3 essential finance resolutions for and from 2011

The start of the New FY is a great time to put in place practical resolutions for your personal finances. Here are 3 simple resolutions that are within the reach of everyone, irrespective of your knowledge of finance or your current income level.

1. "I will be a smart saver to protect myself against inflation"

Inflation is a hidden tax that eats away into our money. For example, food inflation is currently being reported as running at approximately 14%. That means that assuming your income stays the same, your money will only be able to buy lesser food than it was able to in the past. The purchasing power of your money is being eroded.

The best thing for you to do is to put your money into instruments that generate a long-term rate of return that is higher than inflation. Only then can you maintain the purchasing power of your money. As far as possible, avoid fixed deposits and fixed income instruments, especially if you are young. Rather, invest in equity mutual funds or instruments where the after tax-return is higher than the long-term inflation rate.

2. "I will prioritize productive assets over consumptive assets"

All of us are tempted to buy the latest mobile phone, fashion accessory, or use our money towards eating out and going to the movies every other day. After all, we work hard so we deserve all the pleasures of life. However, by spending our money this way, all we are doing is "consuming", with no real asset to show at the end of the day.

No one is suggesting that you totally stop the discretionary spending that gives you pleasure. Rather, recognize that if you prioritize building assets that can give you income, in just a few months you will likely have more sources of income to spend on discretionary items. So, before you use your bonus or pay rise to buy that hot new gadget which will get obsolete in no time anyway, use these funds to invest. Thereafter, use the returns from these investments for whatever consumption you still want to do.

3. "I will spend 1 hour in every month from the FY reviewing my financial goals for 2012 and onwards"

History suggests that those who take time to identify their goals in life are usually better prepared to achieve them. It should be obvious that if you don't know what you want to achieve, you might just wander directionless, and you might not be happy with where you end up.

So, if you want to buy a house, upgrade your car, get out of debt, or pay for your child's education - whatever the goal, spend at least 1 hour in March reviewing what you want to achieve, and then consciously create a plan to achieve this.

All of us have busy lives and chances are that most resolutions don't last beyond March. However, if you stay realistic about the above, come March you will be financially much happier.

Good Luck.

Taxation Of Non Resident Indian

General Information


Under the Income Tax act, every person who is an assessee and whose total income exceeds the maximum exemption limit, shall be chargeable to the income tax at the rate or rates prescribed in the finance act. Such income tax shall be paid on the total income of the previous year in the relevant assessment year. But the total income of an individual is determined on the basis of his residential status in India.

Resident and Non Residents

The income tax to be paid by an individual is determined by his residential status. An individual can be termed as a 'resident' if he stays for the prescribed period during a fiscal year i.e. 1st April to 31st March either for

 182 days or more

 60 days or more (182 days or more for NRIs) and has been in India in aggregate for 365 days or more in the previous four years

 However, the criteria of 60 days are extended to the first criteria of 182 days for any one of the following instances:

 1. If you reside abroad for the purpose of employment.

 2. If you reside abroad as the member of the crew of an Indian ship.

 3. If you are an Indian citizen or a person of Indian origin who comes to India on a visit.

Any person who does not satisfy these norms is termed as a 'non-resident'. A resident individual is considered to be 'ordinarily resident' in any fiscal year if he has been resident in India for nine out of the previous ten years and, in addition, has been in India for a total of 730 days or more in the previous seven years. Residents who do not satisfy these conditions are called individuals 'not ordinarily resident'.



In recent times the Government of India has opened the Indian market and economy to attract more foreign capital and technical know-how. The foreign investors may be Indian Nationals who resided outside India and other foreign investors including corporations. A person who resides outside India is technically known as 'non-resident'. The residential status of an individual does not depend upon the nationality or domicile of that person but it depends upon his stay in India during the previous year.



In case of an assessee, other than an individual, the residence depends upon the place from which its affairs are controlled and managed. If the control and management of the affairs of a foreign company is, during the previous year, located wholly in India, it shall be treated as resident in India. Where part of the control and management of the affairs of a foreign company is situated outside India, it shall be treated as a non resident company.



Status Indian Income Foreign Income

Resident and ordinarily resident Taxable Taxable

Resident but not ordinarily resident Taxable Not taxable

Non Resident Taxable Not taxable

Life insurance IPO a distant dream

Domestic life insurance firms are in no hurry to hit the market with their initial public offerings (IPOs) even if the regulator announces the guidelines now, according to a research report by HSBC. According to the report, the hitches — such as limits on foreign direct investment, a 10-year track record and the absence of IPO guidelines — that have prevented floats by domestic life insurers will be removed this year. However, it believes “only a brave Indian insurer” will come out with an IPO now, given the impact of the new regulations on unit-linked insurance plans (Ulips) and the pending direct tax code (DTC) bill. New policy sales by private firms have fallen 20.78 per cent to 88,45,283 till the end of January this fiscal from 1,11,65,771 a year ago. The decline in the sale of individual regular premium policies was sharper at 22.7 per cent — from 1,05,67,140 to 81,68,782. “New business margins are also under pressure given the imposition of fee and surrender penalty caps in Ulips,” the report said. Following the new guidelines, the share of unit-linked business to total policy sales came down to 48 per cent from 52 per cent before September 2010. Though the premium income (of private players) from new policy sales during April-January rose 5.84 per cent year-on-year, it came on the back of a steep increase in the premium rates of Ulips. “Some insurers have started offering more guarantees on unit-linked products (such as NAV guarantee, capital protection) as they are not subject to Irda cap on charges and are hence high-margin business,” the report said. “Insurers have also tried to tap traditional products that are also not subject to caps on charges and fees. However, it will be difficult for private insurers to compete on profitability because the Life Insurance Corporation of India is able to fund higher policyholder participation rate with free reserves accumulated over past generations.” The DTC, if implemented unchanged in March 2012, could result in a collapse in sales and significantly lower earning for the life insurance sector. The current DTC proposal will strip Ulips of all tax advantages and also does not provide relief to existing Ulips. The latest published draft proposals for DTC provide for only Rs 50,000 tax deduction for life insurance premium, medical insurance premium and tuition fees taken together compared with Rs 1 lakh available for deduction now. Besides, the insurers’ corporate tax liability will also increase to 30 per cent from 14 per cent. R. Krishnamurthy, former managing director of SBI Life Insurance Company and the present MD (distribution channel) of Towers Watson, had said, “Many domestic promoters of life insurers will be in a dilemma because these changes will put capital strain and promoters having non-financial sector as core business will find it difficult to pump in money in their insurance venture.” Source: The Telegraph, Calcutta March 9,2011

Reliance Life with Japanese firm

  

Japan’s largest life insurer Nippon Life Insurance Company is in talks to pick up a 26 per cent stake in Reliance Life Insurance Company of the Anil D. Ambani group.

Nippon Life will reportedly pay close to 60 billion yen ($723 million) for the stake in Reliance Life, the arm of Reliance Capital Ltd, according to a report in Japan’s Asahi newspaper.

So far, the group has made a capital infusion of around Rs 3,100 crore in Reliance Life.

However, a spokesperson for Reliance Capital declined to confirm reports that its insurance arm was in talks with Nippon Life.

The entry of Nippon is expected to benefit Reliance Life as it will not only be able to gain access to more capital but also tap into the skills of the Japanese insurer. On the other hand, the latter will gain an entry into India where a huge potential for insurance business is seen despite it having low penetration currently.

At present, there are 23 life insurers who have set up operations in India. A significant number of these players (21) have tie-ups with foreign partners.

Reliance Life has an 8 per cent market share in the private sector when it comes to new business premium. It has more than 1,200 branches and over 200,000 agents. As on December 31, 2010, its total funds under management stood at Rs 17,355 crore. For the third quarter, the company’s total premium was placed at Rs 1,447 crore, of which renewal premium stood at Rs 857 crore.

The insurer had earlier said it could engage a foreign partner ahead of its proposed initial public offering.

Senior officials had then indicated that if the partner picked up the entire 26 per cent, the float may be postponed.

Costly Affair

Patients will now have to pay more for treatment in big private hospitals and getting their medical tests done in diagnostic centers as the government has brought these under the service tax net.

All private air-conditioned hospitals having more than 25 beds will now attract 5% services tax.

The burden will be on 75- 80% of patients in India who still don’t have health insurance cover and pay from their pockets for their treatment. For instance, a patient running hospitalization bill of Rs 20,000 having to fork out Rs 1,000 extra or 5% as tax to the government.

Similarly, patients will also have to pay 5% more for medical tests in diagnostic centers. This means, a diabetes patient who pays anywhere between Rs 60-100 for a routine monthly blood test will need to shell out as much as Rs 60 more in a year.

The tax on diagnosis is detrimental to preventive healthcare and early diagnosis which is the key to address the mounting burden of chronic non-communicable diseases, estimated to cost India $237 billion in national income over the next 10 years.

 Hospitals air-conditioning is used primarily to control infections, unlike in hotels where it is used for comfort. This (tax on air-conditioned hospitals) is a retrograde step for the industry.