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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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  1. Budget focussed on job creation, transfer of benefits of demonetisation, good fiscal management & risks to the economy
  2. Structural changes in budget- merger of rail budget, movement of date to February 1, merger of plan & non plan expenditure, certainly different
  3. India largely a tax non compliant nation, as can be seen by the number of tax payers. Not very good news.
  4. Tax rates cut in tax slab of Rs 2.5 lakhs to 5 lakhs by 5%. Benefits of upto Rs 12500 as a result. Income of 50lakhs+ hit by 10% surcharge. Positive for many, negative for some.
  5. Corporate tax rates cut for Micro, Small and Medium Enterprises with turnover up to Rs 50 crores to 25%. Huge benefits to corporatize for smaller businesses. No changes in corporate tax rates.
  6. Innovative political funding options – electoral bonds announced. Big step towards poll funding reform.
  7. Capital gains on immovable property – long term reduced to 2 years holding instead of 3 years. Base year for indexation also changes to 2001.
  8. New web based system for defence pensioners
  9. Draft bill to curtail illegal deposit schemes could boost flows to other financial assets
  10. High speed fibre connectivity to be available in more gram panchayats – augurs well for the new digital India
  11. To simplify labour laws – would this increase India’s ranking in ease of doing business
  12. Desire to move from an informal to a formal economy, bodes well for listed companies longer term. GST 1st step.
  13. Higher oil & commodity prices, deglobulisation/protectionism & higher US interest rates risk to India
  14. Inflation management & lower current account deficit bodes well for the rupee & Indian bonds. Will stable oil prices allow it to continue?
  15. Lower interest rates driven by transmission of rate cuts are a short term positive of demonetisation. Time to refinance your home loan.
  16. Cash transactions limit now at Rs 3 Lakhs. Penal provisions for transactions above that value equivalent to the value of the transaction.
  17. 133 Kilometres per day of road construction and use of technology to better target social spending / MNREGA excellent news
  18. 100% electrification for villages by 2018 has huge multiplier benefits for the economy combined with enhanced road construction
  19. Affordable housing gets infrastructural status & additional benefits. Step towards boosting employment, possibly India’s biggest challenge?
  20. E-learning platform Swayam could change the way Indian youth learns going forward. Testing &certification will need to be combined
  21. Focus on creativity and innovation most welcome in skilling and reskilling – new solutions a must to tackle old challenges.
  22. Aadhar based medical records for senior citizen – great news.
  23. LIC to issue guaranteed 8% pa for 10 years product operationalising PM year end speech
  24. Digital Money gets significant attention – Aadhar pay, BHIM, changes in negotiable instrument act, payment regulatory board.
  25. Airport redevelopment was one of the most visible successes on infra. Railways follow in its footsteps- station upgrades on way
  26. Multimodal transport focus goes back to Keynesian theory in spurring job creation. Execution done right is critical
  27. Consolidation and merger benefits of CPSEs to leverage synergies is a great idea. Starting with a large oil company model?
  28. CPSEs divestment to continue, IRCTC, IRCON to be listed , will continue to use ETF, propose a new ETF on same lines
  29. Another CPSE in offering! Needs to be truly diversified so that commodity related & concentration risks are adequately addressed
  30. New laws to confiscate assets of economic offenders could help – details will be closely awaited
  31. Fiscal deficit at 3.2% of GDP with 3% next year a relief, with the Fiscal Responsibility and Budget Management committee flexibility to be addressed in the future.
  32. Low Tax to GDP ratios- very low profits for companies of different sizes. Individual data no different. Use of data mining could change it.
  33. Foreign Investment Promotion Board abolishment sends a strong message of liberalization. Look out for details. Automatic route needs to be truly automatic.
  34. Theme = Transform, energise and clean India

 

 

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A large number of NRIs do not file taxes, as they live overseas and therefore believe that there is no need. However, there are two major situations when NRIs should file returns in India. Firstly, if the income earned in India exceeds the maximum permissible limit as basic exemption. At this point, the maximum exemption limit is Rs. 250,000. Incomes like salary arising from services provided in India, income from house property, capital gains arising from sale of property in India, income from deposits held in India will be taxable in India. Secondly, they should be filed to claim return if deducted tax is more than what was payable, so that you can claim a refund.

There are two major situations when NRIs should file returns in India. Firstly, if the income earned in India exceeds the maximum permissible limit as basic exemption. At this point, the maximum exemption limit is Rs. 250,000. Incomes like salary arising from services provided in India, income from house property, capital gains arising from sale of property in India, income from deposits held in India will be taxable in India. Secondly, they should be filed to claim return if deducted tax is more than what was payable, so that you can claim a refund.

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A lot of NRIs are unaware of the fact that in order to track expenses and investments above a certain threshold for all individuals – residents or NRIs, Annual Information Reports (AIRs) have to be filed by various entities in India like banks, Mutual funds,  bond issuers, registrars for real estate purchases above a certain value, amongst other transactions. Therefore, you could get a notice due to these reasons if your name appears in an AIR and you are not filing tax returns. Whilst this may not mean that taxes are due, you will need to respond to the notice, which can be rather challenging if you are out of the country. Thus, it is advisable to have your taxes in India in order.

If you are a tax resident in geographies where you may be able to take tax advantage of the double taxation avoidance treaty between India and that country, you must take advantage of that. If you sell direct equity/stocks, short term capital gain applicable is 15%. The long term capital gain on sale of direct equity is Nil ie for equities held over 1 year. NRIs have to trade through a broker if they wish to invest in direct equities. They can trade only on delivery basis and intraday trades are not allowed. They have to open a Portfolio Investment Scheme (PIS) account where their trades get reported within 24 hours.

If you are a tax resident in geographies where you may be able to take tax advantage of the double taxation avoidance treaty between India and that country, you must take advantage of that.

Debt and Equity Mutual Fundshave different tax rules. For equity Mutual funds the tax rate applicable is 15% for holding period of less than 12 months and for holding period of greater than 12 months it is Nil. Non equity mutual funds ie debt funds, gold funds, are taxed like real estate ie the tax rate for a holding period of less than 36 months is as per the marginal rate. If you hold them for a period greater than 36 months a long term capital gain tax rate of 20% with indexation is applicable .

If you are looking at investment options to save for your retirement goal then New Pension Scheme is an option you can look at. NRIs are allowed to invest in NPS.

NPS is useful for NRIs living in Middle Eastern countries, since they do not have mandatory social security benefits in their countries of residence unlike many other geographies. NRIs own contribution is eligible for tax deduction u/s 80CCD (1) of income tax act up to 10% of gross income with overall ceiling of Rs. 1.50 lakhs u/s 80CCE of income tax act.From FY 201516investors are allowed tax deduction of additional Rs. 50,000 under 80CCD1(B).

NRIs wishingto invest in FDs can look at Foreign Currency Non Resident ( FCNR) deposits. It is in the form of a fixed Term deposit account denominated in foregin currencies. In this case NRIs can park overseas income as foreign currency in India without having toconvert it to Indian Rupees. The rates on these deposits depend on tenure of investment and the currency in which you park your funds. Principal and interest are fully repatriable. For NRIs interest is not taxable in India. However, they could be taxed in the country of residence of the NRI, for example in the US. Similar is the case with NRE accounts.

A resident foreign currency account (RFC) account can be used by NRIs who are returning back to settle in India, to park overseas income as foreign currency in India without having to convert them into rupees. Funds are fully repatriable and can be transferred from RFC to NRE and vice versa. Interest earned on RFC account will be exempt from income tax as long as you are Resident but not ordinary resident (RNOR).

Image credit: www.taxinsightworld.com

 

 

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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.

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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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The Goods and Services Tax is one of the biggest reform agendas of the BJP government. The Finance Minister has indicated that it can raise India’s GDP by one to two per cent per annum, which is very substantial. So what really is GST and how does it work?

Why GST?

Currently, indirect taxes are imposed on goods and services. In the current system, taxes applicable to the manufacturing sector are Central Excise Duty, Value Added Tax( VAT), Central Sales Tax and a range of cesses. Other taxes like Entry Tax, Octroi, State cesses ,etc. are also applicable. For the services sector, service tax and cesses are applicable. Some of these taxes are levied by the centre and some by the states. For taxes imposed by states, the tax rates may vary across different states. Further, goods and services were taxed differently, thereby making the taxation of products complex. Some of these challenges are sought to be overcome with the introduction of the Goods and Services Tax (GST).

How much will the GST rate be?

This is currently yet to be decided. As per a survey by a leading tax firm, the top 10 tax rates across the globe range from 18 per cent to 27 per cent. Thus, the choice on the rate of the GST is fairly important, as in a services driven economy, a high GST rate could cause inflation initially, resulting in interest rates once again starting to rise, which could be negative for bonds. It is therefore critical for the GST rate to be set in a manner where the significant efforts of both the government and the RBI to control inflation are not negatively impacted as a result of a high GST rate. In addition, there could be challenges around the implementation due to the plethora of taxes involved, and it could take a couple of years before the benefits are completely visible.

Of course, with respect to businesses, since we have a very complex tax structure in India, it makes it difficult for businesses as they are expected to fulfill multiple legal obligations. GST will simplify the process as a result reducing the operating cost which can be passed on to consumers. This could be beneficial for equity investors, once the teething challenges are addressed.

 Impact on certain sectors

Initially, GST may not apply to: (a) petroleum crude, (b) high speed diesel, (c) motor spirit (petrol), (d) natural gas, and (e) aviation turbine fuel. The GST Council will decide when GST will be levied on them.

GST implementation may have an impact on certain sectors. Auto sector could benefit from reduction in duties on large SUVs and cars as GST rate is likely to be lower than the present excise plus VAT rate. There could also be lower entertainment taxes. This may lead to increase in margins of companies in the entertainment industry. In the telecom sector increase in service tax will be passed on to the consumers.

Let’s take a look at impact of GST to a home buyer. Service tax is applicable on under-construction property. This is so because, in case of an under-construction property, the developer is deemed to be the provider of construction services to the home buyer, and hence service tax is charged on the cost of construction. It is not charged on the entire value of the property but only to the extent of cost of construction. This means that cost of land is excluded.

Besides the basic cost of the unit, a home buyer also has to pay additional charges for facilities such as preferential location, car parking, club membership, rain water harvesting and others. All these are subject to service tax, which could see an increase due to the introduction of GST instead at a higher rate than the current rate of service tax.

Moreover, if one has taken a loan to buy the property then service tax relating to loan processing fees and home insurance are applicable. With respect to stamp duty on immovable property there is no clarity up till now.

With the implementation of GST, there could be uniformity in prices of gold all over the country. Right now taxes like Octroi and VAT are applicable which differ from state to state. This standardization will make consumers in some states pay more than they were paying before and vice versa.

All in all, it does seem like GST could be great news for the Indian economy and Indian equity markets in the longer term, but could trigger higher inflation and higher costs for services, including real estate in the shorter term.

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