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Archive for the ‘Income’ Category

Crisis 5

In today’s ever changing world, with all the geo-political, social, and technological dynamics, job surety is no more a luxury anyone can afford. Be it the CEO of a M.N.C. or a mid level manager, the changing landscape compels us now more than ever to be prepared for the worst.

Even pilots aren’t immune to such extremes. From domestic industry uncertainties to global events, pilots need to be equipped to face such an eventuality. One such recent example is the Qatar diplomatic crisis. With the neighbouring countries cutting diplomatic ties with Qatar and shutting down their airspace for any Qatar bound plane or vice versa, a sense of being besieged looms in the country.  Now while this does not directly result in job losses, such incidents raise the fear, specifically for businesses closely linked to Qatar.

Therefore prudence calls for having certain provisions in place that can help ease this fear. A sort of backup or cushion for facing an event you might have never fathomed.

A checklist of such provisions could possibly look as follows:

Self funded health insurance coverage is important – Most pilots would argue that the employer already provides for this. But that’s the point right? What happens if you get the golden handshake? Guess what, no more health cover. And even if you get a new one, they always come with a waiting period. This means you won’t be covered for a certain period from any pre existing illness. This would not be a situation that you would like to end up with.

 

Personal Accident Policy and Critical Illness Policy coverage – Extending the above point, it’s critical that pilots have a personal accident and a critical illness policy. In the months of no income, one needs to ensure that one is covered for all kinds of risk. In cases where families may have accident or critical illness exigencies during such a period, such types of policies are a godsend. Such personal accident policies, for example provide the insured with either weekly allowances or in some cases a lump sum payout depending on the terms and features of the policy. These payouts can be used for medical expenses that come along with treating such eventualities.

 

An Emergency Fund is a must have – A highly liquid investment is the preferred choice to host such a fund, as it’s meant for immediate use. While Bank FDs and saving accounts is the age old choice, research and time has proven they are better options out there. One such alternative is Liquid Mutual Funds. These typically provide the similar liquidity and safety – principal features that a bank savings account offers, but with the added incentive of significantly higher returns on the investment. These returns currently are in the range of 6-7% versus 4% on your savings account.

 

The objective of this corpus should be to provide enough to maintaining the essential household expenses + EMIs in case of sudden exigencies and or temporary absence of income. Thumb rule states this corpus should ideally support 6 months of household expenses, including EMI’s and Insurance Premiums.

 

Move towards conservative assets – If you feel the crisis period is going to be prolonged then you are better off cutting down on riskier investments and moving towards conservative assets. Why so? Because liquidity needs could crop up anytime. Hence capital protection and not capital appreciation must take the driver’s seat.

 

While in all probability this crisis might be short lived, planning for it should not be left unattended. Like the saying goes, “Better to be safe than sorry”! And checking off this list could just go a long way in maintaining that safety net at all times, even when you might feel down in the dumps financially.

 

Till then, happy flying!!!

 

 

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MEdical emergencyPilots lead highly strenuous lives. They are responsible for the lives of hundreds of passengers while flying a 200 ton highly advanced and pressurised aircraft. That’s a whole lot of responsibilities!

As such pilots are mandated to maintain high medical fitness standards. These stringent standards are kept in place to ensure pilots remain at the top of their health as long as they are on flying duty. Keeping this in mind, airlines can ground pilots on medical grounds, both temporarily and permanently. In either case, a pilot can face financial insecurities which can hamper his or her life’s plans. Therefore, it is imperative that pilots of today prepare for such kind of medical contingencies.

While avoiding a medical problem completely may not be possible, it is very much possible to mitigate that risk.  This can be done through meticulous planning and understanding what kind of financial products would help in such scenarios.

Firstly, let us look at a scenario where a pilot, say Mr. X, is temporarily grounded on medical grounds. These could be due a variety of reasons such as chest pain, congestion of the lungs, fractures or incapacity to fly due to external/internal injuries, even pregnancies!

A multi pronged approach can be used to deal with such an event:

One, pilots should always take a health insurance for themselves. This can be sought either personally, many times through the employer or certain pilot associations may also provide such policies. A basic health insurance policy helps financially tackle any hospitalisation expenses for general medical procedures. While this is a basic policy which every individual should have, pilots should go one step ahead.

Second, procuring a Personal Accident Insurance and Critical Illness Insurance plan should be very much on the priority list. In a nutshell, a Personal Accident policy involves payout of a lump sum in the event the insured suffers an accident.  Depending on the policy terms, payout is based on the severity of the injuries from the accident. Some policies have a beneficial feature called Temporary Total Disablement. This is a unique feature in which if the insured suffers temporary disablement of a certain severity, the policy mandates to give a weekly payout to the insured for a certain period! This can be highly useful if the insured is grounded for a while and has his/her’s income temporarily suspended. It becomes an ideal income replacement. Some insurance companies provide this feature for a period up to 100 weeks, that’s two years! Also some companies give a compensation up to a total of Rs. 5 lakhs. That is Rs 40,000 p.m. for 2 years. Not a bad proposition.

On the other hand in a Critical Illness policy, a lump sum is handed out to the insured when he/she is diagnosed with a severe illness that is under the coverage of said policy. The critical illnesses covered are kidney failures, some forms of cancer, major burns and major organ transplants to name a few. The lump sum from either policy can be considered as a replacement of income for the insured as the patient is most likely to be out of work for a certain period. As such the usual sum assured of such policies are in multiples of ten lakhs.

Lastly, tackling a temporary grounding is keeping enough monies handy to pay for the various tests and certifications the pilot has to pass to regain status of an active pilot. While some of these tests might be covered by the concerned employer, some might not, depending upon the certification and seniority of the pilot. And a lot of times these certifications have a substantial fee. So a dedicated liquid corpus to handle such situations is always advisable for pilots.

Like a temporary suspension of the job has its own hurdles, permanent grounding due to medical reasons has its own challenges that must be overcome. The biggest issue in such a case is obviously how to cope with the very significant loss of income. On top of that, major medical conditions add to the depletion in assets. Certain medical conditions related to cardiac conditions, optical and vision issues, mental disorders etc are such examples. Hence funding to treat this illness will also have to be arranged.  Such a sudden loss of income results in compromise on expenditure choices, especially lifestyle expenses. This is a hard pill to swallow, especially if you are used to having the best of everything. While holding all above mentioned types of insurance policies goes without saying, in such a case this might not suffice. Hence setting aside a large enough corpus to deal with such an event has to be planned and arranged for. A lot of factors go into deciding what corpus this should be, such as current income, current monthly expenditures, estimates on current big medical surgeries and medication, inflation, age etc. It requires careful factoring of each aspect and coming to a reasonable amount that is feasible for the person but also able enough to help in such scenarios.

All pilots are aware of the risks that go along with not complying with medical and health standards. Yet many a times they blissfully remain ignorant to the fact of preparing for such events. A financial advisor has the required expertise to help with such contingency plans. Including them in such planning could mean all the difference between comfortably navigating a temporary/permanent job loss or leading a life of compromise and constant worry.

So prepare well before takeoff to have a safe flight!

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Retirement 1Retirement is usually something that is not considered by most of us till we are nearing it, so naturally we do not plan for it, until it is probably too late. This general ignorance or lack of attention to retirement planning can have far reaching consequences.

Retirement planning in the simplest sense means preparing for life after the tenure of paid work ends.  This does not only include the financial aspect, but other aspects such as what to do during retirement, the lifestyle choices that one can take and what dreams one might want to pursue during the remainder of the years.

While the concept of Retirement Planning applies to pilots just as it does to other individuals, there are certain unique points that are exclusive to retirement planning for commercial pilots. These unique points are crucial while developing a retirement plan for a pilot.

Firstly, under the current DGCA rules, the retirement age in India has been pushed up to 65. This is an entire 5 years longer than the mandated retirement age in most other industries. This translates to more income earning years, probably at the highest salary slab of the industry, since usually pilots around this age are most likely to have their designations as Captain. This extra income earning period is crucial in formulating and ironing out the retirement plan before the pilot ultimately retires. The significant income flowing could be the difference between living a compromised and a fulfilling retirement.

One of the most important things a commercial pilot has to consider is Lifestyle Inflation. Because commercial pilots have one of the best salary packages amongst all industries, they tend to have more lavish lifestyles. And they are comfortably able to match up the ever increasing expenses that come alongside their lifestyle choices. But on retirement, the salary stops. Yet expenses continue to stay, with inflation only adding to it. But more significantly no one would want to compromise on their lifestyle they have become accustomed to. As such it becomes imperative to plan much ahead so that lifestyle compromises don’t become the norm during your golden years.

Just to drive home the impact of inflation, let’s take an example. Consider a pilot Mr. A, currently 30 years of age and has a monthly expenditure of Rs 12 lakhs every year (not a very high amount, from what we hear from our pilot clientele). Assuming he will retire at age 65 and taking an average of 8% lifestyle inflation till retirement,  the same Rs. 12 lakhs expenditure will inflate to approx Rs. 1.75 crores. In other words, to maintain the lifestyle that costs Rs 12 lakhs as of today, Mr. A would require Rs 1.75 Crores annually to maintain the same expenditure choices, forget upgrading!

Furthermore, pilots are used to having extremely busy schedules. So when retirement hits, they are unprepared to handle the ample time in hand. Hence they always look for options to keep themselves engaged. This could mean, taking long leisure trips or finding, researching on and investing lump sums in “exciting investment avenues”, committing money to be part of a start up or just following their long drawn passions or enrol at the local flying clubs just so that they can regularly indulge their lifetime love of flying. All this comes at hefty financial expenditures.

All of the above means that Pilots would need to plan and develop customized retirement plans for themselves to ensure a smooth flight during retirement.

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blog picPilots are probably one of the most stretched professionals when it comes to time management. The constant flux in schedules is always a hassle. Even when you are not flying you are on standby which means that you are still on your toes. The weekly off standard in the Indian Aviation industry is one day every week. And money matters are usually the last thing you want to tackle on such a day. Life is already stressful enough as it is!

By most industry standards, Indian pilots take away a very handsome salary. The more experienced you are, the more significant are your financial takeaways. But it is not all rosy all the time.

With the high earning potential at a pilot’s disposal, it becomes vital to channelize these earnings to fulfil a whole set of commitments and dreams that are unique to a pilot’s life, both during their career and post retirement.

But what are some of these unique problems that only pilots face? Pilots for once, have to always be medically fit. And for good reason! Priority to healthcare hence takes prime importance. Now a pilot reading this might say, oh we are covered by our company, so I don’t have to worry above covering any financial cost regarding my health. But if you really think about it, is that actually enough?

Another thing which pilots always need to be on top of is upgrading their skill sets. Not so much a unique item, but very important nonetheless. And it does not come cheap. Preparing for it well in advance can be far more beneficial than just scrapping up every penny at the last moment to fund for this expense.

One another issue is the state of aviation industry and opportunities. The last few years have clearly demonstrated that problems are plenty in the Indian aviation sectors. For e.g.  Airlines have closed down, (leading large time periods of unemployment), pay can be delayed significantly or indefinitely. All these lead to great financial complications for pilots and their families. Preparing for such circumstances is prudent and must at all times be actively considered.

Probably the biggest challenge a pilot will face is retirement! With no more significant inflows, you are faced with a very real possibility of compromising on your lifestyle just because of a lack of proper planning and this change is not easy! This struggle can be easily avoided with some proper and sustained guidance throughout the earning years so that you can live through your golden years in comfort all the while fulfilling your passions.

Pilots are well aware of the importance of planning. Every flight involves hours of preparation beforehand so that you can take the best possible decisions in terms of route, landing approach and understanding weather patterns of the areas you will fly through, just to mention a few!

As a fellow professional with a prime importance towards professional planning, it would be definitley worth your time for us to meet and discuss how to enrich your life!

Till then..Happy flying!

 

 

 

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Remember your college days when you had to manage your pocket money between stationery expenses, conveyance expenses and lifestyle expenses. The amounts may not have been large and budgeting was critical. So what’s changed in your life today – most definitely the amounts involved, but then so have your needs and wants.  So its budget time again. Budgeting could be at an individual level, at a family level, at an organization level or even at a company level. From a Financial Planning perspective, budgeting at an individual and family level is critical. Budgeting is all about managing your incomes, expenses and cash flows effectively.

Incomes can be of different types. You can basically distinguish between regular income and irregular flow of income. Regular incomes can be your net salary income, government pension, income from business. All the other incomes like professional income in the case of free lancers for example could be irregular, interest income will last till maturity of investment, rental income will last for the tenure that you have let out your property and variable pays/bonuses if any will fall under irregular income.

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If you have a regular flow of income then you should manage your expenses and develop a regular savings habit so that you can invest to achieve your financial goals.  If you have an irregular cash flow, then you need to plan your cash flows wisely because your income may not be regular but your fixed/non-discretionary expenses certainly are.

If you have an irregular cash flow, then you need to plan your cash flows wisely because your income may not be regular but your fixed/non-discretionary expenses certainly are.

There are two things you can do to address this. Depending upon the age you are in, you should invest in skill development which can earn you a regular income. If you are a freelancer for example or in a business which is seasonal in nature and it does not occupy your time all 365 days, then maybe you can master some professional skills which will enhance your already existing skill set or maybe enhance your career in one way or the other. Sports professionals and actors, for example, may have shorter earning life spans and thus may need to build their skills accordingly.

The other thing you can do is that you can plan a portfolio in such a way that your investments will provide you regular flow of income. It can be done in the following manner:

Emergency-funds

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  • Since your primary goal is always  to meet your regular expenses, start of by creating a contingency fund which accounts for at least 6 months of your non-discretionary expenses like your children’s school fees, your EMI if you have any, your basic monthly household expenditure, amongst other things. If both you are your spouse are working, you could plan for 3 months.
  • Do not block all your money into investments that are illiquid ,even though the returns they may be offering you could be tempting. Ensure you have enough liquidity at all points in time to meet your regular expenses. Locking in your money into illiquid instruments might not only make it difficult for you to exit but if you wish to exit in case of an emergency you may have to settle for a lower value. Investing in real estate is a classic example. People invest in it in anticipation of high returns growth but have to hold on to it for long periods till the time it gets an appropriate value, due to its cyclical nature. Emergency exits may require you to settle at lower valuations.
  • Invest in simple products which provide safety, liquidity and returns.
  • Investments should be made in line with your goals and not in isolation.
  • Have adequate life insurance cover so that in case something happens to you, it will help your family members to continue with same standard of living.
  • Health insurance and critical Insurance is a must. You certainly do not want to spend your hard earned money on high medical expenses.

Once you have your income and expenses in place, it is critical to begin the job of tracking them. Whether you use technology or an old fashioned diary for this, doing it is crtical. After all, a budget is not relevant if it is not tracked.

Whilst you may not be able to go to college again, you certainly can go back to budgeting for yourself and your family. It may be boring at first, but I promise you that you will enjoy the benefits of it some day.

 

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budget 2016
1. HRA benefits to be enhanced from Rs. 24000 per annum to Rs. 60000 per annum under section 80GG.

2. Pensions get boost with NPS benefits tax free upto 40%.Retirement savings boost begins, MF arbitrage continues though. Move to boost retirement savings,

3. Long term capital gains tax on equities seems like it is untouched.Biggest worry for the markets till this morning moves away

4. Tax on dividends in excess of Rs. 10 lakhs introduced at 10%. Double tax again?

5. TDS rationalization introduced. Details awaited.

6. A recent survey shows job application fraud at 5 year high -digital repository of certificates should help.Big benefits for biz

7. New Health Protection scheme upto 1 lakh & additional topup of Rs. 30000 for senior citizens.Good initiative -implementation key

8. Section87A rebate increase from Rs. 2000 to Rs. 5000 practical solution. Cost of compliance possibly higher than tax revs there

9. EPFO & NPS choice gets more complex for employers & employees,with new subsidies on EPS contribution for 3 yrs for new employees

10. First time home buyers – loans upto Rs 35 lkhs – for value of house Rs 50 lkhs – additional tax deductions announced.

11. NRI without pan to get relief. Customs baggage rules for passengers to be simplified.

12. Surcharge for incomes above Rs. 1 cr enhanced to 15%. Very much on expected lines. Clearly not a onetime levy as earlier promised.

13. Voluntary disclosure of domestic undisclosed income with payment of 45%.Hope the fine print does not dissuade disclosures.

14. Central legislation to deal with illicit schemes duping investors

15. Relief for MSMEs with turnover Rs. 2 cr or less – presumptive income

16. Comprehensive code -for resolution mechanism to deal with bankrupty situations. Banks to benefit.

17. Presumptive tax at 50% for professionals earning upto 50 lakhs seems too high. Not sure this works.

18. Deepening of corporate bond market big boost for corporates & Debt mkts. Steps to build retail participation in long term bonds needed

19. NHAI,etc to raise 15000 crore in 2016 to give impetus to infra -more tax free bonds? Good for retirement portfolios if continued.

20. 100% electrification in villages with a target date in 2018 is a big step. Greater confidence on back of past performance.

21. Rs. 55,000 cr for roads n highways – huge investment in road and infra rs 97,000 cr in the coming yearr, togethr with rail @ Rs 218k cr

22. Continued focus on road building is good long term step. Focus on what has a worked well is good mgmt. Build on what has worked.

23. Doubling of farmers income in 5 years will depend on the real income increase i.e. post inflation inc. Hope inflation is controlled.

24. CSR funds & donations for higher education capital fund creation -is Rs 1000 crores good enough for an initiative of this scale?

25. Digital literacy creates equal access, but self help requires intrinsic motivation & job access. Can enough new jobs be created?

26. Fiscal discipline, tax reforms & financial sector reforms as part of 9 pillars of 2016.

27. Fiscal target to be maintained at 3.5% – good news for bond markets & positive for India rating. Fiscal prudence wins for now.

28. Fiscal target range as a strategy to be reviewed through a committee to factor ext. environment changes. Hope range is narrow.

29. Govt gross borrowings and net borrowing numbers seem lower than expectations – positive for bond markets.

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Even if a non-resident Indian (NRI) lives abroad, he may still have income in India. If the income is above a certain exemption limit, he needs to file his income tax return in India just like a resident Indian.

NRI Taxes pic.jpg

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Who is an NRI for tax purposes?

Before an NRI decides whether or not to file income tax return in India, he needs to first ascertain his residency status for tax purposes (which is different from the definition of residency status under FEMA). An individual is said to be resident in India if he has been in India in that financial year for 182 days or more, or if he has been in India for 60 days or more during the current financial year and for 365 days or more in the preceding four financial years. A person who does not fulfil these conditions would qualify as an NRI.

Next, it has to be determined whether such a person is “ordinarily resident” or “not ordinarily resident” (NOR). A person is not ordinarily resident in the previous year if he has been a non-resident in India in nine out of 10 previous years preceding that year; or has during the seven previous years preceding that year been in India for a period of, or periods amounting to 729 days or less. As an RNOR (resident but not ordinarily resident), a returning NRI needs to pay tax in India only on his Indian income. His income outside India will not be taxed in India. Interest earned on FCNR bank account will not be taxed until maturity, and the same will apply to resident foreign currency (RFC) accounts. After that the person reverts to filing tax as resident and ordinarily resident (ROR) and his global income also gets taxed in India. A person can file tax as RNOR for a maximum of three years.

As an RNOR (resident but not ordinarily resident), a returning NRI needs to pay tax in India only on his Indian income. His income outside India will not be taxed in India.

Which income is taxable?

An NRI should go by the rule that any income that arises or accrues in India, or is deemed to arise or accrue in India, will be taxed in this country. If an NRI receives his salary income in an account in India, he will have to pay tax on it in India. If he renders services in India, even in that case his salary income will be taxed here. Rental income earned from housing property in India and capital gains arising from the sale of an asset situated in India will also be taxed here, as will capital gains on investments and interest earned from bank accounts in India. NRIs can hold three types of accounts–NRO, NRE and FCNR. Of these the interest income from NRO account is taxable.

NRIs can hold three types of accounts–NRO, NRE and FCNR. Of these the interest income from NRO account is taxable.

When does filing return become compulsory?

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NRIs have to file tax return if their gross income in India (before making any deduction) exceeds the basic exemption limit of Rs. 2.5 lakh. They don’t get the benefit of a higher exemption limit based on age, as resident Indians get.

In case TDS has been deducted on an NRI’s income but his gross total income is less than Rs. 2.5 lakh (in which case he is not liable to pay any tax), he must file tax return to claim a refund from the tax department. E-filing is compulsory for claiming refund. Returns must also be filed to carry forward a loss.

NRIs have to file tax return if their gross income in India (before making any deduction) exceeds the basic exemption limit of Rs. 2.5 lakh. They don’t get the benefit of a higher exemption limit based on age, as resident Indians get. In case TDS has been deducted on an NRI’s income but his gross total income is less than Rs. 2.5 lakh (in which case he is not liable to pay any tax), he must file tax return to claim a refund from the tax department.

When is filing of return not required?

If in a given financial year an NRI’s income consists only of investment earnings and/or capital gain from the sale of an asset, he need not file tax return, provided TDS has been deducted on those earnings and gains.

NRIs should, however, remember that an annual information report (AIR) is filed for investments in real estate, mutual funds, bonds, amongst other items, which the IT Department uses to trigger a tax notice. Hence, it is advisable to file a tax return even if your income is below the exemption limit in case you have engaged in high value transactions. Short-term capital gains also do not get the benefit of the exemption limit on income, and hence you should file tax return if you have these gains.

Procedure for tax filing

In case an NRI’s taxable income exceeds Rs. 5 lakh in the previous year, he will have to e-file his income tax return. In case his income is less than the above limit, he also has the option to file the return of income in paper form.

In case an NRI’s taxable income exceeds Rs. 5 lakh in the previous year, he will have to e-file his income tax return. In case his income is less than the above limit, he also has the option to file the return of income in paper form.

The return of income can be filed online through the income tax web sites www.income taxindiaefiling.gov.in or www.incometaxindia.gov.in. He may also take the help of a  professional tax advisor. An NRI may file his return with his digital signature. If he does not have a digital signature, he needs to print ITR-V, which is an acknowledgement that return has been filed online, sign it and send it by ordinary or speed post to the Central Processing Cell, Bangalore. The last date for filing tax returns is usually 31 July.

Avail the benefit of DTAA

Double Taxation Avoidance Agreement (DTAA) is a bilateral agreement entered into between the governments of two countries in order to avoid taxation of the same income twice. Under the Income Tax Act, 1961, NRIs are subject to tax deduction at source (TDS). However, if the NRI is a tax resident of a country with which India has entered into a DTAA, then the provisions of the IT Act or the DTAA, whichever is more beneficial to the NRI, will apply. Even if an income is taxable under the IT Act, if the DTAA provides relief from taxation on that income or provides for a lower rate of taxation, the provisions of the DTAA will prevail. For instance, in case of interest income from bank, TDS as per IT Act is 30.9%, whereas the rate under DTAA with most countries is 15%. By opting for the DTAA rate, an NRI can reduce his tax burden.

To claim the benefit of DTAA, an NRI needs to furnish the TRC (tax residency certificate) of the country where he is a tax resident. The TRC should contain his name and address, status, nationality, tax identification number, residential status for tax purposes and the period for which the certificate is valid. You can’t avail of DTAA unless you provide the TRC and a declaration in Form 10F. To avoid TDS being cut at a higher rate (say, on your bank interest income) and for the DTAA rate to apply, you need to submit a TRC in advance to your bank.

Even if an income is taxable under the IT Act, if the DTAA provides relief from taxation on that income or provides for a lower rate of taxation, the provisions of the DTAA will prevail. For instance, in case of interest income from bank, TDS as per IT Act is 30.9%, whereas the rate under DTAA with most countries is 15%. By opting for the DTAA rate, an NRI can reduce his tax burden. To claim the benefit of DTAA, an NRI needs to furnish the TRC (tax residency certificate) of the country where he is a tax resident.

 

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