Taxing the rich in a poor country

The much anticipated inheritance tax gave the country a miss one more year. And neither did the dreaded capital gains tax raise its head. The big changes for your money are at the fringes— both at the lower and the upper ends. The very rich in a very poor country will pay for their affluence. People earning more than Rs.1 crore will now see the surcharge on tax go up to 15% from 12% in the current financial year. For incomes over Rs.1.1 crore, the marginal rate of tax is now 35.54%. The dreaded dividend distribution tax (DDT) sees a return. For an annual dividend income ofRs.10 lakh or more, the investor will pay a DDT of 10%. This means that at an assumed dividend of 2-3%, an investor will need to have a portfolio of Rs.3.5-4 crore, to begin paying this tax. This is in addition to the 15% tax already applicable. An additional cess on vehicles will cost more—1% on small petrol, LPG and CNG cars; 2.5% on diesel cars of certain capacity; and 4% on other higher engine capacity vehicles and SUVs. Get ready to pay tax at the point of purchase for luxury cars. Such cars costing more than Rs.10 lakh will cost you 1% of the car value. Buying stuff in cash that costs more than Rs.2 lakh? Pay 1% of your spend as tax at the point of sale. Worry if this cash was out of the tax net, for the government looks serious in identifying who you are.

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Why you should worry about who is heading Sebi

The government has extended U.K. Sinha’s tenure as chairman of the Securities and Exchange Board of India (Sebi) until 1 March 2017 “or until further orders, whichever is earlier”. The decision came two days before Sinha finished a five-year tenure at the capital market regulator.

An earlier announcement would have helped this important institution maintain momentum in its policy- and decision-making process. Nevertheless, the extension means that Sinha has another year to leave Sebi in far greater shape than it was in when he took the helm.

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Medical insurance strategies for the not-so-young

An old-but-young-at-heart aunt struggles with her medical insurance. Single at 65, she has a basic Rs.3-lakh medical cover, but I’m scaring her silly with my stories of what it costs to even breathe in the air of the new temples of mass affluent Indians—the five-star hotel-hospitals. I’m a several surgeries battle-scarred survivor of the system, having taken assorted family members to various hospitals over the years. At my aunt’s age, a fresh cover for the next Rs.7 lakh costs a bomb, not that it is easy to get the cover. I spoke to a few planners about strategies for people on the other side of 50, who are sitting on small covers of under Rs.3 lakh and live in a mega metropolis where medical costs are sky high.

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NPS is a good product that lives in a bad market

It is a pattern now. Whether it is at a committee meeting or a conference where retail financial products are being discussed, the example of the National Pension System (NPS) keeps coming up to substantiate the argument that lobbyists make in favour of front-end incentives in retail financial products. Their argument goes like this: you can have the best product but unless there is an upfront commission, it will remain on the shelf. Look at the NPS, it has the best product structure, but retail participation is not there; it has failed. I’m always amazed by this argument. Because this is not the failure of the NPS, but of the market place. The ‘fault’ of the NPS is this: it is a good product in a bad market. I made this argument at the Second Pension Conclave organised by the pension regulator last week in Delhi.

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Can NPS be advertised as ‘safe’ when ETFs cannot?

The pension regulator got a bit of a beating last week on Twitter. The chatter was around a National Pension System (NPS) advertisement issued by the regulator calling a market-linked product “safe”. The ad, which can be seen here: http://mintne.ws/1SVoozI , calls the NPS a “safe retirement fund”. The anger, predominantly in the mutual fund space, is around allowing a market-linked product to advertise itself as ‘safe’, when half the money of an investor can be invested in an actively managed portfolio of stocks. The Pension Fund Regulatory and Development Authority (PFRDA) may have been closer to the word ‘safe’ before 10 September 2015 (http://mintne.ws/1NObGeq ) when NPS funds could be invested only in exchange-traded funds (ETFs) that mimic broad market indices like the S&P BSE Sensex and CNX Nifty, but now that they can actively manage stocks, it is not just market risk but fund manager risk that they face. At a time when the capital market regulator—so say some newspaper reports—is considering adding the words “fund manager risk” to market risk in its disclaimer, this PFRDA ad is causing heartburn.

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