Dilshad responds to readers queries on Exchange Traded Funds- Business Line – 9 Sept 2015
Dilshad comments in Outlook Money on Financial Freedom- 15 August 2015
Taxation of Property for NRIs
31 Aug 2015
The taxation of an individual is dependent on the residential status, which in turn is dependent on the presence of the individual in India.
The residential status of an individual in India is classified as under-
- Resident in India-
- a) Resident and ordinarily a resident (ROR)
- b) Resident but not ordinarily a resident (RNOR)
- Non Resident in India – An individual is treated as a resident in India if any one of the following conditions are satisfied-
- a) Individual’s stay in India is 182 days or more in the financial year
- b) Individuals stay in India is 60 days or more in the relevant tax year AND 365 days or more in total; in the 4 years immediately preceding the tax year for which the residential status is determined. If none of the above conditions is fulfilled, the individual is said to be a Non Resident.
A resident individual is treated as Resident Not Ordinarily a Resident – (RNOR) in India, if he satisfies ANY of the following conditions:
- a) The Individual is resident in India, at least 9 out of 10 years preceding the tax year in which the residential status is determined.
- b) The individual is physically present in India for 729 days or less during 7 tax years preceding the tax year for which residential status is determined. A resident individual not satisfying the above condition is said to be Resident and Ordinarily a Resident -(ROR)
In case an individual is ROR in India, in a given tax year, he is taxed on his worldwide income in India. However, if the individual is also a resident of another country, and the two countries have a double taxation Avoidance Agreement (DTAA) signed, then the residential status will be decided as per the netting effect of the relevant countries laws.
When an NRI sells property in India, the taxation on capital gains is the same as applicable to Resident Individuals (Short term 3 years with indexation benefit) The only difference being, that the buyer is liable to deduct TDS at 20% if the property sold is held for more than 3 years and 30% if the property sold is held for less than 3 years. Exemption under Sec 54 of the Income Tax Act is applicable to NRIs also.
Sale of house property after three years, enables the NRI to benefit from Sec 54 rule of investing only the capital gains portion in another property within 1 year from the date of sale or two years before the date of sale, or construction of a house 3 years from the date of sale of current property.
Budget 2015-16 has clarified that the sale proceeds must be utilised to purchase the property in India only (not outside) and the exemption is allowed for purchase/ construction of ONE house property only, from the sale proceeds.
Remittance of sale proceeds amount can also be repatriated by the NRI upto 1 million USD in a calendar year and for a maximum of 2 properties. NRIs/ PIOs are not allowed to invest in agricultural land, farmhouse and plantation land in India. NRIs/ PIOs can freely acquire immovable property by way of gift and inheritance except for agricultural land.
Sale of property outside India, for example in UK, would be subject to capital gains based on the residential status of the individual in the relevant FY when property is sold and immediate preceding seven financial years to determine whether the individual is ROR or RNOR.
In case the individual qualifies as NR or RNOR in the relevant financial year of sale of property in the UK, the gains arising from sale of property will not be taxed in India, provided the amount remains in the overseas bank account. If the sale proceeds are deposited in the Indian bank account, then it would be taxable in India. A point to note – mere remittance of funds from overseas bank account to Indian bank account does not attract tax implication in India. However, if you are Ordinarily a resident of India, that is, you have stayed in India, for more than 729 days in the preceding 7 years, relevant to current Financial year, then global income shall be taxable in India, irrespective of source of place.
Therefore, the gains arising from sale of property in the UK would be subject to tax in India with benefits available under the DTAA between India and UK.
The capital gains amount can be reinvested in another property or specified bonds as per Sec 54 of the Income Tax Act. The balance amount of long term capital gains for ROR’s will be subject to tax at 20.6 % assuming income exceeds basic tax exemption limit.
Disclosure of assets, immovable property and bank accounts held by Resident and Ordinarily a Resident, is mandatory in the Income tax filing.
Dilshad is a member of The Financial Planners’ Guild , India ( FPGI ). FPGI is an association of Practicing Certified Financial Planners to create awareness about Financial Planning among the public, promote professional excellence and ensure high quality practice standards.
A Financial Plan is a blue print to your financial goals- By Dilshad Billimoria in Mint
Did you consider these things while buying insurance?
Claim settlement ratio is an aggregate of the average of claims made for all products of an insurance company – term, endowment, money back, child plans, retirement plans etc
11.14 IST, Jun 06, 2015 | Dalal Times Bureau
There are many factors that need to be considered while deciding on which insurance to buy.
Some of them are, what the type of insurance is and is it matching the need and objective of the client. Is the premium low, when compared to other product options in the market, so that the customer gets value for money? What is the maturity benefit in the product? What are the returns? Is the insurance coverage adequate to cover the human life value of the customer and what is the claim settlement ratio for the company chosen, compared to other life insurance companies?
One of the best gifts an insured can offer to his family, is insurance, to provide for financial security, and more importantly, a seamless claim settlement to their loved ones.
Imagine, a claim settlement that requires several notarisations from lawyers and original certificates from doctors, and requires the family to run behind professional organisations, and then takes time to settle the amount, or worse, does not settle the claim.
This will create a huge financial setback to the family and leave a bad taste in the minds of the family members, about the purpose of taking insurance itself.
One of our clients, Mittal, lost his father due to an heart attack and his father had several small insurance covers from multiple insurance companies. Unfortunately, his agent had sold him products of multiple companies, without understanding the needs and requirements of the father.
Mittal’s mother was a home maker in her fifty’s and emotionally and mentally tired of attending to such matters in such a time of grievance.
Mittal, had to go from pillar to post to receive claim amounts from various insurers, who requested for more documents than mentioned in the policy document, for the claim amount to be settled for his mother.
As per IRDA Guidelines Claim Settlement should happen within 30 days of complete documents received by an insurance company.
Does this really happen with all insurance providers? A resounding No!
SO what does claim settlement ratio mean?
It tells us, the total number of death claims settled by the insurance company. The calculation is : total number of death claims received divided by total number of claims settled.
For example if an insurance company has received 500 death claims and settled 450, the claim settlement ratio is 90%.
The higher the claim settlement ratio for an insurance company, the better is it for customers.
In the below illustration, the details of claims paid by private insurance companies and LIC is shown.
The claim settlement ratio of LIC was 98.14% in 13-14. The percentage of claims repudiated or rejected was 1.10%
What is important is also the turnaround time of claim settlement.
The below table is an illustration of the claim settlement ratios of private and public players. In the table, ICICI Prudential Life Insurance has delivered the fastest turnaround time of settlement of claim within 30 days, 91.89% of the time.
Another point to note, is also the consistency of claim payments made by a company over the years. A company that shows a consistently improving claim settlement ratio, is again a matter of selection over a company that shows inconsistency in payment or who’s percentage varies widely from year to year.
It is also important to note, the claim settlement ratio, is an aggregate of the average of claims made for all products of an insurance company – term, endowment, money back, child plans, retirement plans etc.
Also, the percentage way of calculation does not portray actually how many claims were rejected in absolute number terms.
For example, if number of claims rejected to the number of claims received is more for a given year, and if the percentage is better, because of a higher base, it will give an inaccurate picture to the customer, since, although the percentage of claim settlement has gone up, the number of claims rejected has also gone up, making the percentage look skewed in favour of one company.
Another point is, if a claim is made within 2 years, Section 45 of the Insurance Act 1938 specifys a detailed investigation is made and the claim can be repudiated on the grounds of misrepresentation of facts.
If certain information is withheld by the customer while filling the application form, like concealment of a serious illness or ailment , then the insurance company will reject the claim on the basis of concealment of facts or misrepresentation of data. In such cases, the insurance company, can refuse payment of sum insured to the family of the diseased member.
The repudiation of claims arising from misrepresentation of facts, again, may not work in favour of the insurance company, since claim was rejected because of wrong doing of the customer and the insurance company was not to blame. But the figures will reflect against the insurance company.
Misrepresentation of facts and concealment of information by the customer is considered a fraud under Sec 25 of the Insurance Act
Some points to note for the customer to ensure claims are settled by the insurance company.
1. Full and correct disclosure of information while filling the application form of insurance.
2. Life Assured should try and fill the form by himself, so that all questions relating to medical conditions are covered accurately and no concealment or false information is provided.
3. The agent must inform the policy holder about early claims and investigation of the same, misrepresentation of facts and how it would be detrimental to the family of the diseased.
4. Agent must also update the family members of the claim process and documents needed.
5. More importantly the life assured must inform the family of where important documents are stored for the family to get hold of the same in case of an eventuality.
In conclusion, a claim settlement ratio, is an indicator of claims settled by an insurer and its consistency over a period must be analysed before considering the insurance company.
Since, insurance is a contract of mutual trust between insurance company and the customer, it is important the customer fulfils his duty of utmost good faith in detailing information to the insurance company.
This article is contributed by Dilshad Billimoria, member of The Financial Planners’ Guild, India and Director,Dilzer Consultants Pvt Ltd (a Sebi-Registered Investment Adviser)
Interview of Dilshad Billimoria with thefundoo.com
In an exclusive interview with thefundoo, Ms. Dilshad, Founder of Dilzer Consultants shares few ways to keep clients’ perspective when the markets are volatile.
1. Would you give us a little information about your background and what made you become a successful financial advisor?
I was keen to pursue a career in hotel management but my father spotted my knack for numbers. He encouraged me to get into finance and I agreed. Today, I am oneof the most respected advisors in India. In 2008, I was nominated by CNBC Financial Advisor Awards as one of the top 3 advisors from the South. I also was a MDRT qualifier since 2002.
I attribute this success to my father’s timely advice. After graduation,I earned a Bachelor’s Degree in Business Management majoring in Finance. I began my career in 1998 with a large distribution firm for a brief stint of 1.5 years. I was always keen on setting up my own advisory firm and so I floated Dilzer Consultants in July 2001. “The passion to strike out on my own was all consuming.”
Strengths/Attributes of success
1. Attention to detail and therefore being able to personalize recommendations. Today, there is a vast amount of information available for clients to do anything, including their own planning. But what the client wants is personalisation; solutions specific to his/her problems.
2. I treat any problem of a client as though it were my own. Dilzer Consultants Pvt Ltd always works in the Fiduciary interest of our clients.
3. We at Dilzer Consultants Pvt. Ltd. try and provide the best service in the industry with minimum turnaround time.
4. Our organisation’s processes’ responsibilities are in place and, therefore, we are able to provide end-to-end solutions in a methodical manner with quick turnaround time.
Our Financial Planning Division is ISO 9001(2008) Certified.
2. Sometimes people avoid dealing with their finances or investing because they feel overwhelmed by numbers and have no understanding of stocks, bonds, or mutual funds, etc. How do you help your clients through that process?
1. Listen to what the client wants. Very often, advisors start talking about what they have to offer and never seem to listen to what the client actually wants.
2. Explain details in simple english via diagrams if possible. The more jargon you use, the more the client is put off.
3. Share the basics of investing and financial planning with prospective clients, so they have an understanding.
4. Client is not bothered about where the market was yesterday, 10 years ago, or where it will be tomorrow. You need to speak about goals, asset allocation, and planning and suggest he sticks to his plan if he wants to achieve his financial goals.
5. An annual goal review re-iterates the advisors commitment and trust to the client’s future.
3. Tell us a few ways to keep clients’ perspective when markets are highly volatile?
Communicate when the markets are bad and when things don’t look rosy.
Communication, in bad times, is the key to maintaining healthy client relationships.
In times of trouble and turmoil, financial advisors need to turn to clients and be honest with them.
4. What are the major challenges and opportunities while serving NRI investors?
NRI Investors need option with global perspective in mind. Many NRI investors have funds overseas and are looking to invest in India from the perspective of country diversification.
It is important for the advisor to understand tax laws of multiple countries with recent FATCA guidelines that India has signed an agreement for.
5. What do you think are the most common mistakes individuals or families make when it comes to their personal finances?
Personal Finance is boring. Going to a restaurant or for a movie is far more interesting and does not involve any brain work. 🙂
The last thing on the mind of an individual is to keep his/her finances in order.
Sometimes people get scared because they don’t understand the basics of budgeting, or savings, or they feel they can manage it themselves, or there is genuine paucity of time for them to monitor their personal investments.
Whatever, be the reason, it is incorrect if someone is working so hard and hardly has time for his personal wealth. Shouldn’t that work as hard for him/ her?
Financial Literacy has a major role to play towards understanding the basics of finances and the benefits sought from the outcome of a financial planning exercise.
6. If I am your investor and ask you to manage my money, what would you recommend?
Any investment, would depend on several factors like age, time horizon to goal, risk profile and objective of investment need. After assesing them, asset allocation should be the primary tool to allocate investible surplus.
Dilshad writes in Dalal Times
Exchange Traded Funds: Should they be part of your portfolio?
Budget 2015: Expectation from the Salaried Class. Dilshad writes in Dalal Times.
Budget 2015 is much awaited for reasons more than one. This is going to be the first budget for a party that won Thumbs up victory with a clear parliamentary majority, claiming 274 votes in the Lok Sabha. This Budget 2015 is expected to present the clear short and long term vision of our honourable and dynamic Prime Minister Shri Narendra Modi. This euphoria has extended to the equity markets, amidst a slowing global economy and markets having spiralled reaching new highs, defying fundamentals. Budget 2015 is expected to be a reformist budget, and rightly so, because citizens have witnessed real-time changes, such as, reduced inflation, increased manufacturing activity and therefore sustained corporate earnings growth. Interest rate cuts have fueled economic growth. Reduced oil prices, have helped bridge the gap in our current account deficit. Anyone; would be excited to be a part of this radical change and witness India’s game changing momentum. Budget 2015 is one such trigger.
The salaried class are all eyes on the Finance Minister for the following benefits:
Raise in minimum Income Tax slab to Rs 3,00,000 from the current Rs 2,50,000 to compensate for rising inflationary trend in cost of living. This would also help in compliance by individuals and honest tax payers. Also, if the existing slab of Rs 250000-500000 and 500000 to 1000000 is removed; and one slab of Rs 3,00,000 to 10,00,000 introduced with a tax rate of 10% flat, 20% on income between Rs 10,00,000 to 20,00,000 and 30% on annual income above Rs 20,00,000.
This would be in accordance with the Direct Tax Code Bill 2010. This would encourage more savings among individuals, due to more disposable income.
Transportation Allowance: This allowance is archaic and low. Rs 800 per month do not fill the tanks of petrol in most cars today. In fact, it covers about 10 days of running the vehicle only. If this is increased to 2000- 3000pm, it would be help.
Children Education Allowance has been Rs 100 per month for decades. Do any parents in urban India, pay Rs 100 per month for their child’s tuition fee today? Definitely not! If this amount is inflation adjusted, it would help employees on their tax deduction benefits. Also, since Education/ tuition fee payments comprise a major portion of one’s monthly expense, it would help, if a separate tax deduction and tax law for this expense is introduced.
Health Insurance limit should be increased under Sec 80D. The current exemption under this section, allows for Health premium deduction of Rs 15000 premium paid for self and family and Rs 20,000 extra for health premiums paid for parents. Employees are hoping for an increase from Rs 35000 per annum to Rs 50,000 per annum premium deduction in this budget, considering inflation in medical expenses.
Medical Reimbursement paid by Employer: The Current Annual limit for medical reimbursement paid by employer to employee is Rs 15000 per annum. If this is increased to Rs 50,000 per annum due to rising cost of medical treatment, it would be a more realistic figure.
Exemption Limit of Rs 1, 50,000 under Sec 80 C: Currently an exemption limit of Rs 1,50,000 under Sec 80 C includes, EPF contribution of employee, insurance plan premiums, NSC, PPF, Principal repayment of home loan, FD, ELSS and other small savings. For some employees, the EPF itself, covers permissible limit. If this limit, is enhanced to Rs 2,00,000 or Rs 2,50,000 per annum, there would be more potential for savings with tax benefits.
Also, if a separate section for claiming only insurance premiums is introduced, it would help. Currently, deduction towards Sec 80CCC for pension policies and 80CCD for NPS is clubbed under many other savings under Sec 80 C itself. If a new Section with tax exemption is introduced only for retirement planning and pension savings, it would enhance long term retirement savings.
Also repayment of principal amount on home loan, is clubbed under this section. If this amount can be claimed as a separate deduction, it would help reduce the overcrowding this section has to offer.
Reintroduction of Standard Deduction for Salaried Individuals: Earlier, there was a fixed amount of Rs 1, 00,000-1, 50, 000 reduced from the income of the employees towards standard deduction. If this is reintroduced, the tax liability of individuals would reduce to some extent.
Exemption Limit on Rent Paid under Sec 80GG: If House Rent Allowance is not received, the exemption on rent paid to an individual is currently Rs 2000 per month. This amount was decided in the 90’s and rentals have gone up substantially after that. This exemption limit needs a revisit to match current inflated rental costs.
Increasing the ceiling on interest payment towards home loan: The current limit has been increased from 1, 50,000 to 2,00,000 in the last budget. However, a more favourable approach, is to increase this limit of tax deduction for home loan buyers to Rs 3, 00,000 per annum. This would also increase investment in the real estate sector.
Reforms in Infrastructure and shipping that were at logger heads for decades have started with a bang and the stage is set for more to come!
This article is contributed by Dilshad Billimoria, Member, The Financial Planners’ Guild, India and Director, Dilzer Consultants Pvt Ltd (a Sebi-Registered Investment Adviser)
Dilshad Billimoria writes in Mint on the importance of Savings for children and teaching them the value of money
When I was a child, my parents gave me pocket money. I was told that if I wanted to buy something, I had to save money for it. Hence, if I wanted a doll, I would ask my father the price of the doll and ask him to calculate how many months I need to wait before I could buy it. That my father would wait a month and buy it for me himself, was a welcome surprise, but the wait helped a lot. What I have observed is that if we, as children, are taught the value of money early in lives, we imbibe the same and pass it on to our children. For instance, on my son’s 11th birthday, we presented him with an expensive gift that he was waiting for since he was 10. An iPod. Why did we delay the buy? First, you have to find out whether your child really needs it, or are you getting it to suppress a nagging child and relieve your guilt as a parent. We had three reasons for the delay in purchase—the gift was expensive and budgeting for it was important for us; we felt he was too young to have it at the age of 10; and delaying the purchase helped us know if he really wanted it. It is important to delay gratification to know if a want is a need and whether your child values it.
Next, you should teach your child how to prioritize spendings, and that starts from you. For instance, kids often see parents argue about whether they need a washing machine, or a new fridge, or a television. As parents often we need to choose and prioritize accordingly. Planning when to buy, how to buy, and budgeting for a goal will only make achieving the goal a reality. If we discuss the pros and cons beforehand, arriving at a conclusion can become less elusive. This will also inculcate discipline and make the buyer realize the need to evaluate and analyse before simply splurging.
Remember that you will at some point have to talk about money with your children and for that you will have to be ready with details. Sample this: According to a T. Rowe Price Survey (2014), 72% of parents are concerned about how the cost of things are moving up, and consider education goal planning as an important goal. Yet, many do nothing about it. The reason for this, according to another survey in the UK (by Teachers Assurance, a financial services firm) is that 65% parents cannot afford it.
My son once overheard a discussion between me and my husband about the savings we are creating for his education. I discussed with him why it is important to save for his graduation costs considering education inflation is growing by 15-25% per annum, and that this is a growing concern among parents. We had to tell him that if we did not have a plan to meet the costs, then we might need to borrow with high interest rates or forgo his pursuit of interest for something less interesting for him and more affordable to us. In short, if we would be unprepared, we would be busted.
You can pass on such money-related information by introducing small concepts in a fun way, sometimes as a quiz or a real life money example. Another way would be the work-and-earn method. Many parents pay for household chores done at home. The chores can be taking your dog for a walk, doing laundry, small clean up tasks, helping with guests and more. There is a price tag for every chore; it is logged, and paid at the end of every month.
You should also be aware about kids’ perception of financial roles so that both parents have good command over financial information to impart. For instance, a survey showed that when children between the age of 15 and 21 years were asked, who is in charge of the family money, 37% said mom, 32% said dad, and 30% said mom and dad. More importantly, when it comes to seeking money advice, 58% respondents went to their mom. Also remember that your spending habits get passed on to your child. If parents often purchase products online, their kids are likely to follow and imbibe the same practice when they grow up.
Remember that the most important and gratifying gift to your child is financial literacy. Though the practice is not as prevalent in India, such discussions open up the child’s perception of money, savings and financial behaviour. Involve your child’s thoughts when you speak with your financial adviser. Financial literacy is now part of the curriculum in many schools and topics on portfolio management and investment are being taught.
Lastly, teach your child to take responsibility through small things. For instance, just two months after our son’s birthday, we were chatting over dinner and he was playing with a robot called Furby. A Furby is an electronic toy that resembles an owl-like creature and has gained popularity because of its inherent intelligence of developing language skills. The Furby develops from speaking furbish (gibberish) to language skills you converse with it by learning the words partly. My son knew his chances were thin, after the expensive birthday present, but still gave it a try and showed us the Furby on the Internet. He demonstrated how one has to take care of the Furby, bathe it, feed it, and even give it health checkups. the toy was not very expensive, and we thought it was the best way to inculcate some responsibility in our son. So, we bought it for him. He still gives it a bath and feeds it after school. Spending money on your child’s needs in not the only responsibility. In fact, a bigger responsibility is to teach them the value of money. Dilshad Billimoria is director, Dilzer Consultants Pvt. Ltd.