RBI allows transfer from NRO to NRE account 3: Procedures for Transferring funds (http://nareshco.com/blog/?p=454 on 3rd Aug 2012))

A lot of NRIs have shown interest in transferring funds from NRO to NRE since the notification came out on May 7, 2012. However, very few have actually transferred funds. This is mainly due to the lack of awareness or experience in newly issued notification in case of NRIs, Banks as well as Chartered Accountants. Additionally, most of the queries from NRIs have been for the procedural aspects only.

After successfully helping my clients in transferring funds from NRO to NRE,  based on my experience, I have summarized the procedures in 4 simple steps as follows:

1. Obtain Chartered Accountant (CA) Certificate in Form 15CB

• Select and Consult a Chartered Accountant
• Explain your situation
• Provide documentation/explanations
• CA will verify the source of funds and whether income tax is deducted and/or paid
• On verification, CA will issue certificate in the prescribed Form 15CB

2. Submit Form 15CA online

• Access www.tin-nsdl.com
• Click “Services” and then “Form 15CA”
• Read Guidelines and familiarize with Form 15CA requirement
• Click “Form 15CA (Online Filing)” in the Forms section
• Fill up all the information as required
• Click “Proceed”
• Please review the details and then confirm to upload the form electronically
• On Confirmation, the form is electronically submitted to the Income Tax Department
• Form 15CA with an Acknowledgement No. is generated
• Print and sign the form

3. Submit documents to Authorized Dealer/Bank where NRE accountis kept

• Form 15CA
• Form 15CB
• Check (cheque) or Demand Draft for the amount
• Request letter or Form as per respective bank’s requirement
• Complete any other document, requirement or formality

4. Transfer: On verification of submitted documents, Bank will process the transfer and credit NRE account.

Timing:
Obtaining CA certificate is the most important and most time consuming step. Each CA will have his/her own procedures to verify the source(s) of funds and whether source is tax exempt and/or income tax is paid. Once you complete Step # 1 (obtain CA certificate in Form 15CB), other steps could be completed within a day and mostly the same day.

Source:
The key thing in verifying the source is determining the sources of funds. For Example, if you have a NRO FD of 3 years maturing on July 31, 2012. Source of fund is not NRO FD matured on which TDS deducted but it consists of 1. Principal when FD was made in 2009 and 2. Interest on the Principal from 2009-2012. Interest on NRO FD is considered current income and is taxable in India. While TDS could be deducted on Interest (current income), it is also important to verify the source of Principal. The CA certificate includes verification of all sources of NRO funds.

Things to consider/remember:

1. Every bank’s process and procedure for transferring funds from NRO to NRE is different so it is advisable to inquire, know and understand the procedures of the bank with which you have NRE account.
2. Filing Form 15CA is very important as the form is electronically submitted to the Income Tax department. Any error could generate an inquiry from the Income Tax department.
3. As Part B of the Form 15CA is filled based on CA Certificate issued by the Chartered Accountant in the Form 15CB, experience of a Chartered Accountant in dealing with NRIs and issuing CA certificate especially for NRO to NRE transfer should also be considered.
4. Even though RBI issued the notification allowing transfer from NRO to NRE on May 7, 2012, there is still lack of awareness among bank employees of the procedures and/or requirements.  E.g.  Bank employees may not know the BSR code of their own branch and could take few hours to a day to respond. Please note that BSR code of bank branch is a basic requirement (more than 3 years old) for any remittance, irrespective of the purpose and to be included in #4 of the Form 15CB whereas this notification came out less than 3 months ago. So, it is important to work with a knowledgeable bank person or have someone to liaison with the bank and/or have patience.

In summary, Nothing should deter you from transferring your funds from NRO to NRE account. My advice is to transfer funds from NRO to NRE as soon as possible to enjoy 5 benefits and reduce tax drag with the help of your experienced Chartered Accountant.

Gilt Funds (Dated 1st Dec 2011 & 18th Apr 2012)

Greetings,

In context to our follow-up advice on investments in Gilt Funds on 1st Dec 2011 and Dynamic Bond Fund on 18th Apr 2012, we are recommending to continue holding these funds. They have delivered close to 13% CAGR till date.

For those holding them in dividend option must consider moving them to the growth option if the cash-flow from this investment is not required.

Alternately investments in IDFC & SBI Dynamic Bond Funds can also be considered for those with a investment view of a year or more, the return expectation on these investments should be 9-10% during this period.

For further details please write to vivek@wealthcare.net.in

Ulips are more expensive than MFs (BS 3rd Dec 2012)

NEHA PANDEY DEORASThe new marketing line amid insurance agents is “ unit- linked insurance plans ( ulips) are cheaper than MFs”. This argument is based on the expense ratio that mutual funds charge vis- a- vis Ulips. But ask a financial advisor and he will strongly advocate a mutual fund for investment purposes and a term plan for insurance. Even in terms of overall costs, an MF score. In September 2010, the Insurance Regulatory and Development Authority ( Irda) had issued guidelines for Ulips, aimed at capping the charges on the product, which in the first year could be as high as 100 per cent of the premium. The guidelines were a huge help for customers. In August 2012, the Securities and Exchange Board of India ( Sebi) introduced measures for the insurance sector. Sebi allowed funds with assets worth less than ₹ 100 crore to charge 3.12 per cent in expense ratio annually. This led many to believe that mutual funds have become expensive, compared with Ulips. Such a notion, however, might be misplaced. For one, Ulips levy more than one cost in the first five years of investment but MFs don’t. For another, Ulips charge under various heads such as premium allocation charge ( PAC), fund management charge ( FMC), policy administration charge, mortality charge, et al, while the MF only levies an expense ratio ( the fee charged by a fund house to manage and operate the fund). Therefore, despite a higher expense ratio, MFs work out cheaper than Ulips. Sumeet Vaid, founder and CEO of Freedom Financial Planner, says Ulips are expensive products and, hence, should not be used as an investment vehicle. While insurance plans are best for risk coverage, Vaid advises one to stick to MFs for investment needs. Sample this. HDFC SL Progrowth Flexi charges 7.50 per cent as PAC and 1.35 per cent as FMC in the first policy year. However, the plan does not levy any policy administration fee and mortality depends on the age to be insured. The cost of investment in the first year is 8.85 per cent ( excluding mortality). For instance, if you are paying apremium of ₹ 5 lakh for a ₹ 50 lakh cover, your cost of investment in the first year would be ₹ 44,250. The product levies a similar charge in the second year. However, in the third, fourth and fifth years, the charges decrease by two per cent. From the sixth year, the policies do not charge PAC but a policy administration fee is charged at ₹ 6,000 per annum or 1.2 per cent, whichever is lower. FMC continues to be levied at 1.35 per cent every year. Similarly, Aegon Religare iMaximize Plan does not levy a PAC but it charges a policy admin fee of ₹ 1,200 a year and FMC of 1.35 per cent annually in the first five policy years. Taking the above example, the cost of investment would be ₹ 7,950 yearly ( FMC of ₹ 6,750 + ₹ 1,200). This is besides mortality fee, which increases with age. Five years of investment is considered because the lock- in period for Ulips is five years. Bajaj iGain III is an even more expensive product. It levies a PAC of two per cent, FMC of 1.35 per cent, and varied policy admin fees. In the first year, the investment cost would be ₹ 17,134. In the second year, the cost is ₹ 17,153, in the third year ₹ 17,173, and so on. This excludes mortality fee. We assume the investor will stay invested throug the policy term. However, if the investor wants to discontinue the policy, there are charges for that as well. All the three policies mentioned above charge six per cent of the annual premium or fund value not exceeding ₹ 6,000 in the first four policy years. In comparison, HDFC Top 200 ( an equity diversified mutual fund scheme) levies only 2.87 per cent of the investment as expense ratio. For an investment of ₹ 5 lakh, the scheme would deduct ₹ 14,350. Birla SunLife Equity ( an equity diversified mutual fund scheme) charges 3 per cent annually, or ₹ 15,000, and DSP Equity charges between 2.59 per cent and 2.85 per cent in the first five years of investment. That is, between ₹ 12,950 and ₹ 14,250. Here, 0.5 per cent has been added to the historical expense ratios, because the expense ratios are likely to go up on the back of the new regulations. While mutual funds can give 10- 12 per cent annually, financial planners say Ulips mostly give seven- eight per cent annually if you have invested only in equity schemes. Take your pick. Mutual funds 0.5% has been added to historical ratios as expense ratios are likely to go up due to new regulations HDFC BSL DSP Top 200 Frontline Equity  Year 1 2.87 3.00 2.85 Year 2 2.69 3.00 2.88 Year 3 2.70 3.00 2.79 Year 4 3.00 3.00 2.61 Year 5 2.40 2.85 2.59 BREAK- UP OF PLANS ( in ₹) Premium Fund mgmt Policy allocation charge charge administration charge Discontinuance/ Surrender charge HDFC SL Progrowth Flexi Year 1 7.50% 1.35% Nil Lower of6% * annual premium or fund value or notexceeding 6,000 Year 2 7.50% 1.35% Nil Lower of4% * annual premium or fund value or notexceeding 5,000 Year 3 5% 1.35% Nil Lower of3% * annual premium or fund value or notexceeding 4,000 Year 4 5% 1.35% Nil Lower of2% * annual premium or fund value or notexceeding 3,000 Year 5 5% 1.35% Nil Nil Year 6+ Nil 1.35% 6ka year or 1.2%, p. a. whichever is lower Aegon Religare iMaximize Plan Year 1 Nil 1.35% 1,200 a year Lower of6% * annual premium or fund value or notexceeding 6,000 Year 2 Nil 1.35% 1,200 a year Lower of4% * annual premium or fund value or notexceeding 5,000 Year 3 Nil 1.35% 1,200 a year Lower of3% * annual premium or fund value or notexceeding 4,000 Year 4 Nil 1.35% 1,200 a year Lower of2% * annual premium or fund value or notexceeding 2,000 Year 5 Nil 1.35% 1,200 a year Nil Year 6+ Nil 1.35% p. a. 1,200 a year Bajaj iGain 3 Year 1 2% 1.35% 384 a year Lower of6% * annual premium or fund value or notexceeding 6,000 Year 2 2% 1.35% 403 a year Lower of4% * annual premium or fund value or notexceeding 5,000 Year 3 2% 1.35% 423 a year Lower of3% * annual premium or fund value or notexceeding 4,000 Year 4 2% 1.35% 444 a year Lower of2% * annual premium or fund value or notexceeding 2,000 Year 5 2% 1.35% 467 a year Nil Year 6+ 0% 1.35% 490 a year

Deduction in respect to interest on deposits in savings accounts (u/s 80 TTA)

The following Part CA, consisting of section 80TTA, shall be inserted after Part C of Chapter VI-A by the Finance Act, 2012, w.e.f. 1-4-2013 :

CA.—Deductions in respect of other incomes

Deduction in respect of interest on deposits in savings account.

80TTA. (1) Where the gross total income of an assessee, being an individual or a Hindu undivided family, includes any income by way of interest on deposits (not being time deposits) in a savings account with—

 (a) a banking company to which the Banking Regulation Act, 1949 (10 of 1949), applies (including any bank or banking institution referred to in section 51 of that Act);

 (b) a co-operative society engaged in carrying on the business of banking (including a co-operative land mortgage bank or a co-operative land development bank); or

 (c) a ^17aPost Office as defined in clause (k) of section 2 of the Indian Post Office Act, 1898 (6 of 1898),

there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee a deduction as specified hereunder, namely:—

  (i) in a case where the amount of such income does not exceed in the aggregate ten thousand rupees, the whole of such amount; and

 (ii) in any other case, ten thousand rupees.

(2) Where the income referred to in this section is derived from any deposit in a savings account held by, or on behalf of, a firm, an association of persons or a body of individuals, no deduction shall be allowed under this section in respect of such income in computing the total income of any partner of the firm or any member of the association or any individual of the body.

Explanation.—For the purposes of this section, "time deposits" means the deposits repayable on expiry of fixed periods.

Analysis/Conclusion

The insertion of this new section has been a relief to individual or Hindu undivided family as interest on saving bank account was always a taxable income with no corresponding tax benefits. It would also help in avoiding inclusion of small savings bank interest in the taxable income, which was required to be done after deletion of section 80L.