Insurance

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With generating and preserving wealth, it is also equally important to de-risk our life from unforeseen uncertainties (to the extent possible). These uncertainties have potential to derail our financial life, totally or partially depending on the gravity of the event. These risks can be done away with by insuring our-self.

Insurance is a means of protection against financial loss. It may not be exactly possible to replace the loss of an asset but insurance provides financial support to replace the lost asset. What is Insurance - the company (insurer) provides insurance to the insured (policyholder) to compensate in the event of occurrence of loss, in exchange for payment of small amount, by insured, called premium. The premium payment is usually annual, however the frequency may change depending on the terms of the policy.

We have broadly categorised insurance into two – Life and General

Let’s take Life Insurance first.

In today’s world, we have two major risk in our life:

  1. Risk of living too short
  2. Risk of living too long.

The above two risks are very critical in life and needs to be consciously addressed by every individual. Whilst the first risk can be covered through Insurance contract, the second can be insured through proper investments throughout our life.

If you are a key earning member in the family and the family is solely dependent on you for their livelihood then it becomes all the more important to insure your life. We suggest life insurance cover which is approximately 12-15 times of your annual income. The underlying logic behind this multiple is that in case of loss of life, the amount received by your family from insurance company can be parked in fixed deposits which can fetch interest almost equivalent to your present monthly income. While loss of your life is irreplaceable, but the cover ensures that your family is not financially deprived-of due to your absence.

The insurance cover once taken has to be reviewed periodically. As your income increases, cover also has to increase. We suggest to review this cover every 5 years. Add-on insurance cover can be taken to maintain 12-15 multiple on enhanced income.

The basic version of Insurance is called a Term Plan which only provides death cover with no life benefit. Following are different types of policy:

Insurance Inner

Tax Implications for Investors

Type of Investors Capital Gains Interest Dividend Dividend Distribution Tax
Listed Equity Shares
Equity Schemes
Unlisted Equity Shares
Other Schemes
Investors' Perspective Investors' Perspective Paid by Company / Mutual Fund
Short Term Long Term TDS Short Term Long Term TDS Bonds / Fixed Deposits Equity Shares / All Schemes Equity Schemes / Shares Other Schemes
Resident Individual 15% 10% Nil As per Slab 20% with Indexation Nil As per Slab Nil 10% 25%
HUF 15% 10% Nil As per Slab 20% with Indexation Nil As per Slab Nil 10% 25%
Partnership Firm 15% 10% Nil 30% 20% with Indexation Nil 30% Nil 10% 30%
AOP / BOI 15% 10% Nil As per Slab 20% with Indexation Nil As per Slab Nil 10% 30%
Domestic Companies 15% 10% Nil 30% 20% with Indexation Nil 30% Nil 10% 30%
Non-Resident Indians 15% 10% STCG: 15%
LTCG: 10%
As per Slab Unlisted: 10%
Listed: 20% with indexation
STCG: 30%
LTCG:
Unlisted: 10%
Listed: 20% with indexation
NRO: As per Slab
NRE: Exempt
Nil 10% 25%
Foreign Portfolio Investors 15% 10% Nil 30% 10% Nil INR Bonds: 5%
Others: 20%
Nil 10% 30%
Foreign Companies 15% 10% STCG: 15%
LTCG: 10%
40% Unlisted: 10%
Listed: 20% with indexation
STCG: 40%
LTCG:
Unlisted: 10%
Listed: 20% with indexation
40% Nil 10% 30%

Note:

1. Above tax rates are to be increased by

  1. Education cess: 4%
  2. Surcharge as follows:
    1. Resident Individual & HUF: 10% in case income is between Rs 50 lakhs to Rs 1 Crore
    2. Resident Individual & HUF: 15% in case income is over Rs 1 Crore
    3. Partnership Firm: 12% in case income is over Rs 1 Crore
    4. Domestic Companies: 7% in case income is between Rs 1 Crore to 10 Crore
    5. Domestic Companies: 12% in case income is over 10 Crore
    6. Foreign Companies & FPI: 2% in case income is between Rs 1 Crore to 10 Crore
    7. Foreign Companies & FPI: 5% in case income is over 10 Crore
    8. Dividend Distribution Tax: 12% on gross basis

Notes on Long Term Capital Gains
2. LTCG exceeding Rs. 1,00,000 on sale of Equity Mutual Funds / Shares will be taxed at 10% (plus applicable surcharge and education cess)

3. Cost of acquisition in respect of units acquired before 1 February 2018 should be computed at higher of the following:

  1. Actual cost of acquisition; and
  2. Lower of -
    1. FMV as on 31 January 2018 or
    2. Consideration received on transfer of shares / unit

4. The FMV of the shares / units shall be the following:

  1. Quoted shares / units: Highest price quoted on the recognised stock exchange on 31 January 2018
  2. Unquoted shares / units: Net Asset Value as on 31 January 2018

Notes on Dividend
5. In case of resident individual/HUF/Firm, if the aggregate dividend received from a domestic company exceeds Rs 10,00,000, the dividend shall be taxed at 10% of excess amount.

6. Dividend received from a foreign company is taxable at slab rates. Benefit under DTAA would be available

NRI and FPI
Non-resident investors / FPIs would be eligible to be taxed at rate lower of: that prescribed under the Income-tax Act or Double Tax Avoidance Agreement with respective country. In order to claim DTAA benefits, a non-resident will have to obtain a Tax Residency Certificate from their home country along-with details filled in Form 10F.

Double Tax Avoidance Agreement (DTAA)

Link to access DTAA of various countries:

https://www.incometaxindia.gov.in/Pages/international-taxation/dtaa.aspx