Choosing NRI deposit scheme: Consider income source, remittance needs

 Choosing NRI deposit scheme: Consider income source, remittance needs

The Reserve Bank of India (RBI) data reveals that overseas Indians deposited $4 billion in non-resident Indian (NRI) deposits schemes between April and June of 2024-25, a 79 per cent increase over the previous year. These schemes include non-resident ordinary (NRO) deposits, non-resident external (NRE) deposits, and foreign currency non-resident (FCNR) deposits.

Despite rising inflows, many NRIs lack awareness about NRO and NRE accounts and mistakenly use family accounts or invest in a relative’s name. Many are unaware of the tax implications.

NRO Account

An NRO account is used to deposit earnings from Indian sources, such as dividend, stock returns, pension, and rental. Interest from NRO accounts is fully taxable in India at applicable rates, including surcharges and cess. Taxes paid in India can be credited under the tax treaty with the individual’s country of residence.

RBI regulations limit repatriation from NRO accounts.

NRE Accounts

NRE accounts allow NRIs to manage foreign income with seamless transfers to India. The interest income is tax-exempt in India.  

This makes it an attractive option for NRIs to park money tax-free in India. Funds, including interest, can be freely repatriated to the NRIs residence country.

FCNR Account

This account allows NRIs to hold deposits in foreign currency, safeguarding them against exchange-rate fluctuations. It is ideal for those wanting to hold savings in a stable currency while earning interest. Interest on FCNR deposits is also tax-free in India. This, along with currency risk protection, makes them a smart choice for NRIs wanting to diversity investments and reduce tax liabilities.

Adhere to tax norms

Many NRIs think that money deposited in NRE or FCNR accounts is automatically tax-exempt. While interest from these accounts is tax-free, the source of the deposited funds matters. Funds from taxable sources, like income or capital gains in India, may be taxed.

Many NRIs overlook the benefits of the Double Taxation Avoidance Agreement (DTAA) between India and their country of residence. As a result, they face double taxation on the same income.

Points NRIs must pay heed to

Recommends promptly notifying the bank of any change in residential status when moving out of India. Also stresses the importance of evaluation income sources and carefully selecting the most suitable account type for individual needs.

Be aware of the rules regarding joint holdings. Unlike NRE and FCNR accounts, which permit only non-resident joint holders, NRO accounts can be held with residents as well.

NRIs planning to return to India should consider opening a Resident Foreign Currency (RFC) account.

NRIs favors real estate and deposits, sometimes neglect asset allocation and diversification, leading to underinvestment in asset classes like fixed income and equity.

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Got a notice for 'defective' I-T return ? how to fix it.

 

GOT A NOTICE FOR 'DEFECTIVE' 

I-T RETURN? HOW TO FIX IT.

Several taxpayers have received notices over “defective” income-tax returns (ITR). Let’s understand what they mean and what should be done.

What’s defective return notice?

The tax department sends it when it finds mistakes or inconsistencies in your ITR- missing or conflicting information, errors in calculations, or other issues – to prompt a correction. You have to respond to this notice, within 15 days or seek an extension.

Missing the deadline

If you fail to correct the defect before deadline, your return may be treated as invalid, potentially leading to interests, penalty, non-carry forward of losses and forfeiture of specific exemptions.

Steps to fix defective ITR:

• Go to ‘e-proceedings’ tab on the e-filling portal and select “View Notices/Orders”.
• Understand the specific errors identified by the I-T department.
• Gather all required documents and information to address the issues raised.
• Select the notice in the ‘e-proceedings’ and choose the appropriate response option, upload the required documents.
• After making all necessary adjustments, submit the revised return.

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Over-leveraging with top-up loan can put your home at risk

 Over-leveraging with top-up loan can put your home at risk

Top-up home loans are currently in the spotlight. Reserve Bank of Onida (RBI) Governor Shaktikanta Das recently raised concerns about the rapid growth of these loans, nothing that some lenders are not adhering to regulations related to loan-to-value (LTV) ratio, risk weights, and monitoring the ends use of funds.

How do these loans work?

Banks and housing finance companies offer a top-up home loan to borrowers as an additional loan on top of their existing home loan. If a borrower has been paying EMIs regularly on a home loan for 18-24 months, they become eligible for a top-up home loan from the same lender.

The maximum amount offered is the difference between the originally disbursed home loan amount and the current outstanding (that is, the sum repaid).

A top-up home loan’s tenure can, in theory, extend up to the residual tenure of the home loan. In reality, most lenders cap the tenure at 15 years.

Top-up home loans are usually disbursed within two to three weeks. However, many lenders now offer instant options with same-day disbursement, though for smaller amounts.

Inexpensive, readily available

The interest rates on these loans are usually the same as on the underlying home loan (8.25 per cent onwards), or slightly higher. Availing top-up home loan tends to be cheaper than alternatives like a personal loan, loan against a credit card, or a gold loan. For borrowers with a home loan, a top-up serves as a good source of funding to consolidate other higher-cost debts.

Obtaining these loans is easy, with minimal documentation required. The longer tenure of these loans can also prove beneficial. If an existing home loan borrower has a residual tenure of more than seven years, availing a top-up home loan can allow her to secure a bigger loan amount with a lower EMI than other loan alternatives.

Keep an eye on your budget

The easy   availability of these loans can lead to overspending. The biggest risk of top-up loans is of home buyers exceeding their budget.

Using these loans for consumption and speculative purposes can also be risky. If the borrower cannot repay the loan due to lack of income or losses from speculative activities, they risk defaulting on it. This could lead to the bank seizing the property.

Mind the end-use

Many lenders offer a top-up home loan at the time of balance transfer. Borrowers who are unable to secure a top-up home loan from their existing lender, or are asked for a higher interest rate, may opt for a balance transfer and avail a top-up.

After RBI’s warning, borrowers should be cautious about end usage. Top-up loans on property are typically meant to fund home improvements. They can also be used for their purposes, such as education or medical expenses, provided this is specified at the time of borrowing.

Having a budget for home improvements and interiors and sticking to it.

Customers seeking funds for a vacation or consumption-related purchases should avoid using a top-up loan. Choose a loan specifically designed to fund consumption rather than put your home at risk.

 

Key factors to consider when choosing term insurance plan

For many Indian families, a term insurance plan serves as a cornerstone of financial planning. However, choosing a right term plan is a challenging task. Here’s what to consider:

COVERAGE AMOUNT

Determining the right coverage amount is crucial. The sum assured should be sufficient to meet family’s financial needs in your absence.  

CLAIM SETTLEMENT RATIO

The claim settlement ratio is important for indication percentage of claims an insurer has successfully settled.

PREMIUM AMOUNT

Affordability is vital when selecting a term insurance plan. Premium should be manageable within our budget while still providing adequate coverage. Premiums are influenced by age, heath, lifestyle, and coverage amount.

RIDERS AND ADD-ONS

Many insurers offer additional riders or add-ons that can enhance term insurance coverage, accidental death benefits, and waiver of premium in case of disability.

Before finalizing your purchase, thoroughly read the policy document. Understanding the terms, conditions, and exclusions is vital to avoid any surprises.

 

STICK TO LTV LIMIT, AVOID LONG TENURES

• Take this loan only to fund mandatory expenses on interiors and home improvements
• After RBI’s warning, don’t exceed the RBI-mandated LTV limit (75-90 per cent, depending on loan amount) on home loans
• Limit the tenure of top-up loans to two to four years
• Despite the lower interest rate on top-up home loans, total interest outgo will rise if you select a longer tenure

  

For More Details: Pooja Manoj Gupta, visit www.giia26.com

Email: pmgiia26.com Mobile  9868944340

 

Pair base policy with top up to combat rising health premiums

 Pair base policy with top up to combat rising health premiums

Buying a multi-year policy will also help you rein in costs

Health insurance customers will face higher premiums as insurers implement hikes. New India Assurance has also announced upcoming hikes across all its products. The premium increases range from 4 to 15 per cent, with senior citizens likely to experience larger hikes.

Factors driving premiums up

Several factors have contributed to the rise in health insurance premiums. The Insurance Regulatory and Development Authority if India (Irdai) has recently revised the terms and conditions of health insurance policies. Previously, the maximum waiting period for pre-existing diseases (PEDs) was four years; Irdai has reduced it to three years.

When the waiting period ends, claims begin to come in. Insurers expect claims to start earlier due to this change and are factoring it into their prices.

The moratorium period, after which insurers cannot reject a claim except in cases of fraud, has also been reduced from eight years to five. This change entails a cost for insurers.

Earlier, health insurance products had a sub-limit on Ayush treatment. The regulator has mandated that Ayush should be covered up to the entire sum insured.

An insurer’s claims experience also affects premiums. If premiums are insufficient to cover claims and their margins come under pressure, insurers will increase their premiums.

Healthcare inflation is another key driver. Averaging around 12 per cent year-on-year, it significantly outpaces consumer price index (CPI) based inflation, and leads to larger claims.

Technological advancements in healthcare, such as robotic surgery, also play a part.

While these technologies offer benefits like reduced hospitalization time, they come with higher costs for equipment and skilled personnel, pushing up expenses.

How to manage rising costs

A young person planning to buy a policy with a sum insured of Rs 10 lakh but struggling to afford the premium could start with a sum insured of Rs 5 lakh. As earnings increase, the sum insured can be raised.  

Consider a combination of a base policy and a super top-up policy. Buying a base policy of Rs 20 lakh can be expensive. Instead, combining a base policy of Rs 5 lakh with a top-up of Rs 15 lakh can lower the premium, opting for such a combination can save at least 15 per cent on the premium.

Insurers offer no claim bonuses (NCBS). By adopting a healthy lifestyle and avoiding hospitalization, customers can avail of NCBs, increasing their sum insured without a rise in premium.

Nowadays, insurers offer multi-year plans. Two-or three-year plans come with discounts. Another option, especially relevant to senior citizens, is to buy a plan with a co-pay, which also reduces the premium.

A top-up plan with a small deductible, say Rs 50,000 or Rs 1 lakh, is another option. The insured will bear the deductible amount, and the plan will cover expenses above this level. Such plans have a lower premium. Premiums should ideally not increase every year. If they do, it may indicate mismanagement by the insurer. Consider porting to another insurer where increases don’t occur annually.

In any case, compare premiums across insurers at regular intervals. Insurers have different prices in various age categories. By shopping around, you could find an insurer with a lower premium for your bracket.

Avoid these mistakes

Younger customers often hesitate to buy health insurance due to high and rising premiums. They should nonetheless purchase coverage.

If you can’t afford the health insurance premium, how will you afford the hospital bill, which is likely to be much bigger? And these bills are only increasing each year.

New buyers should avoid settling for a low sum insured. Given rising healthcare costs, it’s better to pay a little more and have adequate cover than to pay part of your medical expenses of your own pocket.

Existing customers should also not reduce their sum insured. Rising hospital bills and the loss of continuity benefits are two key reasons.

Various waiting periods exist: the initial 30-day waiting period, the specific disease waiting period, and the PED waiting period. A person who has been in a policy for three or four years would have crossed these waiting periods. If they reduce the sum insured, they risk losing these continuity benefits.

Customers can also control their premiums by avoiding unnecessary add-ons like international coverage if they don’t travel abroad frequently.

Finally, most people in India do not have adequate health insurance. If you live in a metro city and plan to go to a category A hospital, have a sum insured of at least Rs 15 lakh per adult.

 

Points to consider when buying health insurance

Claim-settlement ratio: Review the insurer’s claim settlement ratio, which reflects the percentage of claims settled successfully; a higher ratio indicates a more reliable and efficient claims process

Network of hospitals:  Check the insurer’s network hospitals, especially those close to your residence, a broad network ensures you can easily access cashless treatment when needed

Waiting periods: Be mindful of the waiting periods for pre-existing conditions and specific treatments, shorter waiting periods are better

Co-payments: Co-payments requirement should ideally not exceed 15-20 per cent

Sub-limits: It is preferable to buy a policy with no sub-limits on things like room rent and specific treatments

 

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Email: pmgiia26.com Mobile  9868944340

 

EXPLORE LAST-MINUTE OPTIONS TO SAVE INCOME TAX IN OLD REGIME

 

EXPLORE LAST-MINUTE OPTIONS TO SAVE INCOME TAX IN OLD REGIME

ELSS funds, PPF, NPS, fixed deposits are some popular options under Section 80C

With less than a week left to make tax-saving investments for FY24, there is a risk that people will hurry and make the wrong choice to meet the March 31 deadline. Invest in a hurry, regret at leisure. If you’ve chosen the old tax regime, make an informed choice and don’t rely entirely on your agent, particularly of Sections 80C and 80D.

 

Section 80C

Before you begin, note that your employee provident fund (EPF) would make up a majority of the Section 80C deduction. Take that into account before investing more in section 80C. Section 80 reduces taxable income up to Rs 1.5 lakh per financial year for an individual or Hindu undivided family. Familiarize yourself with the various instruments eligible for deduction under Section 80C before investing. These include contributions to the Public Provident Fund (PPF), equity-linked saving schemes (ELSS), national savings certificates (NSC), tax-saving fixed deposits and life insurance.

 

Lock-in period

Pay attention to the lock-in period. Various instruments under this section are linked with a requirement for a lock-in period. Premature withdrawal can lead to forfeiture of tax benefits claimed under Section 80C. The popular option of tax-saving fixed deposits comes with a lock-in period of five years, ELSS with three years, and PPF with 15 years.

 

Tax savings

Don’t focus on tax-saving alone. Priorities investments that align with your overall financial goals. Diversify your portfolio across different asset classes and factor in inflation to ensure long-term growth.

Pay attention to the taxability of returns on such investments. Understand the tax implications of the returns you earn before investing. For instance, interest income earned on fixed deposits is taxable, whereas interest income from PPF is not taxable.

 

Health insurance

Taxpayers can claim deductions on premiums paid towards health insurance for themselves, family members, and dependent parents. This reduces their taxable income. There by lowering their overall tax liability. Section 80D allows deductions with respect to the amount paid for the health insurance policy, preventive health check-ups, and contributions to CGHS, and expenditures on medical treatment.

A maximum of Rs 1, 00,000 can be claimed as a deduction under this provision, depending upon the age of the insured.

 

Medical treatment

Medical expenses for senior citizens can be cited for saving tax. If any expenditure is incurred on the medical treatment of a senior citizen who is not covered under any health insurance scheme, such expenditure is allowed as a deduction under this section. The deduction is allowed to an individual on medical expenditure incurred for himself, his spouse, dependent children, or his parents. The maximum deduction amount is Rs 50,000 for medical expenditures.

 

Preventive health check-ups

Amount paid by a person for the preventive health check-up is allowed as a deduction, for herself, her spouse, dependent children, or her parents. A deduction of Rs 5000 can be claimed for the preventive health check-up of the above-mentioned persons. This deduction will be within the overall limit of Rs 25000 or Rs 50000 as the case may be.

 

Should you pay in cash ?

The health insurance premium is not to be paid in cash. The tax benefit of exemption is available only if the premium is paid in any mode other than cash. However, this doesn’t apply to preventive health check-ups.

Assess your healthcare needs and select a health insurance plan with comprehensive coverage. Explore family floater plans for economical coverage options.

Keep all receipts and documents related to the health insurance premium payments and preventive health check-ups to claim these deductions. Finally, don’t forget that deduction under Sections 80C or 80D is available only if the taxpayer opts for the old tax regime.

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OBTAIN SECURED CREDIT CARD, REPAY REGULARLY TO REPAIR CREDIT HISTORY

 

OBTAIN SECURED CREDIT CARD, REPAY REGULARLY TO REPAIR CREDIT HISTORY

 

Use less than 30 % of card limit; avoid frequent loan applications

Personal loans given by fetch players in the under Rs 1 lakh category have grown at a compound annual rate of 75 per cent between 2017-18 and 2022-23. After this rapid growth, there are signs of stress in fintechs’loan portfolios, especially in the under Rs 50000 ticket size, according to a white paper released by Experian in collaboration with the Digital Lenders’ Association of India (DLAI)

Reckless use of an unsecured loan (personal loan or credit card dues) can lead to a default, which impacts the borrower’s credit score negatively. This can lead to a situation where it becomes difficult or impossible for the person to avail further credit. Even if they get it, the interest rate is high.

What is a bad credit score?

Credit bureaus calculate the credit score based on an individual’s repayment record and borrowing pattern. A low credit score, typically below 700 (out of a maximum of 900), can lead to the rejection of loan applications. Credit score falls when one defaults, delays repayment, or applies for multiple loans.

Improving a poor credit score requires times and discipline. 

Get a secured credit card

To build a healthy credit score, one needs to borrow and repay on time, and thereby establish a sound track record. But if you are in a Catch-22 situation where you do not have a loan because your credit score is poor, but need one to improve it, a secured credit card can help.

Those who are unable to get a credit card or a loan due to absent or poor credit history may opt for a secured credit card to improve their credit score.

A secured credit card is backed by a fixed deposit (FD). The credit card issuing entity marks a lien on the FD and issues a credit card against it. The lender gives little importance to the person’s credit history or income. The card limit is set at around 90 per cent of the FD’s value.

At the end of each month, the credit card user gets the bill. If the entire outstanding is paid regularly on time, the credit score starts to improve. If the credit card user fails to repay the outstanding and the amount reaches the FD’s realizable value, the card issuing bank recovers it by taking over the FD.

Limit credit utilization

While using the secured credit card, avoid using the credit limit to the hilt. High credit utilization can signal to lenders that you are over-reliant on credit. This can negatively impact your credit score. It is advisable to keep your utilization low- ideally below 30 per cent of your available credit limit. A lower utilization rate is seen as indicative of good financial management, which positively affects your credit score.

Avoid being credit-hungry

Do not shop around for loans immediately after getting a secured credit card. Such loan enquiries can also pull down the credit score, as they are treated as a sign of credit-hungry behavior. Avoid showing signs of over-dependence on credit by making multiple applications for loans or credit cards within a short period.

Every time you apply for credit, lenders conduct a ‘hard inquiry’ to check your credit worthiness. Each such inquiry lowers your credit score slightly. Frequent applications can compound this effect.

Once you have built a credit score, you may access fresh loans.

Review credit score periodically

 Regular review of credit report not only helps detect inaccuracies but can help you take prompt corrective actions if the score is falling. Obtain a copy of your credit report from the bureaus to detect any inaccuracies or unauthorized activities and address them promptly to safeguard creditworthiness.

The credit score is often impacted by an error or even fraudulent activity. Study your credit report closely to understand the reason behind the poor score.

 

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