Budget 2013-14 "TAX HIGHLIGHTS" (Direct + Indirect)

Budget 2013-14 "TAX HIGHLIGHTS" (Direct + Indirect)
Friends this is only Taxation related summary of BUDGET 2013-14. Other Matters are not referred here. Your comments on Budget are most Welcome.

DIRECT TAX HIGHLIGHTS

# Little room to give away tax revenues or raise tax rates in a constrained economy.

# No case to revise either the slabs or the rates of Personal Income Tax. Even a
moderate increase in the threshold exemption will put hundreds of thousands of
Tax Payers outside Tax Net.

# However, relief for Tax Payers in the first bracket of `2 lakhs to ` 5 lakhs. A tax
credit of ` 2000 to every person with total income upto `5 lakhs.

# Surcharge of 10 percent on persons (other than companies) whose taxable income
exceed ` 1 crore to augment revenues.

# Increase surcharge from 5 to 10 percent on domestic companies whose taxable
income exceed ` 10 crore.

# In case of foreign companies who pay a higher rate of corporate tax, surcharge to
increase from 2 to 5 percent, if the taxabale income exceeds ` 10 crore.

#In all other cases such as dividend distribution tax or tax on distributed income,
current surcharge increased from 5 to 10 percent.

# Additional surcharges to be in force for only one year.

# Education cess to continue at 3 percent.

# Permissible premium rate increased from 10 percent to 15 percent of the sum
assured by relaxing eligibility conditions of life insurance policies for persons
suffering from disability and certain ailments.

# Contributions made to schemes of Central and State Governments similar to
Central Government Health Scheme, eligible for section 80D of the Income tax
Act.

# Donations made to National Children Fund eligible for 100 percent deduction.
Investment allowance at the rate of 15 percent to manufacturing companies that
invest more than ` 100 crore in plant and machinery during the period 1.4.2013
to 31.3.2015.

#‘Eligible date’ for projects in the power sector to avail benefit under Section 80-
IA extended from 31.3.2013 to 31.3.2014.

# Concessional rate of tax of 15 percent on dividend received by an Indian company
from its foreign subsidiary proposed to continue for one more year.

# Securitisation Trust to be exempted from Income Tax. Tax to be levied at specified
rates only at the time of distribution of income for companies, individual or HUF
etc. No further tax on income received by investors from the Trust.

# Investor Protection Fund of depositories exempt from Income-tax in some cases.

# Parity in taxation between IDF-Mutual Fund and IDF-NBFC.

# A Category I AIF set up as Venture capital fund allowed pass through status
under Income-tax Act.

# TDS at the rate of 1 percent on the value of the transfer of immovable properties
where consideration exceeds ` 50 lakhs. Agricultural land to be exempted.

# A final withholding tax at the rate of 20 percent on profits distributed by unlisted
companies to shareholders through buyback of shares.

# Proposal to increase the rate of tax on payments by way of royalty and fees for
technical services to non-residents from 10 percent to 25 percent.

# Reductions made in rates of Securities Transaction Tax in respect of certain
transaction.

# Proposal to introduce Commodity Transaction Tax (CTT) in a limited way.
Agricultural commodities will be exempted.

# Modified provisions of GAAR will come into effect from 1.4.2016.

# Rules on Safe Harbour will be issued after examing the reports of the Rangachary
Committee appointed to look into tax matters relating to Development Centres
& IT Sector and Safe Harbour rules for a number of sectors.

# Fifth large tax payer unit to open at Kolkata shortly.

# A number of administrative measures such as extension of refund banker system
to refund more than ` 50,000, technology based processing, extension of
e-payment through more banks and expansion in the scope of annual information
returns by Income-tax Department.

INDIRECT TAX HIGHLIGHTS

# No change in the normal rates of 12 percent for excise duty and service tax.

# No change in the peak rate of basic customs duty of 10 perent for non-agricultural
products.
Customs

# Period of concession available for specified part of electric and hybrid vehicles
extended upto 31 March 2015.

# Duty on specified machinery for manufacture of leather and leather goods
including footwear reduced from 7.5 to 5 percent.

# Duty on pre-forms precious and semi-precious stones reduced from 10 to 2 perent.

# Export duty on de-oiled rice bran oil cake withdrawn.

# Duty of 10 percent on export of unprocessed ilmenite and 5 percent on export on
ungraded ilmenite.

# Concessions to air craft maintenaince, repair and overhaul (MRO) industry.

# Duty on Set Top Boxes increased from 5 to10 percent.

# Duty on raw silk increased from 5 to 15 percent.

# Duties on Steam Coal and Bituminous Coal equalised and 2 percent custom duty
and 2 percent CVD levied on both kinds coal.

# Duty on imported luxury goods such as high end motor vehicles, motor cycles,
yachts and similar vessels increased.

# Duty free gold limit increased to ` 50,000 in case of male passenger and `1,00,000
in case of a female passenger subject to conditions.
 

Excise duty

# Relief to readymade garment industry. In case of cotton, zero excise duty at fibre
stage also. In case of spun yarn made of man made fibre, duty of 12 percent at the
fibre stage.

# Handmade carpets and textile floor coverings of coir and jute totally exempted
from excise duty.

# To provide relief to ship building industry, ships and vessels exempted from
excise duty. No CVD on imported ships and vessels.

# Specific excise duty on cigarettes increased by about 18 percent. Similar increase
on cigars, cheroots and cigarillos.

# Excise duty on SUVs increased from 27 to 30 percent. Not applicable for SUVs
registered as taxies.

# Excise duty on marble increased from `30 per square meter to ` 60 per square
meter.

# Proposals to levy 4 percent excise duty on silver manufactured from smelting
zinc or lead.

# Duty on mobile phones priced at more than `2000 raised to 6 percent.

# MRP based assessment in respect of branded medicaments of Ayurveda, Unani,
Siddha, Homeopathy and bio-chemic systems of medicine to reduce valuation
disputes.

Service Tax # Maintain stability in tax regime.

# Vocational courses offered by institutes affiliated to the State Council of Vocational
Training and testing activities in relation to agricultural produce also included in
the negative list for service tax.

# Exemption of Service Tax on copyright on cinematography limited to films
exhibited in cinema halls.

# Proposals to levy Service Tax on all air conditioned restaurant.

# For homes and flats with a carpet area of 2,000 sq.ft. or more or of a value of `1 crore
or more, which are high-end constructions, where the component of services is
greater, rate of abatement reduced from from 75 to 70 percent.

# Out of nearly 17 lakh registered assesses under Service Tax only 7 lakhs file
returns regularly. Need to motivate them to file returns and pay tax dues. A
onetime scheme called ‘Voluntary Compliance Encouragement Scheme’
proposed to be introduced. Defaulter may avail of the scheme on condition that
he files truthful declaration of Service Tax dues since 1st October 2007.

# Tax proposals on Direct Taxes side estimated to yield to `13,300 crore and on
the Indirect Tax side `4,700 crore.

Good and Services Tax

# A sum of ` 9,000 crore towards the first instalment of the balance of CST
compensation provided in the budget.

#Work on draft GST Constitutional amendment bill and GST law expected to be
taken forward. 

What to Check before surrendering ULIP ?

What to Check before surrendering ULIP ?

Do you belong to a group of those people who bought a life insurance policy a few years back expecting it to deliver good returns and are regretting your decision since then cursing the sales executive who sold you a useless policy as the returns have not met your expectations?

If yes, then I’m sure you must have thought of doing something with your policy – either surrendering it or stop paying further premiums for it or consulting a financial advisor to discuss other alternatives before taking a final decision. Whatever you have done since then, I hope this article will help you in making further progress in the right direction.

First of all, there might be different reasons for different investors to explore the option of discontinuing their life insurance policies. Some of them are:

1. Unsatisfactory performance of the current life policy, as it was initially sold to you by a sales executive/relationship manager showing a very rosy picture or you bought it with a very little understanding

2. Not making financial sense to you anymore, as you have become more financially literate now and with better understanding of the markets and the products you have a view that ULIPs are not for you

3. ULIPs are too complicated for you to continue, as you don’t understand the various kind of charges involved in it, where your money is getting invested and other things involved in ULIPs

4. Availability of better investment options like mutual funds, gold or real estate and you have a shorter term horizon to invest

Options available to you

• Surrender the policy and withdraw the whole of the Surrender Value or Fund Value
• Stop paying further premiums, withdraw majority of the invested amount, keep the policy running and enjoy the life cover. This option is available only with old ULIPs.
• Get the policy fully paid-up (in case of traditional policies)
• Do a self-assessment (be your financial advisor for your investment)
• Keep paying the premiums as you are convinced ULIPs outperform Mutual Funds in the longer run.

Before we move any further, we first need to understand the various charges attracted by these ULIPs. You can check these charges applicable to your ULIP in the “Sales Benefit Illustration” or the product brochures. A sales benefit illustration illustrates various charges, year by year, for the term of the plan so that you know where your money is exactly going, how much money is deducted as charges and what is finally getting invested. Here is the link to check a sample of a sales benefit illustration:

1. Premium Allocation Charges – These charges account for the initial expenses incurred by the company in issuing the policy e.g. cost of underwriting, medical tests and expenses related to distributor/agent fees. These are deducted upfront from the premium either annually, half-yearly, quarterly or monthly depending on the frequency of the premiums.

2. Mortality Charges – These charges refer to that part of the premium which goes towards the death benefit and are recovered by cancellation of units on a monthly basis.

3. Policy Administration Charges – As the name suggests, these are administrative charges and are recovered by cancellation of units on a monthly basis.

4. Fund Management Charges – These are the charges incurred to manage the investment portion of your premium and vary from fund to fund depending on the percentage of equity component in the fund.

5. Surrender Charges: These charges are deducted for premature surrender/termination of a policy and are capped at 15% from September 1, 2010.

Surrender Value: It is the sum of money an insurance company will pay to the policyholder in the event he/she voluntarily terminates or surrenders the policy before its maturity or the insured event occurring. In other words, it is the amount payable to the policyholder should he/she decide to discontinue the policy and encash it. This cash value is the savings component of most permanent life insurance policies, particularly whole life insurance policies. This is also known as ‘cash value’ and ‘policyholder’s equity’. The life cover provided by a life insurance policy ends with its surrender as it effects a termination of the contract between the insured and the insurer. Surrender Value = Fund Value – Surrender Charges

Fund Value: The value of the investment portion of your life insurance policy is known as Fund Value. Till the time surrender charges are applicable in ULIPs, surrender value is calculated by deducting the surrender charges from the fund value. Fund Value is paid in full once the surrender charges cease to exist, usually 5 years in new ULIPs. Fund Value = Total no. of units under the policy * NAV of the fund chosen

Let us also take a look at the rules that have been there before and after an important date in the history of ULIPs.

Rules governing ULIPs bought before Sept 1, 2010

Lock-in period of 3 years: Policies taken before September 1, 2010 used to have a lock-in period of 3 years only, after which you were allowed to surrender your policy and take away the fund value after getting the surrender charges deducted.

Surrender Charges: Surrender Charges used to continue after the lock-in period of 3 years. In some policies, these charges continue even after 5 years.

Minimum Premiums Payable: Three

Cover Continuance: This feature was available in older ULIPs wherein you were allowed to continue with the policy even after paying premiums only for the first three years. Your money remains invested in your choice of fund option and the mortality charges will be deducted to maintain the life cover. This was due to mis-selling by intermediaries. Life cover continues even after you surrender the policy or stop paying policy premiums.

Charges: Charges are relatively higher.

Rules governing ULIPs launched on or after Sept 1, 2010

Lock-in period of 5 years: The so-called New Ulips, which have been launched on or after September 1, 2010, carry a lock-in period of 5 years i.e. you’ll get the fund value only after 5 years if you’ve paid the premiums for all the 5 years. If you surrender the policy without paying even 5 premiums, then also you’ll get the surrender value only after 5 years but in that case your money will earn only 4% p.a. interest.

Surrender Charges: Surrender Charges cannot be levied after the lock-in period of 5 years if the policy term is 10 years or less and after 6 years if the policy term is more than 10 years. If you surrender after paying only the first premium, the maximum surrender charges as per IRDA can be Rs. 3000 (for premiums up to Rs. 25000) or Rs. 6000 (premium above Rs. 25000).

Minimum Premiums Payable: Five

Cover Continuance: The new ULIPs don’t offer this feature. If you stop paying premiums after the lock-in period, the policy will be discontinued and the value will be returned to you. Life cover ceases once you surrender the policy or stop paying policy premiums. It was one of the best features with the older ULIPs but I fail to understand why it has been removed from the new ULIPs altogether. The agents used it extensively to mis-sell ULIPs by telling their clients that they just need to pay only three premiums and after that they can either withdraw the investment or the life cover will continue even they don’t pay further premiums.

Charges: Charges are relatively lower

What to look for before surrendering your policy – step by step process:

• Check whether the policy is bought before or after September 1, 2010
• Check the various charges deducted till date: “Premium Allocation Charges”, “Mortality Charges”, “Policy Administration Charges”, “Fund Management Charges” etc.
• Check the Surrender Value or Fund Value by making a call to the customer care centre or online logging into your account
• Check the various charges to be deducted in the forthcoming years and do a self-assessment to decide whether the charges are justifiable for you to continue with the policy
• Do a background check of the fund manager before you continue with your existing ULIP – who the fund manager is and what is his/her qualification? How long has he/she been in the fund management business and how has been his/her performance history?
• Compare the performance of the fund vis-a-vis some of the good performing diversified mutual fund schemes over a period of one year, three years, five years and since inception. ULIP returns should be easily available on the company’s website. If the fund is underperforming consistently, you should seriously consider discontinuing the policy.
• Compare the mortality charges of your ULIP with a good term plan with the same Sum Assured. Newer ULIPs usually carry high mortality charges as they don’t come under the cost caps, which gives insurance companies an opportunity to have a high margin on the mortality cost. It is most likely that the term plan would be offering a cheaper option to cover your life. If that is the case, then I think you should get your ULIP discontinued by encashing the fund value.
• Take the help of a financial planner in case you are not able to understand the charges or the performance of the funds before taking final decision.

Reasons why you should not surrender your ULIP:

Most of the older ULIPs either carry very high costs in the initial years or have steep surrender charges or both. It is only in the later years that charges become somewhat reasonable and more money gets invested. So it would be a bad idea to surrender ULIPs with high costs in the initial years and a penalty for discontinuance.

There are a few old ULIPs, in which the policies carry surrender charges almost till the end of the policy term. You need to check your policy, the surrender charges involved in it and then decide whether it is worth surrendering or keep the policy till its maturity.

If you have taken one of the old ULIPs, then your life will remain covered even without paying further premiums with the “Cover Continuance” feature. In that case, if the mortality charges of future years are reasonable, then you may stick to your policy and hope the fund is managed in an efficient and professional manner.

As I mentioned earlier, you should not surrender ULIPs if you are convinced ULIPs outperform Mutual Funds in the longer run.

Reasons why you should surrender your ULIP:

There is lack of transparency in almost all sections of their workflow.

Fund managers of almost all ULIPs have failed to deliver and there is no certainty whether they will be able to deliver in the future years also.

Premium Allocation Charges will remain quite high in future years also which eat up a significant portion of your principal investment.

Term plans are the best insurance plans to get your life insured.

It is better to invest in investment avenues like mutual funds, Gold ETFs, PPF etc. or to pay-off any of your loans which carry a higher rate of interest than your ULIPs will deliver.

Documents you need to submit for policy surrender:

• Policy surrender form – it should be easily available on the company’s website
• Policy bond
• A self-attested copy of your ID proof
• Any cancelled cheque or bank attested bank statement or bank attested passbook copy for fund transfer

I have a personal view that one should never mix his/her investments with insurance. But, if somebody has already done that then the best option is to try not to surrender the policy in a real hurry, keep it alive as long as possible, study all the features and charges of your policy thoroughly and reap the maximum benefits out of it. It is generally advisable that you should wait for a longer period before surrendering your policy, as this will ensure the higher initial charges are spread out. But, if after doing the extensive research, you have decided to surrender the policy, then you should visit the nearest branch office of the company to surrender your policy along with the above mentioned documents.