,000 and Rs. 5,00,000 has been reduced from 10% to 5%. This means there is a 50% saving in tax for people in this income slab. This reduction will help the people earning a higher salary too. There will be a benefit of Rs. 12,500 for all people across income categories.
  • The time period to revise tax returns has been reduced to 12 months.
  • There will be a surcharge of 10% on income above Rs. 50,00,000 per year.
  • People with taxable income up to Rs. 5,00,000 will have a simplified one page form to file returns.
  • There will not be a scrutiny on first time tax payers. So those who have been evading tax can comply to taxation rules without fear.

Impact of Budget on Your Spending

  • An individual cannot have a transaction above Rs. 3,00,000 in cash.
  • The FM has proposed to reduce basic customs duty on LNG from 5% to 2.5% in 2017-18 which may be beneficial to customers.
  • Service charge on e-payments to IRCTC has been abolished
  • Duty on POS machines and iris readers has been removed. We can expect to have more opportunities to use digital payments.
  • AadharPay will be launched as a new way to spend digitally for people who do not have mobile phones or debit cards.
  • 6,000 each will be transferred to the bank accounts of pregnant women who undergo institutional delivery and vaccinate their children under the Maternity Benefit Scheme.
  • Excise duty on cigarettes has been increased.

Impact of Budget on Your Earnings

  • A new metro rail policy will be announced. It might lead to growth in jobs.
  • Agricultural credit will be increased which means farmers have an opportunity to earn more.
  • The allocation for Prime Minister’s Employment Generation Program and Credit Support Schemes has been increased by thrice the amount.
  • There have been sops given to SMEs and MSMEs and plans to have many virtual courses. This can increase the potential for job opportunities.

Impact of Budget on Your Investments

  • Long-term Holding period for real estate (land and building) will be considered as 2 years instead of 3 for capital gains tax purposes. The base year indexation shifted from April 1, 1981 to April 1, 2001.
  • ETFs of Public Sector Enterprises are to be used for divestment. Investors can expect more tranches coming in the fiscal year.
  • Many public sector organizations will get listed in the stock market. IRCTC, IRCON and IRFC are expected to be listed this year.

Other Major Announcements

  • Affordable housing has been given infrastructure status. This means developers and housing finance companies get a boost.
  • Income tax for firms that have Rs. 50 crore or less as turnover will be reduced.
  • Political parties can receive cash donations of only Rs. 2000. They can receive cheques and digital payments. People willing to donate can do so by buying election donor bonds. These bonds will be redeemable.
  • There is a proposal to do away with the Foreign Investment Promotion Board (FIPB). This will help liberalise the Foreign Direct Investment (FDI) policy.
  • A Rail safety fund will be created over a period of 5 years. It is expected to have a corpus of Rs 100,000 crore.
  • Railway lines up to 3,500 kms will be commissioned in 2017-18. At least 25 stations are expected to be eligible for station redevelopment.
  • Tax rate on Medium and Small Enterprises that have Rs. 50 crore or less as turnover is reduced to 25%.
  • The policy on tax concessions for start-ups incorporated after 31 March 2016 can avail of a three-year tax holiday in the first seven years of their existence.
  • There is a proposal of a fund of Rs 10,000 crore to recapitalise banks who are facing pressure from NPAs and fall in deposits.

This post is written by Vidya.

Do write in comment section if you have any questions on the budget.

How an Economic Crisis can be Beneficial for Long-term Investors

Hemant Beniwal
-
1
How an Economic Crisis can be Beneficial for Long-term Investors

An economic crisis makes it difficult for the business environment to thrive. It affects producers, consumers, and investors. It plays a domino effect and affects employment, consumer spending, profits, credit negatively.

Plus it plays ping pong with your emotions.

Logic Vs Emotions

The world faced a massive economic crisis in 2008. Saudi Arabia faces an economic crisis as the price of oil has dropped considerably. As a retail investor, you are not insulated from crises even in other parts of the world. You can get affected by financial crisis anywhere in the world as the financial and business world is closely connected. It is therefore, important to be aware and take necessary steps to avoid a negative effect on our portfolio. As a long-term investor, taking the right actions during an economic crisis will ensure your portfolio grows and gives appropriate profits.

Learning 

You get to learn a lot about yourself, personal finance and world economics if you pay attention to the crisis. You learn not to panic and keep your long term portfolio with you even if the prices drop.

You understand the interplay of various economic factors and how they affect personal finance. As a long term investor, it is important for you to understand all these factors to be a successful investor. Really 🙂 I think more important is that you understand that these things are not in our control – so don’t focus on such events, focus on your long-term plan…

Check – 5 Awesome Sketches ❣

Better Personal Finance Habits 

An economic crisis creates chaos and there is too much emotion at play – panic, fear of loss etc. People sell off good shares in a crisis at lower prices as they feel shares will lose value. Many people do not invest and prefer to keep the cash. This just results in value erosion. But a sensible long-term investor can learn to control behavior. He will benefit if others are risk averse. They should not buy stocks that are really low priced during the crisis but have not real value. They can learn to be disciplined, patient and understand the market better.

Must Read - What you can learn from well-behaved investor Click to Tweet

Crisis will also make you realize the difference between needs & wants... – you will realize the importance of budgeting…

Better  Investments 

A long term investor can reap in lots of benefits if investments are done smartly. For example, when the financial crisis hit the US, value of real estate plummeted. Some smart investors who had invested in real estate during the crisis are enjoying value appreciation in their assets as now prices are stable and real estate has recovered.

In the case of equity, a long-term investor. He can buy equity mutual funds or shares when the markets are down and hold on to them till the markets are stabilized or do an averaging by adding on mutual funds that he already has to bring the overall cost of his holding down. Even your existing Mutual Funds SIPs will help you to accumulate more units.

Having a sound investment strategy is not easy but focusing on the long term, using common sense and investing as per competence will help us to be successful investors whether an economic crisis or not.

Please share your experience in the comment section when the last crisis hit us….

Reliance CPSE ETF Review

Hemant Beniwal
-
1
Reliance CPSE ETF Review

I got few emails & messages from clients – asking my view on Reliance CPSE ETF. Also got a request from Business Today Magazine – their post with my quotes is published here – LINK.

Then I decided to write a short note… here you go…

Reliance CPSE ETF Review

Image courtesy of Sujin Jetkasettakorn at FreeDigitalPhotos.net

What is CPSE ETF?

The Central Public Sector Enterprises (CPSE) ETF is based on the CPSE index. It is managed by Reliance Mutual Fund.

Reliance CPSE ETF Review Click to Tweet

SCHEME BACKGROUND

As part of its disinvestment programme, the Government of India (“GOI”), through its Cabinet Committee on Economic Affairs (“CCEA”) on May 2, 2013 approved the setting up of a central public sector enterprise exchange-traded fund (“ETF”) comprising equity shares of central public sector enterprises (“CPSE”), which would be launched as a CPSE ETF mutual fund scheme.

Investment Objective

The investment objective of the Scheme is to provide returns that, before expenses, closely correspond to the total returns of the Securities as represented by the Nifty CPSE Index, by investing in the Securities which are constituents of the Nifty CPSE Index in the same proportion as in the Index. However the performance of the Scheme may differ from that of underlying index due to tracking error. There can be no assurance or guarantee that the investment objective of the Scheme would be achieved.

Read – What is nifty and sensex – how they are calculated.

Performance of CPSE ETF

Reliance CPSE ETF Performance

Performance numbers also includes Dividend Reinvestment.

Sector Exposure – Reliance CPSE ETF

Sectors in CPSE ETF Reliance

Top 10 Stocks in CPSE ETF

stocks cpse etf Above information is picked from Reliance Mutual Funds Site.

Must Read – Everything that you want to know about ETF

Should one invest in CPSE ETF?

The first tranche of CPSE ETF launched in March 2014 and its performance has been impressive. Investors got some discount and long-term retail investors (holding of more than 1 year) got additional loyalty units. This time too, there will be 5% discount and loyalty units. {Discounts should not be considered as the reason to invest – equity markets are highly volatile & discount can’t be considered as substantial cushion}

The companies that comprise the index include 10 Maharatna and Navratna companies. These companies have steady cash flows and a good dividend track record.

The previous issue has outperformed the benchmark and the expense ratio is expected to be 0.065% in the new issue.

There are some risks too. It is a thematic ETF.  Thematic funds are more risky compared to diversified funds. The earlier issue did well as there was a fall in crude oil prices and there was government oil price deregulation. The fund has companies that are all commodity based and skewed towards energy, oil and gas. There is a lot of government involvement in major business decisions for these companies which can go either way.

If you want to invest in these sectors and are okay with the risk involved, you can invest in it to have it as a minor part in your portfolio. It makes sense to hold it for a very long-term to get over cyclical phases to get the full benefits.

Who should invest in CPSE ETF?

If you do not have investments in the energy, oil/gas sectors, you can allocate some of your funds in CPSE ETF. If you have investments in diversified funds, as such there is no need to take exposure in this or you can invest a small sum in CPSE ETF – just to take the taste.

If you are aware of the risks involved with investing in a thematic fund that will be influenced by the government and can accept the risks, you can invest a small sum in it.

It is compliant with the RGESS. So if you are a first-time investor in the stock market, you can invest up to Rs. 50,000 and get income tax benefit.

It has given good returns to the investors in the First tranche – including dividends. But past performance has no meaning in mutual fund world.

How much should be invested in CPSE ETF?

The CPSE ETF is a thematic fund which has too much focus on energy, oil and gas companies. Major decisions of the companies that comprise the index will be influenced by the government. You can invest a minor portion of your portfolio in the CPSE ETF (5-10% of equity investments) provided you understand the risks that go with a thematic fund and commodity based stocks and do not have over exposure to PSUs and the energy sector.

Will I invest? 🙂

Must watch this 1 min video – if you are an equity investor…

Please feel free to share your views in the comment section. 

TDS for NRIs – All You want to Know

Hemant Beniwal
-
21
TDS for NRIs – All You want to Know

Income earned or accrued by NRIs in India is subject to tax in India. Section 195 of the Income Tax Act covers Tax Deducted at Source (TDS) on payments made by non-resident Indians. The rates and conditions for TDS are different for Non Resident Indians compared to Indians. Let us see the TDS terms on different sources of income.

TDS for NRIs - All You want to Know

Tax on Interest earned from Bank Accounts

Interest earned on a Non-Resident Ordinary Account (NRO) is taxable. A TDS of 30% is applicable on it. But interest earned on Non-Resident External (NRE) accounts and Foreign Currency Non-Resident (FCNR) accounts is not taxed in India. Therefore there is no tax deducted at the source.

Must Read – Tax Planning for NRIs

Tax on Dividends

There is no tax and therefore no TDS is deducted on dividend earned on equity shares and mutual funds.

Tax on Capital Gains

If an NRI earns short-term capital gains by selling equity shares or equity mutual funds, the gains are subject to 15% TDS. Equity mutual funds are mutual fund schemes that have 50% or more investments in equities.

Short-term gains are profits made by selling equity shares or equity mutual funds within a year of purchase.

Tax on Other Income – One can earn income through other means such as rent or income from professional services. Here are the TDS rates for such other income –

Income TDS
Rent 30%
Professional Services 10%
Royalty 10%
Technical Fees 10%
Any income that does not fall in any of the above categories 30%

Important Points To Remember –

  • An education cess of 3% is applicable to all the TDS.
  • If the income earned is more than Rs. 10,00,000, a surcharge of 10% is applicable.
  • If you buy any property or make an investment when you are a resident Indian but earn income when your status changes to NRI, then the rules applicable to NRI will be in force for tax matters.
  • NRIs have to file income tax returns if he/she has earned income more than Rs. 2,00,000 or any income via short-term or long-term capital gains.

Sometimes it is a challenge for Non-Resident Indians (NRIs)to handle taxation matters when there are amendments to existing rules and provisions.

Amendments regarding TDS for NRI policyholders

To simplify matters, here is a brief overview on taxation rules that have been amended recently and impact NRI policyholders –

  1. Payments made by policyholders of Life Insurance, Annuity Products, Pension Plans, and Health Insurance products who are NRIs will be subject to TDS. Life insurance policies that are exempt from this are those policies that are exempt under section 10(10D) of the Income-Tax Act 1961. There is also a provision in section 197A by which self-declaration in Form No.15G/15H for non-deduction of tax at source can be submitted by the policyholder.
  2. The policyholder will need to submit the following documents to ascertain the applicable tax rate
  • Tax Residency Certificate (TRC), duly verified by the Government of the country of which the policyholder is a resident.
  • Self-attested Form 10F (since the TRCs issued by different countries may not contain all the particulars mandatorily required to be included under section 90(4) or 90A (4) of the Income-tax Act.
  1. The Indian Central Government has entered into Double Taxation Avoidance Agreement (DTAA) with many countries so that a taxpayer (who is a resident of one of these countries) can claim beneficial provisions either of DTAA or of the domestic law to be applicable.
  2. The rate of TDS will be determined as per rules of Income Tax Act 1961 and DTAA with the residence country of the policyholder if it has been signed. For availing the benefits of DTAA, a policyholder needs to submit a Tax Residency Certificate (TRC) containing defined particulars and other required documents. The maximum rate will be 30% + surcharge and education cess.

Hope this clarifies matters related to TDS and recent taxation amendments regarding insurance policies for NRIs. Feel free to ask your questions in the query section.

Education Cost – Are You Ready?

Hemant Beniwal
-
0
Education Cost – Are You Ready?

Education is the best gift you can give to your children. But quality education costs a lot of money. Moreover, the cost of education rises steeply. In India, it rises more steeply than in other countries. This chart shows the inflation in education, health, and CPI. As you can see, education costs rise more as compared to the other indicators.

Education Cost – Are You Ready?

Image courtesy of zirconicusso at FreeDigitalPhotos.net

For example,

– The fees in IIT for Rs. 50000 per year in 2008. It increased to Rs. 90,000 in 2013. In 2016, it was announced that the annual fees would be Rs. 2,00,000.

– IIM-A increased the fees from Rs. 18.5 lakh in 2017 to Rs. 19.5 lakh in 2018.

Education & Health Inflation India

Many students aspire to study abroad in universities in UK, US and Australia. Education abroad is also expensive. For example, a 2 year course of Masters in Finance in Melbourne University, Australia will cost around AUD$ 40,000. The student will also have to bear cost of living expenses -accommodation, food, clothes, airfare etc. He will have to bear visa expenses of about AUD $18,000. He will have to prove he has that much amount in his bank account. If the student has dependents, costs and proof of funds increase.

Must Check – Cost of higher education in India – Calculator & Infographics

Considering all this, if you have a 6 year old child who has another 14-15 years education, the education cost can be quite significant. There is primary education, secondary education, graduation and post graduation. You will have to spend on fees, books, stationery, uniforms, sports kit, school trips, additional coaching, transport, extra curricular activities and in some cases boarding. As per a survey done by ASSOCHAM, in big cities in India, this amounted to Rs. 1,25,000 in 2015 per year. It was Rs. 55,000 in 2005 which is more than a 200% rise!

Education Cost

 

*Assume, student stays with parents at the time graduation and post graduation. But cost of books and materials are not considered in the amount for graduation and post graduation.

Education Costs – Are You Ready? Click to Tweet

It is quite a large sum. It is therefore imperative to plan the finances for education. You may not be able to zero in on the course your child would take up. But you can find out the cost of 2 to 3 courses and plan for a sum around them.

There are various ways of funding education –

1) Savings – You will have to start saving up for an education fund. This depends on your current income, expenses and future income and expenses.

2) Investments – You will have to invest in a way that you beat inflation. You should have a separate portfolio for education. If you have 15 years, you can invest in a variety of aggressive and conservative products so that the requisite funds can be made ready. You should start SIP plans in equity oriented mutual fund schemes so that the wealth can grow over a  period of time. You should invest in balanced funds and equity-linked savings schemes. You can invest in Fixed deposits and recurring deposits that mature around the time, your child will start higher education. You should have an eye on the interest rates as they have been falling now for some time. As the target year is closer, you should switch your investments such that more of it is in debt funds, PPF and bank deposits so that there is capital protection.

If you have fewer years to reach the target, you should have a more conservative portfolio.

3) Scholarships – Many universities and external agencies allot scholarships to students. When the target year is near, check the process and eligibility criteria to obtain one and apply for them. Scholarships give a sense of relief as finances required will be less.  But there will be many students applying for scholarships, so you will have to assess the probability of getting one and manage the finances.

4) Loans – Education loans are literally life savers. Most banks in India like SBI, Bank of Baroda, ICICI Bank and HDFC Bank provide educational loans for studying in India and abroad. It is easy to obtain a loan if you fulfil the eligibility criteria. Currently the rate of interest varies from 10%-15%. The repayment tenure is significantly long and persons with stable jobs can easily repay the loan.

Read this before you take Education Loan

5) Earn while you study – When your child has finished graduation and wants to go for post graduation, he/she has the option of working and saving for it. He can take a break from education and work for a year or two. Many students  work during the summer breaks or have part-time jobs. If required this money can be used to fund education.

Complete Guide – Child Future Plan 

Have you considered that the funds can be managed only if you are well and have a regular source of income? So you should buy a term insurance plan to cover emergency situations. You should ensure that you take care of your mental well being and physical health. You should also remember to have a plan for your retirement and other life goals else you might be forced to dip into the education portfolio. Do remember to have a proper financial plan and you will surely fulfil your dreams.

This post is written by our think tank Vidya

Please share your experience & concerns in the comment section.

UPI – How it’s better than E-wallets, NEFT or IMPS

Hemant Beniwal
-
6
UPI – How it’s better than E-wallets, NEFT or IMPS

The recent demonetization drive has also made people look for alternate methods of doing business. It has made people aware that there are cashless methods to conduct transactions as well. In this context let us look at UPI – which looks better than many existing solutions.

Let’s move towards CashLess society or at least LessCash society.

UPI - How it's better than E-wallets, NEFT or IMPS

Image courtesy of tungphoto at FreeDigitalPhotos.net

The graph below shows the tremendous rise in the usage of mobile phones for money transactions in India.

upi mobile payment growth

1) What is UPI?

The National Payments Corporation of India (NPCI) has introduced Unified Payments Interface (UPI) along with the RBI and Indian Banks Association.

UPI - How it's better than E-wallets, NEFT or IMPS Click to Tweet

UPI is a technology that facilitates immediate transfer of funds from one entity to another through smartphones. You can facilitate transfer of money without cash in hand or a debit card or credit card either between people, between two organizations or between a person and an organization.

2) Oh! So it is yet another payment method just like NEFT or IMPS or RTGS?

Yes it is another payment method. The technology is somewhat similar. But UPI is different in many ways. You can pay directly from your bank account to any person or entity without any steps like typing card details, net banking credentials or e-wallet login details. It is very easy to conduct transactions using UPI compared to other methods.

3) How safe is it then?

UPI is a safe transaction method. There will be a 2 factor authentication – Virtual ID and the M-PIN number which is a constant. The transaction will be encrypted.

4) How is UPI different from other payment methods?

For online transactions using cards, you need to remember and type in a lot of details like card number, expiry date, CVV number, OTP etc. UPI is simpler as you will have to enter only the M-PIN for transactions, once your account is registered.

E-wallets are specific and non centralized in nature. For example, if you have Paytm or FreeCharge in your phone and want to pay using it but the merchant or seller does not have it, you cannot use it. You need to load funds in the e wallets regularly. On the other hand UPI is centralized. It can be used across banks and merchants. It is connected to your bank account, so it need not be refilled with money.

In NEFT payments, bank details are required. There are restrictions related to non-banking hours, holidays etc. RTGS  has a transaction limit where the minimum amount has to be Rs. 2,00,000. It also has restrictions regarding service hours. Charges range from Rs. 25 to Rs. 50 excluding service tax.  There are no such issues in UPI transactions. They can be done 24×7 all through the year. Charges for NEFT transactions range from Rs. 2.50 to Rs. 50 plus service tax depending on transaction amount. UPI can be used for amount up to Rs. 1,00,000 and the charge is supposed to be around Rs. 0.50 per transaction but right now its free.

IMPS and UPI are pretty much similar. UPI is sort of built on the IMPS architecture. IMPS and UPI require registration before use. But registration of UPI is faster and immediate compared to IMPS. In IMPS only push transactions are allowed. In UPI, pull and push transactions are allowed. What does this mean? For example, your neighbour has borrowed money from you and you want it back. You send a request for payment to him through UPI. If he approves it, you will get your money immediately in your bank account. For IMPS, you have different MMIDs for different bank accounts. In UPI, you have one virtual ID that can be linked to different accounts making UPI transactions simpler. IMPS can be used for higher amounts provided you use IFSC code and account number. UPI can be used for transactions amounting up to Rs. 1,00,000.

5) How do I get UPI and start using it? (Max 2 mins)

  1. UPI works on smartphone technology. You need a smartphone and the UPI application of any of the banks offering UPI transactions downloaded on your smartphone or any other UPI app like Trupay powered by some bank.
  2. You download the UPI application of any bank (it’s not compulsory that it should be only of your bank – if your bank is HDFC but you can still use SBI app).
  3. Register your details, a PIN and a virtual address. An example of a virtual address could be <YourMobileNumber@Bank> or <abc@bank>
  4. Add the bank accounts that should be linked to this address.
  5. You will get a notification if you have a MPIN or not. If you do not have it, you can create one either within the UPI app or using the bank website.
  6. Your UPI account is set up.

This id can then be used for money transactions. For example, you need to pay for the taxi company for the service you availed. You give your virtual address to the taxi driver. He will input the same in his UPI application and request for the taxi fare. You will get a message requesting for authentication. Once you confirm, the money will be transferred to the taxi company. You do not need to carry cash or card. The transaction is immediate.

Currently 31 banks are offering UPI transactions – most of the major banks. The bank accounts should be in one of these banks for the transactions to be successful.

6) Why should I sign up for one more payment method?

UPI is a secure and hassle free way to transfer money. You can pay your bills, pay for online shopping and pay for your purchases using UPI. There are no steps like waiting for the OTP message or remembering the IFSC code or remembering answers to security questions set up 5 years back like you have to do in net banking transactions. And your banking details will not be shared with other entity.

It is a step towards a cashless economy. A cashless economy restricts number of black money transactions, tax evasion cases. It also provides for a transaction trail which is helpful to find out criminal activities if any. UPI is a great tool after demonetization drive. People had a shortage of cash but UPI could be used to continue business.

UPI provides security as you need not have a lot of cash at home or in your office. There is lesser chance of loss or theft of cash and cards. Adopting UPI will make transactions smoother for people across India be it large or small payments.

7) How do I use UPI to receive payments if I am a merchant?

You can create use any of the bank application and request money by inputting customer’s Virtual ID. Or you may use Trupay like platform where you can register yourself as merchant and request payment by only using customer’s mobile no. The request will go to customer’s phone and he can approve the payment by only inputting MPIN.

8) How do I use UPI to make payments to merchants?

You may use any of bank UPI application to send payments to merchant’s Virtual ID. If merchant does not have a VPA, you may still make payments to him in his bank account using Trupay application without going through the pain of net-banking add beneficiary process. Money moves immediately into the bank account of merchant.

Do you use cashless transaction options or do you prefer to transact in cash? If you use cashless options, we will be interested to know your favorite payment method.

NRI can use DTAA as a Tax Planning tool – India

Hemant Beniwal
-
2
NRI can use DTAA as a Tax Planning tool – India

What is double taxation? If you are an Indian and a resident in another country ( NRI)  with multiple sources of income across both the countries, you can get taxed twice – once in your resident country and once in India. There are other ways to get double taxed too. For example, if you stay in India and work as a freelancer for a company based in United States, your income can be treated as taxable income in both countries. In India, you are a resident earning income and in U.S., your income can be subject to tax as the source of income is from U.S.

NRI can use DTAA as a Tax Planning tool - India

Image courtesy of Stuart Miles at FreeDigitalPhotos.net

What is DTAA?

Paying taxes twice on one income source is not in the individual’s best interests. Therefore India has signed a treaty called the Double Tax Avoidance Agreement (DTAA) with many countries.  Individuals can use the provisions of this agreement to avoid double taxation.

Read: Should NRIs hold Resident Saving Account in India

How to avail of DTAA benefits?

You can avail of DTAA benefits in the following manner –

  • Check if the DTAA agreement is in place between the two countries in question. You can check here to find out if DTAA is applicable to the country in question.
  • Submit the following documents on time –
  • Tax Residency Certificate – You have to get a tax residency form from the government of the country you reside in. It has details like name, status, nationality, address, tax information.
  • DTAA Application Form – Form 10F should be obtained from the income tax department and verified by the government of the country where you reside.
  • Self Declaration and Identity Form – A declaration stating which country you reside for the relevant financial period and that DTAA is applicable in your case.
  • Self Attested copy of PAN Card
  • Self Attested copy of passport

Read – Tax on NRI FDs

How is the DTAA benefit calculated and provided to an individual?

There are primarily three methods to claim relief from taxes under DTAA –

1) Exemption method

2) Deduction Method and

3) Tax credit method.

NRI can use DTAA as a Tax Planning tool - India Click to Tweet

The exemption method follows the Tax deducted at Source (TDS) method. Here, you are taxed in one country and exempted from tax in the other. Tax is deducted at source as per the rate applicable as per the DTAA agreement between India and the relevant country.

Let us look at an example. Here we assume a tax rate of 10% in resident country and 20% in source of income country

dtaa exemption method tds tax

Read – When is the right time to send money to India?

In the deduction method, tax is paid in the country where income is earned and is subtracted from the total global income. Then tax is calculated on the difference and paid in the home country.

deduction method dtaa tax nri

In the tax credit method, total global income is taxed in the country where you reside. Then tax relief can be claimed from the country where the income is earned.

nri dtaa tax credit method

You can select the taxation method that is most beneficial to you. Example, you choose the exemption method if you have already paid taxes or use the deduction method when the tax rates are high in the other country that you are not residing in.

DTAA is a provision that can be used to reduce tax burden. You should not evade paying tax but plan your taxes such that you pay as less as possible within the legal domain.

“I  contend that for  a nation to try to tax itself into prosperity is like a man
standing in a bucket and trying  to lift himself up by the  handle.”
 ~Winston Churchill 

Note: – We are not a tax expert – this is just based on interaction with clients & reading.

If you are an NRI please share your experience with DTAA or taxation in your country.

Do NOT opt for Home Loan Protection Insurance Plans

Hemant Beniwal
-
35
Do NOT opt for Home Loan Protection Insurance Plans

First I thought the title of this article should be “Home Loan Insurance – Daylight robbery” – so you can imagine what I am trying to say.

Most of us wish to have a home in our own name. From a financial perspective, it is a big step and a huge investment that all of us cannot make on our own. We, therefore approach banks for loans. Banks are in the business to make money and will try to upsell or cross-sell products. Some banks offer a home loan insurance protection plan when you apply for a loan. Some banks claim it is compulsory to buy insurance along with a home loan. Some banks claim they cannot issue a loan if the customer does not buy insurance.  Sometimes customers are desperate and sometimes ignorant and they end up buying unnecessary products.

Do NOT opt for Home Loan Protection Insurance Plans

Image courtesy of jesadaphorn at FreeDigitalPhotos.net

Read – 5 insurance policies that you may not need

But here are some reasons as to why the offer of home loan insurance may not be in the best interests of the customer –

Home Loan Insurance is Very Costly  –

The home loan insurance plans are sold along with the home loan with the reasoning that in case of an unfortunate event of accident or death of the borrower, the remaining loan will be paid off with the sum assured and the dependents can be covered from financial worries. But a term insurance plan serves the same purpose. You buy a term insurance plan and your dependents get the sum assured in case of an unfortunate event and the sum assured can be used to pay off loans as required.

Let us compare the cover provided by  ICICI Loan Protect Plus with a  7 year fixed moratorium and ICICI Term Insurance for a 35-year-old male with a sum assured of Rs. 50,00,000

Parameters ICICI Pru Loan Protect Plus ICICI Pru iProtect Smart
Premium Rs. 50,157 (excluding service tax and cess) p.a. for 5 years Rs. 7,100 per annum.

 
Premium Comparison For 5 years, you pay at least Rs. 2,50,875.

You cannot stop paying it as if you do not take the one-pay option, the premium will get included in the EMI.

 If you consider the sum of Rs. 2,50,875, you can pay a premium for term cover for  35 years. Usually, a person will not take a term plan for so long and has the flexibility to stop premium payment whenever appropriate.
Features and Benefits If the accidental death benefit is taken for a policy of Rs. 50,00,000, till the 7th year, Rs. 50,0000 for life cover and Rs. 50,00,00 for accident benefit will be given.

Premium can be paid either once or yearly.

 

 Covers death, accidental death and permanent disability

Covers female organ cancers

Benefit amount is payable as a lump sum or as monthly income for 10 years

There are different premium payment options.

There is option to surrender the policy subject to some terms and conditions.

It covers the insured irrespective of the loans taken. You can easily port your existing loan to another lender without the insurance being affected.

 
Death Benefit Payable In case of natural death in the first 7 years, it is Rs. 50,00,00. It will keep reducing from then on –

10th year – Rs. 43,60,000

15th year – Rs. 11,30,000

 The death benefit is equal to the sum assured – Rs. 50,00,000
My View Benefits in the Loan Protect plan get reduced from 7th year onwards else you have to take a fixed benefit policy which means paying a higher premium.

It is expensive compared to the term insurance plan.

Home loan protection and home loan are tightly linked. It will be difficult to port the loan if you have taken insurance without foregoing the insurance. In a term plan, you will have no such limitations on the insurance or on your loans.

Interest payable on premium –

If you do not opt for the single pay premium, the premium gets included in the EMI which has components of principal and interest on the loan amount and you will end up paying interest on the premium amount too. Moreover, you will lose out on tax benefits on the premium paid.

Home Loan Insurance

Closure of home loan –

Home loans are usually closed before the full tenure. People pre-pay the home loan. If you take a 5 year home loan and a Home Loan Protection Insurance Plans for the same tenure and pay off the loan within 3 years, you will not get back the premium paid till now.

Do NOT opt for Home Loan Protection Insurance Plans Click to Tweet

People also port the home loan from one lender to another. There can be issues related to porting if home loan insurance is involved.

Home Loan Insurance is different from Home Insurance or Property Insurance –

Property insurance covers the property against risks to property like fire/earthquake.burglary etc. But home loan covers insurance the risk of default in repayment of home loans. Some people might get confused between these two types of loans and end up buying the wrong insurance.

Read – What bankers can do Mis-sell Insurance?

If your bank asks you to purchase a home loan cover for the home loan, you can –

  • Inform them that you know that it is not mandatory to buy home loan cover insurance to get a home loan.
  • Ask the bank to give a written document that home loan cover is mandatory to get a home loan. Since it is not mandatory, the bank will not pressurize you to buy it.
  • Reject the loan even if you really need it. The bank needs the business. It will come back to you asking you to take only the home loan and not the insurance cover.
  • Inform the bank about the term plan that you have or intend to buy which can cover the loan payment default if any
  • Escalate the matter to higher senior management in the bank. This will help in having written proof of the conversation and also change the offer from the bank.
  • Escalate the matter by filing a complaint to the Banking Ombudsman following proper procedure.

It is important to protect your dependents financially. But it is equally important to get the right kind of protection. You should understand the financial products properly before buying them. Let us know if you have faced similar issues when you had to go for a housing loan and how you managed it.

Still, if you have any doubts about Home Loan Protection Insurance Plans. You can add them to the comments sections.

A Dynamic Life cannot have a Static Financial Plan

Hemant Beniwal
-
5
A Dynamic Life cannot have a Static Financial Plan

Life is a series of events. Some have a big impact and some have a small impact. Many of them have an impact on your financial plan. We can either be pulled and pushed by the tide or proactively manage the change. It is important to adapt the financial plan to the changes in life so that the financial plan is relevant.

If you plan once and forget about it, it will not be relevant 3 years or 5 years down the line. It is important to keep reviewing and tweaking the plan as per changes in your life so that it remains current and is relevant to the situation in your life.

A Dynamic Life cannot have a Static Financial Plan

Image courtesy of Feelart at FreeDigitalPhotos.net

Let us go through some typical changes that occur in life and how adapting the financial plan helps.

1) First Job or Source of Income –

When you start earning, you have money in your hand. It has to be managed appropriately else you will leave it idle in the bank or spend it all away. Either ways, you are not helping yourself. You have to plan and review the plan on how much to spend, save and invest.

Read – Investment strategies for young people

2) Changes in life –

As you grow, there are different occurrences in your life. Marriage brings in a lot of changes in your financial life. Your spouse might have a different view of finances or you might have a dependent or your household might have two sources of income. Each of this affects the financial planning. For example, if your spouse is dependent on you financially, you might have to bring in changes in the expenditure account. You might have to buy life insurance. If both are earning, tax planning has to be done keeping both incomes in consideration. You might think of taking a joint home loan account. When children come into the picture, financial planning is a different ball game again. (one or two – can you afford a baby?) You have to tweak your budget. You might have short term and long term goals for the family – a family trip to Disneyland, college education abroad etc. You have to input these in your financial plan and have measures to achieve them.

A Dynamic Life cannot have a Static Financial Plan Click to Tweet

3) Financial setbacks –

The world economy is quite connected and turbulent. A crisis in one part of the world affects finances in different parts of the world. So you might face financial setbacks. For example, after the 2008 financial crisis in U.S, the unemployment rate in countries like India increased. After Brexit pound lost almost 20% – if you were in UK, you will know how badly that will hit your planning.

You might have to leave your job or your business might go through tough times but expenses will not stop. You need to update your financial plan in such cases. You should manage the emergency fund and investments for example. Your cash inflow might be less than the cash outflow. You should plan for such situations. For example, you might have to liquidate some assets. You need to have a strategy to take care of such situations so that you are not affected extremely.

4) Financial jumps –

You might get a fat bonus or your business income might get a leap because of an upward business cycle. What will you do with the extra cash? Will you splurge on some things or invest more? Is it better to pay off the home loan?

You can take a decision once you update your financial plan to see how the change affects your  financial status. You will then be able to take a prudent decision.

5) Changes in Risk Appetite and Risk Tolerance –

Once they start earning, some people start saving using FDs. Then they buy  insurance and then graduate to investing in MFs and stocks. Some people start investments in equity from a young age. But as the only thing in life that is constant is change, people change. Their risk tolerance levels and risk appetite levels change based on knowledge, events, financial status, etc. If you have seen some of your friends lose big money in the stock market, you might decide to stay away. But then taking no risk also prevents you from doing well financially and you may change your stance on stock markets after a point of time. The financial plan should be reviewed and set as per the individuals risk quotient. But if the risk profile changes, the financial planning should also be modified.

For example, there is no point in having a larger part of the portfolio in equity if you are going to spend sleepless nights thinking about losses. It is better to balance the portfolio a bit.

Must Read – 5 things you should know about RISK & your investment

6) Retirement –

Retirement is a big milestone. The regular source of income stops but expenses are still there. Your children might be financially independent now. You may want to secure your health worries from a financial perspective. You will have other goals to achieve in the sunset years of life. The plan should be updated as retirement nears. You might want to stash a higher emergency fund. Your entertainment expenses might reduce as you will not have 2 weekend getaways a month. Your finances should be updated as per the changes.

7) Investments are dynamic –

Investment world is dynamic beyond our imagination. Check Infographics – 10 commandments of Investing

A regular review will help you achieve your financial goals by allowing you to incorporate personal and financial changes in the plan. It will enable you to keep a check on the investments. For example, you might have invested in an equity mutual fund 5 years back. Today the mutual fund may have changed its investment objective which does not match your reason to invest in it. What about fluctuations in PPF & FD rates? You can then make changes in your portfolio.

As you can see, life is pretty dynamic. There are changes that can be foreseen and some are unpredictable. The changes can cause physical, emotional and financial changes. It would be easier to handle all the other changes if your are finances are in order. It will one less thing to worry about.

Must share your experience of concern is the comment section.

Short Note for our Clients – Trump Win & Modi’s Strike on Black Money

Hemant Beniwal
-
0
Short Note for our Clients – Trump Win & Modi’s Strike on Black Money

Donald Trump wins US Presidential – against all odds & predictions. Most of the opinion Polls were giving 95% chances to Hilary until the end of Voting & then what happened is visible in this picture.

We shared this note with our Planning clients on 10th Nov 2016

poll-predictions

In 1981 Bill Gates predicted “640 KB of memory will be enough for most of the people in future”.

Not sure who said this but this is an awesome line to remind ourselves regularly – “It is difficult to make predictions, especially about the future.” In 2014 we wrote this article on TFL (you Must Read) – Predicting is not a good habit in your financial life 

You may still ask but what will happen to our investments especially equity? But my answer is I don’t know – we have not made investments for 1 month or 1 year it’s for

But my answer is I don’t know – we have not made investments for 1 month or 1 year it’s for long term. We strongly believe that businesses are here to increase their profit (including the companies that you run or work for) – people will always be interested to invest in such businesses through equity markets.

Short Note for our Clients - Trump Win & Modi’s Strike on Black Money Click to Tweet

Change is tough for everyone – world & financial world may take some time to adjust but remember Nick Murray’s words “The world does not end, it only appears to be ending from time to time.”

The-world-does-not-end

Attack on  BlackMoney

It’s not the first time India did this but still lot of credit should go to current govt to take this step to curb Black Money Menace (let’s stick to the economy). In short term I see there will be some pain as Black Money in last few decades built a parallel economy. So people who are part of it – either who own it & earn tax free income on that or everyone who get’s benefited when some part of it flows to them including workers, shops, industries or anything that you can think of will freeze for some time. Real estate prices & luxury goods market will have significant impact as it was the biggest beneficiary of black money – this we always discussed in the past.

Must Read: Greater Fool Theory & Indian Real Estate

cash

But for positives there’s a long list if in the future new Black money is not allowed to be created:

  • Higher Tax Collection
  • Lower tax evasion
  • May be lower tax rate in future
  • Enough liquidity in banks to give loans
  • Notes that will not be exchanged will reduce liability of RBI
  • Affordable Houses
  • Lower inflation etc

Overall it looks very positive as in next year GST will be there, which will limit opportunities for corporate to deal in black money.

Our Suggestion on this 9/11

Let’s focus on the goals & the things that we can control – so keep a check on your expenses & work hard so you don’t lose your current job or work.

And don’t believe on media – they don’t know anything that can help you in achieving your goals. Don’t focus on #Rexit #Brexit #Trump noise that is created by media – it’s their job to grab your attention to increase their TRP & advertisement revenue. No one has any clue that how an event will affect equity markets. In short-term few of them will but which one? In long term markets are slaves of earnings – if companies will generate profits, investors will pay for it. You should make a conscious effort to avoid such noises – avoid watching the financial news or reading the pink paper.

And in the end the “Serenity Prayer”:

“God grant me the serenity; 
To accept the things I cannot change; 
Courage to change the things I can; 
And wisdom to know the difference.”

PS: I have shared this in #LifePlanning newsletter if you haven’t seen this earlier – take out some time & watch this Video by one of my favorite author Nick Murray (if you want you can skip initial 4 mins intro)

Finally, a message that we frequently repeat – Investing is not a Number Game, it is a “Mind Game”.  – If you have any questions feel free to ask.

1...151617...44Page 16 of 44