Global income must be reported in returns

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I worked for an international NGO headquartered in the US from 2008 to 2018 with an H-1B visa, but was based in India. My salary in dollars was received in my bank in India each month. Social security income tax were deducted proportionately for the days I worked in the US physically (which was about three to four weeks each year), I also received contributions from the employer to a retirement fund (403b), which was invested in a mutual fund. The accumulated fund has now been processed for withdrawal after deducting 10% of the proceeds towards income tax. India the US have signed a double taxation avoidance agreement (DTAA). So, what will be my additional tax liability for the amount I have received? I am retired my main income is interest from my savings, with occasional consultancy fees.

—Ravi Duggal

You have been in India since 2018 and, therefore, it is likely that you are resident in India for tax purposes. As a person who is resident in India, you are required to report your global income in your tax return to be filed in India. Do note that residential status must be determined for each financial year in question.

NRIs who return to India after spending significant time abroad on a job face difficulties with receiving money from retirement accounts. This may be due to differences in tax policy between countries. It causes a great deal of frustration to NRIs who later become residents report retirals receipts in Indian tax returns.

The government had announced in the Budget of 2021 that rules to remove this hardship will be announced.

Meanwhile, you should report your retirals in your income tax return in India as you are resident in India for tax purposes. Benefits under the DTAA shall be available to you; this will make sure that you do not have to pay tax on the same income twice.

Archit Gupta is founder chief executive officer, ClearTax.

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A simple formula to check your life insurance needs

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In general, the ideal life insurance policy amount can be calculated by considering your long-term financial obligations.

Need for life insurance: The universal rule is that if you have a family that depends on you financially, you certainly need life insurance. “If you happen to be the only employed person in your family are maintaining your family’s current lifestyle, taking care of the spouse repaying debts, you need to have a life insurance policy to maintain their quality of life for the foreseeable future,” said Sajja Praveen Chowdary, head – term life insurance, Policybazaar.com. “A dependent could be your spouse, children or elderly parents or any relative who depends on you financially,” Chowdary added.

The DIME formula: DIME, which stands for debt, income, mortgage education, is a formula that can take care of an individual’s specific insurance needs by taking a detailed look at his/her finances.

Debt, income, mortgage education are the primary areas you should consider while calculating your life insurance needs. The fundamental objective of using the formula is to ensure that insurance coverage is adequate to provide for the needs of dependents in case of the early death of the sole breadwinner.

Parag Raja, managing director chief executive officer, Bharti AXA Life Insurance, said it is vital to consider DIME buy life insurance, as the claim money can help replace the breadwinner’s income, enable the family to meet day-to-day expenses maintain the lifestyle even if it will not replace the loss of the person.

“The claim money can help pay off existing loans (home, car more) outstanding debt. The money can also help pay for pre-empted future costs such as educational expenses of children. Owing to the customers’ evolving needs amid the pandemic, it is prudent to select a protection cover that includes a large life cover,” said Raja.

Outstanding debts: It is important to consider how much debt would you leave behind upon your death. Outstanding debts can be damaging to your family’s livelihood if they are not properly accounted for.

“If you have substantial debt, be sure to include it into your life insurance calculation so that your family has enough coverage to pay your debts off. For instance, you can start by adding all your debts such as car loan (say about 15 lakh) home loan (say about 1 crore). In the given scenario, your family would be left with a debt of 1.15 crore upon your demise. Considering this amount, you would need life insurance with at least 1.5 crore sum assured to repay debts maintain the property,” said Chowdary.

Income evaluation: One of the most significant needs for life insurance is income replacement. The next step is evaluating your annual income by simply calculating how much money your family needs to sustain the current standard of living. This is extremely important when you have a non-working spouse children who are entirely dependent on your income.

Based on your earnings, your family’s needs, you can figure out the number of years your family might need financial support in your absence multiply your yearly income by the number.

Mortgage calculation: Another reason that necessitates the purchase of life insurance is having enough money to securely keep your family in your home. While buying a house, it’s common to sign up for a 20 or 30 years’ mortgage.

However, if you die before paying your mortgage loan fully, your life insurance policy should pay off the balance of your mortgage loan.

Churchil Bhatt, executive vice-president, debt investments, Kotak Mahindra Life Insurance, said, “Home loan equated monthly instalments generally leave a large dependency on the borrower’s future income. If you take a large home loan, it is best to take an insurance cover. In the case of existing life insurance, the life cover may be increased to include the loan amount. This way, it will ensure that your family is not burdened with unaffordable debt if something happens to you. The additional cover amount may be adjusted periodically to match the outstanding principal amount of the residual home loan to optimize premium.”

Education estimation: For the last step, add up the estimated amount of education cost that would be needed to send your children to college for higher studies.

You will need to consider buying life insurance that would cover some or all of their graduations costs.

“Aim to have a death benefit that includes fees, room rent books. So, you should budget a minimum of 20 lakh per child for a four-year university education,” said Chowdary.

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Here’s how retail investors can buy G-Secs directly from RBI

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In February this year, the Reserve Bank of India (RBI) had said that it would allow retail investors to directly buy sell government securities (G-Secs) on its platform. Through RBI’s Retail Direct scheme, an investor would be able to bid in G-Secs auctions buy them in the secondary market as well.

On Monday, the central bank issued details of the scheme. According to the notification, retail investors will need to open maintain a Retail Direct Gilt Account (RDG Account) with RBI to access its G-Sec platform.

No fee will be charged for opening maintaining The RDG Account.

Investors can open the account through an online portal (RBI Retail Direct portal) meant for retail investors. RBI is yet to give details of the portal.

Using the portal, Retail investors can access the auctions the NDS-OM platform — the RBI platform for buying selling G-Secs other money market instruments in the secondary market.

RBI is yet to launch the scheme. According to the notification, “the date of commencement of the scheme will be announced at a later date”.

SECURITIES AVAILABLE FOR TRADE

Once the scheme is launched, retail investors can buy sell Treasury Bills, G-Secs, Sovereign Gold Bonds State Development Loans.

ELIGIBILITY

To open an RDG Account, a retail investor should have a savings bank account, PAN (Permanent Account Number), KYC (Know Your Customer) documents, a valid email address a mobile number. The RDG account can be held either by one person or jointly.

Only those non-residents retail investors eligible to invest in G-Secs will be allowed to open the RDG Account.

PROCEDURE

After registering on the online portal, retail investors will need to authenticate themselves by using OTP (one-time password) received on their registered mobile number email address. They will need to submit the KYC document to open the RDG Account.

BUYING AND SELLING

During the bidding, the participation allotment of securities will be as per the non-competitive bidding scheme of the RBI. The regulator has designed the non-competitive bidding scheme for non-institutional small buyers.

Once investors make the payments, RBI will credit the securities to their RDG Accounts.

To buy sell securities in the secondary market, the procedure is similar to buying selling of shares.

Before the start of trading hours or during the day, the investor must transfer funds to the designated account of CCIL (Clearing corporation of NDS-OM) online.

Based on actual transfer, a funding limit (buying limit) will be given to the investor for placing ‘buy’ orders. At the end of the trading session, any excess funds will be refunded.

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For investors, gold mutual funds are a better option than sovereign gold bonds

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The new issue of Sovereign Gold Bonds (SGBs) will open on 12 July at 4,807 per gram. SGBs are an excellent product for gold buyers. But for investors, it may not make much sense.

“Investors who have a portfolio with an allocation to different asset classes should avoid SGBs. They should look at either gold exchange-traded funds (ETFs) or gold funds,” said Malhar Majumder, a Kolkata-based mutual fund distributor partner, Positive Vibes.

According to Majumder, it’s easier for investors to maintain asset allocation using gold mutual funds than SGBs. “Suppose investors want to rebalance portfolios because gold prices have run-up. They want to reduce the asset allocation to the precious metal. In the case of SGBs, they would need to them in the secondary market. The secondary market has its problems – it’s not liquid. Investors could end up selling at a loss. Gold ETFs gold bonds are more efficient when it comes to portfolio rebalancing,” he said.

According to him, SGBs work for those who want to buy gold in the future for an event like children’s weddings. Instead of buying physical gold storing it in lockers, such individuals can use SGBs. The product will allow them to buy “paper” or “electronic” gold at prevailing prices in small quantities. On maturity of SGBs, close to the event, they can purchase physical gold.

“Buying small quantities of physical gold for son’s or daughter’s wedding is expensive. If an individual buys jewellery years before the event, the design could be outdated. If someone buys bars or coins, there will be storage costs making charges. The person will give making charges when buying bars or coins, also when they are offered in exchange for jewellery,” said Majumder.

So, if you are buying gold as portfolio investments, stick to mutual funds. Use SGBs as a replacement for physical gold for a future event.

(Do you have personal finance queries? Send them to [email protected] get them answered by industry experts)

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Should you buy sovereign gold bonds from secondary market?

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NEW DELHI: The fourth issue of sovereign gold bond 21-22 has opened for subscription on Monday. The issue has been priced at 4,807 per unit while there is a discount of 50 for those purchasing online.

The current issue price of gold bond is calculated based on the average price of the last three business days of the week preceding the issue week. The price of gold of 999 purity is taken as declared by Indian Bullion Jewellers Association. Every issue of gold bond must be listed on the stock exchange within 15 days of the closing of the issue.

However, if you compare the price of the previously listed bonds with the current gold price, you will see some of the bonds are trading at a discount ranging between 1% 3% while it may go up or down depending on the demfor the gold bonds. Apart from the demand, gold bonds are thinly traded, the discounts are basically the cost of providing liquidity or exit to the seller.

“Sovereign gold bonds of previous issues are trading at a discount in the secondary market because of the downward trend being witnessed in gold prices,” said Sugandha Sachdeva, vice president, commodity currency research, Religare Broking Ltd.

“At present, gold prices are almost 14 percent down from their record highs, marked in early August 2020 amid the overall ‘risk-on’ sentiments in the global as well as domestic markets, which have dimmed the lure of safe haven asset-gold,” added Sachdeva.

Buying gold bonds from the secondary market

Buying gold bonds from the secondary market is a good idea as you don’t have to wait for the issue to open can spread your investments in a staggered manner. Also, you may get the bond at a discounted price. However, the discount may not be very high.

“The discount factor in the secondary markets provides another advantage as the trading volumes are quite thin. In case gold prices fall below their issue price, one can buy the same at a cheaper rate from the secondary markets keep the average purchase price low. Also, the investor gets an option to exit position in tits bits as when required as compared to the lock-in period of 5 years for redemption applicable for the primary issue,” said Sachdeva.

However, to buy gold bond from secondary market, you will need a demat account liquidity could be challenging. You may not be able to buy large quantities if you would want to. Also, one should be mindful of the taxation while buying selling gold bonds from the secondary market. The capital gains on maturity are tax-free while in case you sell the bonds on exchange, gains will be taxed at the rate of 10% with indexation after three years of holding while if bonds are sold before three years, the gains will be added to the income of the investor taxed as per the slab rate of the investor.

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