June 14, 2017

A uniform nationwide goods and services tax (GST), India’s most ambitious reform initiative that aims to stitch together a common market by dismantling fiscal barriers between states, is staring at fresh hurdles with no signs of an early end to the logjam in Parliament.

The government had targeted to rollout the new tax structure from April 1, 2016, an unlikely possibility given the current impasse in Parliament. The system can be rolled out only when Parliament passes the Constitution Amendment Bill, which can be passed only if at least two-thirds of the members vote in its favour. In addition, at least half of the state Assemblies will also have to pass the Bill.

The delay in the passage of the Constitution Amendment Bill implies that India’s indirect tax system will continue to remain mired in multi-layered taxes levied by the Centre and state governments at different stages of the supply chain such as excise duty, octroi, central sales tax (CST), value-added tax (VAT) and octroi tax, among others.

Under GST, the Centre and states will tax goods and services at identical rates. For instance, if 20% is the agreed rate on a certain good, the Centre and states will collect 10% each, called the CGST and SGST rates. The delay will likely cause other consequences as well, since states would not be able to decide on the tax rates until the Bill is passed.

The government has commissioned Delhi-based think-tank National Institute of Public Finance and Policy to work out the GST rates that will not bring down either the states’ or Centre’s existing revenue levels. Separately, a panel headed by the chief economic adviser Arvind Subramanian is also looking into what could be the possible revenue neutral rates.

Revenue-neutral rates, as these are called in technical parlance, have been a bone of contention between states and the Centre, with the state governments pressing for higher rates as a hedge against lower tax earnings after migrating to GST. The Bill has not specified the rate, which will be decided by a GST Council headed by the central finance minister with state finance minister as members.

Pending the passage of the Bill, the Council cannot be formed and rates cannot be decided. In addition, it is also imperative to have a robust country-wide information technology (IT) network and infrastructure to make the implementation seamless across state boundaries.

The IT network is still work in progress, which was to be tested in the run-up to April 1, 2016, before its final roll out. This exercise cannot take place and glitches ironed ahead of implementation unless the Bill is passed and GST rates on specific goods and services are decided.

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Life insurance is not an investment. Period.

Comparing insurance and investments and trying to pick either of two (or combining them) – is one of the biggest reasons why most people are unable to:

  1. Save enough
  2. Invest properly 
  3. Have an adequate insurance coverage

I assume that most of you know that you need to keep insurance and investments separate – i.e. its always about Insurance Vs Investment.

But if you have your doubts, then read on.

Any well thought out financial plan should include the following:

And one should not try to mix the three.

But unfortunately, the lines that differentiate between insurance, savings and investments are often blurred.

In India, insurance plans that double up as investments are extremely popular. So apart from the life cover that is available during the policy tenure, there are endowment policies that return a lump sum at maturity. Then there are Money-back policies that offer regular payouts at fixed policy intervals and one final payout at maturity. And there are hundreds of variants of these two popular insurance products.

But people buying an endowment plan or a money back policy don’t understand that they are not getting the best of both worlds by buying a hybrid product (that combines insurance with investments).

Instead, they are getting a product that is neither a good investment nor a good insurance.

Ofcourse, it is convenient to have just one product that takes care of everything.

But convenience should not result in sacrifice of the very reason why the product is being purchased returns (for investment) and cover (for insurance).

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At 26, Kumar was the most prudent person I had ever met. He had a fantastic career graph, with a wonderful wife and two kids at the personal front. Like any other family man, he bought a term insurance to secure his family in his absence. After the birth of his second child, he also bought a comprehensive family floater health insurance. Armed with both these policies, he was confident that his family would always remain safe and secure in case of any emergency.

However, life is unpredictable and takes uneven turns when you least expect. One day while going to the office, his motorcycle collided with a car coming from the other side. The accident left him incapacitated for next six months. While his health insurance policy took care of hospitalization expenses, he had to dig into his savings to meet household expenses. As he was alive, his term insurance also did not help him. Suddenly, reality struck him hard and made him think, is there anything he could have done to avoid the current situation?

There are many people like Kumar for whom coverage means taking health and term insurance policies only. While you may bank on your term insurance in case of death and health insurance in case of medical emergency, you can depend on your personal accident policy in case of any disability.  

What it covers

  1. Accidental death: In the case of death of the policyholder during the policy tenure, the nominee gets the sum insured as mentioned in the policy document.
  2. Permanent total disablement: If due to an accident, the policyholder has a permanent or total loss of limbs, sights or any other disability, he/she will be paid the sum insured.
  3. Reimbursement of accidental hospitalization expenses: In the case of a minimum 24 hours hospitalization following an injury, the policyholder can approach the insurer to compensate for the hospitalization expenses.
  4. Accidental hospital daily allowance: Some insurers give a per day allowance for each day of hospitalization to cover expenses like food, transport, etc.
  5. Additional features: Along with the traditional benefits, personal accident policies also offer additional benefits like:
  • Child education benefits
  • Legal and education benefits
  • Injury arising due to terrorism activities

How much cover is recommended?

As an accident or disability causes financial losses, therefore, the extent of cover should be able to:

  • Maintain the family’s current financial situation
  • Deal with financial goals
  • Cover expenses, like home treatment, physiotherapy, etc.

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