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Insurance Planning

50% discount on health insurance for families with girl child

medical insurance family

50% discount on family floater if you have girl child

The country’s largest general insurance company, New India Assurance, on the eve of International Women’s Day launched a special health insurance scheme for families with girl child.

The scheme ‘New India Asha Kiran’ is a floater policy offered to the entire family, but restricted to families with girl children.

The policy gives 50 per cent discount for the girl children. Further, in case of accident to parents, the sum insured will be placed as fixed deposit in the name of the girl children. Sum assured offered are Rs 2 lakh, Rs 3 lakh, Rs 5 lakh and Rs 8 lakh. As a family floater policy, it covers immediate family including the proposer, spouse and dependent girl children.

This health insurance policy also has daily cash benefit on hospitalization, critical care benefit up to 10 per cent sum insured and reimbursement of emergency ambulance charges.

The company also announced health policies with added benefits for women that are being sold through a tie-up with the all women bank “Bharatiya Mahila Bank”.

Speaking on the occasion, Chairman and Managing Director of New India Assurance G. Srinivasan said “We have launched this product, specially designed for families with only girl children, on the occasion of International Women’s Day. This product is reasonably priced as discounts are offered for insuring girl children”.

Other health insurance policies that have been launched with Bharatiya Mahila Bank, especially for women, include BMB Saki, which is targeted at lower income group women, and BMB Nirbhaya for women in higher income groups. One unique feature of these policies is that they include maternity benefit.

The company has posted a 36 % rise in net profit at Rs 701 crore in the third quarter ended December 31, 2013 from Rs 517 crore in the same period last year.

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Importance of appointing nominee and RBI guidelines on claims

nomination in bank accounts

Why nomination is important

Nomination is an ideal tool to mitigate hardships of common persons in settlement of claims in the event of death of the account holder. Though Nomination is optional for customers, if availed, would ensure smooth settlement of claim to the nominee or the legal heir. It simplifies the procedure for settlement of claims of deceased depositors as banks / institutions get a valid discharge by making payment of the balance outstanding in a depositor’s account at the time of his death or delivering contents of locker or articles kept in safe custody to the nominee, and the legal heir doesn’t have to face unnecessary hardship in such cases.

However, nomination does not take away the rights of legal heirs on the estate of the deceased. The nominee would be receiving such stock as a trustee of the legal heirs.

What is Nomination :

Nomination is a facility that enables a deposit account holder (individual or sole proprietor) or safe deposit locker holder to nominate an individual, who can claim the proceeds of the deposit account or contents of the safe deposit locker, post the demise of the original depositor or locker holder.

Who can Nominate?

  • Bank account holders having deposit accounts in their individual names or in joint names of two or more individuals can appoint a nominee to their accounts
  • A sole proprietor can appoint a nominee to the sole proprietorship account with the bank
  • In the case of a deposit account in the name of a minor, nomination shall be made by a person lawfully entitled to act on behalf of the minor in respect of a deposit account
  • Safe deposit locker holder(s) can appoint nominee(s) on their Safe deposit locker(s)
  • A nomination can be made only in respect of a deposit account which is held in the individual capacity of the depositor, and not in any representative capacity such as the holder of an office like Director of a Company, Secretary of an Association, partner of a firm, or Karta of an HUF.

Nomination in PPF Accounts :

In case of death of the account holder, irrespective of the sum outstanding in the account, the legal heirs will get a maximum of Rs 1,00,000 only if there is no nominee mentioned in that PPF account. So it is imperative to have nominee mentioned in your PPF account. However, you cannot nominate for accounts opened in the name of a minor.

Nomination in Life Insurance Policies:

Because of the Principal of Insurable Interest in Life Insurance, do ensure that the nominee is a close family member. In case you want to nominate a non-family member like a friend or third party, you will have to provide enough evidence to the insurance company that there is some insurable interest for the person. A policyholder can appoint multiple nominees and can also specify their shares in the policy proceeds. You can appoint minors also as nominee, but make sure to provide the name of guardian till the minor attains the age of 18.

Nomination in Mutual Fund Accounts:

You can nominate up to three people, who can be registered at the time of purchasing the units in Mutual Funds. Nomination in mutual funds is at folio level and all units in the folio will be transferred to the nominee(s). If an investor makes a further investment in the same folio, the nomination is applicable to the new units also.

Concept of Survivorship

A joint account opened as “Either or Survivor” or “Anyone or Survivors” or “Former or Survivor” or “Latter or Survivor” will permit the surviving account holder(s) to have unimpeded access to the credit balance in the account for withdrawal if one of the co-account holders dies. If the mandate of survivorship is given / provided, the survivor(s) can give a valid discharge to the institution / bank in the case of “Either or Survivor” / “Anyone or Survivors” and “Former or Survivor” / “Latter or Survivor” joint accounts. In short, payment to survivor(s) can be made in the normal course subject to the only rider that there is no order from a competent court restraining from making such payment.

Delays in settlement of claims of the nominee / legal heirs of the deceased depositors by banks cause considerable hardship. Claims by legal heirs / nominee could be in respect of deposits, safe custody articles or contents of lockers. In the absence of nomination or clear mandate in respect of a joint account or a will left behind by the deceased depositor, banks are required to pay the stock (balance outstanding) at the time of death of the person to all the legal heirs. Considering the risk involved, banks traditionally used to look for legal representation (in the form of a succession certificate, letter of administration or probate) for settlement of claims.

In order to remove the hardships faced by Common Person, Reserve Bank of India (RBI), vide circular No. DBOD.No.Leg.BC.95 /09.07.005/2004-05, has issued detailed guidelines for evolving simplified procedure for settlement of claims in respect of deceased depositors. We can broadly define these guidelines as:

1… Accounts where the Survivor / Nominee is available:

In the case of deposit accounts where the depositor had utilized the nomination facility and made a valid nomination or where the account was opened with the survivorship clause (‘either or survivor’, or ‘anyone or survivor’, or ‘former or survivor’ or ‘latter or survivor’), the payment of the balance in the deposit account to the survivor(s) / nominee of a deceased deposit account holder represents a valid discharge of the bank’s liability provided :

a. the bank has exercised due care and caution in establishing the identity of the survivor(s) / nominee and the fact of death of the account holder, through appropriate documentary evidence;
b. there is no order from the competent court restraining the bank from making the payment from the account of the deceased; and
c. it has been made clear to the survivor(s) / nominee that he would be receiving the payment from the bank as a trustee of the legal heirs of the deceased depositor, i.e., such payment to him shall not affect the right or claim which any person may have against the survivor(s) / nominee to whom the payment is made.

It may be noted that since payment made to the survivor(s) / nominee, subject to the foregoing conditions, would constitute a full discharge of the bank’s liability, insistence on production of legal representation is superfluous and unwarranted and only serves to cause entirely avoidable inconvenience to the survivor(s) / nominee and would, therefore, invite serious supervisory disapproval. In such case, therefore, while making payment to the survivor(s) / nominee of the deceased depositor, the banks are advised to desist from insisting on production of succession certificate, letter of administration or probate, etc., or obtain any bond of indemnity or surety from the survivor(s)/nominee, irrespective of the amount standing to the credit of the deceased account holder.

General practice among banks :

Banks generally asks for the following documentation

  • Application
  • Copy of the death certificate issued by the Municipal Authority or Village Panchayat
  • Identification documents of the nominee such as valid Election ID Card, PAN Card or Passport or any other satisfactory proof of identification as acceptable to the concerned bank

The bank generally make the payment to the nominee unless on or before the time of payment any order of court is received prohibiting the bank from making such payment.

2… Accounts where the Survivor / Nominee is not available:

In case where the deceased depositor had not made any nomination or for the accounts other than those styled as ‘either or survivor’ (such as single or jointly operated accounts), banks are advised to adopt a simplified procedure for repayment to legal heir(s) of the depositor keeping in view the imperative need to avoid inconvenience and undue hardship to the common person. In this context, banks may, keeping in view their risk management systems, fix a minimum threshold limit, for the balance in the account of the deceased depositors, up to which claims in respect of the deceased depositors could be settled without insisting on production of any documentation other than a letter of indemnity.

General practice among banks :

Banks generally define a threshold limit for releasing the sum, and ask for the following documentation

  • Application
  • Copy of the death certificate issued by the Municipal Authority or Village Panchayat
  • Indemnity – with or without surety
  • Identification documents of the nominee such as valid Election ID Card, PAN Card or Passport or any other satisfactory proof of identification as acceptable to the concerned bank

For cases beyond the threshold limit some additional documents may be asked :

  • A Succession Certificate
  • A Probate (in case of a Will)
  • A Letter of Administration

3… Premature Termination of term deposit accounts :

In the case of term deposits, banks are advised to incorporate a clause in the account opening form itself to the effect that in the event of the death of the depositor, premature termination of term deposits would be allowed. The conditions subject to which such premature withdrawal would be permitted may also be specified in the account opening form. Such premature withdrawal would not attract any penal charge.

4… Treatment of flows in the name of the deceased depositor :

In order to avoid hardship to the survivor(s) / nominee of a deposit account, banks are advised to obtain appropriate agreement / authorization from the survivor(s) / nominee with regard to the treatment of pipeline flows in the name of the deceased account holder. In this regard, banks could consider adopting either of the following two approaches:

  • The bank could be authorized by the survivor(s) / nominee of a deceased account holder to open an account styled as ‘Estate of Shri ________________, the Deceased’ where all the pipeline flows in the name of the deceased account holder could be allowed to be credited, provided no withdrawals are made.

OR

  • The bank could be authorized by the survivor(s) / nominee to return the pipeline flows to the remitter with the remark ‘Account holder deceased’ and to intimate the survivor(s) / nominee accordingly. The survivor(s) / nominee / legal heir(s) could then approach the remitter to effect payment through a negotiable instrument.

5… Access to the safe deposit lockers / safe custody articles :

For dealing with the requests from the nominee(s) of the deceased locker-hirer / depositors of the safe-custody articles (where such a nomination had been made) or by the survivor(s) of the deceased (where the locker / safe custody article was accessible under the survivorship clause), for access to the contents of the locker / safe custody article on the death of a locker hirer / depositor of the article, the banks are advised to adopt generally the foregoing approach, mutatis mutandis, as indicated for the deposit accounts.

6… Death of Karta in a HUF account :

In case death of the Karta of a HUF account, the banks generally seek a confirmation from the existing members on whether they will be continuing with the HUF. In case they are, then a revised HUF declaration signed by the remaining co-parceners appointing the Karta is obtained. In case not, then the relevant documents relating to partition of the property should be obtained before co-parceners are allowed to withdraw the funds.

7… Time limit for settlement of claims :

Banks are advised to settle the claims in respect of deceased depositors and release payments to survivor(s) / nominee(s) within a period not exceeding 15 days from the date of receipt of the claim subject to the production of proof of death of the depositor and suitable identification of the claim(s), to the bank’s satisfaction.

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Your insurance policies are set to change

insurance policies

New guidelines for Insurance policies

You will soon be offered new insurance policies with added benefits. IRDA has mandated some key changes in the insurance policies for the benefit of policyholders. The new guidelines will offer better life insurance cover, better surrender values and improved disclosures. All the 24 insurance companies (including LIC) have to withdraw all existing products and come out with new ones.

Old policies, where the contract had already been made, will continue to get renewed. However, at the time of renewal of group policy, the insurer will have to give the policyholder an option to switch to the modified version. In case the policyholder does not switch to the new modified policy, the insurance company will have to take a written consent that the policyholder will continue with the old policy.

Though the deadline to roll out new policies was 1st October, IRDA has extended the date to 1st January’ 2014, except for the insurance products which offer highest NAV, or are indexed linked. You may be curious to know the new guidelines for the insurance policies. As per new guidelines issued by IRDA, all new insurance products will be divided into three broad categories —

• Traditional
• Variable
• Unit-linked

Traditional Products: The earlier versions of traditional insurance products, viz. participating and non-participating would continue. Henceforth, all traditional products will have a higher death cover. Regular paying premium policies will have a cover of 10 times the annualised premium paid for people with an age of less than 45 years and 7 times for others.

Bonus for participating policies will be linked to the performance of the fund and is not declared or guaranteed in advance. However, in case of non-participating policies, the return in the policy is to be disclosed in the beginning.

Unit-linked Products : Due to various charges in the insurance policy, the investment growth gets reduced. Now the insurers have to inform policyholders about such reduction in the yield of their products on a monthly basis. Further an annual certificate has to be issued, mentioning the premiums paid and the charges, including the tax, deducted from the fund value.

Variable Products : All variable insurance plans will guarantee a minimum rate of return at the beginning of the policy. Variable insurance products will be treated at par with Unit-linked Products, including charge structure and the commission package as applicable for Unit-linked Products. Agents of such policies will get commission of up to 10% only.

Commission Structure : As per new guidelines, commissions will be linked to the premium paying period for all products and will be less for policies with shorter tenure. Single premium-non pension products will earn commission of up to 2% of the premium paid. In case of regular premium paying insurance policies, a policy with a premium paying term of up to 5 years, will earn a commission of up to 15% in first year and 7.5% in second and third year. Subsequent years will earn up to 5% of commission in such policies. For premium paying term of more than 12 years, commission can be up to 35% (for companies older than 10 years) and 40% (for companies not older than 10 years).

Lock-in period / Surrender : For Unit-linked Products, the lock-in period will continue to be five consecutive years from the date of commencement of the policy. In case of Unit-linked and Variable insurance products, the maximum surrender charge will be Rs.6,000 in the first year, tapering off to Rs.2,000 in the fourth year and becoming nil fifth year onwards Further, except in the case of death or any other contingency covered under the policy during this five year period, the proceeds of discontinued policies cannot be paid to the insured.

Based on the premium paying term, all individual non-linked life insurance and pension policies will have a minimum surrender value. The policy shall acquire a guaranteed surrender value, if all the premiums have been paid for at least three consecutive years for products with a premium paying term of 10 years or more. Similarly, for products with a premium term of less than 10 years, if all premiums have been paid for at least two consecutive years, the policy shall acquire a guaranteed surrender value of any subsisting bonus.

For pension products, the insurer has to offer insurance cover throughout the deferment period or offer riders. In all such pension products, the sum of all rider premiums attached to the pension product cannot exceed 15% of the premium paid. Such rider premiums will be separately accounted for and cannot be included in arriving at the assured benefit.

Revival of policies : To revive a discontinued policy, the insurer will collect all due and unpaid premiums without charging any interest or fee. However, the insurer can levy policy administration and premium allocation charges and any guarantee charge, if such a guarantee is reinstated.

For policies that have not completed two years of revival period at the end of the lock-in, the insurer will have to take written consent from the policyholder to revive the policy immediately or within the two-year period.

Health insurance : Now, all health insurance products, except for customised products, would be renewable for life-time. All new individual health insurance policies, except those with tenure of less than a year, will have a free-look period and this will be applicable at the inception of the policy. Also, cumulative bonus will not be allowed on benefit-based policies with the exception of personal accident cover. Insurers now have to settle claims within a period of 30 days from the receipt of all documents.

Health insurance providers will have to provide coverage to non-allopathic treatments also. But to avail of the cover, the policyholder will have to get the treatment done in a government hospital or in any institute recognised by the government or any accredited institute by the Quality Council of India or the National Accredition Board on Health. In case of claim, no-claim bonus can be reduced proportionately, but cannot be made zero.

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Understanding Financial Planning and the key areas of a Financial Plan

Financial Planning

Financial Planning

A life without goals is really not worthy.

Goals may include worldly things like buying a home, saving for your child’s education or marriage or planning for retirement or even planning a vacation. In order to accomplish these goals, a proper planning and management of your money is required.

Thus Financial planning is the process of meeting your life goals through proper management of your finances.

Globally, money environment has witnessed a sea change in the last few years. Gone are the days when there were limited investment options and investors did not have much to plan on their investments and generally, bank managers, accountants, share broker and insurance agents generally provided advice on investment to individuals. Most of it is restricted to recommending you one particular product, more often from their own parent company or is guided by their targets or commission.

But now we have multiple choices. This has added complexity to the decision-making process about our money. And thus more and more people are now turning to professional financial planner for a comprehensive roadmap on financial planning to achieve their all money related goals. A financial planner in essence, assist them to make informed decisions about their money and how it can be used to best advantage.

Financial planning essentially involves the following steps:

1. Assessment: The first step is to assess the financial position with the help of personal financial balance sheets and income statements. A personal balance sheet includes personal assets such as investments in various financial instruments, including bank, cash, property etc. The balance sheet also includes personal liabilities, which includes all the loans, credit card balance, any other liabilities.

2. Defining goals: As explained earlier goals may include worldly things like buying a home, saving for your child’s education or marriage or planning for retirement or even planning a vacation. One must also define objective and time frame of goals.

3. Making financial plan: The financial plan gives you  the structure and clear cut roadmap to achieve  your goals. A financial plan includes the investments you can make (with whatever existing fund and income sources), their expected yields, your current and expected future income and expenses. It also helps you visit your current investments and help you take a decision on whether to keep them or replace them with more secure / better yielding asset. It also help you look at the current expenses and how they might impact your financial goals.

4. Execution: An effective execution of  personal financial plan can help you achieve your financial goals. Your financial planner plays a very crucial role in helping you execute the plan.

5. Monitoring: You must take help of your financial planner to monitor your financial health and the effectiveness of the investments you have made. It is essential to monitor on a regular basis as the micro and macro economic changes might ask you to take a look into your current financial health.

Some of the key areas that a well drafted Financial Plan must include are:

a) Current financial position: This can be ascertained with the help of making a net worth statement that includes your assets and liabilities.

b) Emergency fund: Emergence fund helps you meet your emergency expenses. A reasonable amount of money which may be calculated depending on the your current lifestyle, family, flow of income.

c) Risk and Protection planning: Risks in the context of financial planning can be divided into liability (loans etc.), property (fire, theft etc.), death (loss of income to your dependents) , disability and health (medical emergencies). Lets look at the generally heard life insurance. Different people buy life insurance for different reasons, but most of us have a need for it at some point in our lives. The type we need, the amount we need, and the reasons why we need it may change; but it definitely plays a vital role in most financial plans. Here are some reasons why people purchase life insurance:

To Pay off debts
Life insurance can be an inexpensive way to make sure there is ready cash to cover any financial obligations (Loans etc.) you leave behind.

Replace your income for your family
It helps to cover the uncertainties in our life. It helps your Children to complete their education, your wife to take care of the household expenses, your dependent parents to live their life comfortably in case you are not with them.

Tax planning ( u/s 80 C )
Many people use life insurance as part of tax planning strategy designed to potentially reduce taxes.

One must choose his insurance plan with utmost care. The choices available are:

  • Term Insurance
  •  Endowment
  •  Whole Life Insurance
  •  Medical Insurance (Regular)
  •  Critical Illness
  •  Accidental and Permanent Disability
  •  Key Person Insurance
  •  Employee Benefit

Other Key Insurance requirement includes :

  •  Vehicle Insurance
  •  House Insurance
  •  Factory Insurance
  •  Travel Insurance
  •  Professional Indemnity

Determining how much insurance to get, at the most cost effective terms will help you get better value for money.

d) Investment planning: What rate of return do you need to meet your goals? Are your current investments achieving the return? What is the best asset allocation (Mutual Fund, FD’s, Bullion, Cash, Insurance, PF, Bonds, Property etc.) suited to your profile. What investments opportunities do you use to implement this asset mix? What shall be the best Mutual Fund, FD and other such investments are suited to your needs?

Their is no definite answer to all these. It all depends on person to person. You may have a different risk profile, life goals, time horizon, and current portfolio than that of your friend.

e) Tax planning: Tax Planning essentially means using a strategy to either reduce or shift your current tax liabilities. Even Government allows and encourages tax saving to us. Tax planning saves you your hard earned money. And avoids last minute rush to put your money into investments such as u/s 80C. And other sections also you ample opportunity to save you your taxes.

There are investments that are totally exempted from Tax on their profit. And some get concessional tax treatment, which means they are taxed at a lower rate. It also benefits if you meticulously define out in whose name in the family to invest, so as to reduce the tax liability, if any. A salaried person can also reduce its Tax liability by various means. Lets look at some of the tax saving instruments :

U/s 80C
Public Provident Fund. Maximum amount is s. 70000/- in a year
Employee Provident Fund
National Saving Certificates
Kisan Vikas Patra
Insurance Policies
ELSS
Tax saving FDs
New pension schemes
Senior citizen saving scheme
Children Tuition fee
Repayment of housing loan (Principal)

U/s 80CCF
Specified Infrastructure bonds upto Rs. 20000/-

U/s 80D
Premium paid for mediclaim insurance for individual Rs. 15000/- and another Rs. 20000/- if paid for parents who are senior citizens

U/s 80DD
Expenditure on handicapped dependents from Rs. 50000/- to Rs. 100000/- depending on the severity

U/s 80DDB
Expenditure incurred on specified diseases or ailments

U/s 80E
Interest paid on higher education loan

U/S 24(1)(Vi)
Interest paid on housing loans

f) Retirement Planning: Old Age typically brings income Insecurity, dependency on children, medical expenses, but most of the people are generally not worried about their old age and retirement.  Let’s start tackling the how of retirement planning by asking the No.1 retirement question: “How much money do I need at the time of my retirement’’ ?

The answer to this question contains some good news and some bad news. First, the bad news: There really is no single number that would guarantee everyone an adequate retirement. It depends on many factors, including your desired standard of living, your expenses (including any medical costs) and your target retirement age. Now for the good news: It’s entirely possible to determine a reasonable number for your own retirement needs. All it involves is answering a few questions and doing some number crunching. Providing you plan ahead and estimate on the conservative side, it’s entirely possible for you to accumulate a nest egg sufficient to last you through your golden years. There are several key tasks you need to complete before you can determine what size of nest egg you’ll need in order to fund your retirement. These include the following:

Decide the age at which you want to retire.
Decide the annual income you’ll need for your retirement years. It may be wise to estimate on the high end for this number. Generally speaking, it’s reasonable to assume you’ll need about 70% – 80% of your current annual salary in order to maintain your current standard of living.
Determine a realistic annualized real rate of return (net of inflation) on your investments. Conservatively assume inflation will be 6-7 % annually.
A realistic rate of return would be 7 -10%. Again, estimate on the low end to be on the safe side.

g) Estate planning: Estate Planning essentially includes having a succession plan in place, so that your dependents, other family members and the people you love must know how your assets be distributed in an unfortunate event of you being no more in this world. If a person dies without a will or trust, known as dying intestate, he / she generally leaves heirs confused or fighting over who gets what from their assets.
In order to have a good succession plan in place, one must consider the following :
• Decide whether you need will or living trust!
Both are part of estate planning. A Will act as a guide on distribution of assets. Living trust is generally safer and let your assets be distributed in a cost effective manner and without the hassle of probate of will. You can have a living trust that allows you manage your assets during your life. And after your demise these assets are then passed on to your beneficiaries. Trusts are more helpful when you have valuable properties and / or a complex successor tree. Having both will and trust is a better idea in certain cases.

Who shall be the beneficiaries
• If your children are still very young then who shall be their guardian
• Who shall be the best person to execute your will or act as successor trustee
• Assignment of medical power of attorney
You must take inventory of all your assets, which includes your
• Immovable and movable property
• Financial assets such as shares, bonds, insurance policies
• Business interests
After you have taken the stock of all your assets, name the beneficiaries to whom you wish to pass on your assets. You can make changes in your will any time; make sure to add details of the old will to avoid any ambiguity. You must also review your succession plan regularly, especially if you there is a change in your marital status or a new baby is born.

Determining how much insurance to get, at the most cost effective terms will help you get better value for money.

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Investments options available in India for NRIs and PIOs

Investment options available for NRIs

Investment options for NRIs

More and more NRI’s (Non Resident Indians) and PIOs (Person of Indian Origins) are investing in India in order to get higher returns on their investments as compared to the country they are living in. And the Government of India has also made it easy for NRIs and PIOs to invest in India. NRIs and PIOs are permitted to open bank accounts in India out of funds remitted from abroad, foreign exchange brought in from abroad or out of funds legitimately due to them in India, with authorized dealer.

What are the different types of accounts which can be maintained by an NRI/PIO in India?

If a person is NRI or PIO, she/he can, without the permission from the Reserve Bank of India (RBI), open, hold and maintain the different types of accounts given below with an ‘Authorised Dealer’ in India, i.e. a bank authorised to deal in foreign exchangeNRO Savings accounts can also be maintained with the Post Offices in India. However, individuals/ entities of Bangladesh and Pakistan require prior approval of the Reserve Bank of India.

Types of accounts which can be maintained by an NRI / PIO in India :

A. Non-Resident Ordinary Rupee Account (NRO Account)

NRO accounts may be opened / maintained in the form of current, savings, recurring or fixed deposit accounts.

● Savings Account – Normally maintained for crediting legitimate dues /earnings / income such as dividends, interest etc. Banks are free to determine the interest rates.

●  Term Deposits – Banks are free to determine the interest rates. However, theycannot be higher than those offered by them on comparable domestic rupee deposits.

● Account should be denominated in Indian Rupees.

● Permissible credits to NRO account are transfers from rupee accounts of non-resident banks, remittances received in permitted currency from outside India through normal banking channels, permitted currency tendered by account holder during his temporary visit to India, legitimate dues in India of the account holder like current income like rent, dividend, pension, interest, etc., sale proceeds of assets including immovable property acquired out of rupee/foreign currency funds or by way of legacy/ inheritance.

● Eligible debits such as all local payments in rupees including payments for investments as specified by the Reserve Bank and remittance outside India of current income like rent, dividend, pension, interest, etc., net of applicable taxes, of the account holder.

● NRI/PIO may remit from the balances held in NRO account an amount not exceeding USD one million per financial year, subject to payment of applicable taxes.

● The limit of USD 1 million per financial year includes sale proceeds of immovable properties held by NRIs/PIOs.

● The accounts may be held jointly with residents and / or with non-resident Indian.

● The NRO account holder may opt for nomination facility.

● NRO (current/savings) account can also be opened by a foreign national of non-Indian origin visiting India, with funds remitted from outside India through banking channel or by sale of foreign exchange brought by him to India.

● Loans to non-resident account holders and to third parties may be granted in Rupees by Authorized Dealer / bank against the security of fixed deposits subject to certain terms and conditions.

B. Non-Resident (External) Rupee Account (NRE Account)

● NRE account may be in the form of savings, current, recurring or fixed deposit accounts. Such accounts can be opened only by the non-resident himself and not through the holder of the power of attorney.

● NRIs as defined in Notification No. FEMA 5/2000-RB dated May 3, 2000 may be permitted to open NRE account with their resident close relatives (relative as defined in Section 6 of the Companies Act, 1956) on ‘former or survivor ‘ basis.  The resident close relative shall be eligible to operate the account as a Power of Attorney holder in accordance with the extant instructions during the life time of the NRI/PIO account holder.

● Account will be maintained in Indian Rupees.

● Balances held in the NRE account are freely repatriable.

● Accrued interest income and balances held in NRE accounts are exempt from Income tax and Wealth tax, respectively.

● Authorised dealers/authorised banks may at their discretion/commercial judgement allow for a period of not more than two weeks, overdrawings in NRE savings bank accounts, up to a limit of Rs.50,000 subject to the condition that such overdrawings together with the interest payable thereon are cleared/repaid within a period of two weeks, out of inward remittances through normal banking channels or by transfer of funds from other NRE/FCNR accounts.

● Savings – Banks are free to determine the interest rates.

 Term deposits – Banks are free to determine the interest rates of term deposits of maturity of one year and above. Interest rates offered by banks on NRE deposits cannot be higher than those offered by them on comparable domestic rupee deposits.

● Permissible credits to NRE account are inward remittance to India in permitted currency, proceeds of account payee cheques, demand drafts / bankers’ cheques, issued against encashment of foreign currency, where the instruments issued to the NRE account holder are supported by encashment certificate issued by AD Category-I / Category-II, transfers from other NRE / FCNR accounts, sale proceeds of FDI investments, interest accruing on the funds held in such accounts, interest on Government securities/dividends on units of mutual funds purchased by debit to the NRE/FCNR(B) account of the holder, certain types of refunds, etc.

● Eligible debits are local disbursements, transfer to other NRE / FCNR accounts of person eligible to open such accounts, remittance outside India, investments in shares / securities/commercial paper of an Indian company, etc.

● Loans up to Rs.100 lakh can be extended against security of funds held in NRE Account either to the depositors or third parties.

● Such accounts can be operated through power of attorney in favour of residents for the limited purpose of withdrawal of local payments or remittances through normal banking channels to the account holder himself.

C. Foreign Currency Non Resident (Bank) Account – FCNR (B) Account

● FCNR (B) accounts are only in the form of term deposits of 1 to 5 years

● All debits / credits permissible in respect of NRE accounts, including credit of sale proceeds of FDI investments, are permissible in FCNR (B) accounts also.

● Account can be in any freely convertible currency.

● Loans up to Rs.100 lakh can be extended against security of funds held in FCNR (B) deposit either to the depositors or third parties.

● The interest rates are stipulated by the Department of Banking Operations and Development, Reserve Bank of India. In respect of FCNR (B) deposits of all maturities contracted effective from the close of business in India as on November 23, 2011, interest shall be paid within the ceiling rate of LIBOR/SWAP rates plus 125 basis points for the respective currency/corresponding maturities (as against LIBOR/SWAP rates plus 100 basis points effective from close of business on November 15, 2008). On floating rate deposits, interest shall be paid within the ceiling of SWAP rates for the respective currency/maturity plus 125 basis points. For floating rate deposits, the interest reset period shall be six months.

● When an account holder becomes a person resident in India, deposits may be allowed to continue till maturity at the contracted rate of interest, if so desired by him.

● NRI can open joint account with a resident close relative (relative as defined in Section 6 of the Companies Act, 1956) on former or survivor basis. The resident close relative will be eligible to operate the account as a Power of Attorney holder in accordance with extant instructions during the life time of the NRI/ PIO account holder.

Can an individual resident Indian borrow money from his close relative outside India ?

Yes, an individual resident Indian can borrow sum not exceeding USD 250,000 or its equivalent from his close relatives staying outside India, subject to the conditions that:

  1. the minimum maturity period of the loan is one year;
  2. the loan is free of interest; and
  3. the amount of loan is received by inward remittance in free foreign exchange through normal banking channels or by debit to the NRE/FCNR(B) account of the NRI.

Can an individual resident lend money to his close relative NRI / PIO?

Yes, an individual resident can lend money by way of crossed cheque /electronic transfer within the overall limit of USD 200,000 per financial year under the Liberalised Remittance Scheme, to meet the borrower’s personal or business requirements in India, subject to conditions. The loan should be interest free and have a maturity of minimum one year and cannot be remitted outside India.

Can an individual resident repay loans of close relative NRIs to banks in India?

Yes, where an authorised dealer in India has granted loan to a non-resident Indian such loans may also be repaid by resident close relative (relative as defined in Section 6 of the Companies Act, 1956), of the Non-Resident Indian by crediting the borrower’s loan account through the bank account of such relative.

What are the other facilities available to NRIs / PIO?

A. Investment facilities for NRIs :

NRI may, without limit, purchase on repatriation basis:

● Government dated securities / Treasury bills

● Units of domestic mutual funds;

● Bonds issued by a public sector undertaking (PSU) in India.

● Non-convertible debentures of a company incorporated in India.

● Perpetual debt instruments and debt capital instruments issued by banks in India.

● Shares in Public Sector Enterprises being dis-invested by the Government of India, provided the purchase is in accordance with the terms and conditions stipulated in the notice inviting bids.

● Shares and convertible debentures of Indian companies under the FDI scheme (including automatic route & FIPB), subject to the terms and conditions specified in Schedule 1 to the FEMA Notification No. 20/2000- RB dated May 3, 2000, as amended from time to time.

● Shares and convertible debentures of Indian companies through stock exchange under Portfolio Investment Scheme, subject to the terms and conditions specified in Schedule 3 to the FEMA Notification No. 20/2000- RB dated May 3, 2000, as amended from time to time.

NRI may, without limit, purchase on non-repatriation basis :

● Government dated securities / Treasury bills

● Units of domestic mutual funds

● Units of Money Market Mutual Funds

● National Plan/Savings Certificates

● Non-convertible debentures of a company incorporated in India

● Shares and convertible debentures of Indian companies through stock exchange under Portfolio Investment Scheme, subject to the terms and conditions specified in Schedules 3 and 4 to the FEMA Notification No. 20/2000- RB dated May 3, 2000, as amended from time to time.

● Exchange traded derivative contracts approved by the SEBI, from time to time, out of INR funds held in India on non-­repatriable basis, subject to the limits prescribed by the SEBI.

Note : NRIs are not permitted to invest in small savings or Public Provident Fund (PPF).

B. Investment in Immovable Property

● NRI / PIO / Foreign National, who is a person resident in India (citizen of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal and Bhutan would require prior approval of the Reserve Bank of India), may acquire immovable property in India other than agricultural land/ plantation property or a farm house out of repatriable and / or non-repatriable funds.

● The payment of purchase price, if any, should be made out of

(i) funds received in India through normal banking channels by way of inward remittance from any place outside India or

(ii) funds held in any non-resident account maintained in accordance with the provisions of the Act and the regulations made by the Reserve Bank of India.

Note : No payment of purchase price for acquisition of immovable property shall be made either by traveller’s cheque or by foreign currency notes or by other mode other than those specifically permitted as above.

● NRI may acquire any immovable property in India other than agricultural land / farm house plantation property, by way of gift from a person resident in India or from a person resident outside India who is a citizen of India or from a person of Indian origin resident outside India

● NRI may acquire any immovable property in India by way of inheritance from a person resident outside India who had acquired such property in accordance with the provisions of the foreign exchange law in force at the time of acquisition by him or the provisions of these Regulations or from a person resident in India

● After the purchase is made, it is required to file a declaration in form IPI 7 with the Central Office of Reserve Bank at Mumbai within a period of 90 days from the date of purchase of immovable property or final payment of purchase consideration along with a certified copy of the document evidencing the transaction and bank certificate regarding the consideration paid.

● An NRI may transfer any immovable property in India to a person resident in India.

● NRI may transfer any immovable property other than agricultural or plantation property or farm house to a person resident outside India who is a citizen of India or to a person of Indian origin resident outside India.

In respect of such investments, NRIs are eligible to repatriate:

● The sale proceeds of immovable property in India if the property was acquired out of foreign exchange sources i.e. remitted through normal banking channels / by debit to NRE / FCNR (B) account.

● The amount to be repatriated should not exceed the amount paid for the property in foreign exchange received through normal banking channel or by debit to NRE account (foreign currency equivalent, as on the date of payment) or debit to FCNR (B) account.

● In the event of sale of immovable property, other than agricultural land / farm house / plantation property in India, by a person resident outside India who is a citizen of India  / PIO, the repatriation of sale proceeds is restricted to not more than two residential properties subject to certain conditions. The balance amount of sale proceeds if any or sale proceeds in respect of properties purchased prior to 26th May 1993, will have to be credited to the ordinary non resident rupee account of the owner of the property. Applications for necessary permission for remittance of sale proceeds should be made in form IPI 8 to the Central Office of Reserve Bank at Mumbai within 90 days of the sale of the property.

● If the property was acquired out of Rupee sources, NRI or PIO may remit an amount up to USD one million per financial year out of the balances held in the NRO account (inclusive of sale proceeds of assets acquired by way of inheritance or settlement), for all the bonafide purposes to the satisfaction of the Authorized Dealer bank and subject to tax compliance.

● Refund of (a) application / earnest money / purchase consideration made by house-building agencies/seller on account of non-allotment of flats / plots and (b) cancellation of booking/deals for purchase of residential/commercial properties, together with interest, net of taxes, provided original payment is made out of NRE/FCNR (B) account/inward remittances.

Repayment of Housing Loan of NRI / PIOs by close relatives of the borrower in India

Housing Loan in rupees availed of by NRIs/ PIOs from ADs / Housing Financial Institutions in India can be repaid by the close relatives in India of the borrower.

C. Investment under the Portfolio Investment Scheme (PIS)

NRIs and PIOs are permitted purchase or sale of equity shares / CCPS / CCDs of Indian companies listed on Indian stock exchanges through a registered broker, subject to the following conditions:

● The total paid-up value of shares or convertible debentures purchased by an NRI both on a repatriation and non-repatriation basis does not exceed 5% of the paid-up value of the Indian company’s shares

● The aggregate paid-up value of shares or convertible debentures purchased by all NRIs in the Indian company does not exceed 10% of the paid-up value of the Indian company. The ceiling of 10% can be raised to 24% through a special resolution.

The sale proceeds of equity shares / CCPS / CCDs are permitted to be credited by the NRI to:

● His / her NRO account where the purchase was made out of the funds held in his Non Resident ordinary (NRO) account or where the purchase was on non-repatriation basis

● His / her NRE/FCNR/NRO account where the purchase was on a repatriation basis.

D. Facilities to returning NRIs/PIOs

● Returning NRIs/PIOs may continue to hold, own, transfer or invest in foreign currency, foreign security or any immovable property situated outside India, if such currency, security or property was acquired, held or owned when resident outside India

● The income and sale proceeds of assets held abroad need not be repatriated.

Foreign Currency Account

● A person resident in India who has gone abroad for studies or who is on a visit to a foreign country may open, hold and maintain a Foreign Currency Account with a bank outside India during his stay outside India, provided that on his return to India, the balance in the account is repatriated to India. However, short visits to India by the student who has gone abroad for studies, before completion of his studies, shall not be treated as his return to India.

● A person resident in India who has gone out of India to participate in an exhibition/trade fair outside India may open, hold and maintain a Foreign Currency Account with a bank outside India for crediting the sale proceeds of goods on display in the exhibition/trade fair. However, the balance in the account is repatriated to India through normal banking channels within a period of one month from the date of closure of the exhibition/trade fair.

Resident Foreign Currency Account

● Returning NRIs /PIOs may open, hold and maintain with an authorised dealer in India a Resident Foreign Currency (RFC) Account to transfer balances held in NRE/FCNR(B) accounts.

● Proceeds of assets held outside India at the time of return can be credited to RFC account.

● The funds in RFC accounts are free from all restrictions regarding utilisation of foreign currency balances including any restriction on investment in any form outside India.

● RFC accounts can be maintained in the form of current or savings or term deposit accounts, where the account holder is an individual and in the form of current or term deposits in all other cases.

RFC accounts are permitted to be held jointly with the resident close relative(s) as defined in the Companies Act, 1956 as joint holder (s) in their RFC bank account on ‘former or survivor basis’. However, such resident Indian close relative, now being made eligible to become joint account holder shall not be eligible to operate the account during the life time of the resident account holder.

General facilities

Can Exchange Earners Foreign Currency (EEFC) accounts be held jointly with a -resident Indian?

Yes, EEFC account of a resident individual can be held jointly with a resident close relative on a ‘former or survivor’ basis.

However, such resident Indian close relative will not be eligible to operate the account during the life time of the resident account holder.

Can a resident individual holding a savings bank account include nonresident close relative as a joint account holder?

Yes, individuals resident in India are permitted to include non-resident close relative(s) as a joint holder(s) in their resident bank accounts on ‘former or survivor’ basis. However, such non- resident Indian close relatives shall not be eligible to operate the account during the life time of the resident account holder.

Can a resident individual gift shares/securities/convertible debentures etc to NRI close relative?

Yes, a resident individual is permitted to gift shares/securities/convertible debentures etc to NRI close relative up to USD 50,000 per financial year subject to certain conditions.

Can a resident individual give rupee gifts to his visiting NRI/PIO close relatives?

Yes, a resident individual can give rupee gifts to his visiting NRI/PIO close relatives by way of crossed cheque/electronic transfer within the overall limit of USD 200,000 per financial year for the resident individual and the gifted amount should be credited to the beneficiary’s NRO account.

What types of services can be provided by a resident individual to his / her nonresident close relatives?

A resident may make payment in rupees towards meeting expenses on account of boarding, lodging and services related thereto or travel to and from and within India of a person resident outside India who is on a visit to India. Further, where the medical expenses in respect of NRI close relative are paid by a resident individual, such a payment being in the nature of a resident to resident transaction may also be covered under the term “services”.

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Guidelines on Health Insurance (mediclaim) policies regarding claim, NCB, entry age and portability

mediclaim policies

Medical Insurance Guidelines

Some new important guidelines issued by the insurance regulator will benefit many who have taken a health insurance policy. The regulator has announced in its Health Insurance Regulations, 2013 notification that:

1.. No claim Bonus:

In an event of filing a claim, the ‘no claim bonus’ accrued in a health (mediclaim) policy should not become zero. Instead the cumulative bonus accrued may be reduced at the same rate at which was accrued. The insurers may offer cumulative bonuses on indemnity based health insurance policies, which has to be stated explicitly in the policy document. Cumulative bonus  shall not be allowed on benefit based policies.

It will also help an insured person to file a low value claim as the loss of no claim bonus will not be lost completely. At the same time, insurance companies will now be more reluctance to offer ‘No Claim Bonus’ feature in their policies.

Lets take an example. An insured has a health insurance (mediclaim) policy of Rs. 5,00,000/- for last 10 years and has never taken a claim. He is getting a 5% ‘No Claim Bonus’ every year and has accumulated an additional 50% NCB , i.e., a sum of Rs. 2,50,000/- as bonus in all these years. He gets ill in 11th year and files a claim of Rs. 50,000/-. In such case the policyholder would lose all the NCB accrued under the policy. However, as per the new guidelines, having a claim in 11th year will only reduce his NCB from 50% to 45%.

 2.. Claim in overlapping policy period:

If a claim is filed in two overlapping policy periods, it will get the benefit of available sum insured in both of those two policy periods, including the deductibles for each policy period. However, such eligible claim payable to the policyholder shall be reduced to the extent of premium to be received for the renewal of such policy in the overlapping second year.

Lets take an example. An insured has a policy with a sum insured of Rs. 5,00,000/- which is due for renewal on 16th June 2013. This insured person falls ill on 10th June, stays in hospital till 25th June and his total hospitalisation bills comes to Rs. 6,00,000/-. In such case the insured will get Rs. 5,00,000/- from the year before 15th June 2013 and Rs. 1,00,000 from the policy period starting 16th June 2013, subject to other sub-limits imposed by the contract. If the insured has not paid the premium for this new policy period, then it will be deducted from his claim amount.

3… TPA not to settle claim:

Another important guideline ensures that only insurer will settle the claim and not the TPA. Role of a TPA has been restricted to only processing of claim and not its settlement.

4.. Entry age to be not less than 65 years

All health insurance policies shall ordinarily provide for an entry age of at least up to 65 years.

5.. Renewal of policy:

A Insurer shall not deny the renewal of a health insurance policy on the ground that the insured had made a claim, except for the benefit based policies where the policy terminates following payment of benefit covered under the policy.

Further it is advised by the regulator that the insurer shall provide a mechanism to condone a delay in renewal up to 30 days from the due date of renewal without deeming such condonation as a break in the policy.

6.. Claim in 30 days:

An insurer shall settle claims, including is rejection, within 30 days of the receipt of last ‘necessary’ document.

Further it is expected that the insurer shall ensure that all the documents required for claim processing are called for at one time and shall not call for the documents in the piece meal manner.

Insurer may stipulate a period within which all necessary claim documents should be furnished by the policyholder / insured to make a claim. However, claims filed even beyond such period should be considered if there are valid reasons for any delay.

7.. Portability of health insurance policies:

A policyholder desirous of porting his policy to another insurance company shall apply to such insurance company, to port the entire policy along with all the members of the family, if any, at least 45 days before the premium renewal date of his / her existing policy. And insurer may not be liable to offer portability if policyholder fails to approach the new insurer at least 45 days before the premium renewal date.

where the outcome of the acceptance of portability is still waiting from the new insurer on the date of renewal, the existing policy shall be allowed to extend, if requested by the policyholder, for the short period by accepting a pro-rate premium for such short period, which shall be of at least one month.

And if for any reason the insured intends to continue the policy further with the existing insurer, it shall be allowed to continue by charging a regular premium and without imposing any new condition.

The portability shall be applicable to the sum insured under the previous policy and also to an enhanced sum insured, if requested by the insured, to the extent of the cumulative bonus acquired from the previous insurer. For example, if a insured had a sum insured of Rs. 2,00,000/- and an accrued bonus of Rs. 50,000/- with insurer A; when he shifts to the insurer B and the proposal is accepted, insurer B has to offer him sum insured of Rs. 2,50,000/- by charging the premium applicable for Rs. 2,50,000/-. If insured demands the sum insured of more than Rs. 2,50,000/-, portability would be available only upto Rs. 2,50,000/-.

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Budget 2013 — Highlights for you

simplifying budget 2013

budget 2013

Want to know in brief about the budget 2013. Here are the highlights of the budget in simple words.

1.. Income Tax Slab : There is no change in the Tax slab. However an individual with an income of Rs. 5,00,000 will get a tax credit of Rs. 2000/-. Thus if your net tax payable is Rs 10,000, your liability will be limited to Rs 8,000 only. In other words, if your income is less than Rs. 5,00,000, your basic threshold limit for tax trigger now effectively stands at Rs. 2,20,000/-.

2.. Earning more than 1 cr. : If you are those lucky 42,800 tax payers in India, who are earning more than rupees one crore, then you will have to pay an additional one time surcharge of 10% for the FY 2013-2014. This will be in addition to the education cess paid on total income-tax.

The impact of surcharge will be contained by marginal relief, which means that the surcharge can not be in excess of income that exceeds Rs. 1 cr. Thus if your taxable income is Rs.1,00,05,000, your total tax liability will increase by Rs.5,000 only and not Rs. 2,90,000.

3.. Interest on home loan: If you take a housing loan of a maximum Rs 25 lakh this year, you can claim an additional tax break of Rs 1 lakh on interest payment. This is in over and above the current limit of Rs 1.5 lakh. But it is subject to the following conditions:

a) The amount of loan sanctioned for acquisition of the residential house property must not exceed Rs. 25 lakh.

b) The value of the residential house property must not exceed Rs. 40 lakh.

c) Loan should be obtained from bank / home finance institution and must be sanctioned during the period beginning 1st April, 2013 and ending on 31st March, 2014.

d) The assessee should not own any other residential house property on the date of sanction of the loan.

e) If the interest payable is less than Rs. 1 lakh, the balance amount can be allowed in next assessment year.

4.. Rajiv Gandhi Equity Saving Scheme (RGESS): Now an individual with an income of up to Rs. 12 lakh can invest in Rajiv Gandhi Equity Saving Scheme (RGESS). Earlier only those with income of Rs 10 lakh and less could invest in the scheme. This scheme is available to the new retail investor who acquires listed equity shares / equity oriented mutual funds in accordance with the scheme.

It is further proposed to provide deduction for three consecutive years, beginning with the year in which the listed equity shares or listed units were first acquired by the new retail investor.

5.. Tax free bonds: You can soon look forward to more tax-free bonds. The finance minister has permitted some institutions to issue tax free bonds in 2013-14 for up to Rs 50,000 cr. Some institutions are expected come with tax free bonds soon.

6.. Inflation indexed bonds: And if you are worried about the inflation eating into your savings, then their is a good news for you too. There shall be a an announcement soon on “Inflation Indexed Bonds” and “Inflation Indexed National Security Certificates”.

7.. Fewer hassles to buy life insurance: Finance minister has also made it clear that ‘know your client’ (KYC) requirement once fulfilled for a bank, are enough to buy an insurance policy. Such a KYC compliant individual need not go through another such process conducted by insurance company.

Banks are also allowed to act as an insurance broker. Now banks can sell insurance of multiple insurance companies, instead of just one company. This further increases number of options for customers and help them move ahead in the financial world.

8.. TDS on transfer of immovable properties:  FM has proposed that every transferee / purchaser, at the time of making payment or crediting of any sum as consideration for transfer of immovable property (other than agricultural land) to a resident seller, shall deduct tax, at the rate of 1% of such sum. This amendment will take effect from 1st June’ 2013

9.. Securities transaction tax: It has been proposed to reduce Securities Transaction Tax (STT) for certain transactions such as equity futures on recognized stock exchanges (from 0.017% to 0.01%), redemption of equity-oriented mutual fund units (from 0.25% to 0.001%) and sale of equity-oriented mutual fund units on recognized stock exchanges (from 0.1% to 0.001%). STT of 0.1% levied on the purchaser of equity-oriented mutual fund units on stock exchange is also abolished.

And if you are a derivative trader in commodities market, you have to pay CTT at the same rate applicable to equity futures. There was no CTT earlier.

10.. Custom duty on luxury Cars: Basic customs duty on new passenger cars and other motor vehicles (high-end cars) costing more than US $ 40,000 and / or engine capacity exceeding 3,000 cc for petrol run vehicles and exceeding 2500 cc for diesel run vehicles has been hiked to 100 % from 75 % earlier.

Import duty on motorcycles above 800 cc will also go up from 60% to 75%. Duty on sports utility vehicles has also been increased from 27 % to 30 %, excluding those used for commercial purposes. Likewise, duty on yachts and similar vessels has also been raised to 25 % from 10 % earlier.

11.. Importing Gold:  Duty-free limit on imported jewellery raised to Rs 50,000 in the case of a male passenger and Rs 100,000 in the case of a female passenger.

12.. DDT on mutual funds: FM has proposed to increase dividend distribution tax (DDT) on debt fund investments for retail investors from 12.5% to 25%.
DDT is the tax that debt mutual funds pay on the dividend income that has to be distributed to its investors. Liquid funds now pay a DDT of 25% (exclusive of surcharge and cess). All other types of debt funds pay 12.5% (exclusive of surcharge and cess) on income distributed to retail investors.
According to the budget proposals for the year starting 1 April, DDT paid by all types of debt funds (liquid funds and other debt MFs) to retail investors will be 25%.

13.. Bank for women: India will start its first bank exclusively for women by October 2013. The government will provide initial capital of Rs.1,000 crore to get the venture going. It will lend mostly to women entrepreneurs, women self-help groups. and will employ predominantly women.

14.. Others:

a) Mobiles costing more than Rs. 2000 will get slightly expensive as the duty has been increased from 1% to 6%.
b) Increase on tax of payments by way of royalty from 10 % to 25 %.
c) Concessional rate of tax at 15 % for an Indian company on income received from its foreign subsidiary.
d) Increase in specific excise duty on cigarettes, cigars will make them a little costlier.
e) Set top boxes – Import duty increased – 5% to 10%.
f) Service tax will not be levied on A/C restaurants that do not serve liquor.
g) Investor with stake of 10 % or less will be treated as FII; any stake more than 10 % will be treated as FDI.
h) Fiscal deficit for current fiscal estimated at 5.2%.
i) GDP growth for 2013-14 seen at 4.8%.
J) Increased allocation in defence to Rs 2.03 lakh crore in FY 14.

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How to survive in these uncertain times

uncertain financial markets

how to survive in these uncertain times

Everyone is worried about their money and wondering what to do with their money and investments in these uncertain times when there are inflationary pressures, economic gloom and choppy equity markets. Global markets are hostage to political actions (remember Greece) as well as facing its own structural headwinds from deleveraging. Sensex is down on concerns about global growth, rising local debt, fiscal and current account deficits, high inflation ranging 8-9% and slowing GDP. Policy paralysis at the government level is now talk of the town and, more recently, the INR has declined and is now trading at its historical lows. High salaries are becoming hard to justify and Job promotions are held up. And now Fitch Ratings cut its credit outlook for India to negative from stable, nearly two months after rival Standard & Poor’s made a similar call, citing risks that India’s growth outlook could deteriorate.

Concerns are genuine, but we must ensure that we do not panic and survive these times. We need to review our portfolio, revisit our strategies and plan our future course of action.

Lets look at the areas where your money is parked right now and how you can prevent loosing it.

1.. Equity based mutual funds

Investment in Equity and Mutual Funds must always be for the long time. The markets at this juncture could loose another 20% or gain another 20% in 2012-2013. Stick with funds that have high Sharpe ratio. Avoid sector funds. It is advisable to invest in diversified large cap. Mid cap will be more volatile in next one year and might take more beating if the markets fall. Though they are also the one who might get you better returns if the market rise from here, yet might want to wait for some time to get into these.

One common mistake investors do is to invest in mutual funds that were on the top last year. Getting a couple of percentage points more last year is not much of a consolation if the gains of the last three to 5 years get are not up to the mark. Look at the consistent performers, even if they are not on the top always.

Investors who are investing through SIP should continue with it. That allows them to buy more units at lower NAV and thus average out their purchase price. If you do not want to take any risk than invest in an income fund and regularly transfer a fixed smaller amount to an equity fund.

2.. Debt funds

You are loosing money here also. With high inflation the real rate of returns in some cases is even negative. And now fund houses such as SBI, JP Morgan and Principal have either introduced or have increased exit loads ranging between 0.15 – 0.5% on early exits on fixed income funds.

Study the type of debt fund you have. It is likely to be primarily based on the time duration where you have ultra short term funds, short term funds, income funds (for long duration) or the dynamic bond funds, which can go across duration. While investment in equities are advisable for the long time, you must choose investment in debt funds as per the time horizon and underlying objective.

Funds holding a portfolio of bonds with longer maturities see more price fluctuations due to the change in interest rates with the underlying portfolio suffering the most on mark-to-market valuation. This can be seen in the performance of debt funds wherein long-term debt and gilt funds have shown relative underperformance compared with their short-term counterparts.

The rising interest rates augured well for debt investments that offered fixed maturities, considering these are held until maturity and do not bear any mark-to-market risk. That was the reason fixed maturity plans have been in the reckoning of late due to their investment in fixed-income instruments such as certificates of deposit, the rate on which has moved up to almost 10% from 5% last year. Since these funds invest into deposits maturing in line with the investment horizon of the fund, there is no mark-to-market risk involved.

We can expect the benchmark rates to gradually start coming down, thus the market rates will also come down. That will have an impact more on the short term interest rates than the long term rates. So the strategy should be to stay invested, have a short term kind of scheme maturing in the next two to three years rather than a long term scheme of say 6-10 years.

3.. Equity Market

Indian markets have performed badly compared to its peer in Asia and emerging markets. S&P and Fitch have cut down Indian ratings and GDP estimates, inflation is still a concern and IIP data is disappointing, FY11-12 Q4 results were moderate with continuing weak margins. Rupee has depreciated and FIIs have sold heavily. The elections in Greece came in favour of the markets, but the renewed fears over Spain’s increasing borrowing costs due to the rise in the bond yield is again keeping the markets worried

Looking at sectors, banks are under pressure because of falttish rate environment, steady margins, poor asset quality and rising credit costs. IT industry though looking positive in long term is unlikely to spark in 2012. Though unlikely, if the inflation falls at a fast rate and rates are lowered than expected this year, it might have a positive impact on infrastructure, auto and construction sector.

All these will ensure that the markets will remain volatile for some time now. However, there is silver lining here. The current market conditions give ample opportunity to stack up bluechip companies with strong fundamentals and attractive valuations. Do not look at timing the market. Start picking up stocks value at current levels. Sell those stocks which has management issues or where the competition, with in the industry, is performing well but this particular company has continuing difficulty in keeping up with the competition.

4.. Bank FD and other Fixed Income

Due to high inflation real rate of return in some cases was either very poor or was in negative. The steady increase of rates has been halted. We might see some rate cut in the coming months, if not sooner as indicated by the RBI. Thus stay invested if you have invested at the higher rates because you might not get these rates soon.

If you have no exposure to these instruments, start looking for the best rates available and park some funds for longer duration. Avoid callable bonds and NCDs as once interest rates fall, they wont give you the returns that you are enjoying today. Also avoid floating rate bonds where again the interest rates are likely to come down in the coming year.

5.. Unit Linked Insurance policies (ULIP)

Insurance are for a long time. Even though your agent told you about how you can withdraw your money in 3 to 5 years, it is never advisable. Most ULIPs have a load structure where charges are deducted in the first 2-3 years of the policy and it takes a little while before you can see the value of your fund going up. Treat these ULIPs as your friend for life. Keep investing for the entire period with an objective of using this money as Retirement Fund and marriage or education fund for your children. Besides the insurance cover that you are getting. But do not withdraw or surrender your policy, even if the agent ask you to do so repeatedly. If your policy has a feature of systematic transfer plan (STP), then utilize the same.

If you are thinking of buying a fresh ULIP for you or your kid, then look at online term plans. They come real cheap and get you bigger insurance cover at a low price, while invest the amount systematically into other various asset class to build up a target corpus.

6.. Precious Metal

Trading at almost Rs. 30,400 per 10 gm, Gold has broken its previous records in the Indian Market. After hitting Rs. 75,000, silver has been trading in the range of Rs. 53,000 to Rs. 55,000 for quiet some time now. European crisis, choppy market and depreciating rupee has made investors run towards Gold. It is a good asset class, especially when there are uncertainties in the market.

It is advisable that you continue holding on to Gold and Silver. But in case you wish to invest further into it than invest only if you are looking at only one year horizon or if you do not have sufficient investments in the Gold. Silver has always been volatile, but is looking attractive at these levels. Invest in Silver only if you can withstand the volatility and stay invested for a long time. If you are concerned about the purity, ease of buying/selling and safety of holding gold in physical form then you can look at investment in the e-gold from National Spot Exchange (NSEL) or a Gold ETF.

7.. Real Estate

You have been waiting for the loan rates to come down before you invest in the property, whereas property prices at most places are steadily moving upward. If you have been delaying your decision than it was of worth no use.

Invest in property before it reaches out of your current budget. There will never be a right time or the best price. Even at today’s rate you will find that you had invested at a good value. The properties prices are unlikely to come down, unless we see real worse economic situation. Look at smaller or even studio apartments if you have budget constraints. Go for home loan. But see your monthly income and expenses before deciding on your loan amount. It must not put unnecessary burden on you. Loan will save you taxes on principal as well as on interest payment. Look at the builders and projects which have the track record of delivering in promised time.

8.. Loans

If you have surplus or can manage for a little while than go for repayment of loan. Even partial repayment of loan shall do. After a little while you will find the RBI softening the rates. Consider migrating to the lender who will offer you loans at lower rate at that time. If you are buying a car, evaluate leasing as an alternate option. Though the decision to lease or buy will always depend on your personal circumstances. If your objective is to get rid of annoying little car payments and you actually want to take ownership, buying a car may be the best option. However, if your goal is to have a new car every few years and also minimize your monthly costs, then leasing a car may be a good option.

Lessons to be learnt

Firstly never panic. And must not take any decision in haste. Study your investments well before signing on the dotted lines. Understand the risks associated with the asset class. There must also be enough flexibility so as to move in and out of the same, in case you have to. Have some buffer, especially if the goals are short term.

Always have a balanced portfolio. Look at your risk appetite. And spread your risk over various class of assets. Even in the same asset class never put your entire eggs in one basket. Revisit your portfolio at regular intervals. Exit those investments that have gone wrong or are not in sync with market or your goals. For example, if you are invested in equities and have a long term goal, stay invested even if the markets are down for some time, subject to the companies you are invested in are fundamentally strong. Rather than selling or waiting for markets to move up, invest when the markets are down.

Encash the opportunities. Explore the cheaper or better options available and migrate from the existing ones. Like if the FD rates are high switch from the older ones. And when rates soften, migrate from the higher loans.

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Are you a HNI and lost your money because of your RM

Where should a hni invest

are you a HNI and loosing money because of your relationship manager

HNIs are the most sought after by private bankers, wealth managers and stock brokers as they offer an average of more than Rs. 5 crores of fund. Portfolio management services (PMS) offered by brokers aim to give returns which are generally 4-5% higher than the benchmark. Wealth managers or private bankers promise to invest across asset classes. Often they package their schemes with fancy named structured products.

Take a typical example that you see quiet often. A presentation is made to you by a smart executive. You are convinced that your money is going to a big name in the market. Forms are signed. Power of attorney (POA), that allows the company to go ahead and invest on behalf of you and not wait for your approval, are given. When the going is good everybody makes money. You are treated to lavish dinners and cocktail parties. As the trust shapes up, profits are made, more and more cheques are signed. Meanwhile you are sold a big insurance policy and are persuaded for investment in a upcoming real estate project as well. And before you know you have already made huge investments.

And suddenly the market crashes. Your Wealth manager or Relationship manager calls you up and ask you not to worry. You are convinced somehow that you are in safe hands. The first loss happens and it seems to be big. More than by how much the market has crashed. You pick up the statement and realize that most of your money was either in the small and mid cap, or even worse, was being used in futures and options.

Well you thought its time to wake up and confront your RM. He comes and tell you that you will still make profit as now they will adopt another strategy which exploits the arbitrage opportunities in market or may be another strategy called straddle, that allows them to cover positions at both ends i.e. if the market goes down or goes up. You have no option but to say yes, go ahead but keep you informed regularly.

You make a little profit two months and suddenly suffer another loss in subsequent months. The answer to the loss this time is the market was very volatile and moved suddenly beyond the range. Or a new hi tech software in the market did not let them encash enough arbitrage opportunities. You tell your RM to stop trading. And he comes with yet new strategy. Invest in Gold. He called it gold-linked debentures.

The objective again is to match the performance of physical gold but keep your money safe of any downside. You tell yourself gold is the safest option. Let’s go ahead with this. Almost 80% of the money is invested in a fixed income product in such a way that on maturity the invested part, let us say 80%, and the plus they get on the interest equals that of the principal. That makes your money safe. The rest 20% or so is put in gold. But not in physical gold. It goes again in derivatives. This time it is gold future. And you realize later this again is a sham.

By now you know that these structured products are nothing but different strategies, often so complex that you do not even think of knowing how it actually works, and what if the market does not perform up to the expectations, which is more often than not. Promises that were made to you, that your capital is always protected and there is no way you can suffer any loss, was nothing but a plain lie.

You close your account with this company or bank. You are sad with your losses running into a few lakhs or maybe even a few crores, but you can manage. Your RM moves on. He / She is still getting his or her salary along with the bonuses that were made by playing your money in these products. Infact your RM even got a job promotion because of you. Its time you learn from your mistakes. Remember the following points:

1.. You must not just sign any paper or POA before reading it yourself. We agree time is more important to you. But the money you will save will be the money you earn.

2.. Understand the risks, capital protection, charges. Do not rely only on the RM. Call for a meeting with more than two senior managers and directors. Ask for past records of products and schemes in writing. After all you are giving away your hard earned money and big money!!

3.. Cross check about the management and the products with their competition. You are most likely to get more insight into the product.

4.. Subscribe to sms alerts of all the transactions, even if they disturb you daily. You can check them while visiting loo.

5.. Re-look at the privileges. The more they are. The more dinners you are taken out. The more it is going to cost you, without you knowing it. Remember, there are no free lunches.

6.. Learn from the mistakes of others as well. As it happened with Citibank where one of its employee produced an alleged SEBI endorsement of an investment product to win over clients. No regulatory body endorses any individual scheme or these kind of structured product. One can simply check at their website.

7.. These schemes or fancy structured products are more riskier than any of the conventional way of investing. Know your risk profile. Work out the time frame. Have a well balanced asset allocation. Diversify your portfolio and review it regularly.

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Plan your Retirement Pension Fund

After you retire from your normal work life, the regular flow of income stops. But the expenses drop marginally. With inflation hovering at an average of 8% and the cost of basic essentials increasing every other day, your savings as of today might not be sufficient to take care of all your expenses after you retire. It is therefore important that you start saving early and in a planned manner and determine your goal for the retirement corpus at an early stage.

Structure your own pension plan and take control of your retirement planning. All you need is to remember the following points while making your own pension plan:

Pension Amount

Determine the amount you shall be comfortable as on today. Then calculate the future value of such amount on the day you want your pension to start. The future value shall take into account a reasonable inflation rate and a room of error. For example if you are age 35, plan to retire at an age 60, wants a pension of Rs. 50,000 at today’s value and assuming the average inflation to be in the range of 8%, then you require a pension amount of Rs. 3,42,425 at the start of your retirement period. Of course you need to further take care of the inflation at that time as well, and keep on increasing your pension amount every year.

Corpus Amount

On the basis of the above calculation, you need to arrive at the corpus you need at the time of your retirement from which you shall take out your pension at a regular period. Arrive at a real rate of return, that shall take care of the inflation and the return on investments, for the period you expect a normal healthy person may live.

Investment Amount

In order to reach your target corpus amount, you need to plan your investments wisely and assume a realistic rate of return on such investments. Assuming you need a corpus of Rs. 2 crore as a corpus amount at the time of your retirement after 25 years, and you further assume a rate of return at 14% on your investments, then you need to invest around Rs. 1,10,000 every year to achieve the target corpus.

Plan Investments

Plan your investments and diversify your portfolio according to your risk appetite. Use an optimal combination of Debt, large and mid cap equity and mutual funds, liquid funds and precious metal. NPS is one option you may include in overall strategy of your retirement planning. The optimal mix of investment depends on person to person, their risk appetite and age. It is recommended that you must include a higher percentage of large and mid cap equity in your portfolio if you are young and have 20-25 years before you retire.

For debt, you can look at long term debt funds, that stand to gain if the rates go down. Besides you can look at long term bank FD’s, recurring deposits and PPF. If you can, you must increase your voluntary contribution towards provident fund.

For equity have a right mix of bluechip companies, large cap mutual funds and mid cap mutual funds.

Remember Taxes and limitations

Remember that returns on your regular pension plan will be taxable. Thus you will get lesser than what you expect. Similarly pure debt funds also attract the tax liability, while profit in pure equity funds held over a year will be tax free. Also, you shall be able to withdraw only 1/3rd tax free from your regular pension policy at the time of its maturity and rest has to be necessarily converted into taxable annuity.

Review periodically

Revisit your portfolio at regular intervals. See if you are achieving the desired results from your investments and whether you need to recalculate desired annuity and target corpus. Explore the options of switching to products that are giving better yields in the same risk category. As you grow older you can reduce the exposure towards equity, especially mid cap. You may reduce equity exposure by 2 or more every year depending on your age, but do not completely remove equities from your portfolio even in the retirement age.

Be persistent

Do not stop investing. Have ECS mandate for your SIPs. Opt for voluntary provident fund deduction. Do not loose hope if your equity investments yield negative returns in a given year as you are invested for a long time and worked on an average rate of return for a set number of years.

Remember discipline is the key to any successful investment and in particular the retirement planning as it involves a longer than normal period.

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HIGHLIGHTS FOR COMMON TAXPAYER

DTC rates proposed to be introduced for personal income tax.

Income Tax Exemption limit for the general category of individual taxpayers proposed to be enhanced from Rs. 1,80,000 to Rs. 2,00,000 giving tax relief of Rs. 2,000.

Upper limit of 20 per cent tax slab proposed to be raised from Rs. 8 lakh to Rs. 10 lakh.

New Income Tax Limits

Upto Rs. 2,00,000 for General category (Both men and Women) – Nil

(This limit is Rs. 2,50,000 for senior citizens)

Rs. 2,00,000 to Rs. 5,00,000 – 10%

Rs. 5,00,000 to Rs. 10,00,000 – 20%

Rs. 10,00,000 onwards – 30%

Proposal to allow individual tax payers, a deduction of upto Rs. 10,000 for interest from savings bank accounts. Other bank deposits like FD will not attract this clause.

Proposal to allow deduction of upto Rs. 5,000 for preventive health check up. This is within the overall limits of Rs. 15,000 u/s 80 D.

Tax saving u/s 80CCF for investment in Infrastructure bonds abolished for FY 2012-13.

Life Insurance deduction available only if premiums are below 10% of Sum Assured. Tax exemption u/s 80C shall apply only to the Insurance policies where the premium or other payment made on an insurance policy, other than a contract for a deferred annuity, does not exceed 10% of the actual capital sum assured.

Senior citizens not having income from business proposed to be exempted from payment of advance tax.

Securities Transaction Tax (STT) reduced from 0.125% to 0.1%

As per the new sub-section (5D) to Section 80 G any payment exceeding a sum of Rs. 10,000 shall only be allowed as a deduction if such sum is paid by any mode other than cash.

TDS @1% at the time of real estate sale above 50 lac. If you sell your any kind of property / real estate, and if the selling price is more than Rs. 50 lacs, you will have to compulsorily pay TDS @1% , even though after indexation and your decision to use the funds in next house purchase, your overall tax out of the transaction might be Zero. In such cases where the tax is nil, you will have to claim that tax amount back by filing a return. Property registration at the registrar office will not be permitted without proof of deduction and payment of this TDS.

Exemption from Capital Gains tax on sale of residential property, if sale consideration is used for subscription in equity of a manufacturing SME for purchase of new plant and machinery.

The amount of duty free goods you can bring from outside India increased to Rs. 35,000 from the earlier Rs. 25,000 for adults and children above age 10.

Tax filing compulsory for any resident who holds a property outside India even if the taxable income in India is below the limit.

Rajiv Gandhi Equity Saving Scheme to allow for income tax deduction of 50 % to new retail investors, who invest upto Rs. 50,000 directly in equities and whose annual income is below Rs. 10 lakh to be introduced. The scheme will have a lock-in period of 3 years.

Proposed to levy 1 % excise duty on non-branded gold jewellery besides doubling import duty on gold to 4 %.

Proposed that jeweller should collect 1 % tax from every buyer if sale consideration exceeds Rs. 2,00,000 in cash.

Branded silver jewellery has been fully exempted from excise duty.

Turnover limit for compulsory tax audit of account and presumptive taxation of SMEs to be raised from Rs. 60 lakhs to Rs. 1 crore.

Proposal to extend the levy of Alternate Minimum Tax to all persons, other than companies, claiming profit linked deductions.

Tax proposals for 2012-13 mark progress in the direction of movement towards DTC and GST.

OVERVIEW OF THE ECONOMY

GDP is estimated to grow by 6.9 % in real terms in 2011-12, after having grown at 8.4 % in preceding two years. India however remains front runner in economic growth in any cross-country comparison.
India’s GDP growth in 2012-13 expected to be 7.6 per cent +/- 0.25 per cent.

Fiscal deficit at 5.9 per cent of GDP in RE 2011-12.

Fiscal deficit at 5.1 per cent of GDP in BE 2012-13.

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Mistakes we should not make with our money

There are some financial mistakes we should not make, especially during these uncertain times. Some of the mistakes can cost a lot of damage, immediately and over a period of time on your financial health.

Holding back your investment decisions
Dont wait till tomorrow to start investing. In fact this is perfect time to start investing gradually. With whatever money you have. Best is to start with a SIP (Systematic Investment Plan).
Stock markets have corrected nearly 20% from its peak. And bank fixed Deposit (FD) interest rates are on average 9.5% to 10%. So pick your stock, best mutual fund and other financial instruments as per your risk appetite, time frame and investment objective.
Start investing for future. If you do not do it now, the best times will run out soon.

Spending more than you earn
So you cant avoid the temptation of upto 50% off. It does make sense if you prepone your purchases and save some money during the festive discount period. But what if you buy stuff which you actually do not NEED, and empty your pocket.
Most of our financial problems start when you spend more than you earn. You become an impulsive buyer and start spending on just about everything by taking loans.

Have a budget for almost everything. And keep a track on what you spend, and what you earn, so that you get a fair understanding on what you have and where your money is going.
Do not avoid taking tough decisions. If you have to cut down on some expenses this month because you overshot your budget last month, Do So.

Defaulting on loans
Do not default on your loans. Defaulting on loans will impact your credit rating. And it will impact your future credit standing for taking loans.
And if you default on your credit cards, you will not only downgrade your credit rating, but you might also be charged upto 38% annually on your outstanding amounts on credit card. Some times it is not so easy to discuss discuss with your spouse on the necessity of cutting down on expenses. But you have to do it. For a better tomorrow for both of you.

Feeling Poor
Stop feeling poor or sorry about yourself. If you feel that the world is conspiring to make you poor, it is likely to come true. Start thinking good about your money, finances and future. The tomorrow will be much better than today.

And lastly do not forget to review your financial standing on a regular basis. If not more, than atleast once a year. You may find a shift in your risk profile, some avoidable expenses and better investment opportunities.

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KYC (Know Your Customer) Guidelines by Reserve Bank Of India

1. What is KYC?

KYC is an acronym for “Know your Customer”, a term used for customer identification process. It involves making reasonable efforts to determine true identity and beneficial ownership of accounts, source of funds, the nature of customer’s business, reasonableness of operations in the account in relation to the customer’s business, etc which in turn helps the banks to manage their risks prudently. The objective of the KYC guidelines is to prevent banks being used, intentionally or unintentionally by criminal elements for money laundering.

KYC has two components – Identity and Address. While identity remains the same, the address may change and hence the banks are required to periodically update their records.

2. Is there any legal backing for verifying identity of clients?

Yes. Reserve Bank of India has issued guidelines to banks under Section 35A of the Banking Regulation Act, 1949 and Rule 7 of Prevention of Money-Laundering (Maintenance of Records of the Nature and Value of Transactions, the Procedure and Manner of Maintaining and Time for Furnishing Information and Verification and Maintenance of Records of the Identity of the Clients of the Banking Companies, Financial Institutions and Intermediaries) Rules, 2005. Any contravention thereof or non-compliance shall attract penalties under Banking Regulation Act.

3. I want to keep a fixed deposit in a bank. Is KYC – applicable to me?

Yes. KYC is applicable to customers of the bank. For the purpose of KYC following are the ‘Customers of the bank.

  • a person or entity that maintains an account and/or has a business relationship with the bank;
  • one on whose behalf the account is maintained (i.e. the beneficial owner);
  • beneficiaries of transactions conducted by professional intermediaries, such as Stock Brokers, Chartered Accountants, Solicitors etc. as permitted under the law, and
  • any person or entity connected with a financial transaction which can pose significant reputational or other risks to the bank, say, a wire transfer or issue of a high value demand draft as a single transaction.

4. Is there any procedure specified for Customer Identification?

Customer identification means identifying the customer and verifying his/her identity by using reliable, independent source documents, data or information. Banks have been advised to lay down Customer Identification Procedure to be carried out at different stages i.e. while establishing a banking relationship; carrying out a financial transaction or when the bank has a doubt about the authenticity/veracity or the adequacy of the previously obtained customer identification data.

5. Once KYC requirements are complied with while opening the account, whether the bank can again ask for KYC compliance from me?

Yes. To ensure that the latest details about the customer are available, banks have been advised to periodically update the customer identification data based upon the risk category of the customers.

Banks create a customer profile based on details about the customer like social/financial status, nature of business activity, information about his clients’ business and their location, the purpose and reason for opening the account, the expected origin of the funds to be used within the relationship and details of occupation/employment, sources of wealth or income, expected monthly remittance, expected monthly withdrawals etc. When the transactions in the account are observed not consistent with the profile, bank may ask for any additional details / documents as required. This is just to confirm that the account is not being used for any Money Laundering/Terrorist/Criminal activities.

6. I had submitted my driving licence as a proof of identity and address but still the bank asked for telephone / electricity bill.

There are two aspects of Customer Identification. One is establishing identity and the other is establishing present residential address.

For establishing identity, the bank requires any authentic document carrying photo of the customer such as driving licence/ passport/ pan card/ voters’ card etc. Though these documents carry the residential address of the customer, it may not be the present address. Therefore, in order to establish the present address of the customer, in addition to passport/ driving licence / voters’ card / pan card, the bank may ask for utility bills such as Telephone / Electricity bill etc.

The detailed list of the documents that the bank can ask is given below.

Features

Documents

Accounts of Individuals

Legal name and any other names used

(i) Passport
(ii) PAN card
(iii) Voter’s Identity Card
(iv) Driving licence
(v) Identity card (subject to the bank’s satisfaction)
(vi) Letter from a recognized public authority or public servant verifying the identity and residence of the customer to the satisfaction of bank

Correct permanent address

(i) Telephone bill
(ii) Bank account statement
(iii) Letter from any recognized public authority
(iv) Electricity bill
(v) Ration card
(vi) Letter from employer (subject to satisfaction of the bank)
(any one document which provides customer information to the satisfaction of the bank will suffice)

Accounts of Companies

Name of the company

(i) Certificate of incorporation and Memorandum & Articles of Association
(ii) Resolution of the Board of Directors to open an account and identification of those who have authority to operate the account
(iii) Power of Attorney granted to its managers, officers or employees to transact business on its behalf
(iv) Copy of PAN allotment letter
(v) Copy of the telephone bill

Principal place of business

Mailing address of the company

Telephone / Fax Number
Accounts of Partnership Firms

Legal name

(i) Registration certificate, if registered
(ii) Partnership deed
(iii) Power of Attorney granted to a partner or an employee of the firm to transact business on its behalf
(iv) Any officially valid document identifying the partners and the persons holding the Power of Attorney and their addresses
(v) Telephone bill in the name of firm / partners

Address

Names of all partners and their addresses

Telephone numbers of the firm and partners
Accounts of Trusts & Foundations

Names of trustees, settlers, beneficiaries and signatories

(i) Certificate of registration, if registered
(ii) Power of Attorney granted to transact business on its behalf
(iii) Any officially valid document to identify the trustees, settlors, beneficiaries and those holding Power of Attorney, founders / managers / directors and their addresses
(iv) Resolution of the managing body of the foundation / association
(v) Telephone bill

Names and addresses of the
founder, the managers / directors and the beneficiaries

Telephone / fax numbers
Accounts of Proprietorship Concerns

Proof of the name, address and activity of the concern

*  Registration certificate (in the case of a registered concern)
*  Certificate / licence issued by the Municipal authorities under Shop & Establishment Act,
*  Sales and income tax returns
*  CST / VAT certificate
*  Certificate / registration document issued by Sales Tax / Service Tax / Professional Tax authorities
* Registration / licensing document issued in the name of the proprietary concern by the Central Government or State Government Authority / Department.
* IEC (Importer Exporter Code) issued to the proprietary concern by the office of DGFT as an identity document for opening of bank account.
*  Licence issued by the Registering authority like Certificate of Practice issued by Institute of Chartered Accountants of India, Institute of Cost Accountants of India, Institute of Company Secretaries of India, Indian Medical Council, Food and Drug Control Authorities, etc.
Any two of the above documents would suffice. These documents should be in the name of the proprietary concern.

7. Can my wife who is not having any address proof in her name, open an account with the bank?

Yes. In such cases where the utility bills required for address verification are not in the name of the person who wants to open an account ( close relatives, e.g. wife, son, daughter and daughter and parents etc. who live with their husband, father/mother and son, as the case may be) , an identity document and a utility bill of the relative with whom the prospective customer is living along with a declaration from the relative that the said person (prospective customer) wanting to open an account is a relative and is staying with him/her is acceptable. As supplementary evidence bank may ask for a letter received through post for further confirmation.

8. I am a daily wage earner without any document to satisfy the bank about identity and address. Can I open a bank account?

A customer belonging to low income group who is not able to produce  documents to satisfy the bank about his identity and address, can open bank account with an introduction from another account holder who has been subjected to full KYC procedure provided that the balance in all his accounts taken together is not expected to exceed Rupees Fifty Thousand (Rs. 50,000/-) and the total credit in all the accounts taken together is not expected to exceed Rupees One Lakh (Rs. 1,00,000/-) in a year. The introducer’s account with the bank should be at least six months old and should show satisfactory transactions. Photograph of the customer who proposes to open the account and also his address needs to be certified by the introducer,

or

any other evidence as to the identity and address of the customer to the satisfaction of the bank.

If at any point of time, the balance in all his/her accounts with the bank (taken together) exceeds Rupees Fifty Thousand (Rs. 50,000/-) or total credit in the account exceeds Rupees One Lakh (Rs. 1,00,000/-) in a year, no further transactions will be permitted until the full KYC procedure is completed.

In order not to inconvenience the customer, the bank will notify the customer when the balance reaches Rupees Forty Thousand (Rs. 40,000/-) or the total credit in a year reaches Rupees Eighty thousand (Rs. 80,000/-) that appropriate documents for conducting the KYC must be submitted otherwise operations in the account will be stopped.

9. Whether a certificate from my employer is sufficient as identity as well as address proof for opening an account?

Banks rely on such certification only from corporate and other entities of repute provided that they are aware of the competent authority designated by the concerned employer to issue such certificate. In addition, banks also require at least one of the valid documents indicated above viz. Passport, Driving Licence, PAN Card, Voter’s Identity Card etc. or utility bills for KYC purposes for opening bank account of salaried employees of corporate and other entities.

10. Whether the information given by me to the bank under KYC is treated as confidential?

Yes. The information collected from the customer for the purpose of opening of account is treated as confidential and details thereof are not divulged for cross selling or any other similar purposes.

11. Whether KYC is applicable for Credit Cards/Debit Cards/Smart Cards?

Yes. Application of full KYC procedure is necessary before issuing Credit Cards/Debit Cards/Smart Cards and also in respect of add-on/ supplementary cards.

12. If I refuse to give information on KYC asked for by the bank, what action the bank can take against me?

Where the bank is unable to apply appropriate KYC measures due to non-furnishing of information and /or non-cooperation by the customer, the bank can consider closing the account or terminating the banking/business relationship after issuing due notice to the customer explaining the reasons for taking such a decision.

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